<PAGE> 1
As filed with the Securities and Exchange Commission
on April 29, 1996
Registration No. 33-42927; 811-6419
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
[X]
Post-Effective Amendment No. 24
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 25 [X]
(Check appropriate box or boxes)
--------------------------------
STAGECOACH FUNDS, INC.
(Exact Name of Registrant as specified in Charter)
111 Center Street
Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)
--------------------------------
Registrant's Telephone Number, including Area Code: (800) 458-6589
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With a copy to:
Robert M. Kurucza, Esq.
Marco E. Adelfio, Esq.
Morrison & Foerster LLP
2000 Pennsylvania Ave., N.W.
Washington, D.C. 20006
It is proposed that this filing will become effective (check appropriate box):
[X] Immediately upon filing pursuant [ ] on _________ pursuant
to Rule 485(b), or to Rule 485(b)
[ ] 60 Days after filing pursuant [ ] on _________ pursuant
to Rule 485(a)(1), or to Rule 485(a)(1)
[ ] 75 days after filing pursuant [ ] on ___________pursuant
to Rule 485(a)(2), or to Rule 485(a)(2)
<PAGE> 2
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has registered an indefinite number of shares of its Common
Stock, $.001 par value, under the Securities Act of 1933, pursuant to Rule
24f-2 under the Investment Company Act of 1940, as amended. The Rule 24f-2
Notice for the fiscal year ending December 31, 1995, was filed with the
Securities and Exchange Commission on February 29, 1996.
This Post-Effective Amendment to the Registrant's Registration Statement also
has been executed by Master Investment Trust (a registered investment company
with separate series in which certain series of the Registrant will invest
substantially all of its assets) and its trustees and principal officers.
<PAGE> 3
EXPLANATORY NOTE
This Post-Effective Amendment No. 24 to the Registration Statement
(the "Amendment") of Stagecoach Funds, Inc. (the "Company") is being filed to
add to the Company's Registration Statement the audited financial statements
and certain related financial information for the year ended December 31, 1995
for the Company's California Tax-Free Bond, California Tax-Free Income,
Diversified Income, Ginnie Mae, Growth and Income, Money Market Mutual (Class
S) and Short-Intermediate U.S. Government Income Funds and to make certain
non-material changes to the prospectuses and statements of additional
information of such Funds and the Company's Aggressive Growth and Corporate
Stock Funds. This Amendment does not affect the Registration Statement for the
Company's Asset Allocation, California Tax-Free Money Market Mutual, Money
Market Mutual (Class A), National Tax-Free Money Market Mutual and U.S.
Government Allocation Funds.
<PAGE> 4
Cross Reference Sheet
AGGRESSIVE GROWTH FUND
CORPORATE STOCK FUND
DIVERSIFIED INCOME FUND
GROWTH AND INCOME FUND
Form N-1A Item Number
Part A Prospectus Captions
1 Cover Page
2 Prospectus Summary; Summary of Fund Expenses
3 Financial Highlights
4 The Fund, the Master Portfolio and Management; Prospectus Appendix
5 How the Fund Works; The Fund, the Master Portfolio and
Management; Management, Distribution and Servicing Fees
6 The Fund, the Master Portfolio and Management; Investing in the Fund
7 Investing in the Fund; Dividends; Taxes; Additional Shareholder Services
8 How to Redeem Shares
9 Not Applicable
Part B Statement of Additional Information Captions
10 Cover Page
11 Table of Contents
12 Introduction
13 Investment Restrictions; Portfolio Transactions
14 Management
15 Management
16 Management; Distribution Plan; Servicing Plan
Independent Auditors
17 Portfolio Transactions
18 Capital Stock; Other
19 Determination of Net Asset Value
20 Federal Income Tax
21 Distribution Plan
22 Calculation of Yield and Total Return
23 Financial Information
Part C Other Information
24-32 Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of this Document.
<PAGE> 5
LOGO
------------------------------
PROSPECTUS
------------------------------
AGGRESSIVE GROWTH FUND
CORPORATE STOCK FUND
DIVERSIFIED INCOME FUND
GROWTH AND INCOME FUND
April 29, 1996
<PAGE> 6
STAGECOACH FUNDS(R)
AGGRESSIVE GROWTH FUND
CORPORATE STOCK FUND
DIVERSIFIED INCOME FUND
GROWTH AND INCOME FUND
Stagecoach Funds, Inc. (the "Company") is an open-end series investment
company. This Prospectus contains information about four funds in the Stagecoach
Family of Funds - the AGGRESSIVE GROWTH, CORPORATE STOCK, DIVERSIFIED INCOME and
GROWTH AND INCOME FUNDS (each, a "Fund" and, collectively, the "Funds"). The
Funds, other than the Corporate Stock Fund, offer two classes of shares (each, a
"Class") - Class A Shares and Class B Shares. The Corporate Stock Fund offers a
single class of shares.
The AGGRESSIVE GROWTH FUND seeks to provide investors with an above-average
level of capital appreciation. The CORPORATE STOCK FUND seeks to approximate to
the extent practicable the total rate of return of substantially all of the
common stocks comprising the Standard & Poor's 500 Composite Stock Price Index.
The DIVERSIFIED INCOME FUND seeks to earn current income and a growing stream
of income over time, consistent with preservation of capital. The GROWTH AND
INCOME FUND seeks to earn current income and achieve long-term capital
appreciation by investing primarily in common stocks, and preferred stocks and
debt securities that are convertible into common stocks. The Aggressive Growth,
Diversified Income and Growth and Income Funds are sometimes referred to herein
as the "Multi-Class Funds."
THE AGGRESSIVE GROWTH FUND AND THE CORPORATE STOCK FUND EACH SEEKS TO ACHIEVE
ITS INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS ASSETS IN THE CAPITAL
APPRECIATION MASTER PORTFOLIO AND THE CORPORATE STOCK MASTER PORTFOLIO (EACH, A
"MASTER PORTFOLIO" AND COLLECTIVELY, THE "MASTER PORTFOLIOS"), RESPECTIVELY, OF
MASTER INVESTMENT TRUST (THE "MASTER TRUST"), AN OPEN-END MANAGEMENT INVESTMENT
COMPANY, RATHER THAN IN A PORTFOLIO OF SECURITIES. THE INVESTMENT EXPERIENCE OF
EACH OF SUCH FUNDS CORRESPONDS DIRECTLY TO THE INVESTMENT EXPERIENCE OF THE
CORRESPONDING MASTER PORTFOLIO IN WHICH IT INVESTS.
Please read this Prospectus and retain it for future reference. The Prospectus
sets forth concisely the information about the Funds that you should know before
investing and is designed to help you decide if the Funds' goals match your own.
Statements of Additional Information ("SAIs"), dated April 29, 1996 for the
Aggressive Growth, Corporate Stock and Diversified Income Funds and dated May 1,
1996 for the Growth and Income Fund have been filed with the Securities and
Exchange Commission ("SEC") and are incorporated by reference. The SAI for each
Fund is available free of charge by writing to Stagecoach Funds, Inc., c/o
Stagecoach Shareholder Services, Wells Fargo Bank, N.A., P.O. Box 7066, San
Francisco, CA 94120-7066, or by calling the Company at 1-800-222-8222. If you
hold shares in an IRA, please call 1-800-BEST-IRA (1-800-237-8472) for
information or assistance.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, WELLS FARGO BANK, N.A. ("WELLS FARGO BANK"), BZW
BARCLAYS GLOBAL INVESTORS, N.A. OR ANY OF THEIR AFFILIATES. SUCH SHARES ARE NOT
INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
PROSPECTUS DATED APRIL 29, 1996
PROSPECTUS
<PAGE> 7
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND PROVIDES CERTAIN OTHER SERVICES
TO THE FUNDS AND THE MASTER PORTFOLIOS, FOR WHICH IT IS COMPENSATED. BZW
BARCLAYS GLOBAL FUND ADVISORS ("BGFA") IS SUB-ADVISER TO THE CORPORATE STOCK
MASTER PORTFOLIO. BZW BARCLAYS GLOBAL INVESTORS, N.A. ("BGI") IS CUSTODIAN TO
THE CORPORATE STOCK FUND AND CORPORATE STOCK MASTER PORTFOLIO. STEPHENS INC.
("STEPHENS') WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, BGFA OR BGI, IS THE
SPONSOR, ADMINISTRATOR AND DISTRIBUTOR
FOR THE FUNDS.
PROSPECTUS
<PAGE> 8
TABLE OF CONTENTS
PROSPECTUS SUMMARY 1
SUMMARY OF FUND EXPENSES 5
FINANCIAL HIGHLIGHTS 10
Aggressive Growth Fund 11
Corporate Stock Fund 13
Diversified Income Fund 15
Growth and Income Fund 17
HOW THE FUNDS WORK 19
Investment Objectives and Policies 19
Aggressive Growth Fund 19
Corporate Stock Fund 21
Master/Feeder Structure -- The Capital Appreciation
and Corporate Stock Master Portfolios 22
Diversified Income Fund 24
Growth and Income Fund 25
THE FUNDS, MASTER PORTFOLIOS AND MANAGEMENT 27
INVESTING IN THE FUNDS 31
DIVIDENDS 42
HOW TO REDEEM SHARES 42
ADDITIONAL SHAREHOLDER SERVICES 47
MANAGEMENT, DISTRIBUTION AND SERVICING FEES 50
TAXES 54
PROSPECTUS APPENDIX - ADDITIONAL INVESTMENT POLICIES A-1
PROSPECTUS
<PAGE> 9
PROSPECTUS SUMMARY
The Funds provide you with a convenient way to invest in a portfolio of
securities selected and supervised by professional management. The following
provides you with summary information about the Funds. For more information,
please refer specifically to the identified Prospectus sections and generally to
the Prospectus and SAI for each Fund.
Q. WHAT ARE THE FUNDS' AND THE MASTER PORTFOLIOS' INVESTMENT OBJECTIVES?
A. The AGGRESSIVE GROWTH FUND seeks to provide investors with an above-average
level of capital appreciation. The Fund seeks to achieve this objective by
investing all of its assets in the Capital Appreciation Master Portfolio.
The Capital Appreciation Master Portfolio has the same investment objective
as the Fund. The Master Portfolio seeks to achieve its investment objective
through the active management of a broadly diversified portfolio of equity
securities of companies expected to experience strong growth in revenues,
earnings and assets. The Fund and Master Portfolio are designed to provide
above-average capital growth for investors willing to assume above-average
risk.
The CORPORATE STOCK FUND seeks to approximate to the extent practicable the
total rate of return of substantially all of the common stocks comprising
the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index"). The
Fund attempts to achieve this objective by investing all of its assets in
the Corporate Stock Master Portfolio of MIT which has an identical
investment objective. The Master Portfolio attempts to achieve this
objective by investing in most of the common stocks which comprise the S&P
500 Index.
The DIVERSIFIED INCOME FUND seeks to earn current income and a growing
stream of income over time, consistent with preservation of capital. It
pursues this objective by investing primarily in income-producing debt
instruments and equity securities, including common stocks, and preferred
stocks and debt instruments that are convertible into common stocks. Debt
instruments will include obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, high quality bonds and a
broad range of other debt instruments, such as bonds and other debt
securities of domestic companies, U.S. dollar-denominated debt obligations
of foreign issuers, including foreign corporations and foreign governments,
and various asset-backed securities. Common stocks will be selected on the
basis of strong earnings growth trend, above-average prospects for future
earnings growth and diversification among industries and companies.
Convertible securities will be selected on the basis of strong earnings and
credit record, the ability to provide current income and the characteristics
described above with respect to common stocks.
The GROWTH AND INCOME FUND seeks to earn current income and achieve
long-term capital appreciation by investing primarily in common stocks, and
preferred stocks and debt securities that are convertible into common
stocks. Common stocks will be selected on the basis of strong earnings
growth trend, above-average prospects
1 PROSPECTUS
<PAGE> 10
for future earnings growth and diversification among industries and
companies. Convertible securities will be selected on the basis of strong
earnings and credit record, the ability to provide current income and the
same characteristics described above with respect to common stocks.
As with all mutual funds, there can be no assurance that the Funds will
achieve their investment objectives. See "How the Funds Work" and
"Prospectus Appendix - Additional Investment Policies" for further
information on investments.
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the Funds' and the Master Portfolios' investment
adviser, manages your investments. Wells Fargo Bank provides transfer and
dividend disbursing agency services to the Funds and serves as custodian to
the Aggressive Growth, Diversified Income and Growth and Income Funds, and
Capital Appreciation Master Portfolio. In addition, Wells Fargo Bank is a
Shareholder Servicing Agent and a Selling Agent. BZW Barclays Global Fund
Advisors ("BGFA") serves as sub-adviser to the Corporate Stock Master
Portfolio. BZW Global Investors, N.A. ("BGI") serves as custodian to the
Corporate Stock Fund and Corporate Stock Master Portfolio. See "The Funds
and Management" and "Management, Distribution and Servicing Fees."
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF
INVESTMENT?
A. An investment in a Fund or Master Portfolio is not insured against loss of
principal. When the value of the securities that a Fund or Master Portfolio
owns declines, so does the value of your shares of the Fund. Therefore, you
should be prepared to accept some risk with the money you invest in the
Funds. The portfolio equity securities of the Funds and Master Portfolios
are subject to equity market risk. Equity market risk is the risk that
common stock prices will fluctuate or decline over short or even extended
periods. The portfolio debt instruments of the Funds and Master Portfolios
are subject to credit and interest rate risk. Credit risk is the risk that
issuers of the debt instruments in which the Funds and Master Portfolios
invest may default on the payment of principal and/or interest. Interest
rate risk is the risk that increases in market interest rates may adversely
affect the value of the debt instruments in which the Funds and Master
Portfolios invest and hence the value of your investment in a Fund. The
Capital Appreciation Master Portfolio and the Growth and Income Fund may
invest a significant portion of their respective assets in securities of
smaller and newer issues. Investments in such companies may present
opportunities for capital appreciation because of high potential earnings
growth, but may present greater risks than investments in more established
companies with longer operating histories and greater financial capacity. As
with all mutual funds, there can be no assurance that the Funds or Master
Portfolios will achieve their investment objectives.
Q. HOW DO I INVEST?
A. You may invest by purchasing shares of the Funds at their public offering
price, which is the net asset value ("NAV") plus any applicable sales
charge. Class A Shares are subject to a maximum front-end sales charge of
4.50%. Class B Shares that
PROSPECTUS 2
<PAGE> 11
are redeemed within four years of purchase are subject to a maximum
contingent deferred sales charge of 3.00% of the lesser of NAV at purchase
or NAV at redemption. Shares of the Corporate Stock Fund are not subject to
front-end or contingent deferred sales charges. In some cases, such as for
investments by certain fiduciary or retirement accounts, the front-end sales
charge may be waived. In other cases, the front-end sales charge may be
reduced. You may open an account by investing at least $1,000 and may add to
your account by making additional investments of at least $100, although
certain exceptions to these minimums may be available. Shares may be
purchased by wire, by mail or by an automatic investment feature called the
AutoSaver Plan on any day the New York Stock Exchange is open. See
"Investing in the Funds." For more details, contact Stephens (the Funds'
sponsor and distributor), a Shareholder Servicing Agent or a Selling Agent
(such as Wells Fargo Bank).
Q. HOW WILL I RECEIVE DIVIDENDS AND ANY CAPITAL GAINS?
A. The Corporate Stock, Diversified Income and Growth and Income Funds declare
dividends from net investment income quarterly. The Aggressive Growth Fund
declares dividends from net investment income annually. Dividends are
automatically reinvested in shares of the same class of the respective Fund
at NAV without a sales charge unless you elect to receive dividends in cash.
You may also elect to reinvest dividends in shares of certain other funds in
the Stagecoach Family of Funds with which you have an established account
that has met the applicable minimum initial investment requirement. Any
capital gains will be distributed at least annually in the same manner. The
net investment income available for distribution to holders of Class B
Shares will be reduced by the amount of the higher Rule 12b-1 Fee payable on
behalf of the Class B Shares. Class B Shares automatically convert into
Class A Shares of the same Fund six years after the end of the month in
which they were acquired. See "Dividends" and "Additional Shareholder
Services."
Q. HOW MAY I REDEEM SHARES?
A. You may redeem your shares by telephone, by letter or by an automatic
feature called the Systematic Withdrawal Plan on any day the New York Stock
Exchange is open for business. Contingent deferred sales charges may be
charged upon redemption of Class B Shares. The Company does not charge a
fee for redemption of shares of the Corporate Stock Fund or Class A Shares
of the other Funds. In addition, the Company reserves the right to impose
charges for wiring redemption proceeds. See "How To Redeem Shares" and "How
to Purchase Shares -- Contingent Deferred Sales Charges -- Class B Shares."
For more details, contact Stephens, a Shareholder Servicing Agent or a
Selling Agent (such as Wells Fargo Bank).
Q. WHAT ARE DERIVATIVES AND DO THE FUNDS USE THEM?
A. Derivatives are financial instruments whose value is derived, at least in
part, from the price of another security or a specified asset, index or
rate. Some of the permissible investments described in this Prospectus,
such as variable rate instruments which have an interest rate that is reset
periodically based on an index, can be
3 PROSPECTUS
<PAGE> 12
considered derivatives. Some derivatives may be more sensitive than direct
securities to changes in interest rates or sudden market moves. Some
derivatives also may be susceptible to fluctuations in yield or value due to
their structure or contract terms.
Q. WHAT STEPS DO THE FUNDS TAKE TO CONTROL DERIVATIVES-RELATED RISKS?
A. Wells Fargo Bank, as investment adviser to each Fund, uses a variety of
internal risk management procedures to ensure that derivatives use is
consistent with each Fund's investment objective, does not expose the Fund
to undue risks and is closely monitored. These procedures include providing
periodic reports to the Board of Directors concerning the use of
derivatives. Derivatives use by each Fund also is subject to broadly
applicable investment policies. For example, the Funds may not invest more
than a specified percentage of their assets in "illiquid securities,"
including those derivatives that do not have active secondary markets. Nor
may a Fund use certain derivatives without establishing adequate "cover" in
compliance with SEC rules limiting the use of leverage. For more information
on the Funds' investment activities, see "Prospectus Appendix - Additional
Investment Policies."
PROSPECTUS 4
<PAGE> 13
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
AGGRESSIVE(1) DIVERSIFIED GROWTH AND
GROWTH FUND INCOME FUND INCOME FUND
(CLASS A CORPORATE(1) (CLASS A (CLASS A
SHARES) STOCK FUND SHARES) SHARES)
<S> <C> <C> <C> <C>
Maximum Sales Charge
Imposed
on Purchase (as a
percentage
of offering price).... 4.50% None 4.50% 4.50%
Sales Charge Imposed
on Reinvested
Dividends........... None None None None
Maximum Sales Charge
Imposed
on Redemptions........ None None None None
Exchange Fees........... None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
AGGRESSIVE(2) DIVERSIFIED GROWTH AND
GROWTH FUND INCOME FUND INCOME FUND
(CLASS A CORPORATE(2) (CLASS A (CLASS A
SHARES) STOCK FUND SHARES) SHARES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee............. 0.50% 0.50% 0.50% 0.50%
Rule 12b-1 Fee............. 0.10% 0.05% 0.05% 0.05%
Other Expenses
Shareholder Servicing
Fee
(after waivers or
reimbursements)(3)... 0.25% 0.30% 0.28% 0.30%
Administrative Fee..... 0.03% 0.03% 0.03% 0.03%
Miscellaneous Expenses
(after waivers or
reimbursements)(3)... 0.40% 0.08% 0.24% 0.30%
----- ----- ----- -----
Total Other Expenses (after
waivers or
reimbursements)(3)....... 0.68% 0.41% 0.55% 0.63%
----- ----- ----- -----
TOTAL FUND OPERATING
EXPENSES (after waivers
or reimbursements)(3).... 1.28% 0.96% 1.10% 1.18%
</TABLE>
- -------------------------------
<TABLE>
<C> <S>
(1) Other mutual funds may invest in the Capital Appreciation and Corporate
Stock Master Portfolios. Such other funds' expenses and, accordingly,
investment returns may differ from those of the corresponding funds.
(2) Summarizes expenses charged at the Master Portfolio level as well as at
the Fund level.
(3) Absent waivers and reimbursements, the percentages shown above under
"Miscellaneous Expenses," "Total Other Expenses" and "Total Fund
Operating Expenses" would be 0.52%, 0.80% and 1.40%, respectively, for
the Class A Shares of the Aggressive Growth Fund and 0.12%, 0.45% and
1.00%, respectively, for the shares of the Corporate Stock Fund. Absent
waivers and reimbursements, the percentages shown above under
"Shareholder Servicing Fees," "Miscellaneous Expenses," "Total Other
Expenses" and "Total Fund Operating Expenses" would be 0.30%, 0.43%,
0.76% and 1.31%, respectively, for the Class A Shares of the Diversified
Income Fund. Absent waivers and reimbursements, the percentages shown
above under "Miscellaneous Expenses," "Total Other Expenses" and "Total
Fund Operating Expenses" would be 0.33%, 0.66% and 1.21%, respectively,
for the Class A Shares of the Growth and Income Fund.
</TABLE>
5 PROSPECTUS
<PAGE> 14
<TABLE>
<CAPTION>
EXAMPLE OF EXPENSES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment in shares of a Fund,
assuming (A) a 5% annual return and (B)
redemption at the end of each time period
indicated:
Aggressive Growth Fund (Class A
Shares)................................ $ 57 $84 $ 112 $193
Corporate Stock Fund................... $ 10 $31 $ 53 $118
Diversified Income Fund (Class A
Shares)................................ $ 56 $78 $ 103 $173
Growth and Income Fund (Class A
Shares)................................ $ 56 $81 $ 107 $182
</TABLE>
PROSPECTUS 6
<PAGE> 15
SHAREHOLDER TRANSACTION EXPENSES
FOR CLASS B SHARES
<TABLE>
<CAPTION>
AGGRESSIVE(1) DIVERSIFIED GROWTH AND
GROWTH FUND INCOME FUND INCOME FUND
<S> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchase (as a
percentage
of offering price)....... None None None
Sales Charge Imposed
on Reinvested
Dividends................ None None None
Maximum Sales Charge Imposed
on Redemptions*............ 3.00% 3.00% 3.00%
Exchange Fees................ None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
FOR CLASS B SHARES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
AGGRESSIVE(2) DIVERSIFIED GROWTH AND
GROWTH FUND INCOME FUND INCOME FUND
<S> <C> <C> <C> <C> <C> <C>
Management Fee................. 0.50% 0.50% 0.50%
Rule 12b-1 Fee................. 0.75% 0.70% 0.70%
Other Expenses
Shareholder Servicing Fee
(after waivers or
reimbursements)(3)....... 0.25% 0.28% 0.30%
Administrative Fee......... 0.03% 0.03% 0.03%
Miscellaneous Expenses
(after waivers or
reimbursements)(3)....... 0.40% 0.22% 0.34%
----- ----- -----
Total Other Expenses (after
waivers or
reimbursements)(3)........... 0.68% 0.53% 0.67%
----- ----- -----
TOTAL FUND OPERATING
EXPENSES (after waivers or
reimbursements)(3)........... 1.93% 1.73% 1.87%
</TABLE>
- -------------------------------
<TABLE>
<C> <S>
(1) Other mutual funds may invest in the Capital Appreciation Master
Portfolio. Such other funds' expenses and, accordingly, investment
returns may differ from those of the corresponding funds.
(2) Summarizes expenses charged at the Master Portfolio level as well as at
the Fund level.
(3) Absent waivers and reimbursements, the amounts shown under "Miscellaneous
Expenses," "Total Other Expenses" and "Total Fund Operating Expenses"
would be 0.52%, 0.80% and 2.05%, respectively, for the Class B Shares of
the Aggressive Growth Fund and 0.68%, 1.01% and 2.21%, respectively, for
the Class B Shares of the Growth and Income Fund. Absent waivers and
reimbursements the amounts shown under "Shareholder Servicing Fees,"
"Miscellaneous Expenses," "Total Other Expenses" and "Total Fund
Operating Expenses" would be 0.30%, 1.04%, 1.37% and 2.57%, respectively,
for the Class B Shares of the Diversified Income Fund.
</TABLE>
7 PROSPECTUS
<PAGE> 16
EXAMPLE OF EXPENSES --
CLASS B SHARES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment in Class B Shares of a
Fund, assuming (A) a 5% annual return and
(B) redemption at the end of each time
period indicated:
Aggressive Growth................ $ 50 $71 $ 104 $194
Diversified Income Fund.......... $ 48 $64 $ 94 $172
Growth and Income Fund........... $ 49 $69 $ 101 $185
You would pay the following expenses on a
$1,000 investment in Class B Shares of a
Fund, assuming a 5% annual return and no
redemption:
Aggressive Growth................ $ 20 $61 $ 104 $194
Diversified Income Fund.......... $ 18 $54 $ 94 $172
Growth and Income Fund........... $ 19 $59 $ 101 $185
</TABLE>
EXPLANATION OF TABLES
The purpose of the foregoing tables is to assist you in understanding the
various costs and expenses that an investor in a Fund will bear directly or
indirectly. The foregoing tables reflect expenses at both the Fund and Master
Portfolio levels. The tables do not reflect any charges that may be imposed by
Wells Fargo Bank directly on its customer accounts in connection with an
investment in a Fund.
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell Fund
shares. You are subject to a front-end sales charge on purchases of Class A
Shares of the Funds and may be subject to a contingent deferred sales charge on
Class B Shares if you redeem such shares within a specified period. See
"Investing in the Funds - Sales Charges." The Company reserves the right to
impose a charge for wiring redemption proceeds. In certain instances, you may
qualify for a reduction or waiver of the front-end sales charge. See "Investing
in the Funds - Sales Charges."
ANNUAL FUND OPERATING EXPENSES for Class A and Class B Shares of the
Aggressive Growth Fund are based on the 1995 actual expenses of the Class A and
Class D Shares of the Aggressive Growth Fund's predecessor operating investment
company series, the Strategic Growth Fund of Overland Express Funds, Inc. (the
"Predecessor Fund"). The Predecessor Fund became a feeder in the Capital
Appreciation Master Portfolio by exchanging the Predecessor Fund's assets for
interests in the Capital Appreciation Master Portfolio. The figures shown above
are adjusted to reflect the applicable sales charges and expenses for the
Aggressive Growth Fund's Class A Shares and Class B Shares. Annual Fund
Operating Expenses for the other Funds are based on amounts incurred during the
most recent fiscal year and reflect voluntary fee waivers or reimbursements that
are expected to continue to reduce expenses during the current
PROSPECTUS 8
<PAGE> 17
year. Wells Fargo Bank and Stephens at their sole discretion may waive or
reimburse all or a portion of their respective fees charged to, or expenses paid
by, a Fund or a Master Portfolio. Any waivers or reimbursements would reduce a
Fund's or Master Portfolio's total expenses.
Long-term shareholders of the Funds could pay more in sales charges than the
economic equivalent of the maximum front-end sales charges applicable to mutual
funds sold by members of the National Association of Securities Dealers Inc.
("NASD"). For more complete descriptions of the various costs and expenses you
can expect to incur as an investor in each Fund, please see the Prospectus
sections captioned "Investing in the Funds - How To Buy Shares" and "Management
and Servicing Fees."
EXAMPLE OF EXPENSES is a hypothetical example which illustrates the expenses
associated with a $1,000 investment in shares of the Funds over stated periods
based on the expenses in the respective tables above and an assumed annual rate
of return of 5%. This annual rate of return should not be considered an
indication of actual or expected performance of a Fund. In addition, the example
should not be considered a representation of past or future expenses; actual
expenses and returns may be greater or lesser than those shown.
With regard to the combined fees and expenses of the Aggressive Growth and
Corporate Stock Funds and the corresponding Master Portfolios, the Company's
Board of Directors has considered whether various costs and benefits of
investing all of such Funds' assets in a corresponding Master Portfolio rather
than directly in a portfolio of securities would be more or less than if each
such Fund invested in portfolio securities directly. The Company's Board of
Directors believes that the aggregate per share expenses of the Funds will be
less than or approximately equal to the expenses incurred by such Funds if the
Funds invested directly in the type of securities held by their corresponding
Master Portfolios.
9 PROSPECTUS
<PAGE> 18
FINANCIAL HIGHLIGHTS
AGGRESSIVE GROWTH FUND
The following information for the Aggressive Growth Fund is for informational
purposes only and should not be considered as a projection of the future
performance of the Fund. The Aggressive Growth Fund has been established as a
new feeder fund into the Capital Appreciation Master Portfolio. The Capital
Appreciation Master Portfolio is the successor fund to the Predecessor Fund, the
Strategic Growth Fund of Overland Express Funds, Inc. The Aggressive Growth Fund
proposes to assume, through commencement of its operations, the financial
history and performance from inception of the Predecessor Fund and the Capital
Appreciation Master Portfolio. Performance information for the Aggressive Growth
Fund will be calculated in accordance with the published opinions of the SEC
staff.
The information set forth below has been derived from the Financial Highlights
of the Class A and Class D Shares in the Predecessor Fund's 1995 financial
statements. The audited financial statements for the year ended December 31,
1995 are incorporated by reference into the Aggressive Growth Fund's SAI and
have been audited by KPMG Peat Marwick LLP, independent auditors, whose report
dated February 14, 1996 also is incorporated by reference into the SAI. Because
the Predecessor Fund did not convert to master/feeder structure until February
20, 1996, the financial highlights for the periods presented refer only to the
prior operating history of the Predecessor Fund on a stand-alone basis. This
information should be read in conjunction with the Predecessor Fund's annual
financial statements and the respective notes thereto. The SAI has been
incorporated by reference into this Prospectus.
PROSPECTUS 10
<PAGE> 19
AGGRESSIVE GROWTH FUND --
PREDECESSOR FUND
FOR A CLASS A SHARE OUTSTANDING AS SHOWN
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993(1)
<S> <C> <C> <C>
Net asset value, beginning of period............ $ 13.29 $ 13.20 $ 10.00
Income from investment operations:
Net investment loss............................. (0.04) (0.11) (0.03)
Net realized and unrealized gains on
investments.................................... 5.66 0.67 3.68
-------- -------- --------
Total from investment operations................ 5.62 0.56 3.65
Less distributions:
Dividends from net investment income............ 0.00 0.00 (0.03)
Distributions from net realized capital gain
(loss)......................................... (2.09) (0.33) (0.41)
Tax return of capital........................... 0.00 (0.14) (0.01)
-------- -------- --------
Total distributions............................. (2.09) (0.47) (0.45)
Net asset value, end of period.................. $ 16.82 $ 13.29 $ 13.20
======== ======== ========
Total return (not annualized)(2)................ 42.51% 4.23% 36.56%
Ratios/supplemental data:
Net assets, end of period (000)................. $ 59,016 $ 26,744 $ 25,413
Number of shares outstanding, end of period
(000).......................................... 3,508 2,013 1,926
Ratios to average net assets (annualized):
Ratio of expenses to average net assets(3)...... 1.28% 1.20% 0.66%
Ratio of net investment loss to average net
assets(4)...................................... (0.76)% (0.81)% (0.01)%
Portfolio Turnover.............................. 171% 149% 182%
- ------------
(1) The Predecessor Fund commenced operations
on January 20, 1993.
(2) Total returns do not include any sales
charges or contingent deferred sales
charges.
(3) Ratio of Expenses to Average Net Assets
Prior to Waived Fees and Reimbursed
Expenses.................................... 1.38% 1.55% 1.64%
(4) Ratio of Net Investment Loss to Average Net
Assets Prior to Waived Fees and Reimbursed
Expenses.................................... (0.86)% (1.16)% (0.99)%
</TABLE>
11 PROSPECTUS
<PAGE> 20
AGGRESSIVE GROWTH FUND --
PREDECESSOR FUND
FOR A CLASS D SHARE OUTSTANDING AS SHOWN
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993(1)
<S> <C> <C> <C>
Net asset value, beginning of period.............. $ 16.54 $ 16.55 $ 15.00
Income from investment operations:
Net investment loss............................... (0.16) (0.24) (0.43)
Net realized and unrealized gain on investments... 6.99 0.81 2.51
-------- -------- --------
Total from investment operations.................. 6.83 0.57 2.08
Less distributions:
Dividends from net investment income.............. 0.00 0.00 0.00
Distributions from net realized capital gains..... (2.58) (0.40) (0.53)
Tax return of capital............................. 0.00 (0.18) 0.00
-------- -------- --------
Total distributions............................... (2.58) (0.58) (0.53)
Net asset value, end of period.................... $ 20.79 $ 16.54 $ 16.55
======== ======== ========
Total return (not annualized)(2).................. 41.54% 3.46% 13.84%
Ratios/supplemental data:
Net assets, end of period (000)................... $ 26,326 $ 15,335 $ 11,932
Number of shares outstanding, end of period
(000)............................................ 1,266 927 721
Ratios to average net assets (annualized):
Ratio of expenses to average net assets(3)........ 2.02% 1.95% 0.61%
Ratio of net investment loss to average net
assets(4)........................................ (1.49)% (1.56)% (1.00)%
Portfolio Turnover................................ 171% 149% 182%
- ------------
(1) This class commenced operations on July 1,
1993.
(2) Total returns do not include any sales charges
or contingent deferred sales charges.
(3) Ratio of Expenses to Average Net Assets Prior
to Waived Fees and Reimbursed Expenses........ 2.09% 2.23% 2.14%
(4) Ratio of Net Investment Loss to Average Net
Assets Prior to Waived Fees and Reimbursed
Expenses...................................... (1.56)% (1.84)% (2.53)%
</TABLE>
PROSPECTUS 12
<PAGE> 21
CORPORATE STOCK, DIVERSIFIED INCOME, AND GROWTH AND INCOME FUNDS
The following information for the Corporate Stock, Diversified Income, and
Growth and Income Funds has been derived from the Financial Highlights in such
Funds' 1995 annual financial statements. The financial statements are
incorporated by reference into the SAI for each Fund. Except for periods ending
prior to January 1, 1992, which were audited by other auditors whose report
dated February 19, 1992, expressed an unqualified opinion on this information,
the financial statements for such Funds have been audited by KPMG Peat Marwick
LLP, independent auditors, whose report dated February 14, 1996 also is
incorporated by reference into the SAI for each Fund. This information should be
read in conjunction with the Funds' 1995 annual financial statements and notes
thereto. The SAI for each Fund has been incorporated by reference into this
Prospectus.
CORPORATE STOCK FUND
FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1995 1994 1993 1992 1991*
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period... $ 31.42 $ 33.00 $ 31.40 $ 30.38 $ 23.60
Income from investment operations:
Net investment income.................. 0.59 0.63 0.59 0.62 0.62
Net realized and unrealized gain/(loss)
on investments........................ 10.65 (0.50) 2.19 1.35 6.16
-------- --------- -------- -------- --------
Total from investment operations....... 11.24 0.13 2.78 1.97 6.78
Less distributions:
Dividends from net investment income... (0.59) (0.63) (0.59) (0.62) 0.00
Distributions from net realized gain... (0.62) (1.08) (0.59) (0.33) 0.00
-------- -------- -------- -------- --------
Total distributions.................... (1.21) (1.71) (1.18) (0.95) 0.00
Net asset value, end of period......... $ 41.45 $ 31.42 $ 33.00 $ 31.40 $ 30.38
======== ======== ======== ======== ========
Total return (not annualized)**........ 35.99% 0.42% 8.91% 6.59% 28.72%
Ratios/supplemental data:
Net assets, end of period (000)........ $327,208 $236,265 $258,327 $230,457 $204,926
Number of shares outstanding, end of
period (000).......................... 7,893 7,520 7,827 7,340 6,745
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets(1)............................. 0.96% 0.97% 0.97% 0.93% 0.97%
Ratio of net investment income to
average net assets(2)................. 1.59% 1.92% 1.81% 2.05% 2.30%
Portfolio turnover..................... 6% 7% 5% 4% 4%
- ------------------------------------------------------------------------------------------
(1) Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses................ 1.00% 1.00% 0.99% 1.00% N/A
(2) Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses....... 1.55% 1.89% 1.79% 1.98% N/A
- ---------------
* The financial information for the fiscal periods prior to, and including, 1991 is
based on the financial information for the Corporate Stock Fund ("IRA Fund") of the
Wells Fargo Investment Trust for Retirement Programs ("Trust") which was reorganized
into the Corporate Stock Fund on January 1, 1992.
** Total returns do not include any sales charges.
</TABLE>
13 PROSPECTUS
<PAGE> 22
CORPORATE STOCK FUND
FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1990* 1989* 1988* 1987* 1986*+
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................. $ 24.57 $ 18.93 $ 16.44 $ 15.93 $13.65
Income from investment operations:
Net investment income (loss)......... 0.64 0.60 0.57 0.45 0.43
Net realized and unrealized
gain/(loss) on investments.......... (1.61) 5.04 1.92 0.06 1.85
-------- -------- -------- -------- --------
Total from investment operations..... (0.97) 5.64 2.49 0.51 2.28
Less distributions:
Dividends from net investment
income.............................. 0.00 0.00 0.00 0.00 0.00
Distributions from net realized
gain................................ 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Total distributions.................. 0.00 0.00 0.00 0.00 0.00
Net asset value, end of period....... $ 23.60 $ 24.57 $ 18.93 $ 16.44 $ 15.93
======== ======== ======== ======== ========
Total return (not annualized)**...... (3.95)% 29.79% 15.15% 3.20% 16.70%
Ratios/supplemental data:
Net assets, end of period (000)...... $151.742 $153,126 $115,119 $119,155 $ 33,667
Number of shares outstanding, end of
period (000)........................ 6,429 6,233 6,081 7,246 2,114
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets(1)........................... 0.97% 1.04% 1.02% 1.05% 1.02%
Ratio of net investment income to
average net assets(2)............... 2.71% 2.69% 3.17% 2.43% 2.75%
Portfolio turnover................... 6% 6% 3% 12% 15%
- ---------------------------------------------------------------------------------------
(1) Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses.............. N/A N/A N/A N/A N/A
(2) Ratio of net investment income to
average net assets prior to
waived fees and reimbursed
expenses......................... N/A N/A N/A N/A N/A
- ---------------
+ The Fund commenced operations on January 25, 1984.
* The financial information for the fiscal periods prior to, and including, 1991 is based
on the financial information for the Corporate Stock Fund ("IRA Fund") of the Wells
Fargo Investment Trust for Retirement Programs ("Trust") which was reorganized into the
Corporate Stock Fund on January 1, 1992.
** Total returns do not include any sales charges.
</TABLE>
PROSPECTUS 14
<PAGE> 23
DIVERSIFIED INCOME FUND
FOR A CLASS A SHARE OUTSTANDING AS SHOWN
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1995 1994 1993 1992(3)
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period............................. $ 10.76 $ 11.08 $ 10.29 $ 10.00
Income from investment operations:
Net investment income................ 0.35 0.33 0.30 0.02
Net realized and unrealized gain
(loss) on
investments........................ 2.86 (0.32) 0.96 0.29
------- -------- -------- -------
Total from investment operations..... 3.21 0.01 1.26 0.31
Less distributions:
Dividends from net investment
income............................. (0.35) (0.33) (0.30) (0.02)
Distributions from net realized gain
(loss)............................. (0.28) 0.00 (0.17) 0.00
--------- -------- ------- -------
Total distributions.................. (0.63) (0.33) (0.47) (0.02)
Net asset value, end of period....... $ 13.34 $ 10.76 $ 11.08 $ 10.29
======= ======= ======= =======
Total return (not annualized)(4)..... 30.17% 0.08% 12.33% 3.10%
Ratios/supplemental data:
Net assets, end of period (000)...... $79,977 $45,178 $26,704 $ 1,379
Number of shares outstanding, end of
period (000)....................... 5,994 4,198 2,411 134
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets(1).......................... 1.10% 1.06% 0.46% 0.00%
Ratio of net investment income to
average net assets(2).............. 3.02% 3.16% 3.51% 4.09%
Portfolio turnover................... 70% 62% 46% 1%
- -----------------------------------------------------------------------------------------
(1) Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses.............. 1.31% 1.34% 1.66% 3.49%
(2) Ratio of net investment income to
average net assets prior to
waived fees and reimbursed
expenses......................... 2.81% 2.88% 2.31% 0.60%
(3) The Fund commenced operations on
November 18, 1992.
(4) Total returns do not include any
sales charges.
</TABLE>
15 PROSPECTUS
<PAGE> 24
DIVERSIFIED INCOME FUND
FOR A CLASS B SHARE OUTSTANDING AS SHOWN
<TABLE>
<CAPTION>
YEAR ENDED
DEC. 31,
1995
--------
<S> <C>
Net asset value, beginning of period................................. $10.00
Income from investment operations:
Net investment income................................................ 0.20
Net realized and unrealized gain on investments...................... 2.75
------
Total from investment operations..................................... 2.95
Less distributions:
Dividends from net investment income................................. (0.20)
Distributions from net realized gain (loss).......................... (0.26)
------
Total distributions.................................................. (0.46)
------
Net asset value, end of period....................................... $12.49
======
Total return (not annualized)(3)..................................... 29.64%
Ratios/supplemental data:
Net assets, end of period (000)...................................... $5,339
Number of shares outstanding, end of period (000).................... 428
Ratios to average net assets (annualized):
Ratio of expenses to average net assets(1)........................... 1.73%
Ratio of net investment income to average net assets(2).............. 2.40%
Portfolio turnover................................................... 70%
- --------------------------------------------------------------------------------
(1) Ratio of expenses to average net assets prior to waived fees and
reimbursed expenses.............................................. 2.57%
(2) Ratio of net investment income to average net assets prior to
waived fees and reimbursed expenses.............................. 1.57%
(3) Total returns do not include any sales charges.
</TABLE>
PROSPECTUS 16
<PAGE> 25
GROWTH AND INCOME FUND
FOR A CLASS A SHARE OUTSTANDING AS SHOWN
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1995 1994 1993 1992 1991* 1990*+
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................ $ 14.10 $ 14.75 $ 13.88 $ 12.84 $ 10.29 $ 10.00
Income from investment
operations:
Net investment income........... 0.19 0.22 0.23 0.27 0.41 0.26
Net realized and unrealized gain
(loss) on investments......... 3.87 (0.27) 0.93 1.44 2.14 0.03
-------- -------- -------- -------- -------- --------
Total from investment
operations.................... 4.06 (0.05) 1.16 1.71 2.55 0.29
Less Distributions:
Dividends from net investment
income........................ (0.19) (0.22) (0.23) (0.27) 0.00 0.00
Distributions from net realized
gain.......................... (0.71) (0.38) (0.06) (0.40) 0.00 0.00
-------- -------- -------- -------- -------- --------
Total distributions............. (0.90) (0.60) (0.29) (0.67) 0.00 0.00
Net asset value, end of
period........................ $ 17.26 $ 14.10 $ 14.75 $ 13.88 $ 12.84 $ 10.29
======== ======== ======== ======== ======== ========
Total return (not
annualized)**................. 28.90% (0.29)% 8.44% 13.45% 24.77% 2.90%
Ratios/supplemental data:
Net assets, end of period
(000)......................... $178,488 $113,525 $112,236 $ 44,883 $ 10,323 $430
Number of shares outstanding,
end of period (000)........... 10,343 8,050 7,609 3,233 804 42
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets(1)..................... 1.18% 1.11% 0.93% 0.42% 0.05% 0.00%
Ratio of net investment income
to average net assets(2)...... 1.23% 1.51% 1.72% 2.31% 3.50% 2.51%
Portfolio turnover.............. 100% 71% 55% 80% 13% 0%
- ---------------------------------------------------------------------------------------------
(1) Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses.................... 1.21% 1.15% 1.11% 1.10% 1.16% N/A
(2) Ratio of net investment
income to average net assets
prior to waived fees and
reimbursed expenses......... 1.20% 1.47% 1.54% 1.63% 2.39% N/A
* The financial information for the fiscal periods prior to, and including, 1991
is based on the financial information for the Select Stock Fund ("IRA Select
Stock Fund") of the Wells Fargo Investment Trust for Retirement Programs
("Trust") which was reorganized into the Growth Stock Fund on January 2, 1992.
** Total returns do not include any sales charges.
+ The Fund commenced operations on August 2, 1990.
</TABLE>
17 PROSPECTUS
<PAGE> 26
GROWTH AND INCOME FUND
FOR A CLASS B SHARE OUTSTANDING AS SHOWN
<TABLE>
<CAPTION>
YEAR
ENDED
DEC. 31,
1995
--------
<S> <C>
Net asset value, beginning of period................................. $ 10.00
Income from investment operations:
Net investment income................................................ 0.05
Net realized and unrealized gain on investments...................... 2.79
-------
Total from investment operations..................................... 2.84
Less Distributions:
Dividends from net investment income................................. (0.05)
Distributions from net realized gain (loss).......................... (0.50)
-------
Total distributions.................................................. (0.55)
Net asset value, end of period....................................... $ 12.29
=======
Total return (not annualized)**...................................... 28.47%
Ratios/supplemental data:
Net assets, end of period (000)...................................... $ 4,682
Number of shares outstanding, end of period (000).................... 381
Ratios to average net assets (annualized):
Ratio of expenses to average net assets(1)........................... 1.87%
Ratio of net investment income to average net assets(2).............. 0.43%
Portfolio turnover................................................... 100%
- -------------------------------------------------------------------------------
(1) Ratio of expenses to average net assets prior to waived fees and
reimbursed expenses.............................................. 2.21%
(2) Ratio of net investment income to average net assets prior to
waived fees and reimbursed expenses.............................. 0.09%
** Total returns do not include any sales charges.
</TABLE>
PROSPECTUS 18
<PAGE> 27
HOW THE FUNDS WORK
INVESTMENT OBJECTIVES AND POLICIES
Set forth below is a description of the investment objectives and related
policies of the Funds and the Master Portfolios. As with all mutual funds, there
can be no assurance that each Fund and Master Portfolio will achieve its
investment objective.
THE AGGRESSIVE GROWTH FUND
The Aggressive Growth Fund seeks to achieve its investment objective by
investing all of its assets in the Capital Appreciation Master Portfolio, which
has the same investment objective as the Fund.
The investment objective of the Capital Appreciation Master Portfolio is to
provide investors with an above-average level of capital appreciation. It seeks
to achieve this objective through the active management of a broadly-diversified
portfolio of equity securities of companies expected to experience strong growth
in revenues, earnings and assets. The Master Portfolio is designed to provide
above-average capital growth for investors willing to assume above-average risk.
See "How the Funds Work - Master/Feeder Structure" for additional information
regarding the Fund's investment in the Master Portfolio.
The Master Portfolio invests primarily in common stocks that Wells Fargo Bank,
as the Master Portfolio's investment adviser, believes have better-than-average
prospects for appreciation. These stocks may have some of the following
characteristics:
- Low or no dividends
- Smaller market capitalizations
- Less market liquidity
- Relatively short operating histories
- Aggressive capitalization structures (including high debt levels)
- Involvement in rapidly growing/changing industries and/or new technologies
Under normal market conditions, the Master Portfolio will hold at least 20
common stock issues spread across multiple industry groups, with the majority of
these holdings consisting of established growth companies, turnaround or
acquisition candidates, or attractive larger capitalization companies.
Additionally, it is expected that the Master Portfolio will from time to time
acquire securities through initial public offerings, and will acquire and hold
common stocks of smaller and newer issuers. It is expected that no more than 40%
of the Master Portfolio's assets will be invested in these highly aggressive
issues at one time. There may be some additional risks associated with
investments in smaller and/or newer companies because
19 PROSPECTUS
<PAGE> 28
their shares tend to be less liquid than securities of larger companies.
Further, shares of small and new companies are generally more sensitive to
purchase and sale transactions and changes in the issuer's financial condition
and, therefore, the prices of such stocks may be more volatile than those of
larger company stocks.
From time to time Wells Fargo Bank may determine that conditions in the
securities markets make pursuing the Master Portfolio's basic investment
strategy inconsistent with the best interests of the Master Portfolio's
investors. At such times, Wells Fargo Bank may use temporary alternative
strategies, primarily designed to reduce fluctuations in the value of the Master
Portfolio's assets. In implementing these temporary "defensive" strategies, the
Master Portfolio may invest in preferred stock or investment-grade debt
securities that are convertible into common stock and in money market
securities. It is expected that these temporary "defensive" investments will not
exceed 30% of the Master Portfolio's total assets.
The Master Portfolio pursues an active trading investment strategy, and the
length of time the Master Portfolio has held a particular security is not
generally a consideration in investment decisions. Accordingly, the Master
Portfolio's portfolio turnover rate may be higher than that of other funds that
do not pursue an active trading investment strategy. Portfolio turnover
generally involves some expense to the Master Portfolio, including brokerage
commissions or dealer mark-ups and other transaction costs on the sale of
securities and the reinvestment in other securities. Portfolio turnover also can
generate short-term capital gains tax consequences.
Though the Master Portfolio will hold a number of larger capitalization
stocks, under normal market conditions, and subject to the additional risks
described above, more than 50% of the Master Portfolio's total assets will be
invested in companies with smaller to medium capitalizations. The Master
Portfolio will invest primarily in companies with a market capitalization of $50
million or greater, but may invest in companies with a market capitalization
under $50 million if the investment adviser to the Master Portfolio believes
such investments to be in the best interests of the Master Portfolio. It is
currently expected that the majority of the Master Portfolio's investments will
be in companies with market capitalizations, at the time of acquisition, of up
to $750 million.
Under ordinary market conditions, at least 65% of the value of the total
assets of the Master Portfolio will be invested in common stocks and in
securities which are convertible into common stocks that Wells Fargo Bank, as
investment adviser, believes have better-than-average prospects for
appreciation. The Master Portfolio also may invest in convertible debt
securities. At most, 5% of the Master Portfolio's net assets will be invested in
convertible debt securities that are not either rated in the four highest rating
categories by one or more nationally recognized statistical rating organizations
("NRSROs"), such as Moody's Investor Service, Inc. ("Moody's") or Standard &
Poor's Ratings Group ("S&P"), or unrated securities determined by Wells Fargo
Bank to be of comparable quality. Securities rated in the fourth lowest rating
category (i.e., rated "BBB" by S&P or "Baa" by Moody's) are regarded by S&P as
having an adequate capacity
PROSPECTUS 20
<PAGE> 29
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. Moody's considers such securities as having speculative
characteristics.
THE CORPORATE STOCK FUND
The Corporate Stock Fund's investment objective is to approximate to the
extent practicable the total rate of return of substantially all the common
stocks comprising the Standard & Poor's 500 Composite Stock Price Index (the
"S&P 500 Index").* This investment objective is fundamental and cannot be
changed without shareholder approval. The Fund seeks to achieve its investment
objective by investing all of its assets in the Corporate Stock Master
Portfolio, which has an identical investment objective as the Fund. Because the
Master Portfolio invests in a number of different companies, its investments are
broadly "diversified" thereby tending to reduce the effect of the performance of
a single investment on the performance of the overall portfolio. Prior to April
29, 1996 the Fund invested directly in a portfolio of securities and not in the
Corporate Stock Master Portfolio. See "How the Funds Work - Master/Feeder
Structure" for additional information regarding the Fund's investment in the
Master Portfolio.
The Master Portfolio seeks to create, to the extent feasible, a portfolio
which substantially replicates the total return of the securities comprising the
S&P 500 Index. Precise replication of the performance of the securities
comprising the S&P 500 Index is not feasible, but the Master Portfolio seeks
correlation between the price and total return performance of securities
comprising the S&P Index and the investment results of the Master Portfolio. The
Master Portfolio expects to achieve, in both rising and falling markets, a
correlation of at least 95% between the total return of its net assets before
expenses and the total return of the S&P 500 Index. A correlation of 100% would
indicate a perfect correlation, which would be achieved when the net asset value
of the Master Portfolio, including the value of its dividend and capital gain
distributions, increases or decreases in exact proportion to changes in the S&P
500 Index. The Master Portfolio's ability to track the S&P 500 Index, however,
may be affected by, among other things, transaction costs and the timing of
interestholder purchases and redemptions. The Master Portfolio attempts to
achieve a 95% correlation by using a statistical process known as "sampling" to
select and hold in its portfolio a representative sample of securities in the
S&P 500 Index. BGFA regularly monitors the correlation of the Master Portfolio's
investments to the composition and performance of the S&P 500 Index and
- ---------------
* The S&P 500 Index is an unmanaged index of stocks comprised of 500
companies, including industrial, financial, utility and transportation
companies. "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)" and "Standard &
Poor's 500" are trademarks of McGraw-Hill, Inc. Neither the Corporate Stock
Master Portfolio nor the Corporate Stock Fund is sponsored, endorsed, sold
or promoted by Standard & Poor's and Standard & Poor's makes no
representation regarding the advisability of investing in the Fund or Master
Portfolio.
21 PROSPECTUS
<PAGE> 30
attempts to adjust the Master Portfolio's investments to the extent necessary to
achieve a 95% correlation between the investment results of the Master Portfolio
and the performance of the S&P 500 Index.
The Master Portfolio may invest some of its assets in high-quality money
market instruments, which include U.S. Government obligations, obligations of
domestic and foreign banks, repurchase agreements, commercial paper (including
variable amount master demand notes) and short-term corporate debt obligations.
Such investments are made on an ongoing basis to provide liquidity and, to a
greater extent on a temporary basis, when there is an unexpected or abnormal
level of investor purchases or redemptions of Master Portfolio shares or because
of unusual market conditions which limit the Master Portfolio's ability to
invest effectively its assets in accordance with its investment strategies. In
addition, the Master Portfolio may engage in securities lending to increase its
income and may use stock index futures and options thereon as a substitute for a
comparable market position in the underlying securities. A more complete
description of the Master Portfolio's investments and investment activities is
contained in the "Prospectus Appendix - Additional Investment Policies" and in
the SAI.
MASTER/FEEDER STRUCTURE -- THE CAPITAL APPRECIATION AND CORPORATE STOCK MASTER
PORTFOLIOS. As discussed above, the Aggressive Growth and Corporate Stock Funds
are feeder funds in master/feeder structures. Accordingly, each Fund invests all
of its assets in a corresponding Master Portfolio of the Master Trust which has
the identical investment objective as the Fund. See, "The Fund - Investment
Objectives and Policies." The Master Trust is organized as a trust under the
laws of the State of Delaware. See "General Information - Description of the
Company." In addition to selling their respective shares to the Funds, the
Master Portfolios may sell their shares to certain other mutual funds or
accredited investors. Information regarding additional options, if any, for
investment in shares of the Master Portfolios is available from Stephens and may
be obtained by calling 1-800-643-9691. The expenses and, correspondingly, the
returns of other investment options in the Master Trust may differ from those of
the Funds.
The Board of Directors believes that, if other investors invest their assets
in the Master Portfolios, certain economic efficiencies may be realized with
respect to the Master Portfolios. For example, fixed expenses that otherwise
would have been borne solely by a Fund would be spread across a larger asset
base provided by more than one fund investing in a Master Portfolio. Each Fund
and other entities investing (if any) in a Master Portfolio would each be liable
for all obligations of the Master Portfolio. However, the risk of a Fund
incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and the Master Trust
itself is unable to meet its obligations. Accordingly, the Company's Board of
Directors believes that the Funds and their shareholders will not be adversely
affected by reason of investing each Fund's assets in its corresponding Master
Portfolio. However, if there is no other investor in a Master Portfolio, the
economic efficiencies (e.g., spreading fixed
PROSPECTUS 22
<PAGE> 31
expenses across a larger asset base) that the Company's Board believes should be
available through investment in a Master Portfolio may not be fully achieved. In
addition, given the relatively novel nature of the master/feeder structure,
accounting and operational difficulties could occur. See "Management,
Distribution and Servicing Fees" for additional description of the Funds' and
Master Portfolios' management and expenses.
Each Fund may withdraw its investment in the corresponding Master Portfolio
only if the Board of Directors of the Company determines that such action is in
the best interests of such Fund and its shareholders. Upon such withdrawal, the
Company's Board would consider alternative investments, including investing all
of a Fund's assets in another investment company with the same investment
objective as the Fund or hiring an investment adviser to manage the Fund's
assets in accordance with the investment policies described below with respect
to the Master Portfolio.
The Master Portfolios' investment objectives and other fundamental policies,
which are substantially the same as those of the corresponding Fund, cannot be
changed without approval by the holders of a majority (as defined in the
Investment Company Act of 1940 (the "1940 Act")) of the Master Portfolio's
outstanding voting shares. Whenever a Fund, as a Master Portfolio shareholder,
is requested to vote on matters pertaining to any fundamental policy of such
Master Portfolio, the Fund will hold a meeting of its shareholders to consider
such matters and the Fund will cast its votes in proportion to the votes
received from Fund shareholders. Each Fund will vote Master Portfolio shares for
which it receives no voting instructions in the same proportion as the votes
received from Fund shareholders. In addition, certain policies of each Master
Portfolio that are non-fundamental can be changed by vote of a majority of the
Master Trust's Trustees without a shareholder vote. If a Master Portfolio's
investment objective or policies are changed, the corresponding Fund could
subsequently change its objective or policies to correspond to those of the
Master Portfolio or the Fund could redeem its Master Portfolio shares and either
seek a new investment company with a substantially matching objective in which
to invest or retain its own investment adviser to manage the Fund's portfolio in
accordance with its objective. In the latter case, a Fund's inability to find a
substitute investment company in which to invest or equivalent management
services could adversely affect shareholders' investments in the Fund. A Fund's
investment objective and other fundamental policies cannot be changed without
approval by the holders of a majority (as defined in the 1940 Act) of the Fund's
outstanding voting shares. Each Fund will provide shareholders with 30 days'
written notice prior to the implementation of any change in the investment
objective of the Fund or its corresponding Master Portfolio, to the extent
possible. Information on the Funds' and Master Portfolios' investment
objectives, policies and restrictions is included under "How the Funds Work" and
"Prospectus Appendix - Additional Investment Policies" in this Prospectus and
under "Investment Restrictions" and "Additional Permitted Investment Activities"
in each Fund's SAI. Additional information regarding the officers
23 PROSPECTUS
<PAGE> 32
and directors/trustees of the Company and the Master Trust is included in each
Fund's SAI under "Management."
DIVERSIFIED INCOME FUND
The Diversified Income Fund's investment objective is to seek current income
and a growing stream of income over time, consistent with preservation of
capital. The Fund pursues this objective by investing primarily in
income-producing debt instruments and equity securities, including common
stocks, and preferred stocks and debt instruments that are convertible into
common stocks. The Fund invests, under normal market conditions, substantially
all of its total assets in income-producing securities, including both debt
instruments and equity securities, and, under normal market conditions, at least
50% of its total assets in equity securities.
The Diversified Income Fund will invest in common stocks of issuers that, in
the opinion of Wells Fargo Bank, as the Fund's investment adviser, exhibit a
strong earnings growth trend and that are believed by Wells Fargo Bank to have
above-average prospects for future earnings growth. The Fund's common stocks
will be diversified among industries and companies. Emphasis will be placed on
common stocks which are trading at low price-to-earnings ratios, either relative
to the overall market or to the security's historic price-to-earnings
relationship, and in common stocks of issuers that have historically paid
above-average dividends.
Under normal market conditions, at least 90% of the Diversified Income Fund's
equity securities, including, for this purpose, the convertible securities
described below, will be issued by large companies (i.e., for purposes of the
Fund, companies with a market capitalization of more than $1 billion). Some
investments also may be made in equity securities of medium- and smaller-size
companies (i.e., for purposes of the Fund, those companies with at least $250
million but less than $1 billion in capitalization) which may have the potential
to generate high levels of future revenue and earnings growth and where the
investment opportunity may not be fully reflected in the price of the securities
but which may involve greater risks than investments in larger companies. There
may be some additional risks associated with investments in smaller companies
because securities issued by such companies tend to trade less frequently and
may be less liquid than securities issued by larger companies. In addition,
smaller companies, relative to larger concerns, may depend on a small group of
key managers or may have limited product lines, financial resources or available
markets. As a result, the price of securities issued by small companies may be
more volatile than the price of securities issued by larger companies.
The debt instruments held by the Diversified Income Fund will include
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities (including government-sponsored enterprises) ("U.S. Government
obligations"), and a broad range of other debt instruments, as described in this
Prospectus or in the SAI, such as bonds and other debt securities of domestic
companies, U.S. dollar-denominated
PROSPECTUS 24
<PAGE> 33
debt obligations of foreign issuers, including foreign corporations and foreign
governments, and various asset-backed securities. Most of the debt instruments
acquired by the Fund will be issued by companies or governmental entities
located within the United States. All of the nonconvertible debt instruments
acquired by the Fund are rated within the four highest rating categories by one
or more nationally recognized statistical rating organizations ("NRSROs"), such
as Moody's or S&P, or are unrated instruments determined by the Adviser to be of
comparable quality. Up to 20% of the assets of the Fund that are invested in
debt instruments may be rated, at the time of purchase, in the lowest of these
four rating categories (i.e., rated BBB by S&P or Baa by Moody's). These
securities are regarded by S&P 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. Moody's
considers such securities as having speculative characteristics. Subsequent to
its purchase by the Fund, an issue of securities may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Fund. The Adviser will consider such an event in determining whether the Fund
should continue to hold the obligation.
The Diversified Income Fund may temporarily hold assets in cash or make
short-term investments to the extent appropriate to maintain adequate liquidity
for redemption requests or other cash management needs, or for temporary
defensive purposes. The short-term investments that the Fund may purchase for
liquidity purposes include U.S. Treasury bills, shares of other mutual funds and
repurchase agreements (as described below).
GROWTH AND INCOME FUND
The Growth and Income Fund seeks to earn current income and achieve long-term
capital appreciation by investing primarily in common stocks, and preferred
stocks and debt securities that are convertible into common stocks. There can be
no assurance that the Fund, which is a diversified portfolio, will achieve its
investment objective. Under normal market conditions, the Fund will invest at
least 65% of its total assets in common stocks and securities which are
convertible into common stocks and at least 65% of its total assets in
income-producing securities. Up to 10% of the Fund's assets may be invested in
securities of foreign issuers.
The Growth and Income Fund will invest in common stocks of issuers that, in
the opinion of Wells Fargo Bank, as the Fund's investment adviser, exhibit a
strong earnings growth trend and that are believed by Wells Fargo Bank to have
above-average prospects for future earnings growth. The Fund will maintain a
portfolio of common stocks diversified among industries and companies. The Fund
may invest in common stocks of large companies (i.e., for the purposes of the
Fund, those companies with more than $750 million in capitalization) which Wells
Fargo Bank believes offer the potential for long-term earnings growth or
above-average dividend yield. Emphasis may be placed on
25 PROSPECTUS
<PAGE> 34
common stocks which are trading at low price-to-earnings ratios, either relative
to the overall market or to the security's historic price-to-earnings
relationship, and on common stocks of issuers that have historically paid
above-average dividends. Some investments also may be made in common stocks of
medium- and smaller-size companies (i.e., for the purposes of the Fund, those
companies with at least $250 million, but less than $750 million in
capitalization) which may have the potential to generate high levels of future
revenue and earnings growth and where the investment opportunity may not be
fully reflected in the price of the securities but which may involve greater
risks than investments in larger companies.
The Growth and Income Fund intends to invest less than 50% of its assets in
the securities of medium- and smaller-size companies and the remainder in
securities of larger-size companies. However, the actual percentages may vary
according to changes in market conditions and the judgment of the Fund's
investment adviser of how best to achieve the Fund's investment objective. There
may be some additional risk associated with investments in smaller companies
because securities of such companies tend to trade less frequently and may be
less liquid than securities issued by larger companies. In addition, smaller
companies, relative to larger concerns, may depend on a small group of key
managers or may have limited product lines, financial resources or available
markets. As a result, the price of securities issued by small companies may be
more volatile than the price of securities issued by larger companies.
The Growth and Income Fund may temporarily hold assets in cash or make
short-term investments to the extent appropriate to maintain adequate liquidity
for redemption requests or other cash management needs, or for temporary
defensive purposes. The short-term investments that the Fund may purchase for
liquidity purposes include U.S. Treasury bills, shares of other mutual funds and
repurchase agreements (as described below).
PERFORMANCE
The performance of each class of shares of a Multi-Class Fund and the shares
of the Corporate Stock Fund may be advertised in terms of average annual total
return and yield. These performance figures are based on historical results and
are not intended to indicate future performance.
Average annual total return of the shares of a class or Fund is based on the
overall dollar or percentage change in value of a hypothetical investment in
such shares and assumes that all dividends and capital gain distributions
attributable to such class or Fund are reinvested in shares of that class or
Fund. The standardized average annual total return as calculated for Class A
Shares assumes that you have paid the maximum sales charge and, as calculated
for Class B Shares, assumes you have paid the maximum applicable contingent
deferred sales charge on your hypothetical investment. In addition to presenting
standardized total return, the Funds also may present nonstandardized total
returns, yields and distribution rates for purposes of sales literature. For
example,
PROSPECTUS 26
<PAGE> 35
the performance figure of the shares of a class or Fund may be calculated on the
basis of an investment at the net asset value per share or at net asset value
per share plus a reduced sales charge (see "Investing in the Funds - How To Buy
Shares"), rather than the public offering price per share. In this case, the
figure might not reflect the effect of the sales charge that you may have paid.
The yield on shares of a class or shares of a Fund is calculated by dividing
the net investment income per share earned during a specified period (usually 30
days) by its public offering price per share. Standardized yield on Class A
Shares is calculated assuming you have paid the maximum front-end sales charge
and on Class B Shares assuming you have paid the maximum applicable contingent
deferred sales charge.
Because of differences in the fees and/or expenses borne by Class B Shares of
the Fund, the net performance quotations on such shares can be expected, at any
given time, to be lower than the net performance quotations on Class A Shares.
Performance quotations are computed separately for Class A Shares and Class B
Shares. The performance of the Aggressive Growth and Corporate Stock Funds will
correspond directly to the performance of the Corporate Stock and Capital
Appreciation Master Portfolios, respectively.
Additional information about the performance of each Fund is contained in the
Annual Report for each Fund. The Annual Reports may be obtained free of charge
by calling the Company at 1-800-222-8222.
THE FUNDS, MASTER PORTFOLIOS
AND MANAGEMENT
The Funds are four of the funds in the Stagecoach Family of Funds. The Company
was organized as a Maryland corporation on September 9, 1991, and currently
offers shares of the following other series: the Asset Allocation, California
Tax-Free Bond, California Tax-Free Income, California Tax-Free Money Market
Mutual, Ginnie Mae, Money Market Mutual, National Tax-Free Money Market Mutual,
Short-Intermediate U.S. Government Income and U.S. Government Allocation Funds.
The Board of Directors of the Company supervises the Funds' activities and
monitors their contractual arrangements with various service-providers. Although
the Company is not required to hold annual shareholder meetings, special
meetings may be requested for purposes such as electing or removing Directors,
approving advisory contracts and distribution plans, and changing the Funds'
investment objectives or fundamental investment policies. All shares of the
Company have equal voting rights and will be voted in the aggregate, rather than
by series or class, unless otherwise required by law (such as when the voting
matter affects only one series or Class). As a shareholder of the Funds, you
receive one vote for each share you own
27 PROSPECTUS
<PAGE> 36
and fractional votes for fractional shares owned. A more detailed description of
the voting rights and attributes of the shares is contained in the "Capital
Stock" section of the Funds' SAIs.
Wells Fargo Bank is the investment adviser to the Capital Appreciation and
Corporate Stock Master Portfolios and to the Diversified Income and Growth and
Income Funds. In addition, Wells Fargo Bank serves as the Funds' transfer and
dividend disbursing agent and is a shareholder servicing agent and selling
agent. Wells Fargo Bank, one of the largest banks in the United States, was
founded in 1852 and is the oldest bank in the western United States. As of April
1, 1996, Wells Fargo Bank and its affiliates provided investment advisory
services for approximately $56 billion of assets of individuals, trusts, estates
and institutions. Wells Fargo Bank also serves as investment adviser to the
other separately managed funds (or master portfolios in which such funds invest)
of the Company, and as investment adviser or sub-adviser to five other
registered, open-end, management investment companies. Wells Fargo Bank, a
wholly owned subsidiary of Wells Fargo & Company, is located at 420 Montgomery
Street, San Francisco, California 94104.
BGFA, located at 45 Fremont Street, San Francisco, California 94105, serves as
sub-adviser to the Corporate Stock Master Portfolio. BGFA is a wholly owned
subsidiary of BGI and an indirect subsidiary of Barclays Bank PLC. As of January
1, 1996, BGFA and its affiliates provided investment advisory services for over
$220 billion of assets. BGFA was created by the reorganization of Wells Fargo
Nikko Investment Advisors ("WFNIA"), a former affiliate of Wells Fargo Bank,
with and into an affiliate of Wells Fargo Institutional Trust Company, N.A. BGFA
also serves as the sub-adviser to other portfolios of the Master Trust and as
investment adviser or sub-adviser to five other registered, open-end, management
investment companies. Pursuant to a Sub-Investment Advisory Agreement, BGFA,
subject to the supervision and approval of Wells Fargo Bank, provides investment
advisory assistance and the day-to-day management of the Corporate Stock Master
Portfolio's assets, subject to the overall authority of the Master Trust's Board
of Trustees and in conformity with Delaware law and the stated policies of the
Master Portfolio.
Morrison & Foerster LLP, counsel to the Company and the Master Trust and
special counsel to Wells Fargo Bank and BGFA, has advised the Company, the
Master Trust, Wells Fargo Bank and BGFA that Wells Fargo Bank and BGFA and their
affiliates may perform the services contemplated by the Advisory Contracts and
this Prospectus without violation of the Glass-Steagall Act. Such counsel has
pointed out, however, that there are no controlling judicial or administrative
interpretations or decisions and that future judicial or administrative
interpretations of, or decisions relating to, present federal or state statutes,
including the Glass-Steagall Act, and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as future
changes in such statutes, regulations and judicial or administrative decisions
or interpretations, could prevent such entities from continuing to perform, in
whole or in part, such services. If any such entity were prohibited from
performing any such
PROSPECTUS 28
<PAGE> 37
services, it is expected that new agreements would be proposed or entered into
with another entity or entities qualified to perform such services.
Stephens is the Funds' sponsor and administrator, and distributes the Funds'
shares. Stephens is a full service broker/dealer and investment advisory firm
located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its
predecessor have been providing securities and investment services for more than
60 years. Additionally, they have been providing discretionary portfolio
management services since 1983. Stephens currently manages investment portfolios
for pension and profit sharing plans, individual investors, foundations,
insurance companies and university endowments.
PORTFOLIO MANAGERS
Brian K. Mulligan is primarily responsible, as co-manager, for the day-to-day
management of the portfolio of the Growth and Income Fund. Mr. Mulligan has been
co-manager since October 1, 1995. Mr. Mulligan is also co-manager of the Wells
Fargo Core Equities Group. He is a vice president and manager of the San
Francisco Investment Office, where he is primarily responsible for personal
accounts including individuals, charitable foundations and IRAs. He also covers,
from a research standpoint, the telecommunications and electric utility
industries. Mr. Mulligan has been with Wells Fargo Bank since its merger with
Crocker National Bank in 1986. Mr. Mulligan was graduated from Skidmore College
with a B.S. degree in business management. He is a chartered financial analyst
and serves as a member of the staff of graders. In addition, Mr. Mulligan is a
former member of the Board of Governors for the Los Angeles Society of Financial
Analysts and a present member of the San Francisco Security Analysts Society.
Mr. Robert Bissell is primarily responsible, as co-manager, for the day-to-day
management of the portfolios of the Diversified Income and Growth and Income
Funds. Mr. Bissell assumed these responsibilities as of February 14, 1996.
Except for a brief period between October 1, 1995 and February 14, 1996, Mr.
Bissell has been responsible for the day-to-day management of the Diversified
Income Fund since its inception, and the Growth and Income Fund since January
1992. Mr. Bissell is also primarily responsible for the day-to-day management of
the Capital Appreciation Master Portfolio and was, prior to its conversion to
master-feeder structure, portfolio manager of the Strategic Growth Fund of
Overland Express Funds, Inc., the Predecessor Fund to the Master Portfolio. Mr.
Bissell joined Wells Fargo Bank at the time of its merger with Crocker Bank and
has been with the combined organization for over 20 years. Prior to joining
Wells Fargo Bank, he was vice president and investment counsel with M. H. Edie
Investment Counseling, where he managed institutional and high-net-worth
portfolios. Mr. Bissell holds a finance degree from the University of Virginia.
He is a chartered financial analyst and a member of the Los Angeles Society of
Financial Analysts.
Mr. Allen Wisniewski has been responsible, as co-manager, for the day-to-day
management of the portfolio of the Diversified Income Fund since November 1992.
He also is responsible for managing equity and balanced accounts for
high-net-worth
29 PROSPECTUS
<PAGE> 38
individuals and pensions. Mr. Wisniewski joined Wells Fargo Bank in April 1987
with the acquisition of Bank of America's consumer trust services, where he was
a portfolio manager. He received his B.A. degree and M.B.A. degree in economics
and finance from the University of California at Los Angeles. He is a member of
the Los Angeles Society of Financial Analysts.
Mr. Jon Hickman is primarily responsible for the day-to-day management of the
Capital Appreciation Master Portfolio and has performed such duties since the
Master Portfolio's inception in March 1996. Mr. Hickman has also managed the
Strategic Growth Fund, the Predecessor Fund to the Capital Appreciation Master
Portfolio, since its inception. In addition, he also manages equity and balanced
portfolios for individuals and employee benefit plans. He has approximately ten
years of experience in the investment management field and is a member of Wells
Fargo Bank's Equity Strategy Committee. Mr. Hickman has a B.A. and an M.B.A in
finance from Brigham Young University and has been with Wells Fargo Bank since
the merger with Crocker National Bank in 1986.
Mr. Steve Enos assists Mr. Bissell and Mr. Hickman with the day-to-day
management of the Capital Appreciation Master Portfolio. Mr. Enos is a member of
the Wells Fargo Bank Growth Equity Team. He began his career with First
Interstate Bank, where he was assistant vice president and portfolio manager.
Prior to joining Wells Fargo Bank, he was a principal at Dolan Capital
Management where he managed both personal and pension portfolios. Mr. Enos is a
Chartered Financial Analyst and a member of the Association for Investment
Management and Research.
Ms. Sandra Thornton assists Mr. Bissell and Mr. Hickman with the day-to-day
management of the Capital Appreciation Master Portfolio. Ms. Thornton manages
equity portfolios and is a member of the Wells Fargo Bank Growth Equity Team.
Prior to joining Wells Fargo in 1993, she worked in the research department of
RCM Capital Management. She obtained her license as a Certified Public
Accountant from the State of California while performing tax/financial planning
services at Price Waterhouse. She holds a B.A. from Albertus Magnus College and
is a Chartered Financial Analyst.
PROSPECTUS 30
<PAGE> 39
INVESTING IN THE FUNDS
OPENING AN ACCOUNT
You can buy shares in either Fund in one of the several ways described below.
You must complete and sign an Account Application to open an account. Additional
documentation may be required from corporations, associations and certain
fiduciaries. Do not mail cash. If you have any questions or need extra forms,
you may call 1-800-222-8222.
After an application has been processed and an account has been established,
subsequent purchases of different funds of the Company under the same umbrella
account do not require the completion of additional applications. A separate
application must be processed for each different umbrella account number (even
if the registration is the same).
Call the number on your confirmation statement to obtain information about
what is required to change registration.
To invest in the Funds through tax-deferred retirement plans through which the
Funds are available, please contact a Shareholder Servicing Agent or a Selling
Agent to receive information and the required separate application. See
"Tax-Deferred Retirement Plans" below. The Company or Stephens may make the
Prospectus available in an electronic format. Upon receipt of a request from you
or your representative, the Company or Stephens will transmit or cause to be
transmitted promptly, without charge, a paper copy of the electronic Prospectus.
SHARE VALUE
The value of a share of each Fund is its "net asset value," or NAV. Wells
Fargo Bank calculates the NAV of the shares of each Fund or class on each
Business Day (as defined below) as of the close of regular trading on the New
York Stock Exchange ("NYSE"). The close of regular trading on the NYSE is
currently 1:00 p.m. (Pacific time). The NAV of each Fund and class is expected
to fluctuate daily.
The Funds are open for business each day the NYSE is open for trading (a
"Business Day"). Currently, the NYSE is closed on New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day (each a "Holiday"). When any Holiday falls on a weekend, the
NYSE is closed on the weekday immediately before or after such Holiday.
The NAV of a share of each class of the Aggressive Growth, Diversified Income
and Growth and Income Funds is determined by dividing the total net assets
attributable to such class (i.e., the value of the Fund's portfolio investments
and other assets less liabilities) by the number of outstanding shares of that
class. The NAV of each share of the Corporate Stock Fund is determined by
dividing the Fund's total net assets by the number of Fund shares outstanding.
31 PROSPECTUS
<PAGE> 40
The portfolio investments of the Diversified Income and Growth and Income
Funds and the Capital Appreciation and Corporate Stock Master Portfolios are
generally valued at current market prices, or if such prices are not readily
available, at fair value as determined in good faith by the Company's Board of
Directors or Master Trust's Board of Trustees, as applicable. Prices used for
such valuations may be provided by independent pricing services. The Funds and
the Master Portfolios value debt obligations with remaining maturities of 60
days or less at amortized cost.
HOW TO BUY SHARES
Shares of the Funds are offered continuously at the applicable offering price
(NAV plus any applicable sales charges) next determined after a purchase order
is received in the form specified for the purchase method being used, as
described in the following sections. Payment for shares purchased through a
Selling Agent will not be due from the Selling Agent until the settlement date.
The settlement date normally is three Business Days after the order is placed.
It is the responsibility of the Selling Agent to forward payment for shares
being purchased to the Fund promptly. Payment must accompany orders placed
directly through the Transfer Agent.
Payments for shares of the Funds will be invested in full and fractional
shares of such Fund (or class) at the applicable offering price. If shares are
purchased by a check which does not clear, the Company reserves the right to
cancel the purchase and hold the investor responsible for any losses or fees
incurred. In addition, the Funds may hold payment on any redemption until
reasonably satisfied that your investments made by check have been collected
(which may take up to 10 days).
The minimum initial investment amount is generally $1000. The minimum
investment amount is $100 by the AutoSaver Plan purchase method (described
below) and $250 for any tax-sheltered retirement account for which Wells Fargo
Bank serves as trustee or custodian under a prototype trust approved by the
Internal Revenue Service ("IRS") (a "Plan Account"). Generally subsequent
investments must be made in amounts of $100 or more. Where Fund shares are
acquired in exchange for shares of another fund in the Stagecoach Family of
Funds, the minimum initial investment amount applicable to the shares being
exchanged generally carries over. However, if the value of your investment in
the shares you are exchanging has been reduced below the minimum initial
investment amount by changes in market conditions or sales charges (and not by
redemptions), you may carry over the lesser amount into one of the Funds. Plan
Accounts that invest in the Fund through Wells Fargo ExpressInvest(TM)
(available to certain Wells Fargo tax-deferred retirement plans) are not subject
to the minimum initial investment amount or the subsequent investment amount
requirements. If you have questions regarding purchases of shares please call
1-800-222-8222. If you have questions regarding ExpressInvest please call
1-800-237-8472. For additional information on tax-deferred accounts, please
refer to the section "How to Buy Shares" under Tax-Deferred Retirement Plans or
contact a Shareholder Servicing Agent.
PROSPECTUS 32
<PAGE> 41
SALES CHARGES
Set forth below is a Front-end Sales Charge Schedule listing the front-end
sales charges applicable to purchases of Class A Shares of the Aggressive
Growth, Diversified Income and Growth and Income Funds. Front-end sales charges
are not charged on purchases of the Corporate Stock Fund. As shown below,
reductions in the rate of front-end sales charges ("Volume Discounts") are
available as you purchase additional shares (other than Class B Shares). You
should consider the front-end sales charge information set forth below and the
other information contained in this Prospectus when making your investment
decisions.
The following is the Front-end Sales Charge Schedule for purchasing Class A
Shares of the Aggressive Growth, Diversified Income and Growth and Income Funds:
<TABLE>
<CAPTION>
FRONT-END FRONT-END
SALES CHARGE SALES CHARGE DEALER ALLOWANCE
AS % OF AS % OF NET AS % OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- -------------------------------------- --------------- ----------------
<S> <C> <C> <C>
Less than $50,000....... 4.50% 4.71% 4.00%
$50,000 up to $99,999... 4.00 4.17 3.55
$100,000 up to
$249,999.............. 3.50 3.63 3.125
$250,000 up to
$499,999.............. 3.00 3.09 2.65
$500,000 up to
$999,999.............. 2.00 2.04 1.75
$1,000,000 and over..... 1.00 1.01 0.85
</TABLE>
Class B Shares which are redeemed within one, two, three or four years from
the receipt of a purchase order affecting such shares are subject to a
contingent deferred sales charge equal to 3.00%, 2.00%, 1.00% and 1.00%,
respectively, of the dollar amount equal to the lesser of the NAV at the time of
purchase of the shares being redeemed or the NAV of such shares at the time of
redemption (the "NAV Amount"). Class B Shares of the Aggressive Growth,
Diversified Income and Growth and Income Funds are not subject to a front-end
sales charge. See "Investing in the Funds - Contingent Deferred Sales
Charges - Class B Shares."
If Class A Shares are purchased through a Selling Agent, Stephens reallows the
portion of the front-end sales charge shown above as the Dealer Allowance.
Stephens also compensates Selling Agents for sales of Class B Shares and is then
reimbursed out of Rule 12b-1 Fees and contingent deferred sales charges
applicable to such shares. When shares are purchased directly through the
Transfer Agent and no Selling Agent is involved with the purchase, the entire
sales charge is paid to Stephens. In addition, Stephens has established a
non-cash compensation program, pursuant to which broker/dealers or financial
institutions that sell shares of the Funds may earn additional compensation in
the form of trips to sales seminars or vacation destinations, tickets to
33 PROSPECTUS
<PAGE> 42
sporting events, theater or other entertainment, opportunities to participate in
golf or other outings and gift certificates for meals or merchandise.
A Selling Agent or Shareholder Servicing Agent and any other person entitled
to receive compensation for selling or servicing shares may receive different
compensation for selling or servicing Class A Shares as compared with Class B
Shares of the same fund.
REDUCED SALES CHARGE - CLASS A SHARES
Volume Discounts
The Volume Discounts described in the Front-end Sales Charge Schedule are
available to you based on the combined dollar amount you invest in shares (other
than Class B Shares) of one or more of the Company's funds which assess a
front-end sales charge (the "Load Funds"). The amount of Class B Shares you hold
is not considered in determining any Volume Discount.
Right of Accumulation
The Right of Accumulation allows you to combine the amount you invest in Class
A Shares of a Fund with the total NAV of shares (other than Class B Shares) in
any of the Load Funds to determine reduced front-end sales charges in accordance
with the above Front-end Sales Charge Schedule. In addition, you also may
combine the total NAV of shares (other than Class B Shares) which you currently
have invested in any other mutual fund that assesses a front-end sales charge
and is advised by Wells Fargo Bank and sponsored by Stephens. For example, if
you own Class A Shares of the Load Funds with an aggregate NAV of $90,000 and
you invest an additional $20,000 in Class A Shares of a Fund, the front-end
sales charge on the additional $20,000 investment would be 3.50% of the offering
price. To obtain such a discount, you must provide sufficient information at the
time of your purchase to verify that your purchase qualifies for the reduced
front-end sales charge. Confirmation of the order is subject to such
verification. The Right of Accumulation may be modified or discontinued at any
time without prior notice with respect to all subsequent shares purchased.
Letter of Intent
A Letter of Intent allows you to purchase Class A Shares of a Fund over a
13-month period at a reduced front-end sales charge based on the total amount of
Class A Shares you intend to purchase plus the total NAV of shares (other than
Class B Shares) in any of the Load Funds you already own. Each investment in
Class A Shares that you make during the period may be made at the reduced
front-end sales charge that is applicable to the total amount you intend to
invest. If you do not invest the total amount within the period, you must pay
the difference between the higher front-end sales charge rate that would have
been applied to the purchases you made and the reduced front-end sales charge
rate you have paid. The minimum initial investment for a Letter of Intent is 5%
PROSPECTUS 34
<PAGE> 43
of the total amount you intend to purchase, as specified in the Letter. Shares
of a Fund equal to 5% of the amount you intend to invest will be held in escrow
and, if you do not pay the difference within 20 days following the mailing of a
request, a sufficient amount of escrowed shares will be redeemed for payment of
the additional front-end sales charge. Dividends and capital gains paid on such
shares held in escrow will be reinvested in additional Fund shares.
Reinvestment
You may reinvest proceeds from a redemption of Class A Shares in Class A
Shares of a Fund or shares of another of the Company's funds registered in your
state of residence at NAV, without a front-end sales charge, within 120 days
after your redemption. However, if the other investment portfolio charges a
front-end sales charge that is higher than the front-end sales charge that you
have paid in connection with the Class A Shares you have redeemed, you must pay
the difference between the dollar amount of the two front-end sales charges. You
may reinvest at this NAV price up to the total amount of the redemption
proceeds. A written purchase order for the shares must be delivered to the
Company, a Selling Agent, a Shareholder Servicing Agent, or the Transfer Agent
at the time of reinvestment.
If you realized a gain on your redemption, your reinvestment would not alter
the amount of any federal capital gains tax you pay on the gain. If you realized
a loss on your redemption, your reinvestment may cause some or all of the loss
to be disallowed as a tax deduction, depending on the number of shares you
purchase by reinvestment and the period of time that elapses after the
redemption and which Fund's shares are purchased; although for tax purposes, the
amount disallowed is added to the cost of the shares you acquire upon the
reinvestment.
Reductions for Families or Fiduciaries
Reductions in front-end sales charges apply to purchases by a single "person,"
including an individual, members of a family unit, consisting of a husband, wife
and children under the age of 21 purchasing securities for their own account, or
a trustee or other fiduciary purchasing for a single fiduciary account or single
trust estate.
Waivers for Investments of Proceeds From Other Investments
Purchases may be made at NAV, without a front-end sales charge, to the extent
that: (i) you are investing proceeds from a redemption of (a) shares of another
open-end investment company or (b) units of a unit investment trust sold through
Wells Fargo Securities, Inc., (ii) on which you paid a front-end sales charge,
and (iii) such redemption occurred within thirty (30) days prior to the date of
the purchase order. You must notify the Fund and/or the Transfer Agent at the
time you place such purchase order of your eligibility for the waiver of
front-end sales charges and provide satisfactory evidence thereof (e.g., a
confirmation of the redemption and the sales charges paid).
35 PROSPECTUS
<PAGE> 44
Front-end sales charges will not be waived to the extent the redemption proceeds
are from a redemption of shares of another open-end investment company that is
affiliated with the Company on which you paid a contingent deferred sales charge
upon redemption.
Reductions for Qualified Groups
Reductions in front-end sales charges also apply to purchases by individual
members of a "qualified group." The reductions are based on the aggregate dollar
amount of Class A Shares purchased by all members of the qualified group. For
purposes of this paragraph, a qualified group consists of a "company," as
defined in the Investment Company Act of 1940 (the "1940 Act"), which has been
in existence for more than six months and which has a primary purpose other than
acquiring shares of a Fund at a reduced sales charge, and the "related parties"
of such company. For purposes of this paragraph, a "related party" of a company
is: (i) any individual or other company who directly or indirectly owns,
controls or has the power to vote 5% percent or more of the outstanding voting
securities of such company; (ii) any other company of which such company
directly or indirectly owns, controls or has the power to vote 5% or more of its
outstanding voting securities; (iii) any other company under common control with
such company; (iv) any executive officer, director or partner of such company or
of a related party; and (v) any partnership of which such company is a partner.
Investors seeking to rely on their membership in a qualified group to purchase
shares at a reduced sales load must provide evidence satisfactory to the
Transfer Agent of the existence of a bona fide qualified group and their
membership therein.
Waivers for Certain Parties
Class A Shares of the Funds may be purchased at NAV, without a front-end sales
charge, by directors, officers and employees (and their spouses, parents,
children and siblings) of the Company, Stephens, its affiliates and Selling
Agents. Class A Shares of the Funds also may be purchased at NAV, without a
front-end sales charge, by present and retired directors, officers and employees
(and their spouses, parents, children and siblings) of Wells Fargo Bank and its
affiliates if Wells Fargo Bank and/or the respective affiliates agree. Class A
Shares of such Funds also may be purchased at NAV, without a front-end sales
charge, by employee benefit and thrift plans for such persons and to investment
advisory, trust or other fiduciary account, including certain Plan Accounts,
that are maintained, managed or advised by Wells Fargo Bank or its affiliates
("Fiduciary Accounts"). Class A Shares of the Aggressive Growth Fund are
available, without a front-end sales charge, to institutions purchasing shares
for the sole purpose of creating a unit investment trust for exclusive
distribution through Wells Fargo Securities Inc. In addition, you may purchase
Class A Shares of the Funds at NAV, without a front-end sales charge, with
proceeds from a required minimum distribution from any Individual Retirement
Account ("IRA"), Simplified Employee Pension Plan or other self-directed
retirement plan for which Wells Fargo Bank serves as trustee, provided that the
proceeds
PROSPECTUS 36
<PAGE> 45
are invested in the Funds within 30 days of such distribution and such
distribution is required as a result of reaching age 70 1/2.
CONTINGENT DEFERRED SALES CHARGE - CLASS B SHARES
Class B Shares of the Multi-Class Funds may be subject to contingent deferred
sales charges, but are not subject to front-end sales charges. Class B Shares
which are redeemed within one, two, three or four years from the receipt of a
purchase order for such shares are subject to a contingent deferred sales charge
equal to 3.00%, 2.00%, 1.00% and 1.00%, respectively, of the NAV Amount.
Contingent deferred sales charges will not be imposed on amounts representing
increases in NAV above the NAV at the time of purchase and will not be assessed
on Class B Shares purchased through reinvestment of dividends or capital gain
distributions. Class B Shares automatically convert into Class A Shares of the
same Fund six years after the end of the month in which such Class B Shares were
acquired.
The amount of a contingent deferred sales charge, if any, paid upon redemption
of Class B Shares is determined in a manner designed to result in the lowest
sales charge rate being assessed. When a redemption request is made, Class B
Shares acquired pursuant to the reinvestment of dividends and capital gain
distributions are considered to be redeemed first. After this, Class B Shares
are considered redeemed on a first-in, first-out basis so that Class B Shares
held for a longer period of time are considered redeemed prior to more recently
acquired Class B Shares. For a discussion of the interaction between the
optional Exchange Privilege and contingent deferred sales charges on Class B
Shares, see "Additional Shareholder Services - Exchange Privilege."
Contingent deferred sales charges are waived on redemptions of Class B Shares
of a Fund (i) following the death or disability (as defined in the Internal
Revenue Code of 1986, as amended (the "Code")) of a shareholder, (ii) to the
extent that the redemption represents a scheduled distribution from an
individual retirement account or other retirement plan to a shareholder who has
reached age 59 1/2, (iii) effected pursuant to the Company's right to liquidate
a shareholder's account if the aggregate NAV of the shareholder's account is
less than the minimum account size, or (iv) in connection with the combination
of the Company with any other registered investment company by a merger,
acquisition of assets, or by any other transaction.
In deciding whether to purchase Class A or Class B Shares, you should compare
the fees assessed on Class A Shares (including front-end sales charges) against
those assessed on Class B Shares (including potential contingent deferred sales
charges and higher Rule 12b-1 Fees than Class A Shares) in light of the amount
to be invested and the anticipated time that the shares will be owned. If your
purchase amount would qualify you for a reduced sales charge on Class A Shares,
you should consider carefully whether you would pay lower fees ultimately on
Class A Shares or on Class B Shares. (See "Investing In The Funds - Sales
Charges" for information on reduced sales charges for Class A Shares.)
37 PROSPECTUS
<PAGE> 46
You may buy shares of a Fund on any Business Day by any of the methods
described below. The Company reserves the right to reject any purchase order or
suspend sales at any time. Payment for orders that are not received is returned
after prompt inquiry. The issuance of shares is recorded on the Company's books,
and share certificates are not issued.
INITIAL PURCHASES BY WIRE
1. Complete an Account Application.
2. Instruct the wiring bank to transmit the specified amount in federal funds
to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000587
Attention: Stagecoach Funds (Name of Fund) (designate a Class, if applicable)
Account Name(s): Name(s) in which to be registered
Account Number: (if investing into an existing account)
3. A completed Account Application should be mailed, or sent by telefacsimile
with the original subsequently mailed, to the following address immediately
after the funds are wired and must be received and accepted by the Transfer
Agent before an account can be opened:
Wells Fargo Bank, N.A.
Stagecoach Shareholder Services
P.O. Box 7066
San Francisco, California 94120-7066
Telefacsimile: 1-415-543-9538
4. Share purchases are effected at the public offering price or, in the case of
Class B Shares, at the NAV next determined after the Account Application is
received and accepted.
INITIAL PURCHASES BY MAIL
1. Complete an Account Application. Indicate the services to be used.
2. Mail the Account Application and a check for $1,000 or more payable to
"Stagecoach Funds (Name of Fund) (designate a Class, if applicable)," to the
address set forth in "Initial Purchases by Wire."
3. Share purchases are effected at the public offering price or, in the case of
Class B Shares, at the NAV next determined after the Account Application is
received and accepted.
PROSPECTUS 38
<PAGE> 47
AUTOSAVER PLAN PURCHASES
The Company's AutoSaver Plan provides you with a convenient way to establish
and automatically add to a Fund account on a monthly basis. To participate in
the AutoSaver Plan, you must specify an amount ($100 or more) to be withdrawn
automatically by the Transfer Agent on a monthly basis from an account with a
bank, which is designated in your Account Application and which is approved by
the Transfer Agent ("Approved Bank Account"). You may open an Approved Bank
Account with Wells Fargo Bank. The Transfer Agent withdraws and uses this amount
to purchase specified Fund shares on your behalf on or about the day that you
have selected or, if you have not selected a day, on or about the 20th day of
each month. The Transfer Agent requires a minimum of ten (10) Business Days to
implement your AutoSaver Plan purchases. There are no separate fees charged to
you by the Funds for participating in the AutoSaver Plan.
You may change your investment amount, the date on which your AutoSaver
Purchase is effected, suspend purchases or terminate your election at any time
by providing notice to the Transfer Agent at least five (5) Business Days prior
to any scheduled transaction.
TAX-DEFERRED RETIREMENT PLANS
You may be entitled to invest in the Funds through a Plan Account or other
tax-deferred retirement plan. Contact a Shareholder Servicing Agent or a Selling
Agent (such as Wells Fargo Bank) for materials describing Plan Accounts
available through it, and the benefits, provisions, and fees of such Plan
Accounts. The minimum initial investment amount for Fund shares acquired through
a Plan Account is $250 (the minimum initial investment amount is not applicable
if you participate in ExpressInvest through a Plan Account).
Pursuant to the Code, individuals who are not active participants (and who do
not have a spouse who is an active participant) in certain types of retirement
plans ("qualified retirement plans") may deduct contributions to an IRA, up to
specified limits. Investment earnings in the IRA will be tax-deferred until
withdrawn, at which time the individual may be in a lower tax bracket.
The maximum annual deductible contribution to an IRA for individuals under age
70 1/2 is 100% of includible compensation up to a maximum of (i) $2,000 for
single individuals; (ii) $4,000 for a married couple when both spouses earn
income; and (iii) $2,250 when one spouse earns, or elects for IRA purposes to be
treated as earning, no income (together the "IRA contribution limits").
The IRA deduction is also available for single individual taxpayers and
married couples who are active participants in qualified retirement plans but
who have adjusted gross incomes which do not exceed certain specified limits. If
their adjusted gross income exceeds these limits, the amount of the deductible
contribution is phased down and eventually eliminated.
39 PROSPECTUS
<PAGE> 48
Any individual who works may make nondeductible contributions to an IRA in
addition to any deductible contributions. Total aggregate deductible and
nondeductible contributions are limited to the IRA contribution limits discussed
above. Nondeductible contributions in excess of the applicable IRA contribution
limit are "nondeductible excess contributions." In addition, contributions made
to an IRA for the year in which an individual attains the age of 70 1/2, or any
year thereafter, are also nondeductible excess contributions. Nondeductible
excess contributions are subject to a 6% excise tax penalty which is charged
each year that the nondeductible excess contribution remains in the IRA.
An employer also may contribute to an individual's IRA by establishing a
Simplified Employee Pension Plan known as a "SEP-IRA" through a Shareholder
Servicing Agent or a Selling Agent. Participating employers may make an annual
contribution in an amount up to the lesser of 15% of earned income or $30,000,
subject to certain provisions of the Code. Investment earnings will be
tax-deferred until withdrawn.
The foregoing discussion regarding IRAs is based on the Code and federal
regulations in effect as of the date of this Prospectus and summarizes only some
of the important federal tax considerations generally affecting IRA
contributions made by individuals or their employers. It is not intended as a
substitute for careful tax planning. Investors should consult their tax advisors
with respect to their specific tax situations as well as with respect to state
and local taxes. Further federal tax information is contained under the heading
"Taxes" in this Prospectus and in the SAI for each Fund.
A Shareholder Servicing Agent or Selling Agent also may offer other types of
tax-deferred or tax-advantaged plans, including a Keogh retirement plan for
self-employed professional persons, sole proprietors and partnerships.
Application materials for opening a tax-deferred retirement plan can be
obtained from a Shareholder Servicing Agent or a Selling Agent. Return your
completed tax-deferred retirement plan application to your Shareholder Servicing
Agent or a Selling Agent for approval and processing. If your tax-deferred
retirement plan application is incomplete or improperly filled out, there may be
a delay before a Fund account is opened. You should ask your Shareholder
Servicing Agent or Selling Agent about the investment options available to your
tax-deferred retirement plan, since some of the funds in the Stagecoach Family
of Funds may be unavailable as options. Moreover, certain features described
herein, such as the AutoSaver Plan and the Systematic Withdrawal Plan, may not
be available to individuals or entities who invest through a tax-deferred
retirement plan.
ADDITIONAL PURCHASES
You may make additional purchases of $100 or more by instructing the Funds'
Transfer Agent to debit your Approved Bank Account, by wire by instructing the
wiring bank to transmit the specified amount as directed above for initial
purchases, or by mail with a
PROSPECTUS 40
<PAGE> 49
check payable to "Stagecoach Funds (Name of Fund) (designate a Class, if
applicable)" to the address set forth under "Initial Purchases by Wire." Write
your Fund account number on the check and include the detachable stub from your
Statement of Account or a letter providing your Fund account number.
PURCHASES THROUGH SELLING AGENTS
You may place a purchase order for shares of the Funds through a broker/dealer
or financial institution which has entered into a Selling Agreement with
Stephens, as the Funds' Distributor ("Selling Agent"). If your order is placed
by the close of the NYSE, the purchase order generally will be executed on the
same day if the order is received by the Transfer Agent before the close of
business. If your purchase order is received by a Selling Agent after the close
of the NYSE or by the Transfer Agent after the close of business, then your
purchase order will be executed on the next Business Day following the day your
order is placed. The Selling Agent is responsible for the prompt transmission of
your purchase order to the Funds. Because payment for shares of the Funds will
not be due until settlement date, the Selling Agent might benefit from the
temporary use of your payment. A financial institution which acts as a Selling
Agent, Shareholder Servicing Agent or in certain other capacities may be
required to register as a dealer pursuant to applicable state securities laws,
which may differ from federal law and any interpretations expressed herein.
PURCHASES THROUGH SHAREHOLDER SERVICING AGENTS
Purchase orders for shares of the Funds may be transmitted to the Transfer
Agent through any entity that has entered into a Shareholder Servicing Agreement
with the Funds ("Shareholder Servicing Agent"), such as Wells Fargo Bank. See
"Management, Distribution and Servicing Fees - Shareholder Servicing Agent."
The Shareholder Servicing Agent may transmit a purchase order to the Transfer
Agent, on your behalf, including a purchase order for which payment is to be
transferred from your Approved Bank Account or wired from a financial
institution. If your order is transmitted by the Shareholder Servicing Agent, on
your behalf, to the Transfer Agent before the close of the NYSE, the purchase
order generally will be executed on the same day. If your Shareholder Servicing
Agent transmits your purchase order to the Transfer Agent after the close of the
NYSE, then your order generally will be executed on the next Business Day
following the day your order is received. The Shareholder Servicing Agent is
responsible for the prompt transmission of your purchase order to the Transfer
Agent.
STATEMENTS AND REPORTS
The Funds, or a Shareholder Servicing Agent on their behalf, will typically
send you a confirmation or statement of your account after every transaction
that affects your share balance or your Fund account registration. The Funds do
not issue share certificates. A
41 PROSPECTUS
<PAGE> 50
statement with tax information for the previous year will be mailed to you by
January 31 of each year, and also will be filed with the IRS. At least twice a
year, you will receive financial statements.
DIVIDENDS
The Funds (other than the Aggressive Growth Fund) intend to declare quarterly
dividends of substantially all of their net investment income. The Aggressive
Growth Fund intends to declare annual dividends of substantially all of its net
investment income. The Funds will distribute any capital gains at least
annually. You have several options for receiving dividends and capital gain
distributions. They are discussed under "Additional Shareholder
Services - Dividend and Distribution Options."
Dividends and capital gain distributions have the effect of reducing the NAV
per share by the amount distributed. Although such dividends and distributions
paid to you on newly issued shares shortly after your purchase would represent,
in substance, a return of your capital, such dividends and distributions would
ordinarily be taxable to you.
Net investment income available for distribution to the holders of Class B
Shares is reduced by the amount of the higher Rule 12b-1 Fee payable on such
shares. Other expenses, such as state securities registration fees and transfer
agency fees, that are attributable to a particular class also may affect the
relative dividends and/or capital gains distributions of Class A and Class B
Shares.
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares in a Fund on any Business Day.
Your shares will be redeemed at the NAV next calculated after the Funds have
received your redemption request in proper form. Redemption proceeds may be more
or less than the amount invested and, therefore, a redemption of shares may
result in a gain or loss for federal and state income tax purposes. The Funds
ordinarily remit redemption proceeds, net of any contingent deferred sales
charge applicable with respect to Class B Shares (the "redemption proceeds"),
within seven days after your redemption order is received in proper form, unless
the SEC permits a longer period under extraordinary circumstances. Such
extraordinary circumstances could include a period during which an emergency
exists as a result of which (a) disposal by a Fund of securities owned by it is
not reasonably practicable or (b) it is not reasonably practicable for a Fund
fairly to determine the value of its net assets, or a period during which the
SEC by order permits deferral of redemptions for the protection of security
holders of such Fund. In addition, a Fund may hold payment on your redemptions
until reasonably satisfied that your investments made by check have been
collected (which can take up to 10 days from the
PROSPECTUS 42
<PAGE> 51
purchase date). To ensure acceptance of your redemption request, please follow
the procedures described below. Although it is not the Funds' current intention,
the Funds may make payment of redemption proceeds in securities if conditions
warrant, subject to regulation by some state securities commissions. In
addition, the Funds reserve the right to impose charges for wiring redemption
proceeds.
Due to the high cost of maintaining Fund accounts with small balances, the
Funds reserve the right to close your account and send you the proceeds if the
balance falls below the applicable minimum balance because of a redemption
(including a redemption of shares of a Fund after an investor has made only the
applicable minimum initial investment). However, you will be given 30 days'
notice to make an additional investment to increase your account balance to
$1,000 or more. Plan Accounts are not subject to minimum Fund account balance
requirements. For a discussion of applicable minimum balance requirements, see
"Investing in the Funds -- How To Buy Shares."
REDEMPTIONS BY TELEPHONE
Telephone redemption or exchange privileges are made available to you
automatically upon opening an account, unless you specifically decline the
privileges. Telephone redemption privileges authorize the Transfer Agent to act
on telephone instructions from any person representing himself or herself to be
the investor and reasonably believed by the Transfer Agent to be genuine. The
Company will require the Transfer Agent to employ reasonable procedures, such as
requiring a form of personal identification, to confirm that instructions are
genuine and, if it does not follow such procedures, the Company and the Transfer
Agent may be liable for any losses due to unauthorized or fraudulent
instructions. Neither the Company nor the Transfer Agent will be liable for
following telephone instructions reasonably believed to be genuine.
REDEMPTIONS BY MAIL
1. Write a letter of instruction. Indicate the Class and the dollar amount or
number of Fund shares you want to redeem. Refer to your Fund account number
and give your social security or taxpayer identification number (where
applicable).
2. Sign the letter in exactly the same way the account is registered. If there
is more than one owner of the shares, all must sign.
3. Signature guarantees are not required for redemption requests unless
redemption proceeds of $5,000 or more are to be paid to someone other than
yourself at your address of record or your Approved Bank Account, or other
unusual circumstances exist which cause the Transfer Agent to determine that
a signature guarantee is necessary or prudent to protect against unauthorized
redemption requests. If required, a signature must be guaranteed by an
"eligible guarantor institution," which includes a commercial bank that is an
FDIC member, a trust company, a member firm of a domestic stock exchange, a
savings association, or a credit union
43 PROSPECTUS
<PAGE> 52
that is authorized by its charter to provide a signature guarantee. Signature
guarantees by notaries public are not acceptable. Further documentation may
be requested from corporations, administrators, executors, personal
representatives, trustees or custodians.
4. Mail your letter to the Transfer Agent at the mailing address set forth under
"Investing in the Funds - Initial Purchases by Wire."
Unless other instructions are given in proper form, a check for your net
redemption proceeds will be sent to your address of record.
EXPEDITED REDEMPTIONS BY MAIL OR TELEPHONE
You may request an expedited redemption of shares of a Fund by letter, in
which case your receipt of redemption proceeds, but not the Fund's receipt of
your redemption request, would be expedited. In addition, you also may request
an expedited redemption of shares of a Fund by telephone on any Business Day, in
which case both your receipt of redemption proceeds and the Fund's receipt of
your redemption request would be expedited. You may request expedited redemption
by telephone only if the total value of the shares redeemed is $100 or more.
You may request expedited redemption by telephone by calling the Transfer
Agent at the telephone number listed on your transaction confirmation or by
calling 1-800-222-8222.
You may request expedited redemption by mail by mailing your expedited
redemption request to the Transfer Agent at the mailing address set forth under
"Investing in the Funds - Initial Purchases by Wire."
Upon request, net redemption proceeds of your expedited redemptions of $5,000
or more will be wired or credited to an Approved Bank Account designated in your
Account Application or wired to the Selling Agent designated in your Account
Application. The Company reserves the right to impose a charge for wiring
redemption proceeds. When proceeds of your expedited redemption are to be paid
to someone else, to an address other than that of record, or to your Approved
Bank Account or Selling Agent that you have not predesignated in your Account
Application, your expedited redemption request must be made by letter and the
signature(s) on the letter may be required to be guaranteed, regardless of the
amount of the redemption. If your expedited redemption request is received by
the Transfer Agent by the close of the NYSE on a Business Day, your redemption
proceeds will be transmitted to your Approved Bank Account or Selling Agent on
the next Business Day (assuming your investment check has cleared as described
above), absent extraordinary circumstances. Such extraordinary circumstances
could include those described above as potentially delaying redemptions, and
also could include situations involving an unusually heavy volume of wire
transfer orders on a national or regional basis or communication or transmittal
delays that could cause a brief delay in the wiring or crediting of funds. A
check for net
PROSPECTUS 44
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redemption proceeds will be mailed to your address of record or, at your
election, credited to your Approved Bank Account.
During periods of drastic economic or market activity or changes, you may
experience problems implementing an expedited redemption by telephone. In the
event you are unable to reach the Transfer Agent by telephone, you should
consider using overnight mail to implement an expedited redemption. The Funds
reserve the right to modify or terminate the expedited telephone redemption
privilege at any time.
SYSTEMATIC WITHDRAWAL PLAN
The Company's Systematic Withdrawal Plan provides you with a convenient way to
have shares of a Fund redeemed from your account and the net redemption proceeds
distributed to you on a monthly basis. You may participate in the Systematic
Withdrawal Plan only if you have a Fund account valued at $10,000 or more as of
the date of your election to participate, your dividends and capital gain
distributions are being reinvested automatically and you are not participating
in the AutoSaver Plan at any time while participating in the Systematic
Withdrawal Plan. You specify an amount ($100 or more) to be distributed by check
to your address of record or deposited in your Approved Bank Account. The
Transfer Agent redeems sufficient shares and mails or deposits your net
redemption proceeds as instructed on or about the fifth Business Day prior to
the end of each month. There are no separate fees charged to you by the Funds
for participating in the Systematic Withdrawal Plan. However, you should not
participate in the Systematic Withdrawal Plan if you also are purchasing shares
of a Fund subject to a sales charge.
It may take up to ten (10) days after receipt of your request to establish
your participation in the Systematic Withdrawal Plan. You may change your
withdrawal amount, suspend withdrawals or terminate your election at any time by
notifying the Transfer Agent at least five (5) Business Days prior to any
scheduled transaction. Your participation in the Systematic Withdrawal Plan will
be terminated automatically if your Fund account is closed, or, in some cases,
if your Approved Bank Account is closed.
REDEMPTIONS THROUGH SELLING AGENTS
If your redemption order is received by a Selling Agent before the close of
the NYSE and received by the Transfer Agent before the close of business on the
same day, the order will be executed at the NAV determined as of the close of
the NYSE on that day. If your redemption order is received by a Selling Agent
after the close of the NYSE, or not received by the Transfer Agent prior to the
close of business, your order will be executed at the NAV determined as of the
close of the NYSE on the next Business Day. The Selling Agent is responsible for
the prompt transmission of your redemption order to the Funds.
45 PROSPECTUS
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Unless you have made other arrangements with the Selling Agent, and the
Transfer Agent has been informed of such arrangements, net redemption proceeds
of a redemption order made by you through a Selling Agent will be credited to
your Approved Bank Account. If no such account is designated, a check for the
net redemption proceeds will be mailed to your address of record or, if such
address is no longer valid, the net proceeds will be credited to your account
with the Selling Agent. You may request a check from the Selling Agent or elect
to retain the net redemption proceeds in such account. The Selling Agent may
charge you a service fee. In addition, it may benefit from the use of your
redemption proceeds until the check it issues to you has cleared or until such
proceeds have been disbursed or reinvested on your behalf.
REDEMPTIONS THROUGH SHAREHOLDER SERVICING AGENTS
You may request a redemption of shares of a Fund through your Shareholder
Servicing Agent. Any redemption request made by telephone through your
Shareholder Servicing Agent must redeem shares with a total value equal to $100
or more. If your redemption order is transmitted by the Shareholder Servicing
Agent, on your behalf, to the Transfer Agent before the close of the NYSE, the
redemption order will be executed at the NAV determined as of the close of the
NYSE on that day. If your Shareholder Servicing Agent transmits your redemption
order to the Transfer Agent after the close of the NYSE, then your order will be
executed on the next Business Day following the date your order is received. The
Shareholder Servicing Agent is responsible for the prompt transmission of your
redemption order to the Funds.
Unless you have made other arrangements with your Shareholder Servicing Agent,
and the Transfer Agent has been informed of such arrangements, net redemption
proceeds of a redemption order made by you through your Shareholder Servicing
Agent will be credited to your Approved Bank Account. If no such account is
designated, a check for the net redemption proceeds will be mailed to your
address of record or, if such address is no longer valid, the net redemption
proceeds will be credited to your account with your Shareholder Servicing Agent
or to another account designated in your agreement with your Shareholder
Servicing Agent. The shareholder servicing agent may charge you a fee. In
addition, the shareholder servicing agent may benefit from the use of proceeds
credited to your account until any check it issues to you has cleared or until
such proceeds have been disbursed or reinvested on your behalf.
PROSPECTUS 46
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ADDITIONAL SHAREHOLDER SERVICES
The Company offers you a number of optional services. As noted above, you can
take advantage of the AutoSaver Plan, Tax-Deferred Retirement Plans, the
Systematic Withdrawal Plan and Expedited Redemptions by Letter and Telephone. In
addition, the Funds offer you several dividend and distribution payment options
and an exchange privilege, which are described below.
DIVIDEND AND DISTRIBUTION OPTIONS
When you fill out your Account Application, you can choose from the following
dividend and distribution options listed below. If you have questions about the
dividend and distribution options available to you, please call 1-800-222-8222.
A. The Automatic Reinvestment Option provides for the reinvestment of your
dividends and capital gain distributions in additional shares of the same class
of the Fund which paid such dividends or capital gain distributions. Dividends
and distributions declared in a month generally are reinvested in additional
shares at NAV on the last business day of such month. You are assigned this
option automatically if you make no choice on your Account Application.
B. The Fund Purchase Option lets you use your dividends and/or capital gain
distributions from the Funds to purchase, at NAV, shares of another fund in the
Stagecoach Family of Funds with which you have an established account that has
met the applicable minimum initial investment requirement. Dividends and
distributions paid on Class A or Class B Shares may be invested in Class A or
Class B Shares, respectively, of another fund, in Retail Shares of another fund,
in Class A Shares of the Money Market Mutual Fund or in shares of the California
Tax-Free Money Market Mutual Fund or National Tax-Free Money Market Mutual Fund
(the California Tax-Free Money Market Mutual Fund, Money Market Mutual Fund
(Class A Shares) and National Tax-Free Money Market Mutual Fund are,
collectively the "Money Market Mutual Funds"). Dividends and distributions paid
on Class A Shares may also be invested in shares of a non-money market fund with
a single class of shares (a "single class fund"). Dividends and distributions
paid on Class B Shares may not be invested in shares of a single class fund.
Dividends and distributions paid on shares of the Corporate Stock Fund may be
invested in Class A Shares, shares of a single class fund or shares of one of
the Money Market Mutual Funds.
C. The Automatic Clearing House Option permits you to have dividends and
capital gain distributions deposited in your Approved Bank Account. In the event
your Approved Bank Account is closed and such distribution is returned to the
Funds' dividend disbursing agent, the distribution will be reinvested in your
Fund account at the NAV next determined after the distribution has been
returned. Your Automatic Clearing House Option will be converted to the
Automatic Reinvestment Option.
47 PROSPECTUS
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D. The Check Payment Option lets you receive a check for all dividends and
capital gain distributions, which generally is mailed either to your designated
address or your Approved Bank Account shortly following declaration. If the U.S.
Postal Service cannot deliver your checks, or if your checks remain uncashed for
six months, those checks will be reinvested in your Fund account at the NAV next
determined after the earlier of the date the checks have been returned to the
dividend disbursing agent or the date six months after the payment of such
dividend or distribution. Your Check Payment Option will be converted to the
Automatic Reinvestment Option.
The Company takes reasonable efforts to locate investors whose checks are
returned or uncashed after six months.
EXCHANGE PRIVILEGE
Wells Fargo Bank advises a variety of other funds, each with its own
investment objective and policies. The exchange privilege is a convenient way to
buy shares in other funds of the Stagecoach Family of Funds that are registered
in your state of residence, and allows you to respond to changes in your
investment and savings goals or in market conditions. Class A and Class B Shares
of each Multi-Class Fund may be exchanged for Class A and Class B Shares,
respectively, of another fund, or for shares of one of the Money Market Mutual
Funds. Class A Shares may also be exchanged for shares of a single class fund or
for Retail Shares of another fund. Shares of the Corporate Stock Fund may be
exchanged for Class A Shares, shares of a single class fund or shares of one of
the Money Market Mutual Funds.
Before making an exchange from a Fund into another fund of the Stagecoach
Family of Funds, please observe the following:
- Obtain and carefully read the prospectus of the fund into which you want to
exchange.
- If you exchange into another fund with a front-end sales charge, you must
pay the difference between that fund's sales charge and any sales charge
you already have paid in connection with the shares you are exchanging.
- If you exchange Class B Shares for Class B Shares of another fund or for
shares of one of the Money Market Mutual Funds, a contingent deferred sales
charge will not be imposed upon the exchange.
- Each exchange, in effect, represents the redemption of shares of one fund
and the purchase of shares of another, which may produce a gain or loss for
federal income tax purposes. A confirmation of each exchange transaction
will be sent to you.
- The dollar amount of shares you exchange generally must meet the minimum
initial and/or subsequent investment amounts of the fund from which you are
exchanging. If the value of your investment in the shares of the fund from
which you are exchanging has been reduced below the minimum initial
investment
PROSPECTUS 48
<PAGE> 57
amount by changes in market conditions or sales charges (and not by
redemptions), you may carry over the shares you acquire.
- The Company reserves the right to limit the number of times shares may be
exchanged between funds, to reject any telephone exchange order, or
otherwise to modify or discontinue exchange privileges at any time. Under
SEC rules, subject to limited exceptions, the Company must notify you 60
days before it modifies or discontinues the exchange privilege.
- If you exchange Class B Shares for Class B Shares of another fund, or for
shares of one of the Money Market Mutual Funds, the remaining period of
time (if any) that the contingent deferred sales charge applicable to such
shares is in effect will be computed from the time of initial purchase of
the previously held shares. For example, if you exchange Class B Shares of
a Fund for shares of the California Tax-Free Money Market Mutual Fund and
redeem those shares of the California Tax-Free Money Market Mutual Fund
within four years of the purchase of the exchanged Class B Shares, you will
be required to pay a contingent deferred sales charge equal to the charge
which would have applied had you redeemed the original Class B Shares at
that time.
- If you exchange Class B Shares for shares of one of the Money Market Mutual
Funds as described above, you subsequently may re-exchange the acquired
shares only for Class B Shares of one of the Company's funds or for shares
of one of the Money Market Mutual Funds.
The procedures applicable to Fund share redemptions also apply to Fund share
exchanges.
To exchange shares, write the Transfer Agent at the mailing address under
"Investing in the Funds - Initial Purchases by Wire" or (unless you have
specifically declined telephone exchange privileges) call the Transfer Agent at
the telephone number listed on your transaction confirmation, or contact your
Shareholder Servicing Agent or Selling Agent. The procedures applicable to
telephone redemptions, including the discussion regarding the responsibility for
the authenticity of telephone instructions, are also applicable to telephone
exchange requests. See "How to Redeem Shares - Expedited Redemptions by Letter
and Telephone."
CONVERSION
Class B Shares of a Fund that have been outstanding for six years after the
end of the month in which the shares were initially purchased will automatically
convert to Class A Shares of such Fund and, consequently, will no longer be
subject to the higher Rule 12b-1 Fees applicable to Class B Shares. Such
conversion will be on the basis of the relative NAV of the two Classes, without
the imposition of any sales charge or other charge except that the lower Rule
12b-1 Fees applicable to Class A Shares shall thereafter be applied to such
converted shares. Because the per share NAV of the Class A
49 PROSPECTUS
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Shares may be higher than that of the Class B Shares at the time of conversion,
a shareholder may receive fewer Class A Shares than the number of Class B Shares
converted, although the dollar value will be the same. Reinvestments of
dividends and distributions on Class B Shares will be considered new purchases
for purposes of the conversion feature. A conversion should not produce a gain
or loss for federal income tax purposes.
If a shareholder effects one or more exchanges among Class B Shares of any
fund or among shares of the Money Market Mutual Funds during the six-year
period, and exchanges back into Class B Shares, the holding period for shares so
exchanged will be counted toward the six-year period and any Class B Shares held
at the end of six years will be converted into Class A Shares.
MANAGEMENT, DISTRIBUTION
AND SERVICING FEES
INVESTMENT ADVISER
Wells Fargo Bank, as the investment adviser to the Diversified Income and
Growth and Income Funds and the Capital Appreciation and Corporate Stock Master
Portfolios, provides investment guidance and policy direction in connection with
the management of the Funds' and Master Portfolios' assets. Wells Fargo Bank
furnishes the Company's Board of Directors and the Master Trust's Board of
Trustees with periodic reports on the Funds' and Master Portfolios' investment
strategy and performance.
For its services as investment adviser to the Capital Appreciation Master
Portfolio and the Diversified Income Fund, Wells Fargo Bank is entitled to
monthly investment advisory fees at the annual rate of 0.50% of the Capital
Appreciation Master Portfolio's and the Diversified Income Fund's respective
average daily net assets. For its services as investment adviser to the
Corporate Stock Master Portfolio and the Growth and Income Fund, Wells Fargo
Bank is entitled to monthly investment advisory fees at the annual rate of 0.50%
of the first $250 million of such Master Portfolio's or Fund's average daily net
assets, 0.40% of the next $250 million, and 0.30% of the average daily net
assets in excess of $500 million. From time to time, Wells Fargo Bank may waive
its advisory fees in whole or in part. Any such waiver will reduce expenses of
the Funds, and, accordingly, have a favorable impact on the Funds' performance.
From time to time, each of the Funds, consistent with its investment objective,
policies and restrictions, may invest in securities of companies with which
Wells Fargo Bank has a lending relationship.
Wells Fargo Bank has delegated certain advisory responsibilities relating to
the Corporate Stock Master Portfolio to BGFA. Nevertheless, Wells Fargo Bank has
retained
PROSPECTUS 50
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continuing and exclusive authority over the management of such Master Portfolio,
and the investment and disposition of the Master Portfolio's assets, and Wells
Fargo Bank may reject any investment recommendations or decisions for the Master
Portfolio if Wells Fargo Bank determines that such recommendations or decisions
are not consistent with the best interests of the Master Portfolio. Wells Fargo
Bank has agreed to pay BGFA for its sub-advisory services an annual fee equal to
$40,000 plus .08% of the average daily net assets of the Master Portfolio.
Advisory Fees Paid During 1995. For the year ended December 31, 1995, the
Company paid to Wells Fargo Bank, on behalf of the Diversified Income and Growth
and Income Funds, an amount equal to 0.50% of the average daily net assets of
the Diversified Income and Growth and Income Funds, respectively, as
compensation for its services as investment adviser.
Prior to the Corporate Stock Fund's conversion to master/feeder structure,
Wells Fargo Bank provided investment advisory services directly to the Fund. For
its services as investment adviser, Wells Fargo Bank was entitled to receive a
monthly fee at the annual rate of 0.50% of the first $250 million of the Fund's
average daily net assets, 0.40% of the next $250 million, and 0.30% of the
Corporate Stock Fund's average daily net assets in excess of $500 million.
WFNIA, the sub-adviser to the Fund prior to January 1, 1996, was entitled to
receive from Wells Fargo Bank an annual fee equal to $40,000 plus .08% of the
average daily net assets of the Fund. For the year ended December 31, 1995, the
Company paid to Wells Fargo Bank, on behalf of the Corporate Stock Fund, an
amount equal to 0.50% of the average daily net assets of the Fund as
compensation for its services as investment adviser to the Fund. For the year
ended December 31, 1995, Wells Fargo Bank paid an amount equal to 0.09% of the
average daily net assets of the Fund to WFNIA as compensation for its services
as sub-adviser to the Fund.
Prior to February 20, 1996, the Strategic Growth Fund of Overland Express
Funds, Inc. (the Predecessor Fund to the Aggressive Growth Fund) directly
retained Wells Fargo Bank as investment adviser. For the year ended December 31,
1995, the Predecessor Fund paid Wells Fargo Bank an amount equal to 0.50% of its
average daily net assets as compensation for its advisory services.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank serves as custodian to each Fund, other than the Corporate
Stock Fund, for which BGI serves as Custodian. BGI, located at 45 Fremont
Street, San Francisco, California 94105, is a special purpose trust company that
is owned indirectly by Barclays Bank PLC. BGFA is a wholly owned subsidiary of
BGI.
Wells Fargo Bank serves as each Fund's transfer and dividend disbursing agent.
The transfer and dividend disbursing agency activities are performed at 525
Market Street, San Francisco, California 94105.
51 PROSPECTUS
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SHAREHOLDER SERVICING AGENT
The Funds have entered into Shareholder Servicing Agreements with Wells Fargo
Bank on behalf of each Class of the Funds, and may enter into similar agreements
with other entities. Under such agreements, Shareholder Servicing Agents
(including Wells Fargo Bank) agree, as agents for their customers, to provide
various administrative services with respect to Fund shares, such as maintaining
shareholder accounts and records, to assist shareholders with purchases,
exchanges and redemptions and to provide such other related services as the
Funds or a shareholder may reasonably request. For these services, a Shareholder
Servicing Agent receives a fee, which may be paid periodically, determined by a
formula based upon the number of accounts serviced by the Shareholder Servicing
Agent during the period for which payment is being made, the level of activity
in such accounts during such period and the expenses incurred by the Shareholder
Servicing Agent. In no event will the shareholder servicing fees charged to each
Class, as calculated on an annualized basis for each Fund's then current fiscal
year, exceed the lesser of (1) 0.30% of the average daily net assets
attributable to the shares of the Corporate Stock Fund or the Class A or Class B
Shares of the Diversified Income and Growth and Income Funds, or 0.25% of the
average daily net assets attributable to the Class A or B Shares of the
Aggressive Growth Fund, owned during the period for which payment is being made
by investors with whom the Shareholder Servicing Agent maintains a servicing
relationship, or (2) an amount which equals the maximum amount payable to the
Shareholder Servicing Agent under applicable laws, regulations or rules,
including the Rules of Fair Practice of the NASD ("NASD Rules"). In no event
will the portion of such fees that constitutes a "service fee," as that term is
used by the NASD, exceed 0.25% of the average net asset value attributable to
the Class A and Class B Shares of each Fund.
Shareholder Servicing Agents also may impose certain conditions on their
customers, subject to the terms of this Prospectus, in addition to or different
from those imposed by the Funds, such as requiring a higher minimum initial
investment or payment of a separate fee for additional services. Each
Shareholder Servicing Agent will be required to agree to disclose any fees it
may directly charge its customers who are shareholders of a Fund and to notify
them in writing at least 30 days before it imposes any transaction fees.
SPONSOR, ADMINISTRATOR AND DISTRIBUTOR
Subject to the overall supervision of the Company's Board of Directors,
Stephens provides the Funds with administrative services, including general
supervision of each Fund's operation, coordination of the other services
provided to each Fund, compilation of information for reports to the SEC and the
state securities commissions, preparation of proxy statements and shareholder
reports, and general supervision of data compilation in connection with
preparing periodic reports to the Company's Directors and officers. Stephens
also furnishes office space and certain facilities to
PROSPECTUS 52
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conduct each Fund's business, and compensates the Company's Directors, officers
and employees who are affiliated with Stephens. For these services, Stephens is
entitled to receive from each Fund a monthly fee at the annual rate of 0.03% of
each Fund's average daily net assets. From time to time, Stephens may waive its
fees from a Fund in whole or in part. Any such waiver will reduce a Fund's
expenses and, accordingly, have a favorable impact on such Fund's yield and
total return.
Stephens, as the principal underwriter of the Funds within the meaning of the
1940 Act, has entered into a Distribution Agreement with the Company pursuant to
which Stephens is responsible for distributing Class A and Class B Shares of the
Funds. The Company also has adopted a Distribution Plan on behalf of each Class
of shares of the Funds under the SEC's Rule 12b-1 ("Plans"). Under the Class A
Plan for each Fund, each Fund may defray all or part of the cost of preparing
and printing prospectuses and other promotional materials and of delivering
prospectuses and those materials to prospective Class A shareholders paying on
an annual basis up to 0.05% of the average daily net assets attributable to the
Class A Shares. The Class A Plans provide only for the reimbursement of actual
expenses. Under the Class B Plans, each Fund may defray all or part of such
costs and pay compensation to the Distributor and Selling Agents for sales
support services. The Class B Plans provide for payments, on an annual basis, of
up to 0.70% of the average daily net assets attributable to the Class B Shares
of each Fund. The Distribution Agreement provides that Stephens shall act as
agent for the Funds for the sale of their shares, and may enter into Selling
Agreements with Selling Agents that wish to make available shares of the Funds
to their respective customers. The Funds may participate in joint distribution
activities with any of the other funds of the Company, in which event, expenses
reimbursed out of the assets of the Funds may be attributable, in part, to the
distribution-related activities of another fund of the Company. Generally, the
expenses attributable to joint distribution activities will be allocated among
each Fund and the other funds of the Company in proportion to their relative net
asset sizes, although the Company's Board of Directors may allocate such
expenses in any other manner that it deems fair and equitable.
In addition, the Plans contemplate that, to the extent any fees payable
pursuant to a Shareholder Servicing Agreement (discussed above) are deemed to be
for distribution-related services, such payments are approved and payable
pursuant to the Plans, subject to any limits under applicable law, regulations
or rules, including the NASD Rules. Financial institutions acting as Selling
Agents, Shareholder Servicing Agents or in certain other capacities may be
required to register as dealers pursuant to applicable state securities laws
which may differ from federal law and any interpretations expressed herein.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective
fees in whole or in part and reimburse expenses payable to others. Any such
waivers or
53 PROSPECTUS
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reimbursements will reduce a Fund's expenses and, accordingly, have a favorable
impact on such Fund's performance. Except for the expenses borne by Wells Fargo
Bank and Stephens, the Company bears all costs of its operations, including
advisory, shareholder servicing, transfer agency, custody and administration
fees, payments pursuant to any Plans, fees and expenses of its independent
auditors and legal counsel, and any extraordinary expenses. Expenses
attributable to each Fund or Class are charged against the assets of the Fund or
Class. General expenses of the Company are allocated among all of the funds of
the Company, including the Funds, in a manner proportionate to the net assets of
each fund, on a transactional basis, or on such other basis as the Company's
Board of Directors deems equitable.
TAXES
The Company intends to qualify each Fund as a regulated investment company
under Subchapter M of the Code, as long as such qualification is in the best
interest of each Fund's shareholders. Each Fund will be treated as a separate
entity for tax purposes and thus the provisions of the Code applicable to
regulated investment companies will generally be applied to each Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for each Fund. By
complying with the applicable provisions of the Code, each Fund will not be
subject to federal income taxes with respect to net investment income and net
realized capital gains distributed to its shareholders. Each Fund intends to pay
out substantially all of its net investment income and net realized capital
gains (if any) for each year.
Dividends from net investment income (including net short-term capital gains,
if any) declared and paid by a Fund will be taxable as ordinary income to its
shareholders. Whether you take dividend payments and capital gain distributions
in cash or have them automatically reinvested in additional shares in the Fund,
they will be taxable to you. Generally, dividends and capital gain distributions
are taxable to shareholders when they are received. However, dividends and
capital gain 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 a Fund and received by the shareholders on December 31 of that
calendar year, if the dividends and capital gain distributions are actually paid
in the following January. Such dividends and capital gain distributions will,
accordingly, be taxable to the recipient shareholders in the year in which the
record date falls. You may be eligible to defer the taxation of dividend and
capital gain distributions on Fund shares which are held under a qualified
tax-deferred retirement plan. See "Investing in the Fund -- Tax-Deferred
Retirement Plans" above.
Corporate shareholders of the Funds may be eligible for the dividends-received
deduction on dividends paid out of a Fund's net investment income attributable
to dividends received from domestic corporations, which, if received directly,
would qualify
PROSPECTUS 54
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for such deduction. In order to qualify for the dividends-received deduction, a
corporate shareholder must hold Fund shares paying the dividends upon which the
deduction is based for at least 46 days.
The Aggressive Growth Fund and Corporate Stock Fund seek to qualify as
regulated investment companies by investing all of their assets in respective
Master Portfolios. Each Master Portfolio will be treated as a non-publicly
traded partnership rather than as a regulated investment company or a
corporation under the Code, and as such, shall not be subject to federal income
tax. As a non-publicly traded partnership, any interest, dividends, gains and
losses of each Master Portfolio shall be deemed to have been "passed through" to
its corresponding Fund (and other investors, if any) in proportion to the Fund's
ownership interest in the Master Portfolio. If the Master Portfolio were to
accrue but not distribute any interest, dividends or gains, the Fund would be
deemed to have realized and recognized its proportionate share of such income,
regardless of whether or not such income has been distributed by the Master
Portfolio. However, each Master Portfolio will seek to minimize recognition by
its corresponding Fund and other investors, if any, of interest, dividends and
gains without a corresponding distribution.
The Funds, or your Shareholder Servicing Agent on their behalf, will inform
you no later than January 31 of the amount and nature of such Fund's dividends
and capital gain distributions with respect to the previous year. You should
keep all statements you receive to assist in your personal record keeping. Each
Company is required to withhold, subject to certain exemptions, at a rate of 31%
on dividends paid or credited to individual shareholders of the Funds, if a
shareholder has not complied with IRS regulations or if a correct taxpayer
identification number, certified when required, is not on file with the Company
or the Transfer Agent. In connection with this withholding requirement, you will
be asked to certify on your Account Application that the social security or
taxpayer identification number you provide is correct and that you are not
subject to 31% back-up withholding for previous underreporting to the IRS.
Foreign shareholders may be subject to different tax treatment, including a
withholding tax. See "Federal Income Taxes -- Foreign Shareholders" in the SAIs.
The foregoing discussion regarding dividends, distributions and taxes is based
on tax laws and federal regulations which were in effect as of the date of this
Prospectus and summarizes only some of the important federal tax considerations
generally affecting the Funds and their shareholders. It is not intended as a
substitute for careful tax planning; you should consult your tax advisor with
respect to your specific tax situation as well as with respect to state and
local taxes. Further federal tax considerations are discussed in the SAI for
each Fund.
55 PROSPECTUS
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PROSPECTUS APPENDIX --
ADDITIONAL INVESTMENT POLICIES
FUND AND MASTER PORTFOLIO INVESTMENTS
Temporary Investments
From time to time, for temporary defensive purposes, the Funds and Master
Portfolios may hold assets in cash or make short-term investments, to the extent
appropriate, to maintain adequate liquidity for redemption requests or other
cash management needs or for temporary defensive purposes. The short-term
investments that the Funds and Master Portfolios may purchase for liquidity
purposes include U.S. Treasury bills, shares of other mutual funds and
repurchase agreements (as discussed below). Other permissible investments
include: (i) obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities (including government-sponsored enterprises)
("U.S. Government obligations"); (ii) negotiable certificates of deposit,
bankers' acceptances and fixed time deposits and other obligations of domestic
banks (including foreign branches) that have more than $1 billion in total
assets at the time of investment and are members of the Federal Reserve System
or are examined by the Comptroller of the Currency or whose deposits are insured
by the FDIC; (iii) commercial paper rated at the date of purchase "P-1" by
Moody's or "A-1+" or "A-1" by S&P, or, if unrated, of comparable quality as
determined by Wells Fargo Bank, as investment adviser; and (iv) short-term, U.S.
dollar-denominated obligations of foreign banks (including U.S. branches) that,
at the time of investment: (a) have more than $10 billion, or the equivalent in
other currencies, in total assets; (b) are among the 75 largest foreign banks in
the world as determined on the basis of assets; (c) have branches or agencies in
the United States; and (d) in the opinion of Wells Fargo Bank, as investment
adviser, are of comparable quality to obligations of U.S. banks which may be
purchased by the Fund or Master Portfolio.
U.S. Government Obligations
U.S. Government obligations include securities issued or guaranteed as to
principal and interest by the U.S. Government and supported by the full faith
and credit of the U.S. Treasury. U.S. Treasury obligations differ mainly in the
length of their maturity. Treasury bills, the most frequently issued marketable
government securities, have a maturity of up to one year and are issued on a
discount basis. U.S. Government obligations also include securities issued or
guaranteed by federal agencies or instrumentalities, including
government-sponsored enterprises. Some obligations of agencies or
instrumentalities of the U.S. Government are supported by the full faith and
credit of the United States or U.S. Treasury guarantees; others, by the right of
the issuer or guarantor to borrow from the U.S. Treasury; still others, by the
discretionary authority
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of the U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, only by the credit of the agency or instrumentality
issuing the obligation. In the case of obligations not backed by the full faith
and credit of the United States, the investor must look principally to the
agency or instrumentality issuing or guaranteeing the obligation for ultimate
repayment, which agency or instrumentality may be privately owned. There can be
no assurance that the U.S. Government will provide financial support to its
agencies or instrumentalities where it is not obligated to do so. In addition,
U.S. Government obligations are subject to fluctuations in market value due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
Floating- and Variable-Rate Instruments
Certain of the debt instruments that the Funds and Master Portfolios may
purchase bear interest at rates that are not fixed, but vary, for example with
changes in specified market rates or indices or specified intervals. Certain of
these instruments may carry a demand feature that would permit the holder to
tender them back to the issuer at par value prior to maturity. Wells Fargo Bank,
as investment adviser, will monitor on an ongoing basis the ability of an issuer
of a demand instrument to pay principal and interest on demand. Events affecting
the ability of the issuer of a demand instrument to make payment when due may
occur between the date a Fund or Master Portfolio elects to demand payment and
the date payment is due. Such events may affect the ability of the issuer of the
instrument to make payment when due, thereby affecting a Fund's or Master
Portfolio's ability to obtain payment at par, except when such demand
instruments permit same-day settlement. Demand instruments whose demand feature
is not exercisable within seven days may be treated as liquid, provided that an
active secondary market exists.
Repurchase Agreements
The Funds and Master Portfolios may enter into repurchase agreements wherein
the seller of a security to a Fund or Master Portfolio agrees to repurchase that
security from such Fund or Master Portfolio at a mutually agreed-upon time and
price. The period of maturity is usually quite short, often overnight or a few
days, although it may extend over a number of months. The Funds and Master
Portfolios may enter into repurchase agreements only with respect to U.S.
Government obligations and other obligations that could otherwise be purchased
by a Fund or Master Portfolio. All repurchase agreements will be fully
collateralized based on values that are marked to market daily. The maturities
of the underlying securities in a repurchase agreement transaction entered into
by a Fund or Master Portfolio may be greater than one year. If the seller
defaults and the value of the underlying securities has declined, a Fund may
incur a loss. In addition,
PROSPECTUS A-2
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if bankruptcy proceedings are commenced with respect to the seller of the
security, a Fund's or Master Portfolio's disposition of the security may be
delayed or limited. The Funds and Master Portfolios will enter into repurchase
agreements only with registered broker/dealers, commercial banks and other
financial institutions that meet guidelines established by the Company's Board
of Directors and are not affiliated with a Fund's or Master Portfolio's
investment adviser or sub-adviser. The Funds and Master Portfolios may
participate in pooled repurchase agreement transactions with other Funds advised
by Wells Fargo Bank.
Loans of Portfolio Securities
The Funds and Master Portfolios may lend securities from their portfolios to
brokers, dealers and financial institutions (but not individuals) if cash, U.S.
Government obligations or other high-quality debt instruments equal to at least
100% of the current market value of the securities loan (including accrued
interest thereon) plus the interest payable to a Fund with respect to the loan
is maintained with such Fund or Master Portfolio. In determining whether to lend
a security to a particular broker, dealer or financial institution, a Fund's or
Master Portfolio's investment adviser will consider all relevant facts and
circumstances, including the creditworthiness of the broker, dealer or financial
institution. Any loans of portfolio securities will be fully collateralized
based on values that are marked to market daily. The Funds and Master Portfolios
will not enter into any portfolio security lending arrangement having a duration
of longer than one year. Any securities that a Fund or Master Portfolio may
receive as collateral will not become part of the portfolio of such Fund or
Master Portfolio at the time of the loan and, in the event of a default by the
borrower, such Fund or Master Portfolio, if permitted by law, will dispose of
such collateral except for such part thereof that is a security in which the
Fund or Master Portfolio is permitted to invest. During the time securities are
on loan, the borrower will pay such Fund or Master Portfolio any accrued income
on those securities, and such Fund or Master Portfolio may invest the cash
collateral and earn additional income or receive an agreed-upon fee from a
borrower that has delivered cash-equivalent collateral. The Funds and Master
Portfolios will not lend securities having a value that exceeds one-third of the
current value of their respective total assets. Loans of securities by a Fund or
Master Portfolio will be subject to termination at the Fund's, Master
Portfolio's or the borrower's option. The Funds and Master Portfolios may pay
reasonable administrative and custodial fees in connection with a securities
loan and may pay a negotiated portion of the interest or fee earned with respect
to the collateral to the borrower or the placing broker. Borrowers and placing
brokers may not be affiliated, directly or indirectly, with the Company, the
investment adviser, or the Distributor.
Convertible Securities
The Funds and Master Portfolios may invest in convertible securities that
provide current income and are issued by companies with the characteristics
described above for
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each Fund and that have a strong earnings and credit record. The Funds may
purchase convertible securities that are fixed-income debt securities or
preferred stocks, and which may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the same
issuer. Convertible securities, while usually subordinate to similar
nonconvertible securities, are senior to common stocks in an issuer's capital
structure. Convertible securities offer flexibility by providing the investor
with a steady income stream (which generally yield a lower amount than similar
nonconvertible securities and a higher amount than common stocks) as well as the
opportunity to take advantage of increases in the price of the issuer's common
stock through the conversion feature. Fluctuations in the convertible security's
price can reflect changes in the market value of the common stock or changes in
market interest rates. At most, 5% of each Fund's net assets will be invested,
at the time of purchase, in convertible securities that are not rated in the
four highest rating categories by one or more NRSROs, such as Moody's or S&P, or
unrated but determined by the Adviser to be of comparable quality.
Other Investment Companies
The Funds and Master Portfolios may invest in shares of other open-end,
management investment companies, subject to the limitations of Section 12(d)(1)
of the 1940 Act, provided that any such purchases will be limited to temporary
investments in shares of unaffiliated investment companies and the investment
adviser waives its advisory fees for that portion of a Fund's or Master
Portfolio's assets so invested, except when such purchase is part of a plan of
merger, consolidation, reorganization or acquisition. Notwithstanding any other
investment policy or limitation (whether or not fundamental), as a matter of
fundamental policy, the Aggressive Growth and Corporate Stock Funds may each
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 such Fund. Subject to the limitations of the 1940
Act, the Funds may purchase shares of exchange-listed, closed-end funds
consistent with pursuing their investment objectives.
Foreign Securities
Investment in Foreign Securities. The Capital Appreciation Master Portfolio,
Diversified Income Fund and Growth and Income Fund may invest in securities of
foreign governmental and private issuers that are denominated in and pay
interest in U.S. dollars. These securities may take the form of American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs"). These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a United States bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe
typically by non-United States banks and trust
PROSPECTUS A-4
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companies that evidence ownership of either foreign or domestic securities.
Generally, ADRs in registered form are designed for use in the United States
securities markets and EDRs and CDRs in bearer form are designed for use in
Europe. Investments in foreign securities involve certain considerations that
are not typically associated with investing in domestic securities. There may be
less publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to the same accounting,
auditing and financial reporting standards or governmental supervision as
domestic issuers. In addition, with respect to certain foreign countries, taxes
may be withheld at the source under foreign income tax laws, and there is a
possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect investments
in, the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries.
Foreign Obligations
The Corporate Stock Master Portfolio may invest up to 25% or more of its
assets in high-quality, short-term debt obligations of foreign branches of U.S.
banks or U.S. branches of foreign banks that are denominated in and pay interest
in U.S. dollars. Investments in foreign obligations involve certain
considerations that are not typically associated with investing in domestic
obligations. There may be less publicly available information about a foreign
issuer than about a domestic issuer. Foreign issuers also are not subject to the
same uniform accounting, auditing and financial reporting standards or
governmental supervision as domestic issuers. In addition, with respect to
certain foreign countries, taxes may be withheld at the source under foreign
income tax laws, and there is a possibility of expropriation or confiscatory
taxation, political or social instability or diplomatic developments that could
adversely affect investments in, the liquidity of, and the ability to enforce
contractual obligations with respect to, securities of issuers located in those
countries.
Money Market Instruments
The Funds and Master Portfolios may invest in the following types of money
market instruments that have remaining maturities not exceeding one year: (i)
U.S. Government obligations; (ii) negotiable certificates of deposit, bankers'
acceptances and fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1 billion in total assets at
the time of investment and are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are insured by the
FDIC; and (iii) commercial paper rated at the date of purchase "Prime-1" by
Moody's or "A-1" or "A-1+" by S&P. The Master Portfolio also may invest in
short-term U.S. dollar-denominated obligations of foreign banks (including U.S.
branches) that at the time of investment: (i) have more than $10 billion, or the
equivalent in other currencies, in total assets; (ii) are among the 75 largest
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foreign banks in the world as determined on the basis of assets; and (iii) have
branches or agencies in the United States.
Additional Investment Policies -- Capital Appreciation Master Portfolio
Privately Issued Securities (Rule 144A). The Capital Appreciation Master
Portfolio may invest in privately issued securities which may be resold in
accordance with Rule 144A under the Securities Act of 1933 ("Rule 144A
Securities"). Rule 144A Securities are restricted securities which are not
publicly traded. Accordingly, the liquidity of the market for specific Rule 144A
Securities may vary. Wells Fargo Bank, using guidelines approved by the Board of
Directors of the Company, will evaluate the liquidity characteristics of each
Rule 144A Security proposed for purchase by the Master Portfolio on a
case-by-case basis and will consider the following factors, among others, in
their evaluation: (1) the frequency of trades and quotes for the Rule 144A
Security; (2) the number of dealers willing to purchase or sell the Rule 144A
Security and the number of other potential purchasers; (3) dealer undertakings
to make a market in the Rule 144A Security; and (4) the nature of the Rule 144A
Security and the nature of the marketplace trades (e.g., the time needed to
dispose of the Rule 144A Security, the method of soliciting offers and the
mechanics of transfer). Privately issued securities that are determined by the
Master Portfolio's investment adviser to be "illiquid" will be subject to the
Master Portfolio's policy of not investing more than 15% of its net assets in
illiquid securities.
Corporate Reorganizations. The Capital Appreciation Master Portfolio may
invest in securities for which a tender or exchange offer has been made or
announced, and in securities of companies for which a merger, consolidation,
liquidation or similar reorganization proposal has been announced if, in the
judgment of Wells Fargo Bank, there is a reasonable prospect of capital
appreciation significantly greater than the added portfolio turnover expenses
inherent in the short term nature of such transactions. The principal risk
associated with such investments is that such offers or proposals may not be
consummated within the time and under the terms contemplated at the time of the
investment, in which case, unless such offers or proposals are replaced by
equivalent or increased offers or proposals which are consummated, the Master
Portfolio may sustain a loss.
Options. The Capital Appreciation Master Portfolio may purchase or sell
options on individual securities and options on indices of securities as a means
of achieving additional return or of hedging the value of the Master Portfolio's
portfolio. If the Master Portfolio has sold an option, it may terminate its
obligation by effecting a closing purchase transaction. This is accomplished by
purchasing an option of the same series as the option previously sold. There can
be no assurance that a closing purchase transaction can be effected when the
Master Portfolio so desires.
The purchaser of an option risks a total loss of the premium paid for the
option if the price of the underlying security does not increase or decrease
sufficiently to justify
PROSPECTUS A-6
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exercise. The seller of an option, on the other hand, will recognize the premium
as income if the option expires unrecognized but foregoes any capital
appreciation in excess of the exercise price in the case of a call option and
may be required to pay a price in excess of current market value in the case of
a put option. Options purchased and sold other than on an exchange in private
transactions also impose on the Master Portfolio the credit risk that the
counterparty will fail to honor its obligations. All investments by the Master
Portfolio in off-exchange options will be treated as "illiquid" and will
therefore be subject to the Master Portfolio's policy of not investing more than
15% of its net assets in illiquid securities. The Master Portfolio will
establish a segregated account with its Custodian in which it will maintain
liquid assets in an amount at least equal in value to the Master Portfolio's
commitments under off-exchange options.
Warrants. The Capital Appreciation Master Portfolio may invest no more than 5%
of its net assets at the time of purchase in warrants (other than those that
have been acquired in units or attached to other securities) and not more than
2% of its net assets in warrants which are not listed on the New York or
American Stock Exchange. Warrants represent rights to purchase securities at a
specific price valid for a specific period of time. The prices of warrants do
not necessarily correlate with the prices of the underlying securities. The
Master Portfolio may only purchase warrants on securities in which the Master
Portfolio may invest directly.
Additional Investment Policies -- Corporate Stock Master Portfolio
Futures Contracts and Options Transactions - General
A futures transaction involves a firm agreement to buy or sell a commodity or
financial instrument at a particular price on a specified future date, while an
option transaction generally involves a right, which may or may not be
exercised, to buy or sell a commodity of financial instrument at a particular
price on a specified future date. Futures contracts and options are standardized
and exchange-traded, where the exchange serves as the ultimate counterparty for
all contracts. Consequently, the only credit risk on futures contracts is the
creditworthiness of the exchange. Futures contracts, however, are subject to
market risk (i.e., exposure to adverse price changes).
The Master Portfolio may trade futures contracts and options on futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange.
The Master Portfolios' futures transactions must constitute permissible
transactions pursuant to regulations promulgated by the Commodity Futures
Trading Commission. In addition, the Master Portfolio may not engage in futures
transactions if the sum of the amount of initial margin deposits and premiums
paid for unexpired options on futures contracts, other than those contracts
entered into for bona fide hedging purposes, would exceed 5% of the liquidation
value of the Master Portfolio's assets, after taking into
A-7 PROSPECTUS
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account unrealized profits and unrealized losses on such contracts; provided,
however, that in the case of an option on a futures contract that is
in-the-money at the time of purchase, the in-the-money amount may be excluded in
calculating the 5% liquidation amount. Pursuant to regulations and/or published
positions of the SEC, the Master Portfolio may be required to segregate cash,
U.S. Government obligations or other high-quality debt instruments in connection
with its futures transactions in an amount generally equal to the entire value
of the underlying commitment.
Initially, when purchasing or selling futures contracts the Master Portfolio
will be required to deposit with the Master Portfolio's custodian in the
broker's name an amount of cash or cash equivalents up to approximately 10% of
the contract amount. This amount is subject to change by the exchange or board
of trade on which the contract is traded, and members of such exchange or board
of trade may impose their own higher requirements. This amount is known as
"initial margin" and is in the nature of a performance bond or good faith
deposit on the contract that is returned to the Master Portfolio upon
termination of the futures position, assuming all contractual obligations have
been satisfied. Subsequent payments, known as "variation margin", to and from
the broker will be made daily as the price of the index or securities underlying
the futures contract fluctuates, making the long and short positions in the
futures contract more or less valuable. At any time prior to the expiration of a
futures contract, the Master Portfolio may elect to close the position by taking
an opposite position, at the then prevailing price, thereby terminating its
existing position in the contract.
Although the Master Portfolio intends to purchase or sell futures contracts
only if there is an active market for such contracts, no assurance can be given
that a liquid market will exist for any particular contract at any particular
time. Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the trading day. Futures contracts prices could move to the limit for
several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and potentially subjecting the Master
Portfolio and the Fund to substantial losses. If it is not possible, or the
Master Portfolio determines not, to close a futures position in anticipation of
adverse price movements, the Master Portfolio will be required to make daily
cash payments of variation margin.
An option on a futures contract gives the purchaser the right, in return for
the premium paid, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer (i.e.,
seller) of the option is required upon exercise to assume an offsetting futures
position (a short position if the option is a call and a long position if the
option is a put). Upon exercise of the option, the assumption of offsetting
futures positions by both the writer and the holder of the option will be
accompanied by delivery of the accumulated cash balance in the writer's futures
margin
PROSPECTUS A-8
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account in the amount by which the market price of the futures contract, at
exercise, exceeds (in the case of a call) or is less than (in the case of a put)
the exercise price of the option on the futures contract.
Stock Index Options. The Master Portfolio may purchase and write (i.e., sell)
put and call options on stock indices as a substitute for comparable market
positions in the underlying securities. A stock index fluctuates with changes in
the market values of the stocks included in the index. The aggregate premiums
paid on all options purchased may not exceed 20% of a Master Portfolio's total
assets and the value of the options written may not exceed 10% of the value of
the Master Portfolio's total assets.
The effectiveness of purchasing or writing stock index options will depend
upon the extent to which price movements in the Master Portfolio's portfolio
correlate with price movements of the stock index selected. Because the value of
an index option depends upon movements in the level of the index rather than the
price of a particular stock, whether the Master Portfolio will realize a gain or
loss from purchasing or writing stock index options depends upon movements in
the level of stock prices in the stock market generally or, in the case of
certain indices, in an industry or market segment, rather than movements in the
price of particular stock.
When the Master Portfolio writes an option on a stock index, the Master
Portfolio will place in a segregated account with the Master Portfolio's
custodian cash or, U.S. Government obligations or other high-quality debt
instruments in an amount at least equal to the market value of the underlying
stock index and will maintain the account while the option is open or otherwise
will cover the transaction.
Stock Index Futures and Options on Stock Index Futures. The Master Portfolio
may invest in stock index futures and options on stock index futures as a
substitute for a comparable market position in the underlying securities. A
stock index future obligates the seller to deliver (and the purchaser to take),
effectively, an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the last
trading day of the contract and the price at which the agreement is made. No
physical delivery of the underlying stocks in the index is made. With respect to
stock indices that are permitted investments, the Master Portfolio intends to
purchase and sell futures contracts on the stock index for which it can obtain
the best price with consideration also given to liquidity.
Interest-Rate Futures Contracts and Options on Interest-Rate Futures
Contracts. The Master Portfolio may invest in interest-rate futures contracts
and options on interest-rate futures contracts as a substitute for a comparable
market position in the underlying securities. The Master Portfolio may also sell
options on interest-rate futures contracts as part of closing purchase
transactions to terminate its options positions. No assurance can be given that
such closing transactions can be effected or the degree of correlation between
price movements in the options on interest rate futures and price movements in
the Master Portfolio's portfolio securities which are the subject of the
transaction.
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Interest-Rate and Index Swaps. The Master Portfolio may enter into
interest-rate and index swaps in pursuit of its investment objective.
Interest-rate swaps involve the exchange by the Master Portfolio with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating-rate payments for fixed-rate payments). Index swaps
involve the exchange by the Master Portfolio with another party of cash flows
based upon the performance of an index of securities or a portion of an index of
securities that usually include dividends or income. In each case, the exchange
commitments can involve payments to be made in the same currency or in different
currencies. The Master Portfolio will usually enter into swaps on a net basis.
In so doing, the two payment streams are netted out, with the Master Portfolio
receiving or paying, as the case may be, only the net amount of the two
payments. If the Master Portfolio enters into a swap, it will maintain a
segregated account on a gross basis, unless the contract provides for a
segregated account on a net basis. If there is a default by the other party to
such a transaction, the Master Portfolio will have contractual remedies pursuant
to the agreements related to the transaction.
The use of interest-rate and index swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio security transactions. There is no limit, except as
provided below, on the amount of swap transactions that may be entered into by
the Master Portfolio. These transactions generally do not involve the delivery
of securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to swaps generally is limited to the net amount of payments
that the Master Portfolio is contractually obligated to make. There is also a
risk of a default by the other party to a swap, in which case the Master
Portfolio may not receive net amount of payments that the Master Portfolio
contractually is entitled to receive.
The permissible investments described herein are considered "derivative"
securities because their value is derived, at least in part, from the price of
another security or a specified asset, index or rate. The futures contracts and
options on futures contracts that the Master Portfolio may purchase are
considered derivatives. The Master Portfolio may only purchase or sell these
contracts or options as substitutes for comparable market positions in the
underlying securities. Also, asset-backed securities issued or guaranteed by
U.S. Government agencies or instrumentalities and certain floating- and
variable-rate instruments can be considered derivatives. Some derivatives may be
more sensitive than direct securities to changes in interest rates or sudden
market moves. Some derivatives also may be susceptible to fluctuations in yield
or value due to their structure or contract terms.
Wells Fargo Bank and BGFA use a variety of internal risk management procedures
to ensure that derivatives use is consistent with the investment objectives of
the Fund and Master Portfolio, does not expose the Fund or Master Portfolio to
undue risk and is closely monitored. These procedures include providing periodic
reports to the Board of
PROSPECTUS A-10
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Trustees of MIT and the Board of Directors of the Company concerning the use of
derivatives.
The use of derivatives by the Master Portfolio also is subject to broadly
applicable investment policies. For example, a Master Portfolio may not invest
more than a specified percentage of its assets in "illiquid securities,"
including those derivatives that do not have active secondary markets. Nor may
the Master Portfolio use certain derivatives without establishing adequate
"cover" in compliance with SEC positions regarding the use of leverage.
INVESTMENT POLICY
Each Fund's investment objective, as set forth in "How the Funds
Work - Investment Objectives and Policies," is fundamental; that is, it may not
be changed without approval by the vote of the holders of a majority of a Fund's
outstanding voting securities, as described under "Capital Stock" in the SAI for
each Fund. If the Board of Directors determines, however, that a Fund's
investment objective can best be achieved by a substantive change in a
nonfundamental investment policy or strategy, the Company may make such change
without shareholder approval and will disclose any such material changes in the
then-current Prospectus.
As matters of fundamental policy the Funds (other than the Corporate Stock
Fund): (i) may not purchase securities of any issuer (except U.S. Government
obligations) if as a result, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer or a Fund would own
more than 10% of the outstanding voting securities of such issuer; (ii) each
such Fund may borrow from banks up to 10% of the current value of its net assets
for temporary purposes only in order to meet redemptions, and these borrowings
may be secured by the pledge of up to 10% of the current value of its net assets
(but investments may not be purchased by a Fund while any such outstanding
borrowings exceed 5% of the Fund's net assets); (iii) each such Fund may make
loans of portfolio securities in accordance with its investment policies; and
(iv) each such Fund may not invest 25% or more of its assets (i.e., concentrate)
in any particular industry, except that a Fund may invest 25% or more of its
assets in U.S. Government obligations. With respect to fundamental investment
policy (i) above, the Aggressive Growth and Diversified Income Funds are subject
to this restriction only with respect to 75% of their respective assets, and,
with regard to the Funds, it may be possible that the Company would own more
than 10% of the outstanding voting securities of the issuer. With respect to
fundamental investment policy (iii) above, the Diversified Income Fund does not
intend to make loans of its portfolio securities during the coming year.
As matters of fundamental policy, the Corporate Stock Fund may: (i) not
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 total assets of the Fund would be invested in the securities
of such issuer or the Fund would
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own more than 10% of the outstanding voting securities of such issuer, provided
that a Fund may invest all its assets in a diversified, open-end management
investment company, or a series thereof, with the same investment objective,
policies and restrictions as such Fund, without regard to the limitations set
forth in this clause (i); (ii) borrow from banks up to 20% of the current value
of its net assets for temporary purposes only in order to meet redemptions, and
these borrowings may be secured by the pledge of up to 20% of the current value
of its net assets (but investments may not be purchased while any such
outstanding borrowing in excess of 5% of its net assets exists); (iii) make
loans of portfolio securities in accordance with its investment policies; and
(iv) not invest 25% or more of its assets (i.e., concentrate) in any particular
industry, except that (a) the Fund is permitted to concentrate its assets in any
one industry for the same period as does the S&P 500 Index, (b) the Fund may
invest 25% or more of its assets in obligations of the U.S. Government, its
agencies or instrumentalities, and (c) the Fund may invest all of its assets in
a diversified, open-end management investment company or a series thereof, with
the same investment objective, policies and restrictions as the Fund, without
regard to these limitations. With respect to Fundamental Policy (ii) above, the
Fund presently does not intend to put at risk more than 5% of its assets during
the coming year. With respect to Fundamental Policy (i), it may be possible that
the Company would own more than 10% of the outstanding voting securities of an
issuer.
As a matter of nonfundamental policy, the Diversified Income Fund and Growth
and Income Fund each may invest up to 10% of the current value of its respective
net assets in illiquid securities. The Aggressive Growth Fund and the Corporate
Stock Fund (and their corresponding Master Portfolios) each may invest up to 15%
of its respective net assets in illiquid securities. For these purposes,
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.
PROSPECTUS A-12
<PAGE> 76
- --------------------------------------------------------------------------------
Advised by WELLS FARGO BANK, N.A. - Sponsored/Distributed by
Stephens Inc., Member NYSE/SIPC
NOT FDIC INSURED
<PAGE> 77
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 78
SPONSOR, DISTRIBUTOR AND ADMINISTRATOR
Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
INVESTMENT ADVISER, TRANSFER AND
DIVIDEND DISBURSING AGENT AND
CUSTODIAN
Wells Fargo Bank, N.A.
P.O. Box 7066
San Francisco, California 94120-7066
LEGAL COUNSEL
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
FOR MORE INFORMATION ABOUT THE FUNDS, SIMPLY CALL 1-800-222-8222, OR WRITE:
STAGECOACH FUNDS, INC.
C/O STAGECOACH SHAREHOLDER SERVICES
Wells Fargo Bank, N.A.
P.O. Box 7066
San Francisco, California 94120-7066
STAGECOACH FUNDS:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- are NOT insured by the FDIC or U.S. Government
- are NOT obligations or deposits of Wells Fargo Bank
nor guaranteed by the Bank LOGO
- involve investment risk, including possible loss
of principal
</TABLE>
LOGO SC0216 (5/96)
Printed on Recycled Paper
<PAGE> 79
<TABLE>
<S> <C>
LOGO
P.O. Box 7066
San Francisco, CA 94120-7066
</TABLE>
STAGECOACH FUNDS:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- are NOT insured by the FDIC or U.S. Government
- are NOT obligations or deposits of Wells Fargo Bank
nor guaranteed by the Bank LOGO
- involve investment risk, including possible loss
of principal
</TABLE>
LOGO SC0216 (5/96)
Printed on Recycled Paper
<PAGE> 80
<TABLE>
<S> <C>
------------------
LOGO BULK RATE
P.O. Box 7066 U.S. POSTAGE
San Francisco, CA 94120-7066 PAID
DALLAS, TEXAS
Permit No. 1808
------------------
</TABLE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
STAGECOACH FUNDS:
-----------------------------------------------------------------------------
- are NOT insured by the FDIC or U.S. Government
- are NOT obligations or deposits of Wells Fargo Bank
nor guaranteed by the Bank LOGO
- involve investment risk, including possible loss
of principal
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 81
Cross Reference Sheet
CALIFORNIA TAX-FREE BOND FUND
CALIFORNIA TAX-FREE INCOME FUND
GINNIE MAE FUND
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
Form N-1A Item Number
<TABLE>
<S> <C>
Part A Prospectus Captions
1 Cover Page
2 Prospectus Summary; Summary of Fund Expenses
3 Financial Highlights
4 The Funds and Management; Prospectus Appendix - Additional
Investment Policies
5 How the Funds Work; The Funds and Management; Management,
Distribution and Servicing Fees
6 The Funds and Management; Investing in the Funds
7 Investing in the Funds; Dividends; Taxes
8 How to Redeem Shares; Additional Shareholder Services
9 Not Applicable
Part B Statement of Additional Information Captions
10 Cover Page
11 Table of Contents
12 Introduction
13 Investment Restrictions; Additional Permitted
Investment Activities; SAI Appendix
14 Management
15 Management
16 Management; Distribution Plan; Independent Auditors
17 Portfolio Transactions
18 Capital Stock; Other
19 Determination of Net Asset Value
20 Federal Income Taxes
21 Distribution Plan
22 Calculation of Yield and Total Return
23 Financial Information
Part C Other Information
</TABLE>
24-32 Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of this Document.
<PAGE> 82
LOGO
------------------------------
PROSPECTUS
------------------------------
CALIFORNIA TAX-FREE BOND FUND
CALIFORNIA TAX-FREE INCOME FUND
May 1, 1996
<PAGE> 83
STAGECOACH FUNDS(R)
CALIFORNIA TAX-FREE BOND FUND
CALIFORNIA TAX-FREE INCOME FUND
Stagecoach Funds, Inc. (the "Company") is an open-end investment company. This
Prospectus contains information about two of the funds in the Stagecoach Family
of Funds - the CALIFORNIA TAX-FREE BOND FUND and the CALIFORNIA TAX-FREE INCOME
FUND (each a "Fund" and, collectively, the "Funds").
The CALIFORNIA TAX-FREE BOND FUND seeks to provide investors with a high level
of income exempt from federal income taxes and California personal income taxes,
while preserving capital, by investing in medium- to long-term, investment-grade
municipal securities.
The CALIFORNIA TAX-FREE INCOME FUND seeks to provide investors with a high
level of income exempt from federal income taxes and California personal income
taxes, while preserving capital.
Please read this Prospectus and retain it for future reference. It is designed
to provide you with important information and to help you decide if a Fund's
goals match your own. Statements of Additional Information ("SAIs"), dated May
1, 1996, for the Funds have been filed with the Securities and Exchange
Commission ("SEC") and are incorporated by reference. The SAI for each Fund is
available free of charge by writing to Stagecoach Funds, Inc., c/o Stagecoach
Shareholder Services, Wells Fargo Bank, N.A., P.O. Box 7066, San Francisco, CA
94120-7066 or by calling the Company at 1-800-222-8222.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, WELLS FARGO BANK, N.A. OR ANY OF ITS AFFILIATES. SUCH
SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY. AN INVESTMENT IN THE FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
PROSPECTUS DATED MAY 1, 1996
PROSPECTUS
<PAGE> 84
Two classes of the California Tax-Free Bond Fund (each a "Class") are
described in this Prospectus - Class A Shares and Class B Shares. The California
Tax-Free Income Fund offers only one class of shares. Under ordinary market
conditions, substantially all of the Funds' assets will consist of municipal
obligations the interest on which is exempt from federal income taxes and
California personal income taxes.
The Funds are advised by Wells Fargo Bank, N.A. ("Wells Fargo Bank"), which
also serves as the Funds' transfer and dividend disbursing agent and custodian.
In addition, Wells Fargo Bank is a Shareholder Servicing Agent and a Selling
Agent (each as defined below). Stephens Inc. ("Stephens") is the Funds' sponsor
and administrator and serves as the distributor of the Funds' shares.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND PROVIDES CERTAIN OTHER SERVICES
TO THE FUNDS, FOR WHICH IT IS COMPENSATED. STEPHENS, WHICH IS
NOT AFFILIATED WITH WELLS FARGO BANK, IS THE SPONSOR,
ADMINISTRATOR AND DISTRIBUTOR FOR THE FUNDS.
PROSPECTUS
<PAGE> 85
TABLE OF CONTENTS
-------
PROSPECTUS SUMMARY 1
SUMMARY OF FUND EXPENSES 4
FINANCIAL HIGHLIGHTS 7
HOW THE FUNDS WORK 10
THE FUNDS AND MANAGEMENT 14
INVESTING IN THE FUNDS 15
DIVIDENDS 26
HOW TO REDEEM SHARES 26
ADDITIONAL SHAREHOLDER SERVICES 31
MANAGEMENT, DISTRIBUTION AND SERVICING FEES 34
TAXES 38
PROSPECTUS APPENDIX - ADDITIONAL INVESTMENT POLICIES A-1
PROSPECTUS
<PAGE> 86
PROSPECTUS SUMMARY
The Funds provide you with a convenient way to invest in a portfolio of
securities selected by professional management. The following provides you with
summary information about each of the Funds. For more information, please refer
specifically to the identified Prospectus sections and generally to the
Prospectus and SAI for each Fund.
Q. WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
A. The CALIFORNIA TAX-FREE BOND FUND seeks to provide investors with a high
level of income exempt from federal income taxes and California personal
income taxes, while preserving capital, by investing in medium- to
long-term, investment-grade municipal securities.
The CALIFORNIA TAX-FREE INCOME FUND seeks to provide investors with a high
level of income exempt from federal income taxes and California personal
income taxes, while preserving capital. Under normal market conditions,
substantially all of the Funds' assets will be invested in municipal
obligations that are exempt from federal income taxes and California
personal income taxes. Under normal market conditions at least 65% of each
Fund's net assets will be invested in municipal obligations of issuers
located in California. See "How the Funds Work" and "Prospectus Appendix -
Additional Investment Policies."
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the Funds' investment adviser, manages your investments.
Wells Fargo Bank also provides the Funds with transfer agency, dividend
disbursing agency and custodial services. In addition, Wells Fargo Bank is a
Shareholder Servicing Agent and a Selling Agent of the Funds. See "The Funds
and Management" and "Management, Distribution and Servicing Fees."
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF INVESTMENT?
A. An investment in any of the Funds is not insured against loss of principal.
When the value of the securities that the Funds own declines, so does the
value of your Fund's shares. The portfolio debt instruments of the Funds are
subject to interest rate risk and credit risk. Interest rate risk is the
risk that increases in market interest rates may adversely affect the value
of the municipal securities in which the Funds invest and hence the value of
your investment in the Funds; the value of such securities generally changes
inversely to changes in market interest rates. Credit risk is the risk that
the issuer of a debt instrument is unable, due to financial constraints, to
make timely payments on its outstanding obligations. In addition, the Funds
may invest a portion of their assets in municipal securities that are
considered to have speculative characteristics.
1 PROSPECTUS
<PAGE> 87
Since the Funds invest substantially in securities issued by California, its
agencies and municipalities, events in California are more likely to affect
the Funds' investments. Also, the Funds are nondiversified, which means that
their assets may be invested among fewer issuers and therefore the value of
their assets may be subject to greater impact by events affecting one of
their investments. You should be prepared to accept some risk with the money
you invest in the Funds. As with all mutual funds, there can be no assurance
that the Funds will achieve their investment objectives.
Q. HOW DO I INVEST?
A. You may invest by purchasing shares of the Funds at their public offering
price, which is the net asset value ("NAV") per share plus any applicable
sales charge. You may open an account by investing at least $1,000 and you
may add to your account by making additional investments of at least $100,
with certain exceptions. There is a maximum front-end sales charge of 4.50%
for purchasing Class A Shares of the California Tax-Free Bond Fund and a
maximum front-end sales charge of 3.00% for purchasing shares of the
California Tax-Free Income Fund. Class B Shares of the California Tax-Free
Bond Fund that are redeemed within four years of purchase are subject to a
maximum contingent deferred sales charge of 3.00% of the lesser of NAV at
purchase or NAV at redemption. In some cases, such as for investments by
certain fiduciary or retirement accounts, the front-end sales charge may be
waived. In other cases the front-end sales charge may be reduced. Shares of
a Fund may be purchased by wire, by mail or by an automatic investment
feature called the AutoSaver Plan on any day the Fund is open. Shares of the
Funds may not be suitable investments for tax-exempt institutions or
tax-exempt retirement plans, since such investors would not benefit from the
exempt status of the Funds' dividends. See "Investing in the Funds." For
more details, contact Stephens (the Funds' sponsor and distributor), a
Shareholder Servicing Agent or a Selling Agent (such as Wells Fargo Bank).
Q. HOW WILL I RECEIVE DIVIDENDS AND ANY CAPITAL GAINS?
A. Dividends from net investment income of the California Tax-Free Bond Fund
are declared daily and automatically reinvested monthly in additional shares
of the same Class of such Fund at NAV. You may also elect to receive
dividends in cash or to reinvest dividends from the California Tax-Free Bond
Fund in shares of certain other funds in the Stagecoach Family of Funds.
Capital gains, if any, will be distributed at least annually in the same
manner as dividends. The net investment income available for distribution by
the California Tax-Free Bond Fund to holders of Class B Shares will be
reduced by the amount of the higher Rule 12b-1 fee payable on behalf of
those shares. Class B Shares of the California Tax-Free Bond Fund
automatically convert into Class A Shares of the same Fund after six years.
See "Dividends" and "Additional Shareholder Services."
PROSPECTUS 2
<PAGE> 88
Dividends from net investment income of the California Tax-Free Income Fund
are declared daily and automatically reinvested monthly in additional shares
of the Fund at NAV. You may also elect to receive dividends in cash. Capital
gains, if any, will be distributed annually in the same manner as dividends.
See "Dividends" and "Additional Shareholder Services."
Q. HOW MAY I REDEEM SHARES?
A. You may redeem your shares by telephone, by letter or by an automatic
feature called the Systematic Withdrawal Plan on any day the respective Fund
is open. Except for any contingent deferred sales charge which may be
applicable upon redemption of Class B Shares of the California Tax-Free Bond
Fund, the Funds make no charge for redeeming their shares. The Company
reserves the right to impose charges for wiring redemption proceeds. See
"How To Redeem Shares" and "How to Purchase Shares - Contingent Deferred
Sales Charges - Class B Shares." For more details, contact Stephens, a
Shareholder Servicing Agent or a Selling Agent (such as Wells Fargo Bank).
Q. WHAT ARE DERIVATIVES AND DO THE FUNDS USE THEM?
A. Derivatives are financial instruments whose value is derived, at least in
part, from the price of another security or a specified asset, index or
rate. Some of the permissible investments described in this Prospectus, such
as variable rate instruments which have an interest rate that is reset
periodically based on an index, can be considered derivatives. Some
derivatives may be more sensitive than direct securities to changes in
interest rates or sudden market moves. Some derivatives also may be
susceptible to fluctuations in yield or value due to their structure or
contract terms.
Q. WHAT STEPS DO THE FUNDS TAKE TO CONTROL DERIVATIVES-RELATED RISKS?
A. Wells Fargo Bank, as investment adviser, uses a variety of internal risk
management procedures to ensure that derivatives use is consistent with a
Fund's investment objective, does not expose the Fund to undue risks and is
closely monitored. These procedures include providing periodic reports to
the Board of Directors concerning the use of derivatives. Derivatives use by
each Fund also is subject to broadly applicable investment policies. For
example, the Funds may not invest more than a specified percentage of their
assets in "illiquid securities" and may not invest in derivatives that do
not have active secondary markets. Nor may a Fund use certain derivatives
without establishing adequate "cover" in compliance with SEC rules limiting
the use of leverage. For more information on the Funds' investment
activities, see "Prospectus Appendix -- Additional Investment Policies."
3 PROSPECTUS
<PAGE> 89
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CALIFORNIA
TAX-FREE CALIFORNIA
BOND FUND TAX-FREE INCOME
(CLASS A SHARES) FUND
----------------- -----------------
<S> <C> <C>
Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price)................... 4.50% 3.00%
Sales Charge Imposed
on Reinvested Dividends.............. None None
Maximum Sales Charge Imposed
on Redemptions....................... None None
Exchange Fees............................ None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
CALIFORNIA
TAX-FREE CALIFORNIA
BOND FUND TAX-FREE INCOME
(CLASS A SHARES) FUND
---------------- --------------
<S> <C> <C> <C> <C>
Management Fee (after waivers or
reimbursements)(1)........................... 0.50% 0.43%
Rule 12b-1 Fee................................. 0.05% 0.05%
Other Expenses
Shareholder Servicing Fee (after waivers or
reimbursements)(1)....................... 0.02% 0.00%
Administrative Fee......................... 0.03% 0.03%
Miscellaneous Expenses (after waivers or
reimbursements)(1)....................... 0.08% 0.14%
----- -----
Total Other Expenses (after waivers or
reimbursements)(1)........................... 0.13% 0.17%
----- -----
TOTAL FUND OPERATING
EXPENSES (after waivers or
reimbursements)(1)......................... 0.68% 0.65%
</TABLE>
- -------------------------------
<TABLE>
<C> <S>
(1) Absent waivers and reimbursements, the percentages shown above
under "Shareholder Servicing Fee," "Miscellaneous Expenses,"
"Total Other Expenses," and "Total Fund Operating Expenses"
would be 0.30%, 0.19%, 0.52% and 1.07%, respectively, for the
Class A Shares of the California Tax-Free Bond Fund. Absent
waivers and reimbursements, the percentages shown above under
"Management Fee," Shareholder Servicing Fee," "Miscellaneous
Expenses," "Total Other Expenses" and "Total Fund Operating
Expenses" for shares of the California Tax-Free Income Fund
would be 0.48%, 0.30%, 0.36%, 0.69% and 1.22%.
</TABLE>
PROSPECTUS 4
<PAGE> 90
<TABLE>
<CAPTION>
EXAMPLE OF EXPENSES -- 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment in the specified Fund,
assuming (A) a 5% annual return and (B)
redemption at the end of each time period
indicated:
California Tax-Free Bond Fund (Class A
Shares)................................. $ 52 $66 $81 $126
California Tax-Free Income Fund........... $ 36 $50 $65 $109
</TABLE>
SHAREHOLDER TRANSACTION EXPENSES
FOR CLASS B SHARES
<TABLE>
<CAPTION>
CALIFORNIA
TAX-FREE
BOND FUND
-----------------
<S> <C>
Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price)............................... None
Sales Charge Imposed
on Reinvested Dividends.......................... None
Maximum Sales Charge Imposed
on Redemptions................................... 3.00%
Exchange Fees........................................ None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
FOR CLASS B SHARES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
CALIFORNIA
TAX-FREE
BOND FUND
-----------------
<S> <C> <C>
Management Fee....................................... 0.50%
Rule 12b-1 Fee....................................... 0.70%
Other Expenses
Shareholder Servicing Fee (after waivers or
reimbursements)(1)............................. 0.02%
Administrative Fee............................... 0.03%
Miscellaneous Expenses (after waivers or
reimbursements)(1)............................. 0.07%
-----
Total Other Expenses (after waivers or
reimbursements)(1)................................. 0.12%
-----
TOTAL FUND OPERATING
EXPENSES (after waivers or reimbursements)(1).... 1.32%
-----
</TABLE>
- -------------------------------
<TABLE>
<C> <S>
(1) Absent waivers and reimbursements, the percentages shown above
under "Shareholder Servicing Fee", "Miscellaneous Expenses",
"Total Other Expenses" and "Total Fund Operating Expenses" would
be 0.30%, 0.19%, 0.52% and 1.72%, respectively, for the Class B
Shares of the California Tax-Free Bond Fund.
</TABLE>
5 PROSPECTUS
<PAGE> 91
<TABLE>
<CAPTION>
EXAMPLE OF EXPENSES - CLASS B SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment in Class B Shares of the
specified Fund, assuming (A) a 5% annual
return and (B) redemption at the end of each
time period indicated:
California Tax-Free Bond Fund............. $ 44 $52 $ 73 $126
You would pay the following expenses on a
$1,000 investment in Class B Shares of the
specified Fund, assuming a 5% annual return
and no redemption:
California Tax-Free Bond Fund............. $ 14 $42 $ 73 $126
</TABLE>
EXPLANATION OF TABLES
The purpose of the foregoing tables is to help you understand the various
costs and expenses that an investor in the Funds will bear directly or
indirectly. The tables do not reflect any charges that may be imposed by Wells
Fargo Bank directly on its customer accounts in connection with an investment in
a Fund.
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell Fund
shares. You are subject to a front-end sales charge only on purchases of the
Class A Shares of the California Tax-Free Bond Fund and the shares of the
California Tax-Free Income Fund. In certain instances, you may qualify for a
reduction or waiver of the sales charge for these two Funds. You may also be
subject to a contingent deferred sales charge on Class B Shares of the
California Tax-Free Bond Fund if you redeem such shares within a specified
period. See "Investing in the Funds - Sales Charges." However, the Company
reserves the right to impose a charge for wiring redemption proceeds.
ANNUAL FUND OPERATING EXPENSES are based on amounts incurred during the most
recent fiscal year, restated to include voluntary fee waivers and expense
reimbursements that are expected to continue to reduce expenses during the
current fiscal year. Wells Fargo Bank and Stephens, at their sole discretion,
may waive or reimburse all or a portion of the respective fees charged to, or
expenses paid by, a Fund. Any waivers or reimbursements would reduce a Fund's
total expenses. There can be no assurance that waivers or reimbursements will
continue. Long-term shareholders in the Funds could pay more in sales charges
than the maximum front-end sales charge applicable to mutual funds sold by
members of the National Association of Securities Dealers Inc. ("NASD"). For
more complete descriptions of the various costs and expenses you can expect to
incur as an investor in each Fund, please see the Prospectus section captioned
"Management, Distribution and Servicing Fees."
EXAMPLE OF EXPENSES is a hypothetical example which illustrates the expenses
associated with a $1,000 investment over stated periods, based on the expenses
in the respective tables above and an assumed annual rate of return of 5%. This
annual rate of return should not be considered an indication of actual or
expected performance of a Fund. In addition, the example should not be
considered a representation of past or future expenses; actual expenses and
returns may be greater or lesser than those shown.
PROSPECTUS 6
<PAGE> 92
FINANCIAL HIGHLIGHTS
The following information has been derived from the Financial Highlights in
the Funds' 1995 annual financial statements. The financial statements are
incorporated by reference into the SAI for each Fund and have been audited by
KPMG Peat Marwick LLP, independent auditors, whose report dated February 14,
1996 also is incorporated by reference into the SAIs. This information should be
read in conjunction with the Funds' 1995 annual financial statements and notes
thereto. The SAI for each Fund has been incorporated by reference into this
Prospectus.
CALIFORNIA TAX-FREE BOND FUND
FOR A CLASS A SHARE OUTSTANDING AS SHOWN
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1995 1994 1993 1992
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $ 9.84 $11.20 $10.41 $10.00
Income from investment operations..
Net investment income (loss)....... 0.55 0.56 0.56 0.53
Net realized and unrealized gain
(loss) on investments............ 1.21 (1.36) 0.84 0.41
------ ------ ------ ------
Total from investment
operations....................... 1.76 (0.80) 1.40 0.94
Less distributions:
Dividends from net investment
income........................... (0.55) (0.56) (0.56) (0.53)
Distributions from net realized
capital gains.................... 0.00 0.00 (0.05) 0.00
------ ------ ------ ------
Total distributions................ (0.55) (0.56) (0.61) (0.53)
Net asset value, end of period..... $11.05 $ 9.84 $11.20 $10.41
====== ====== ====== ======
Total return (not annualized)(3)... 18.24% (7.27)% 13.82% 10.35%
Ratios/supplemental data:
Net assets, end of period (000).... $296,417 $305,847 $532,848 $242,409
Number of shares outstanding, end
of period (000).................. 26,827 31,078 47,580 23,298
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets(1)........................ 0.68% 0.65% 0.64% 0.19%
Ratio of net investment income to
average net assets(2)............ 5.18% 5.35% 5.05% 5.67%
Portfolio turnover................. 9% 3% 7% 18%
- -------------------
(1)Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses............. 1.07% 1.06% 1.01% 1.07%
(2)Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses........................ 4.79% 4.94% 4.68% 4.79%
</TABLE>
(3)Total returns do not include any sales charges.
7 PROSPECTUS
<PAGE> 93
CALIFORNIA TAX-FREE BOND FUND
FOR A CLASS B SHARE OUTSTANDING AS SHOWN
<TABLE>
<CAPTION>
YEAR ENDED
DEC. 31,
1995(4)
----------
<S> <C>
Net asset value, beginning of period............................... $10.00
Income from investment operations:
Net investment income (loss)....................................... 0.48
Net realized and unrealized gain (loss) on investments............. 1.26
-----
Total from investment operations................................... 1.74
Less distributions:
Dividends from net investment income............................... (0.48)
Distributions from net realized capital gain....................... 0.00
------
Total distributions................................................ (0.48)
Net asset value, end of period..................................... $11.26
======
Total return (not annualized)(3)................................... 17.72%
Ratios/supplemental data:
Net assets, end of period (000).................................... $26,916
Number of shares outstanding, end of period (000).................. 2,390
Ratios to average net assets (annualized):
Ratio of expenses to average net assets(1)......................... 1.32%
Ratio of net investment income to average net assets(2)............ 4.31%
Portfolio turnover................................................. 9%
- -------------------
(1)Ratio of expenses to average net assets prior to waived fees and
reimbursed expenses............................................. 1.72%
(2)Ratio of net investment income to average net assets prior to
waived fees and reimbursed expenses............................. 3.91%
</TABLE>
(3)Total returns do not include any sales charges.
(4)Class B Shares of the Fund commenced operations on January 1, 1995.
PROSPECTUS 8
<PAGE> 94
CALIFORNIA TAX-FREE INCOME FUND
FOR A SHARE OUTSTANDING AS SHOWN
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1995 1994 1993 1992(4)
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $9.84 $10.36 $10.05 $10.00
Income from investment operations:
Net investment income............... 0.38 0.40 0.39 0.02
Net realized and unrealized capital
gains (losses)
on investments.................... 0.51 (0.52) 0.31 0.05
------ ------ ------ ------
Total from investment operations.... 0.89 (0.12) 0.70 0.07
Less distributions:
Dividends from net investment
income............................ (0.38) (0.40) (0.39) (0.02)
Distributions from net realized
capital gains..................... 0.00 0.00 0.00 0.00
------ ------ ------ ------
Total distributions................. (0.38) (0.40) (0.39) (0.02)
Net asset value, end of period...... $10.35 $ 9.84 $10.36 $10.05
====== ====== ====== ======
Total return (not annualized)(3).... 9.14% (1.10)% 7.10% 0.84%
Ratios/supplemental data:
Net assets, end of period (000)..... $77,965 $48,998 $52,873 $7,821
Number of shares outstanding, end
of period (000)................... 7,536 4,979 5,105 778
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets(1)......................... 0.65% 0.16% 0.34% 0.00%
Ratio of net investment income to
average net assets(2)............. 3.70% 4.03% 3.74% 3.56%
Portfolio turnover.................. 31% 33% 11% 0%
- -------------------
(1)Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses............... 1.22% 1.21% 1.23% 1.55%
(2)Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses...... 3.13% 2.98% 2.85% 2.01%
(3)Total returns do not include any
sales charges.
(4)The Fund commenced operations on
November 18, 1992.
</TABLE>
9 PROSPECTUS
<PAGE> 95
HOW THE FUNDS WORK
INVESTMENT OBJECTIVES AND POLICIES
The CALIFORNIA TAX-FREE BOND FUND seeks to provide investors with a high level
of income exempt from federal income taxes and California personal income taxes,
while preserving capital, by investing in medium- to long-term, investment-grade
municipal securities. Medium- and long-term securities include those securities
with remaining maturities of 2 to 10 years and 10 or more years, respectively.
Investment grade is a term used to describe securities suitable for purchase by
prudent investors. Standard & Poor's Rating Group ("S&P"), a nationally
recognized statistical rating organization ("NRSRO"), designates its top four
bond ratings as investment grade: AAA, AA, A and BBB. Moody's Investors Service,
Inc. ("Moody's") is also an NRSRO and designates its top four bond ratings as
investment grade: Aaa, Aa, A and Baa. The Fund also may invest in unrated
municipal securities that are determined by Wells Fargo Bank, as investment
adviser, to be of comparable quality to municipal securities that are rated
investment grade. A description of the relevant ratings is contained in the
Appendix to the SAI for the Fund.
The CALIFORNIA TAX-FREE INCOME FUND seeks to provide investors with a high
level of income exempt from federal income taxes and California personal income
taxes, while preserving capital. It pursues this objective by investing
primarily in short- and intermediate-term, investment-grade municipal
securities. Short-term securities are securities with remaining maturities of
less than 2 years. Intermediate-term securities are securities with remaining
maturities of 2 to 10 years. The Fund also may invest in unrated municipal
securities that are determined by Wells Fargo Bank, as investment adviser, to be
of comparable quality to municipal securities that are rated investment grade. A
description of the relevant ratings is contained in the Appendix to the SAI for
the Fund.
The investment objective for each Fund is fundamental and cannot be changed
without shareholder approval. As with all mutual funds, there can be no
assurance that the Funds, which are nondiversified, will achieve their
investment objectives. Wells Fargo Bank, as investment adviser to the Funds,
will pursue the Funds' objectives by investing (under normal market conditions)
substantially all of the Funds' assets in the following types of municipal
obligations that pay interest which is exempt from both federal income tax and
California personal income tax: bonds, notes and commercial paper issued by or
on behalf of the State of California, its cities, municipalities, political
subdivisions and other public authorities. The Funds may also invest in
obligations issued by the U.S. Virgin Islands, Puerto Rico and Guam, the
interest on which is exempt from federal income tax and California personal
income tax. These municipal obligations and the taxable investments described
below may bear interest at rates that are not fixed ("floating- and
variable-rate instruments").
PROSPECTUS 10
<PAGE> 96
Each Fund may temporarily invest some of its assets in cash reserves or
certain high-quality, taxable money market instruments, or may engage in other
investment activities. Each Fund may elect to invest temporarily up to 20% of
its net assets in certain permitted taxable investments, which include cash
reserves, U.S. Government obligations, obligations of domestic banks, commercial
paper, taxable municipal obligations, and repurchase agreements. The Funds may
make loans of portfolio securities. Such temporary investments would most likely
be made when there is an unexpected or abnormal level of investor purchases or
redemptions of shares of a Fund or because of unusual market conditions. The
income from these temporary investments and investment activities may be subject
to federal income taxes and California personal income taxes. However, as stated
above, Wells Fargo Bank seeks to invest substantially all of the Funds' assets
in securities exempt from such taxes. An additional description of tax-free
municipal obligations, taxable money market instruments, and other investment
activities is contained in the "Prospectus Appendix - Additional Investment
Policies" and in the SAI for each Fund.
As a matter of fundamental policy, at least 80% of each Fund's net assets are
invested (under normal market conditions) in municipal obligations that pay
interest which is exempt from federal income taxes and not subject to the
federal alternative minimum tax (or in other open-end tax-free funds with a
similar fundamental policy). In addition, under normal market conditions, at
least 65% of the California Tax-Free Bond Fund's total assets are invested in
municipal bonds, as opposed to municipal notes or commercial paper, and at least
65% of the California Tax-Free Income Fund's total assets are invested in short-
and intermediate-term municipal securities. As a matter of general operating
policy, the California Tax-Free Income Fund intends that, under normal market
conditions, the average expected duration of its portfolio securities will be
from one to five years.
At least 65% of each Fund's total assets are invested (under normal market
conditions) in municipal obligations of issuers located in California. However,
as a matter of general operating policy, each Fund seeks to have substantially
all of its assets invested in such municipal obligations. The Funds' investment
adviser may rely either on an opinion of counsel to the issuer of the municipal
obligations or on bond counsel regarding the tax treatment of these obligations.
In addition, each Fund may invest 25% or more of its assets in California
municipal obligations that are related in such a way that an economic, business
or political development or change affecting one such obligation would also
affect the other obligations; for example, a Fund may own different municipal
obligations which pay interest based on the revenues of similar types of
projects.
RISK FACTORS
As noted above and discussed further in the section captioned "Prospectus
Appendix - Additional Investment Policies," some of the securities purchased by
the Funds may be rated in the lowest investment grade category (i.e., rated BBB
by S&P or Baa by
11 PROSPECTUS
<PAGE> 97
Moody's). These securities are regarded by S&P 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. Moody's considers such securities as having speculative
characteristics.
Since the Funds will invest substantially in securities issued by California
and its agencies and municipalities, events in California will be more likely to
affect the Funds' investments. While the Funds will seek to reduce risk by
investing their assets in securities of various issuers, the Funds will be
considered to be nondiversified for purposes of the 1940 Act. However, the Funds
will comply with the Internal Revenue Code of 1986 ("Code") diversification
requirements, as described in the "Prospectus Appendix - Additional Investment
Policies" section below.
California is experiencing recurring budget deficits caused by lower than
anticipated tax-revenues and increased expenditures for certain programs. These
budget deficits have depleted the state's available cash resources, and the
state has recently had to use a series of external borrowings to meet its cash
needs. In addition, since 1992 some of the credit rating agencies have assigned
their third highest rating to certain of the state's debt obligations. On July
15, 1994, three of the ratings agencies rating California's long-term debt
lowered their ratings of the state's general obligation bonds. Moody's lowered
its rating from "Aa" to "A1," S&P lowered its rating from "A+" to "A" and termed
its outlook as "stable," and Fitch Investors Service lowered its rating from
"AA" to "A." The Funds may invest in securities rated in the top four rating
categories, i.e., investment grade securities. Any further rating downgrade of
the state's debt obligations may impact the availability of securities that meet
the Funds' investment policies and restrictions. The Funds' investment adviser
will continue to monitor and evaluate the investments of each Fund in light of
the events in California and each Funds' investment objective and investment
policies. The rating agencies will also continue to monitor events in the state
and the state and local governments' responses to budget shortfalls. See
"Special Considerations Affecting California Municipal Obligations" in the SAI
for each Fund.
PERFORMANCE
The performance of each Class of shares of the California Tax-Free Bond Fund
and the shares of the California Tax-Free Income Fund may be advertised in terms
of yield, tax-equivalent yield and average annual total return. Performance
figures are based on historical results and are not intended to indicate future
performance.
The yield of a Class of shares of the California Tax-Free Bond Fund is
calculated by dividing the net investment income per share earned during a
specified period (usually 30 days) for Class A Shares by its public offering
price per share (which includes the maximum sales charge), or for Class B Shares
by its NAV (which does not include the maximum contingent deferred sales
charge), on the last day of such period and annualizing the result. Similarly,
the yield of the shares of the California Tax-Free
PROSPECTUS 12
<PAGE> 98
Income Fund is calculated by dividing the net investment income per share earned
during a specified period (usually 30 days) by its public offering price per
share (which includes the maximum sales charge) on the last day of such period
and annualizing the result. The tax-equivalent yield of the shares of a Class of
the California Tax-Free Bond Fund and the shares of the California Tax-Free
Income Fund is similarly calculated but assumes that a stated income tax rate
has been applied to determine the tax-equivalent figure. In addition to
presenting these standardized yields, at times, the Funds also may present
nonstandardized total returns, yields, and distribution rates for purposes of
sales literature. For example, these performance figures may be calculated on
the basis of an investment in the Funds at the net asset value per share or at
the NAV per share plus a reduced sales charge, rather than the public offering
price per share. In this case, the figures might not reflect the effect of the
sales charge that you may have paid (see "Investing in the Funds -- How To Buy
Shares").
Standardized and nonstandardized total return figures for the Funds also may
be presented. Average annual total return is based on the overall dollar or
percentage change in value of a hypothetical investment in the Funds and assumes
that all dividends and capital gain distributions attributable to a Class or
Fund are reinvested in that Class or Fund. Standardized average annual total
return for Class A Shares is calculated assuming you have paid the maximum sales
charge; and for Class B Shares is calculated assuming you have paid the maximum
applicable contingent deferred sales charge on your investment. Nonstandardized
average annual or cumulative total returns may be calculated assuming no sales
charge or a reduced sales charge was paid on such investment.
Because of differences in the fees and/or expenses borne by Class B Shares of
the California Tax-Free Bond Fund, the performance figures on such shares can be
expected, at any given time, to be lower than the performance figures on such
Funds' Class A Shares. Performance figures are computed separately for Class A
Shares and Class B Shares.
Additional information about the performance of each Fund is contained in the
Annual Report for each Fund. The Annual Reports may be obtained free of charge
by calling the Company at 1-800-222-8222.
13 PROSPECTUS
<PAGE> 99
THE FUNDS AND MANAGEMENT
The Funds are two of the funds in the Stagecoach Family of Funds. The Company
was organized as a Maryland corporation on September 9, 1991, and currently
offers shares of the following other series: the Aggressive Growth, Asset
Allocation, California Tax-Free Money Market Mutual, Corporate Stock,
Diversified Income, Ginnie Mae, Growth and Income, Money Market Mutual, National
Tax-Free Money Market Mutual, Short-Intermediate U.S. Government Income and U.S.
Government Allocation Funds. The Board of Directors of the Company supervises
the Funds' activities and monitors their contractual arrangements with various
service providers. Although the Company is not required to hold annual
shareholder meetings, special meetings may be required for purposes such as
electing or removing Directors, approving advisory contracts and distribution
plans, and changing the Funds' investment objectives or fundamental investment
policies. All shares of the Company have equal voting rights and will be voted
in the aggregate, rather than by series or Class, unless otherwise required by
law (such as when the voting matter affects only one series or Class). As a
shareholder of the Funds, you are entitled to one vote for each share you own
and fractional votes for fractional shares owned. A more detailed description of
the voting rights and attributes of the shares is contained in the "Capital
Stock" section of the SAI for each Fund.
Wells Fargo Bank is the Funds' investment adviser, transfer and dividend
disbursing agent and custodian. In addition, Wells Fargo Bank is a Shareholder
Servicing Agent of the Funds, and a Selling Agent under a Selling Agreement with
the Funds' distributor. Wells Fargo Bank, one of the largest banks in the United
States, was founded in 1852 and is the oldest bank in the western United States.
As of April 1, 1996, Wells Fargo Bank and its affiliates provided investment
advisory services for approximately $56 billion of assets of individuals,
trusts, estates and institutions. Wells Fargo Bank also serves as the investment
adviser to the other separately managed funds (or the master portfolios in which
a fund may invest) of the Company, and as investment adviser or sub-adviser to
five other registered, open-end, management investment companies, which consist
of several separately managed investment portfolios. Wells Fargo Bank, a wholly
owned subsidiary of Wells Fargo & Company, is located at 420 Montgomery Street,
San Francisco, California 94104.
Mr. David Klug assumed sole responsibility for the day-to-day management of
the portfolio of the California Tax-Free Bond Fund on June 1, 1995. Mr. Klug had
been a co-manager of the Fund since January 1992, and has managed municipal bond
portfolios for Wells Fargo Bank for over nine years. Prior to joining Wells
Fargo Bank, he managed the municipal bond portfolio for a major property and
casualty insurance company. Mr. Klug holds an M.B.A. from the University of
Chicago, and is a member of the National Federation of Municipal Analysts and
its California chapter.
Ms. Laura Milner assumed sole responsibility for the day-to-day management of
the portfolio of the California Tax-Free Income Fund on June 1, 1995. Ms. Milner
had been a
PROSPECTUS 14
<PAGE> 100
co-manager of the Fund since November 1992. Her background includes over seven
years experience specializing in short- and long-term municipal securities with
Salomon Brothers. She is a member of the National Federation of Municipal
Analysts and its California chapter.
Morrison & Foerster LLP, counsel to the Company and special counsel to Wells
Fargo Bank, has advised the Company and Wells Fargo Bank that Wells Fargo Bank
and its affiliates may perform the services contemplated by the Advisory
Contracts and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
Stephens is the Funds' sponsor and administrator, and distributes the Funds'
shares. Stephens is a full service broker/dealer and investment advisory firm
located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its
predecessor have been providing securities and investment services for more than
60 years. Additionally, they have been providing discretionary portfolio
management services since 1983. Stephens currently manages investment portfolios
for pension and profit sharing plans, individual investors, foundations,
insurance companies and university endowments.
INVESTING IN THE FUNDS
OPENING AN ACCOUNT
You can buy shares in any of the Funds in one of the several ways described
below. You must complete and sign an Account Application to open an account.
Additional documentation may be required from corporations, associations and
certain fiduciaries. Do not mail cash. If you have any questions or need extra
forms, you may call 1-800-222-8222.
After an application has been processed and an account has been established,
subsequent purchases of different funds of the Company under the same umbrella
account do not require the completion of additional applications. A separate
application must be processed for each different umbrella account number (even
if the registration is the same).
15 PROSPECTUS
<PAGE> 101
Call the number on your confirmation statement to obtain information about
what is required to change registration.
The Company or Stephens may make the Prospectus available in an electronic
format. Upon receipt of a request from you or your representative, the Company
or Stephens will transmit or cause to be transmitted promptly, without charge, a
paper copy of the electronic Prospectus.
SHARE VALUE
The value of a share of each Fund is its NAV. Wells Fargo Bank calculates the
NAV of the Funds as of the close of regular trading on the NYSE (referred to
hereafter as "the close of the NYSE"), which is currently 1:00 p.m. (Pacific
time). The NAV of each share of the California Tax-Free Income Fund is
determined by dividing the value of the Fund's total assets less the value of
Fund liabilities by the number of outstanding shares of the Fund. The NAV of
each share of a Class of the California Tax-Free Bond Fund is the value of total
net assets attributable to each Class divided by the number of outstanding
shares of that Class. The value of the net assets per Class is determined daily
by adjusting the net assets per Class at the beginning of the day by the value
of each Class's shareholder activity, net investment income and net realized and
unrealized gains or losses for that day. Net investment income is calculated
each day for each Class by attributing to each Class a pro rata share of daily
income and common expenses, and by assigning class-specific expenses to each
Class as appropriate. The NAV of a share of the California Tax-Free Income Fund
and the NAV of a share of each Class of the California Tax-Free Bond Fund is
expected to fluctuate daily.
Shares of a Fund may be purchased on any day the Fund is open. The Funds are
open for business each day the New York Stock Exchange ("NYSE") is open for
trading (a "Business Day"). Currently, the NYSE is closed on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day (each a "Holiday"). When any Holiday falls on
a weekend, the NYSE typically is closed on the weekday immediately before or
after such Holiday.
Except for debt obligations with remaining maturities of 60 days or less,
which are valued at amortized cost, the other assets of the Funds are valued at
current market prices or, if such prices are not readily available, at fair
value as determined in good faith by the Company's Board of Directors. Prices
used for such valuations may be obtained from independent pricing services.
HOW TO BUY SHARES
You may buy shares of a Fund on any day the Fund is open by any of the methods
described below. Shares of the Funds are offered continuously at the applicable
offering price (the NAV plus any applicable sales charge) next determined after
a purchase order is received in the form specified for the purchase method being
used, as described in the following sections.
PROSPECTUS 16
<PAGE> 102
Payment for shares of the Funds purchased through a Selling Agent (as defined
below) will not be due from the Selling Agent until the settlement date. The
settlement date is normally three Business Days after the order is placed. It is
the responsibility of the Selling Agent to forward payment for shares being
purchased to the Funds promptly. Payment must accompany orders placed directly
through the Transfer Agent.
Payments for shares of a Fund will be invested in full and fractional shares
of such Fund at the applicable offering price. If shares are purchased by a
check which doesn't clear, the Company reserves the right to cancel the purchase
and hold the investor responsible for any losses or fees incurred. In addition,
the Funds may hold payment on any redemption until reasonably satisfied that
your investments made by check have been collected (which may take up to 10
days). The Company reserves the right to reject any purchase order or suspend
sales at any time.
The minimum initial investment amount in the Funds is generally $1,000. The
minimum initial investment amount for purchases through the AutoSaver Plan
purchase method (described below) is $100. All subsequent investments must be at
least $100. Where Fund shares are acquired in exchange for shares of another
fund in the Stagecoach Family of Funds, the minimum initial investment amount
applicable to the shares being exchanged generally carries over. However, if the
value of your investment in the shares you are exchanging has been reduced below
the minimum initial investment amount by changes in market conditions or sales
charges (and not by redemptions), you may carry over the lesser amount into one
of the Funds. In addition, the minimum initial or subsequent purchase amount
requirements may be waived or lowered for investments effected on a group basis
by certain entities and their employees, such as pursuant to a payroll deduction
or other accumulation plan. If you have questions regarding purchases of shares,
please contact the Company at 1-800-222-8222 or contact a Shareholder Servicing
Agent or Selling Agent (defined below).
Shares of the Funds may not be suitable investments for tax-exempt
institutions or individual shareholders of tax-deferred retirement plans, since
such investors would not benefit from the exempt status of the Funds' dividends.
See "Federal Income Taxes - Special Tax Considerations" in each Fund's SAI.
17 PROSPECTUS
<PAGE> 103
SALES CHARGES
Set forth below are Front-end Sales Charge Schedules listing the front-end
sales charges applicable to purchases of Class A Shares of the California
Tax-Free Bond Fund and the shares of the California Tax-Free Income Fund. As
shown below, reductions in the rate of front-end sales charges ("Volume
Discounts") are available as you purchase additional shares (other than Class B
Shares). You should consider the front-end sales charge information set forth
below and the other information contained in this Prospectus when making your
investment decisions.
The following is the Front-end Sales Charge Schedule for purchasing Class A
Shares of the California Tax-Free Bond Fund:
<TABLE>
<CAPTION>
FRONT-END FRONT-END
SALES CHARGE SALES CHARGE DEALER ALLOWANCE
AS % OF AS % OF NET AS % OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------------ -------------- --------------- ----------------
<S> <C> <C> <C>
Less than $50,000....... 4.50% 4.71% 4.00%
$ 50,000 up to
$ 99,999.............. 4.00 4.17 3.55
$100,000 up to
$249,999.............. 3.50 3.63 3.125
$250,000 up to
$499,999.............. 3.00 3.09 2.625
$500,000 up to
$999,999.............. 2.00 2.04 1.75
$1,000,000 and over..... 1.00 1.01 0.85
</TABLE>
The following is the Front-end Sales Charge Schedule for purchasing shares of
the California Tax-Free Income Fund:
<TABLE>
<CAPTION>
FRONT-END FRONT-END
SALES CHARGE SALES CHARGE DEALER ALLOWANCE
AS % OF AS % OF NET AS % OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------------ -------------- --------------- ----------------
<S> <C> <C> <C>
Less than $100,000...... 3.00% 3.09% 2.65%
$100,000 up to
$249,999.............. 2.25 2.30 2.00
$250,000 up to
$599,999.............. 1.50 1.52 1.30
$600,000 and over....... 0.60 0.60 0.50
</TABLE>
Class B Shares of the California Tax-Free Bond Fund which are redeemed within
one, two, three and four years from the receipt of a purchase order are subject
to a contingent deferred sales charge equal to 3.00%, 2.00%, 1.00% or 1.00%,
respectively, of the dollar amount equal to the lesser of the NAV at the time of
purchase of the shares being redeemed or the NAV of such shares at the time of
redemption (the "NAV Amount"). Class B Shares of the California Tax-Free Bond
Fund are not subject to front-end sales
PROSPECTUS 18
<PAGE> 104
charges. See "Investing in the Funds - Contingent Deferred Sales Charges - Class
B Shares."
A selling agent or shareholder servicing agent and any other person entitled
to receive compensation for selling or servicing shares may receive different
compensation for selling or servicing Class A Shares as compared with Class B
Shares of the same Fund.
If Class A Shares of the California Tax-Free Bond Fund or shares of the
California Tax-Free Income Fund are purchased through a Selling Agent, Stephens
reallows the portion of the front-end sales charge shown above as the Dealer
Allowance. Stephens also compensates Selling Agents for sales of Class B Shares,
and is then reimbursed out of Rule 12b-1 Fees and contingent deferred sales
charges applicable to such shares. When shares are purchased directly through
the Transfer Agent and no Selling Agent is involved with the purchase, the
entire sales charge is paid to Stephens. In addition, Stephens has established a
non-cash compensation program, pursuant to which broker/dealers or financial
institutions that sell shares of the Funds may earn additional compensation in
the form of trips to sales seminars or vacation destinations, tickets to
sporting events, theater or other entertainment, opportunities to participate in
golf or other outings and gift certificates for meals or merchandise.
REDUCED SALES CHARGES
Volume Discounts
The Volume Discounts described in the Front-end Sales Charge Schedules are
available to you based on the combined dollar amount you invest in shares (other
than Class B Shares) of one or more of the Company's funds which assess a
front-end sales charge (the "Load Funds"). Since Class B Shares are not subject
to a front-end sales charge you may not consider the amount of Class B Shares
you hold in determining Volume Discount.
Right of Accumulation
The Right of Accumulation allows you to combine the amount you invest in Class
A Shares of the California Tax-Free Bond Fund and shares of the California
Tax-Free Income Fund with the total NAV of shares (other than Class B Shares) in
any of the Load Funds to determine reduced front-end sales charges in accordance
with the appropriate Front-end Sales Charge Schedule. In addition, you also may
combine the total NAV of shares (other than Class B Shares) which you currently
have invested in any other mutual fund that assesses a front-end sales charge
and is advised by Wells Fargo Bank and sponsored by Stephens. For example, if
you own Class A Shares of the Load Funds with an aggregate NAV of $90,000 and
you invest an additional $20,000 in the Class A Shares of the California
Tax-Free Bond Fund, the front-end sales charge on the additional $20,000
investment would be 3.50% of the offering price. If instead you invest the
$20,000 in the California Tax-Free Income Fund, the front-end sales charge on
the
19 PROSPECTUS
<PAGE> 105
additional amount would be 2.25% of the offering price. To obtain such discount,
you must provide sufficient information at the time of your purchase to verify
that your purchase qualifies for the reduced front-end sales charge.
Confirmation of the order is subject to such verification. The Right of
Accumulation may be modified or discontinued at any time without prior notice
with respect to all subsequent shares purchased.
Letter of Intent
A Letter of Intent allows you to purchase Class A Shares of the California
Tax-Free Bond Fund and shares of the California Tax-Free Income Fund over a
13-month period at a reduced front-end sales charge based on the total amount of
Class A Shares you intend to purchase plus the total NAV of the shares (other
than Class B Shares) in any of the Load Funds you already own. Each investment
you make during the period may be made at the reduced front-end sales charge
that is applicable to the total amount you intend to invest. If you do not
invest the total amount within the period, you must pay the difference between
the higher front-end sales charge rate that would have been applied to the
purchases you made and the reduced front-end sales charge rate you have paid.
The minimum initial investment for a Letter of Intent is 5% of the total amount
you intend to purchase, as specified in the Letter. Shares of the Fund equal to
5% of the amount you intend to invest will be held in escrow and, if you do not
pay the difference within 20 days following the mailing of a request, a
sufficient amount of escrowed shares will be redeemed for payment of the
additional sales charge. Dividend and capital gains paid on such shares held in
escrow will be reinvested in additional Fund shares.
Reinvestment
You may reinvest proceeds from a redemption of Fund shares in Class A Shares
of a Fund, or in certain of the Company's funds registered in your state of
residence at NAV, without a front-end sales charge, within 120 days after your
redemption. However, if the fund you are purchasing imposes a front-end sales
charge that is higher than the one you have paid in connection with the shares
you have redeemed, you pay the difference. You may reinvest at this NAV price up
to the total amount of the redemption proceeds. A written purchase order for the
shares must be delivered to the Company, a Selling Agent, a Shareholder
Servicing Agent, or the Transfer Agent at the time of reinvestment.
If you realized a gain on your redemption, your reinvestment would not alter
the amount of any federal capital gains tax you pay on the gain. If you realized
a loss on your redemption, your reinvestment may cause some or all of the loss
to be disallowed as a tax deduction, depending on the number of shares you
purchase by reinvestment, which fund's shares are purchased, and the period of
time that elapses after the redemption. If a loss is disallowed, for tax
purposes, the amount so disallowed is added to the cost of the shares you
acquire upon the reinvestment.
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Reductions for Families or Fiduciaries
Reductions in front-end sales charges apply to purchases by a single "person,"
including an individual, members of a family unit, consisting of a husband, wife
and children under the age of 21 purchasing securities for their own account, or
a trustee or other fiduciary purchasing for a single fiduciary account or single
trust estate.
Waivers for Investments of Proceeds From Other Investments
Purchases may be made at NAV, without a front-end sales charge, to the extent
that: (i) you are investing proceeds from a redemption of (a) shares of another
open-end investment company or (b) units of a unit investment trust sold through
Wells Fargo Securities Inc.; (ii) on which you paid a front-end sales charge;
and (iii) such redemption occurred within thirty (30) days prior to the date of
the purchase order. You must notify the Fund and/or the Transfer Agent at the
time you place such purchase order of your eligibility for the waiver of
front-end sales charges and provide satisfactory evidence thereof (e.g., a
confirmation of the redemption and the sales charge paid). Front-end sales
charges will not be waived to the extent the proceeds invested are from a
redemption of shares of another open-end investment company that is affiliated
with the Company on which you paid a contingent deferred sales charge upon
redemption.
Reductions for Qualified Groups
Reductions in front-end sales charges also apply to purchases by individual
members of a "qualified group." The reductions are based on the aggregate dollar
amount of shares (other than Class B Shares) purchased by all members of the
qualified group. For purposes of this paragraph, a qualified group consists of a
"company," as defined in the 1940 Act, which has been in existence for more than
six months and which has a primary purpose other than acquiring Fund shares at a
reduced front-end sales charge, and the "related parties" of such company. For
purposes of this paragraph, a "related party" of a company is: (i) any
individual or other company who directly or indirectly owns, controls or has the
power to vote 5% or more of the outstanding voting securities of such company;
(ii) any other company of which such company directly or indirectly owns,
controls or has the power to vote 5% or more of its outstanding voting
securities; (iii) any other company under common control with such company; (iv)
any executive officer, director or partner of such company or of a related
party; and (v) any partnership of which such company is a partner. Investors
seeking to rely on their membership in a qualified group to purchase shares at a
reduced sales load must provide evidence satisfactory to the Transfer Agent of
the existence of a bona fide qualified group and their membership therein.
Waivers for Certain Parties
Class A Shares of the California Tax-Free Bond Fund and shares of the
California Tax-Free Income Fund may be purchased at NAV, without a front-end
sales charge, by
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directors, officers and employees (and their spouses, parents, children and
siblings) of the Company, Stephens, its affiliates and Selling Agents. Class A
Shares of such Funds also may be purchased at NAV, without a front-end sales
charge, by present and retired directors, officers and employees (and their
spouses, parents, children and siblings) of Wells Fargo Bank and its affiliates
if Wells Fargo Bank and/or the respective affiliates agree. Class A Shares of
such Funds also may be purchased at NAV, without a front-end sales charge, by
employee benefit and thrift plans for such persons and by certain tax-deferred
retirement accounts and investment advisory, trust or other fiduciary or
retirement accounts that are maintained, managed or advised by Wells Fargo Bank
or its affiliates. In addition, you may purchase shares of the Funds at NAV,
without a sales charge, with proceeds from a required minimum distribution from
any IRA, Simplified Employee Pension Plan or other self-directed retirement plan
for which Wells Fargo Bank serves as trustee, provided that the proceeds are
invested in the Funds within 30 days of such distribution and such distribution
is required as a result of reaching age 70 1/2.
CONTINGENT DEFERRED SALES CHARGE - CLASS B SHARES
Class B Shares of the California Tax-Free Bond Fund may be subject to
contingent deferred sales charges but are not subject to front-end sales
charges. Class B Shares which are redeemed within one, two, three or four years
of the purchase of such shares will be subject to a contingent deferred sales
charge equal to 3.00%, 2.00%, 1.00% and 1.00%, respectively, of the NAV Amount.
Contingent deferred sales charges will not be imposed on amounts representing
increases in NAV above the NAV at the time of purchase. Contingent deferred
sales charges will not be assessed on Class B Shares purchased through
reinvestment of dividends or capital gain distributions. Class B Shares
automatically convert to Class A Shares of the same Fund six years after the end
of the month in which such Class B Shares were acquired.
The amount of a contingent deferred sales charge, if any, paid upon redemption
of Class B Shares is determined in a manner designed to result in the lowest
sales charge rate being assessed. When a redemption request is made, Class B
Shares acquired pursuant to the reinvestment of dividends and capital gain
distributions are considered to be redeemed first. After this, Class B Shares
are considered redeemed on a first-in, first-out basis so that Class B Shares
held for a longer period of time are considered redeemed prior to more recently
acquired Class B Shares. For a discussion of the interaction between the
optional Exchange Privilege and contingent deferred sales charges on Class B
Shares, see "Additional Shareholder Services -- Exchange Privilege."
Contingent deferred sales charges are waived on redemptions of Class B Shares
of a Fund (i) following the death or disability (as defined in the Code) of a
shareholder, (ii) to the extent that the redemption represents a scheduled
distribution from an individual retirement account or other retirement plan to a
shareholder who has reached age 59 1/2, (iii) effected pursuant to the Company's
right to liquidate a
PROSPECTUS 22
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shareholder's account if the aggregate NAV of the shareholder's account is less
than the minimum account size, or (iv) in connection with the combination of the
Company with any other registered investment company by a merger, acquisition of
assets, or by any other transaction.
In deciding whether to purchase Class A or Class B Shares, you should compare
the fees assessed on Class A Shares (including front-end sales charges) against
those assessed on Class B Shares (including potential contingent deferred sales
charges and higher Rule 12b-1 Fees than Class A Shares) in light of the amount
to be invested and the anticipated time that the shares will be owned. If your
purchase amount would qualify you for a reduced sales charge on Class A Shares,
you should consider carefully whether you would pay lower fees ultimately on
Class A Shares or on Class B Shares. See "Investing in the Funds -- Sales
Charges" for information on reduced sales charges for Class A Shares. You may
buy shares of a Fund on any Business Day by any of the methods described below.
The Company reserves the right to reject any purchase order or suspend sales at
any time. Payment for orders that are not received is returned after prompt
inquiry. The issuance of shares is recorded on the Company's books, and share
certificates are not issued.
INITIAL PURCHASES BY WIRE
1. Complete an Account Application.
2. Instruct the wiring bank to transmit the specified amount in federal funds
to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000587
Attention: Stagecoach Funds (Name of Fund) (designate a Class, if applicable)
Account Name(s): name(s) in which to be registered
Account Number: (if investing into an existing account)
3. A completed Account Application should be mailed, or sent by telefacsimile
with the original subsequently mailed, to the following address immediately
after the funds are wired and must be received and accepted by the Transfer
Agent before an account can be opened:
Wells Fargo Bank, N.A.
Stagecoach Shareholder Services
P.O. Box 7066
San Francisco, California 94120-7066
Telefacsimile: 1-415-543-9538
4. Share purchases are effected at the public offering price or, in the case of
Class B Shares, at the NAV next determined after the Account Application is
received and accepted.
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INITIAL PURCHASES BY MAIL
1. Complete an Account Application. Indicate the services to be used.
2. Mail the Account Application and a check for an appropriate amount, payable
to "Stagecoach Funds (Name of Fund) (designate a Class, if applicable)" to
the address set forth in "Initial Purchases by Wire."
3. Share purchases are effected at the public offering price or, in the case of
Class B Shares, at the NAV, next determined after the Account Application is
received and accepted.
AUTOSAVER PLAN PURCHASES
The AutoSaver Plan provides you with a convenient way to establish and
automatically add to a Fund account on a monthly basis. To participate in the
AutoSaver Plan, you must specify an amount ($100 or more) to be withdrawn
automatically by the Transfer Agent on a monthly basis from a designated
Approved Bank Account. Wells Fargo Bank is an Approved Bank. The Transfer Agent
withdraws and uses this amount to purchase specified shares of the designated
Fund on your behalf on or about the day that you have selected, or, if you have
not selected a day, on or about the 20th day of each month. The Transfer Agent
requires a minimum or ten (10) Business Days to implement your AutoSaver Plan
purchases. There are no separate fees charged to you by the Funds for
participating in the AutoSaver Plan.
You may change your investment amount or, the date on which your AutoSaver
purchase is effected, suspend purchases or terminate your election at any time
by notifying the Transfer Agent at least five (5) Business Days prior to any
scheduled transaction.
ADDITIONAL PURCHASES
You may make additional purchases of $100 or more by instructing the Funds'
Transfer Agent to debit a designated Approved Bank Account, by wire by
instructing the wiring bank to transmit the specified amount as directed above
for initial purchases, or by mail with a check payable to "Stagecoach Funds
(Name of Fund) (designate a Class, if applicable)" to the address set forth in
"Initial Purchases by Wire." Write your Fund account number on the check and
include the detachable stub from your Statement of Account or a letter providing
your Fund account number.
PROSPECTUS 24
<PAGE> 110
PURCHASES THROUGH SELLING AGENTS
You may place a purchase order for shares of the Funds through a broker/dealer
or financial institution which has entered into a Selling Agreement with
Stephens, as the Funds' Distributor, ("Selling Agent"). If your order for shares
of the Funds is placed by the close of the NYSE, the purchase order will be
executed on the same day if the order is received by the Transfer Agent before
the close of business. If your purchase order is received by a Selling Agent
after the close of the NYSE or by the Transfer Agent after the close of
business, then your purchase order will be executed on the next Business Day
following the day your order is placed. Because payment for shares of the Funds
will not be due until settlement date, the Selling Agent might benefit from
temporary use of your payment. The Selling Agent is responsible for the prompt
transmission of your purchase order to the Funds.
PURCHASES THROUGH SHAREHOLDER SERVICING AGENTS
Purchase orders for shares of the Funds may be transmitted to the Transfer
Agent through any entity that has entered into a Shareholder Servicing Agreement
with the Funds ("Shareholder Servicing Agent"), such as Wells Fargo Bank. See
"Management, Distribution and Servicing Fees - Shareholder Servicing Agent."
The Shareholder Servicing Agent may transmit a purchase order to the Transfer
Agent, on your behalf, including a purchase order for which payment is to be
transferred from your Approved Bank Account or wired from a financial
institution. If your order for shares of the Funds is transmitted by the
Shareholder Servicing Agent, on your behalf, to the Transfer Agent before the
close of the NYSE, the purchase order will be executed on the same day. If your
Shareholder Servicing Agent transmits your purchase order to the Transfer Agent
after the close of the NYSE, then your order generally will be executed on the
next Business Day following the day your order is received.
The Shareholder Servicing Agent is responsible for the prompt transmission of
your purchase order to the Transfer Agent.
STATEMENTS AND REPORTS
The Funds or a Shareholder Servicing Agent on their behalf, will typically
send you a confirmation or statement of your account after every transaction
that affects your share balance or your Fund account registration. A statement
with tax information for the previous year will be mailed to you by January 31
of each year, and also will be filed with the IRS. At least twice a year, you
will receive financial statements.
25 PROSPECTUS
<PAGE> 111
DIVIDENDS
The Funds intend to declare daily substantially all of their net investment
income as a dividend payable to shareholders of record as of the close of
regular trading of the NYSE, which is currently 1:00 p.m. (Pacific time). You
will begin earning dividends on the Business Day following the date your
purchase order is effective and continue to earn dividends through the day you
redeem such shares. The net investment income of the California Tax-Free Bond
Fund available for distribution to the holders of Class B Shares is reduced by
the amount of the higher Rule 12b-1 Fee payable on such shares. Other expenses,
such as state securities registration fees and transfer agency fees, that are
attributable to a particular class also may affect the relative dividends and/or
capital gain distributions of Class A Shares and Class B Shares.
Dividends for a Saturday, Sunday or Holiday are declared payable to
shareholders of record as of the preceding Business Day. If you redeem shares
before the dividend payment date, any dividends credited to you are paid on the
following dividend payment date unless you have redeemed all of the shares in
your account, in which case you will receive your accrued dividends together
with your redemption proceeds. The Funds will distribute any capital gains at
least annually.
Dividends declared in a month generally are paid on the last Business Day of
each month. You have several options for receiving dividends and any capital
gain distributions. They are discussed under "Additional Shareholder
Services - Dividend and Distribution Options."
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares in a Fund on any day the Fund
is open. Your shares will be redeemed at the NAV next calculated after the Funds
have received your redemption request in proper form. Redemption proceeds may be
more or less than the amount invested and, therefore, a redemption of shares in
a Fund may result in a gain or loss for federal and state income tax purposes.
The California Tax-Free Bond Fund ordinarily remits your redemption proceeds,
net of any contingent deferred sales charge applicable with respect to Class B
Shares, (the "net redemption proceeds") within seven days after your redemption
order is received in proper form, unless the SEC permits a longer period under
extraordinary circumstances. The California Tax-Free Income Fund ordinarily
remits your net redemption proceeds, without any charge by the Fund, within
seven days after your redemption order is received in proper form, unless the
SEC permits a longer period under extraordinary circumstances. Such
extraordinary circumstances could include a period during which an emergency
exists as a result of
PROSPECTUS 26
<PAGE> 112
which (a) disposal by the Funds of securities owned by them is not reasonably
practicable or (b) it is not reasonably practicable for the Funds fairly to
determine the value of their net assets, or a period during which the SEC by
order permits deferral of redemptions for the protection of security holders of
the Funds. In addition, the Funds may hold payment on your redemption until
reasonably satisfied that your investments made by check have been collected
(which can take up to 10 days from the purchase date). To ensure acceptance of
your redemption request, please follow the procedures described below. Although
it is not the Funds' current intention, the Funds may make payment of redemption
proceeds in securities if conditions warrant, subject to regulation by some
state securities commissions. In addition, the Funds reserve the right to impose
charges for wiring redemption proceeds.
Due to the high cost of maintaining Fund accounts with small balances, the
Funds reserve the right to close your account and send you the proceeds if the
balance falls below the applicable minimum balance because of a redemption
(including a redemption of shares of a Fund after an investor has made only the
applicable minimum initial investment). You will be given 30 days' notice to
make an additional investment to increase your account balance to the applicable
minimum balance. For a discussion of applicable minimum balance requirements,
see "Investing in the Funds -- How to Buy Shares."
REDEMPTIONS BY TELEPHONE
Telephone redemption or exchange privileges are made available to you
automatically upon opening an account, unless you specifically decline the
privileges. Telephone redemption privileges authorize the Transfer Agent to act
on telephone instructions from any person representing himself or herself to be
the investor and reasonably believed by the Transfer Agent to be genuine. The
Company will require the Transfer Agent to employ reasonable procedures, such as
requiring a form of personal identification, to confirm that instructions are
genuine and, if it does not follow such procedures, the Company and the Transfer
Agent may be liable for any losses due to unauthorized or fraudulent
instructions. Neither the Company nor the Transfer Agent will be liable for
following telephone instructions reasonably believed to be genuine.
REDEMPTIONS BY MAIL
1. Write a letter of instruction. Indicate the Class, if applicable, and the
dollar amount or number of Fund shares you want to redeem. Refer to your Fund
account number and give your social security or taxpayer identification
number (where applicable).
2. Sign the letter in exactly the same way the account is registered. If there
is more than one owner of the shares, all must sign.
3. Signature guarantees are not required for redemption requests unless
redemption proceeds of $5,000 or more are to be paid to someone other than
you at your address of record or your Approved Bank Account, or other unusual
circumstances exist
27 PROSPECTUS
<PAGE> 113
which cause the Transfer Agent to determine that a signature guarantee is
necessary or prudent to protect against unauthorized redemption requests. If
required, a signature must be guaranteed by an "eligible guarantor
institution," which includes a commercial bank that is an FDIC member, a
trust company, a member firm of a domestic stock exchange, a savings
association, or a credit union that is authorized by its charter to provide a
signature guarantee. Signature guarantees by notaries public are not
acceptable. Further documentation may be requested from corporations,
administrators, executors, personal representatives, trustees or custodians.
4. Mail your letter to the Transfer Agent at the mailing address set forth under
"Investing in the Funds - Initial Purchases by Wire."
Unless other instructions are given in proper form, a check for your net
redemption proceeds is sent to your address of record.
EXPEDITED REDEMPTIONS BY MAIL OR TELEPHONE
You may request an expedited redemption of shares of a Fund by letter, in
which case your receipt of redemption proceeds, but not the Fund's receipt of
your redemption request, would be expedited. In addition, you also may request
an expedited redemption of shares of a Fund by telephone on any day the Fund is
open, in which case both your receipt of redemption proceeds and the Fund's
receipt of your redemption request would be expedited. You may request expedited
redemption by telephone only if the total value of the shares redeemed is $100
or more.
You may request expedited redemption by telephone by calling the Transfer
Agent at the telephone number listed on your transaction confirmation or by
calling 1-800-222-8222.
You may request expedited redemption by mail by mailing your expedited
redemption request to the Transfer Agent at the mailing address set forth under
"Investing in the Funds - Initial Purchases by Wire."
Upon request, net redemption proceeds of expedited redemptions of $5,000 or
more will be wired or credited to your Approved Bank Account or wired to the
Selling Agent designated in your Account Application. The Company reserves the
right to impose a charge for wiring redemption proceeds. When proceeds of your
expedited redemption are to be paid to someone else, to an address other than
that of record, or to your Approved Bank Account or Selling Agent that you have
not predesignated in your Account Application, your expedited redemption request
must be made by letter and the signature(s) on the letter may be required to be
guaranteed, regardless of the amount of the redemption.
If your expedited redemption request for shares of the Funds is received by
the Transfer Agent by the close of the NYSE on a Business Day, your net
redemption proceeds are transmitted to your Approved Bank Account or Selling
Agent on the next
PROSPECTUS 28
<PAGE> 114
Business Day (assuming your investment check has cleared as described above),
absent extraordinary circumstances. Extraordinary circumstances could include
those described above as potentially delaying redemptions and also could include
situations involving an unusually heavy volume of wire transfer orders on a
national or regional basis or communication or transmittal delays that could
cause a brief delay in the wiring or crediting of funds. A check for proceeds of
less than $5,000 is mailed to your address of record or, at your election,
credited to your Approved Bank Account.
During periods of drastic economic or market activity or changes, you may
experience problems implementing an expedited redemption by telephone. In the
event you are unable to reach the Transfer Agent by telephone, you should
consider using overnight mail to implement an expedited redemption. The Funds
reserve the right to modify or terminate the expedited telephone redemption
privilege at any time.
SYSTEMATIC WITHDRAWAL PLAN
The Company's Systematic Withdrawal Plan provides you with a convenient way to
have shares of a Fund redeemed from your account and the net redemption proceeds
distributed to you on a monthly basis. You may participate in this plan only if
you have a Fund account valued at $10,000 or more as of the date of your
election to participate, your dividend and capital gain distributions are being
reinvested automatically and you are not a participant in the AutoSaver Plan at
any time while participating in the Systematic Withdrawal Plan. You specify an
amount ($100 or more) to be distributed by check to your address of record or
deposited in your Approved Bank Account. The Transfer Agent redeems sufficient
shares and mails or deposits your net redemption proceeds as instructed on or
about the fifth Business Day prior to the end of each month. There are no
separate fees charged to you by the Funds for participating in the Systematic
Withdrawal Plan. However, you should not participate in the Systematic
Withdrawal Plan if you also are purchasing shares of a Fund subject to a sales
charge.
It may take up to ten (10) days after receipt of your request to establish
your participation in the Systematic Withdrawal Plan. You may change your
withdrawal amount, suspend withdrawals or terminate your election at any time by
notifying the Transfer Agent at least five (5) Business Days prior to any
scheduled transaction. Your participation in the Systematic Withdrawal Plan is
terminated automatically if your Fund account is closed, or, in some cases, if
your Approved Bank Account is closed.
REDEMPTIONS THROUGH SELLING AGENTS
If your redemption order for a Fund is received by a Selling Agent before the
close of the NYSE and received by the Transfer Agent before the close of
business on the same day, the order will be executed at the NAV determined as of
the close of the NYSE on that day. If your redemption order is received by a
Selling Agent after the close of the NYSE, or not received by the Transfer Agent
prior to the close of business, your order will
29 PROSPECTUS
<PAGE> 115
be executed at the NAV determined as of the close of the NYSE on the next
Business Day.
The Selling Agent is responsible for the prompt transmission of your
redemption order to the Funds.
Unless you have made other arrangements with a Selling Agent, and the Transfer
Agent has been informed of such arrangements, net proceeds of a redemption order
made by you through a Selling Agent will be credited to your Approved Bank
Account. If no such account is designated, a check for the net redemption
proceeds will be mailed to your address of record or, if such address is no
longer valid, the net redemption proceeds will be credited to your account with
the Selling Agent. You may request a check from the Selling Agent or elect to
retain the net redemption proceeds in such account. The Selling Agent may charge
you a service fee. In addition, it may benefit from the use of your redemption
proceeds until the check it issues to you has cleared or until such proceeds
have been disbursed or reinvested on your behalf.
REDEMPTIONS THROUGH SHAREHOLDER SERVICING AGENTS
You may request a redemption of shares of a Fund through your Shareholder
Servicing Agent. Any redemption request made by telephone through your
Shareholder Servicing Agent must redeem shares with a total value equal to $100
or more. If your redemption order for shares of a Fund is transmitted by the
Shareholder Servicing Agent, on your behalf, to the Transfer Agent before the
close of the NYSE, the redemption order will be executed at the NAV determined
as of the close of the NYSE on that day. If your Shareholder Servicing Agent
transmits your redemption order to the Transfer Agent after the close of the
NYSE, then your order will be executed on the next Business Day following the
date your order is received. The Shareholder Servicing Agent is responsible for
the prompt transmission of your redemption order to the Funds.
Unless you have made other arrangements with your Shareholder Servicing Agent,
and the Transfer Agent has been informed of such arrangements, net proceeds of a
redemption order made by you through your Shareholder Servicing Agent will be
credited to your Approved Bank Account. If no such account is designated, a
check for the net redemption proceeds will be mailed to your address of record
or, if such address is no longer valid, the net redemption proceeds will be
credited to your account with your Shareholder Servicing Agent or to another
account designated in your agreement with your Shareholder Servicing Agent. The
Shareholder Servicing Agent may charge you a fee. In addition, the Shareholder
Servicing Agent may benefit from the use of proceeds credited to your account
until any check it issues to you has cleared or until such proceeds have been
disbursed or reinvested on your behalf.
PROSPECTUS 30
<PAGE> 116
ADDITIONAL SHAREHOLDER SERVICES
The Company offers you a number of optional services. As noted above, you can
take advantage of the AutoSaver Plan, the Systematic Withdrawal Plan and
Expedited Redemptions by Letter and Telephone. In addition, the Funds offer you
several dividend and distribution payment options and an exchange privilege,
which are described below.
DIVIDEND AND DISTRIBUTION OPTIONS
When you fill out your Account Application, you can choose from the dividend
and distribution options listed below. If you have questions about the dividend
and distribution options available to you, please call 1-800-222-8222.
A. The Automatic Reinvestment Option provides for the reinvestment of your
dividends and capital gain distributions in additional shares of the same class
of the Fund which paid such dividends or capital gain distributions. Dividends
and distributions declared in a month generally are reinvested in additional
shares at NAV on the last Business Day of such month. You are assigned this
option automatically if you make no choice on your Account Application.
B. The Fund Purchase Option lets you use your dividends and/or capital gain
distributions from the Funds to purchase, at NAV, shares of another fund in the
Stagecoach Family of Funds with which you have an established account that has
met the applicable minimum initial investment requirement. Dividends and
distributions paid on Class A or Class B Shares of the California Tax-Free Bond
Fund may be invested in Class A or Class B Shares, respectively, of another
fund, in Retail Shares of another Fund, in Class A Shares of the Money Market
Mutual Fund or in shares of the California Tax-Free Money Market Mutual Fund or
the National Tax-Free Money Market Mutual Fund (the Money Market Mutual
Fund -- Class A Shares, California Tax-Free Money Market Mutual Fund and
National Tax-Free Money Market Mutual Fund are collectively, the "Money Market
Mutual Funds"). Dividends and distributions paid on Class A Shares of the
California Tax-Free Bond Fund may also be invested in shares of a non-money
market fund with a single class of shares (a "single class fund"). Dividends and
distributions paid on Class B Shares of the California Tax-Free Bond Fund may
not be invested in shares of a single class fund. Dividends and distributions
paid on shares of the California Tax-Free Income Fund may be reinvested in Class
A Shares of a multi-class fund, shares of a single class fund or shares of one
of the Money Market Mutual Funds.
C. The Automatic Clearing House Option permits you to have dividends and
capital gain distributions deposited in your Approved Bank Account. In the event
your Approved Bank Account is closed and such distribution is returned to the
Funds' dividend disbursing agent, the distribution will be reinvested in your
Fund account at the NAV
31 PROSPECTUS
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next determined after the distribution has been returned. Your Automatic
Clearing House Option will be converted to the Automatic Reinvestment Option.
D. The Check Payment Option lets you receive a check for all dividends and
capital gain distributions, which generally is mailed either to your designated
address or your Approved Bank Account shortly following declaration. If the U.S.
Postal Service cannot deliver your checks, or if your checks remain uncashed for
six months, those checks will be reinvested in your Fund account at the NAV next
determined after the earlier of the date the checks have been returned to the
dividend disbursing agent or the date six months after the payment of such
dividend or distribution. Your Check Payment Option will be converted to the
Automatic Reinvestment Option.
The Company takes reasonable efforts to locate investors whose checks are
returned or uncashed after six months.
EXCHANGE PRIVILEGE
Wells Fargo Bank advises a variety of other funds, each with its own
investment objective and policies. The exchange privilege is a convenient way
for you to buy shares in other funds in the Stagecoach Family of Funds that are
registered in your state of residence in order to respond to changes in your
investment and savings goals or in market conditions. Class A and Class B Shares
of the California Tax-Free Bond Fund may be exchanged for Class A and Class B
Shares, respectively, of another fund or for shares of the Money Market Mutual
Funds. Class A Shares of the California Tax-Free Bond Fund may also be exchanged
for shares of a single class fund or for Retail Shares of another fund. Shares
of the California Tax-Free Income Fund may be exchanged for Class A Shares or
Retail Shares of another fund, shares of a single class fund or shares of the
Money Market Mutual Funds.
Before making an exchange from a Fund into another fund in the Stagecoach
Family of Funds, please observe the following:
- Obtain and carefully read the prospectus of the fund into which you want to
exchange.
- If you exchange into another fund with a sales charge, you must pay the
difference between that fund's sales charge and any sales charge you already
have paid in connection with the shares you are exchanging.
- If you exchange Class B Shares for Class B Shares of another fund or for
shares of one of the Money Market Mutual Funds, a contingent deferred sales
charge will not be imposed upon the exchange.
- Each exchange, in effect, represents the redemption of shares of one fund
and the purchase of shares of another, which may produce a gain or loss for
income tax purposes. A confirmation of each exchange transaction will be
sent to you.
PROSPECTUS 32
<PAGE> 118
- The dollar amount of shares you exchange generally must meet the minimum
initial and/or subsequent investment amounts of the fund from which you are
exchanging. If the value of your investment in the shares of the fund from
which you are exchanging has been reduced below the minimum initial
investment amount by changes in market conditions or sales charges (and not
by redemption), you may carry over the lesser amount into the shares you
acquire.
- The Company reserves the right to limit the number of times shares may be
exchanged between funds, to reject any telephone exchange order, or
otherwise to modify or discontinue exchange privileges at any time. Under
SEC rules, subject to limited exceptions, the Company ordinarily must notify
you 60 days before it modifies or discontinues the exchange privilege.
- If you exchange Class B Shares for Class B Shares of another fund or for
shares of one of the Money Market Mutual Funds, the remaining period of time
(if any) that the contingent deferred sales charge applicable to such shares
is in effect will be computed from the time of initial purchase of the
previously held shares. For example, if you exchange Class B Shares of the
California Tax-Free Bond Fund for shares of the California Tax-Free Money
Market Mutual Fund and redeem those shares of the California Tax-Free Money
Market Mutual Fund within four years of the purchase of the exchanged Class
B Shares, you will be required to pay a contingent deferred sales charge
equal to the charge which would have applied had you redeemed the original
Class B Shares at that time.
- If you exchange Class B Shares for shares of one of the Money Market Mutual
Funds as described above, you subsequently may re-exchange the acquired
shares only for Class B Shares of one of the Company's funds or for shares
of the other Money Market Mutual Fund.
The procedures applicable to Fund redemptions also apply to Fund exchanges. In
particular, because the only transaction orders involving the California
Tax-Free Money Market Mutual Fund that are processed at 1:00 p.m. are those that
are received at that time through Shareholder Servicing Agents in connection
with automated investment programs, exchange orders involving the California
Tax-Free Money Market Mutual Fund received through other means after 9:00 a.m.
are processed on the next day that is a Business Day for both funds involved in
the exchange.
To exchange shares, write the Transfer Agent at the mailing address under
"Investing in the Funds - Initial Purchases by Wire" or call the Transfer Agent
at the telephone number listed on your transaction confirmation, or contact your
Shareholder Servicing Agent or Selling Agent. The procedures applicable to
telephone redemptions, including the discussion regarding the responsibility for
the authenticity of telephone instructions, are also applicable to telephone
exchange requests. See "How to Redeem Shares - Expedited Redemptions by Letter
and Telephone."
33 PROSPECTUS
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CONVERSION
Class B Shares of the California Tax-Free Bond Fund that have been outstanding
for six years after the end of the month in which the shares were initially
purchased will automatically convert to Class A Shares of the same Fund and,
consequently, will no longer be subject to the higher Rule 12b-1 Fees applicable
to Class B Shares of such Fund. Such conversion will be on the basis of the
relative NAV of the two Classes, without the imposition of any sales charge or
other charge except that the lower Rule 12b-1 Fees applicable to Class A Shares
shall thereafter be applied to such converted shares. Because the per share NAV
of the Class A Shares may be higher than that of the Class B Shares at the time
of conversion, a shareholder may receive fewer Class A Shares than the number of
Class B Shares converted, although the dollar value will be the same. A
conversion should not produce a gain or loss for income tax purposes.
Reinvestments of dividends and distributions in Class B Shares will be
considered new purchases for purposes of the conversion feature.
If a shareholder effects one or more exchanges among Class B Shares of any
fund, Class A Shares of the Money Market Mutual Fund or shares of the California
Tax-Free Money Market Mutual Fund during the six-year period and exchange back
into Class B Shares, the holding period for the shares so exchanged will be
counted toward the six-year period and any Class B Shares held at the end of six
years will be converted into Class A Shares.
MANAGEMENT, DISTRIBUTION AND SERVICING FEES
INVESTMENT ADVISER
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank, as the Funds' investment adviser, provides investment guidance and
policy direction in connection with the management of the Funds' assets. Wells
Fargo Bank also furnishes the Board of Directors with periodic reports on the
Funds' investment strategies and performance. For these services, Wells Fargo
Bank is entitled to a monthly investment advisory fee at the annual rate of
0.50% of the average daily net assets of each Fund. From time to time, Wells
Fargo Bank may waive such fees in whole or in part. Any such waiver will reduce
expenses of the Funds and, accordingly, have a favorable impact on the Funds'
yields and total returns. From time to time, each of the Funds, consistent with
its investment objectives, policies and restrictions, may invest in securities
of companies with which Wells Fargo Bank has a lending relationship. For the
PROSPECTUS 34
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year ended December 31, 1995, the Company paid an amount equal to 0.50% of the
average daily net assets of the California Tax-Free Bond Fund to Wells Fargo
Bank for its services as investment adviser. For the year ended December 31,
1995, the Company paid an amount equal to 0.43% of the average daily net assets
of the California Tax-Free Income Fund to Wells Fargo Bank for its services as
investment adviser.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank also serves as each Fund's custodian and transfer and
dividend disbursing agent. Pursuant to separate Custody Agreements with Wells
Fargo Bank, each Fund may, at times, borrow money from Wells Fargo Bank as
needed to satisfy temporary liquidity needs. Wells Fargo Bank charges interest
on such overdrafts at a rate determined pursuant to each Fund's Custody
Agreement. Wells Fargo Bank performs the custody, transfer and dividend
disbursing agency activities at 525 Market Street, San Francisco, California
94105.
SHAREHOLDER SERVICING AGENT
The Funds have entered into Shareholder Servicing Agreements with Wells Fargo
Bank, and may enter into similar agreements with other entities. Under such
agreements, Shareholder Servicing Agents (including Wells Fargo Bank), agree, as
agent for their customers, to provide various administrative services with
respect to Fund shares, such as maintaining shareholder accounts and records,
assisting shareholders with purchases, exchanges and redemptions, and to provide
such other related services as the Company or a shareholder may reasonably
request. For these services, a Shareholder Servicing Agent receives a fee, as
calculated on an annualized basis for the Fund's then current fiscal year, up to
(1) 0.30% of the average daily net assets attributable to Class A or Class B
Shares, as the case may be, owned during the period for which payment is being
made by investors with whom the Shareholder Servicing Agent maintains a
servicing relationship, or (2) an amount which equals the maximum amount payable
to the Shareholder Servicing Agent under applicable laws, regulations or rules,
including the Rules of Fair Practice of the NASD ("NASD Rules"). In no event
will the portion of such fees that constitutes a "service fee," as that term is
used by the NASD, exceed 0.25% of such Fund's average NAV attributable to the
Class A and Class B Shares. In no event will the shareholder servicing fees for
the California Tax-Free Income Fund, as calculated on an annualized basis for
the Fund's then current fiscal year, exceed the lesser of (1) 0.30% of the
average daily net assets of the Fund represented by shares owned during the
period for which payment is being made by investors with whom the Shareholder
Servicing Agent maintains a servicing relationship, or (2) an amount which
equals the maximum amount payable to the Shareholder Servicing Agent under
applicable laws, regulations or rules, including the NASD Rules. In no event
will the portion of such fees that constitutes a "service fee," as that term is
used by the NASD, exceed 0.25% of each such Fund's average NAV.
35 PROSPECTUS
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A Shareholder Servicing Agent also may impose certain conditions on its
customers, subject to the terms of this Prospectus, in addition to or different
from those imposed by the Funds, such as requiring a higher minimum initial
investment or payment of a separate fee for additional services. Each
Shareholder Servicing Agent will be required to agree to disclose any fees it
may directly charge its customers who are shareholders of a Fund and to notify
them in writing at least 30 days before it imposes any transaction fees.
SPONSOR, ADMINISTRATOR AND DISTRIBUTOR
Subject to the overall supervision of the Company's Board of Directors,
Stephens provides the Funds with administrative services, including general
supervision of each Fund's operation, coordination of the other services
provided to each Fund, compilation of information for reports to the SEC and the
state securities commissions, preparation of proxy statements and shareholder
reports, and general supervision of data compilation in connection with
preparing periodic reports to the Company's Directors and officers. Stephens
also furnishes office space and certain facilities to conduct each Fund's
business, and compensates the Company's Directors, officers and employees who
are affiliated with Stephens. For these services, Stephens is entitled to a
monthly fee at the annual rate of 0.03% of each Fund's average daily net assets.
From time to time, Stephens may waive its fees from a Fund in whole or in part.
Any such waivers will reduce a Fund's expenses and, accordingly, have a
favorable impact on such Fund's performance.
Stephens, as the principal underwriter of the Funds within the meaning of the
1940 Act, has entered into a Distribution Agreement with the Company pursuant to
which Stephens is responsible for distributing Fund shares. The Company also has
adopted a Distribution Plan on behalf of the Funds under the SEC's Rule 12b-1
("Plans"). Under the Plan of the California Tax-Free Income Fund, the Fund may
defray all or part of the cost of preparing and printing prospectuses and other
promotional materials and of delivering prospectuses and those materials to
prospective Fund Shareholders by paying on an annual basis up to 0.05% of the
average daily net assets of the Fund. Under the Class A Plan, the California
Tax-Free Bond Fund may defray all or part of the cost of preparing and printing
prospectuses and other promotional materials and of delivering prospectuses and
those materials to prospective Fund shareholders by paying on an annual basis up
to 0.05% of the average daily net assets attributable to the Class A Shares. The
Plans, other than the Class B Plan, provide only for the reimbursement of actual
expenses. Under the Plan for the Class B Shares of the California Tax-Free Bond
Fund, the Fund may defray all or part of such costs and pay compensation to the
Distributor and Selling Agents for sales support services. The Class B Plan
provides for payment, on an annual basis, of up to 0.70% of the average daily
net assets attributable to the Class B Shares of the California Tax-Free Bond
Fund. The Distribution Agreement provides that Stephens shall act as agent for
the Funds for the sale of their shares and may enter into Selling Agreements
with Selling Agents that wish to make available shares of the Funds
PROSPECTUS 36
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to their respective customers. The Funds may participate in joint distribution
activities with any of the other funds of the Company, in which case, expenses
reimbursed out of the assets of the Funds may be attributable, in part, to the
distribution-related activities of another fund of the Company. Generally, the
expenses attributable to joint distribution activities will be allocated among
each Fund and the other funds of the Company in proportion to their relative net
asset sizes, although the Company's Board of Directors may allocate such
expenses in any other manner that it deems fair and equitable.
In addition, the Plans contemplate that, to the extent any fees payable
pursuant to a Shareholder Servicing Agreement (discussed above) are deemed to be
for distribution-related services, such payments are approved and payable
pursuant to the Plans, subject to any limits under applicable law, regulations
or rules, including the NASD Rules. Financial institutions acting as Selling
Agents, Shareholder Servicing Agents, or in certain other capacities may be
required to register as dealers pursuant to applicable state securities laws
which may differ from federal law and any interpretations expressed herein.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective
fees in whole or in part and reimburse expenses payable to others. Any such
waivers or reimbursements will reduce a Fund's expenses and, accordingly, have a
favorable impact on such Fund's performance. Except for the expenses borne by
Wells Fargo Bank and Stephens, the Company bears all costs of its operations,
including advisory, shareholder servicing, transfer agency, custody and
administration fees, payments pursuant to any Plans, fees and expenses of
independent auditors and legal counsel, and any extraordinary expenses. Expenses
attributable to each Fund or class are charged against the assets of the Fund or
class. General expenses of the Company are allocated among all of the funds of
the Company, including the Funds, in a manner proportionate to the net assets of
each fund, on a transactional basis, or on such other basis as the Company's
Board of Directors deems equitable.
37 PROSPECTUS
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TAXES
The Company intends to qualify each Fund as a regulated investment Company
under Subchapter M of the Code as long as such qualification is in the best
interest of each Fund's shareholders. In addition, net capital gains, net
investment income and operating expenses will be determined separately for each
Fund. By complying with the applicable provisions of the Code, the Funds will
not be subject to federal income taxes with respect to net investment income and
net realized capital gains distributed to their shareholders. Each Fund intends
to pay out substantially all of its net investment income and net realized
capital gains (if any) for each year. In addition, each Fund's shareholders will
not be subject to federal income taxes on any dividends of the Funds
attributable to interest from tax-exempt securities. However, dividends
attributable to interest from taxable securities and distributions of capital
gain will be taxable to shareholders, regardless of whether such dividends and
distributions are paid in cash or reinvested in Fund shares. The Funds do not
expect their dividends to qualify for the dividends-received deduction allowed
to corporate shareholders.
In addition, by complying with the applicable provisions of the California
Revenue and Taxation Code, dividends of the Funds also will be exempt from
California personal income tax to the extent such dividends are attributable to
instruments that pay interest which would be exempt from California personal
income taxes were such instruments held directly by an individual. The Funds do
not make any representation regarding the taxation of their corporate
shareholders with respect to their dividends and capital gain distributions and
recommends that they consult their tax advisors.
Interest on indebtedness incurred or continued to purchase or carry shares of
the Funds will not be deductible to the extent that a Fund's distributions are
exempt from federal income tax. In addition, the IRS has devised federal
alternative minimum tax ("AMT") rules to ensure that at least a minimum amount
of tax is paid by corporate and high-income noncorporate taxpayers who obtain
significant benefit from certain tax deductions and exemptions. Some of these
deductions and exemptions have been designated "tax preference items" which must
be added back to taxable income for purposes of calculating AMT. Among the "tax
preference items" is tax-exempt interest from "private activity bonds" issued
after August 7, 1986. To the extent that a Fund invests in private activity
bonds, shareholders who pay AMT will be required to report that portion of Fund
dividends attributable to income from the bonds as a tax preference item in
determining their AMT. Shareholders will be notified of the tax status of
distributions made by the Funds. Persons who may be "substantial users" (or
"related persons" of substantial users) of facilities financed by private
activity bonds should consult their tax advisors before purchasing shares in the
Funds. With respect to corporate shareholders of such Funds, exempt-interest
dividends paid by a Fund are included in the corporate shareholder's "adjusted
current earnings" as part of its AMT calculation, and may also affect its
federal "environmental tax" liability. As of the
PROSPECTUS 38
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printing of this Prospectus, individuals are subject to an AMT at a maximum rate
of 28.00% and corporations at a maximum rate of 20.00%. Shareholders with
questions or concerns about AMT should also consult their tax advisors.
The Funds, or your Shareholder Servicing Agent on their behalf, will inform
you of the amount and nature of the Fund's dividends and capital gains. You
should keep all statements you receive to assist in your personal record
keeping. The Company is required to withhold, subject to certain exemptions, at
a rate of 31% on dividends and capital gain distributions paid or credited to
individual shareholders of the Funds, if a shareholder has not complied with IRS
regulations or a correct Taxpayer Identification Number, certified when
required, is not on file with the Company or the Transfer Agent. In connection
with this withholding requirement, you will be asked to certify on your Account
Application that the social security or taxpayer identification number you
provide is correct and that you are not subject to 31% backup withholding for
previous underreporting to the IRS.
Foreign shareholders may be subject to different tax treatment, including a
withholding tax. See "Federal Income Taxes - Foreign Shareholders" in the SAI
for each Fund.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important federal income tax considerations generally affecting the Funds and
their shareholders. It is not intended as a substitute for careful tax planning;
you should consult your tax advisor with respect to your specific tax situation
as well as with respect to state and local taxes.
39 PROSPECTUS
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PROSPECTUS APPENDIX -
ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
Municipal Securities
The Funds invest in municipal bonds rated at the date of purchase "Baa" or
better by Moody's or "BBB" or better by S&P, or unrated bonds that are
considered by Wells Fargo Bank, as investment adviser, to be of comparable
quality. Bonds rated at the minimum permitted level have speculative
characteristics and are more likely than higher-rated bonds to have a weakened
capacity to pay principal and interest in times of adverse economic conditions;
all are considered investment grade. Municipal bonds generally have a maturity
at the time of issuance of up to 40 years.
The Funds invest in municipal notes rated at the date of purchase "MIG 2" (or
"VMIG 2" in the case of an issue having a variable rate with a demand feature)
or better by Moody's or "SP-2" or better by S&P, or unrated notes that are
considered by Wells Fargo Bank, as investment adviser, to be of comparable
quality. Municipal notes generally have maturities at the time of issuance of
three years or less. Municipal notes are generally issued in anticipation of the
receipt of tax funds, of the proceeds of bond placements, or of other revenues.
The ability of an issuer to make payments on notes is therefore especially
dependent on such tax receipts, proceeds from bond sales or other revenues, as
the case may be.
The Funds invest in municipal commercial paper rated at the date of purchase
"P-1" or "P-2" by Moody's or "A-1+," "A-1" or "A-2" by S&P, or unrated
commercial paper that is considered by Wells Fargo Bank, as investment adviser,
to be of comparable quality. Municipal commercial paper is a debt obligation
with a stated maturity of 270 days or less that is issued to finance seasonal
working capital needs or as short-term financing in anticipation of longer-term
debt.
In the event a security purchased by the Funds is downgraded below investment
grade, the Funds may retain such security, although the Funds may not have more
than 5% of their assets invested in securities rated below investment grade at
any time. A description of the ratings is contained in the Appendix to the SAI
for each Fund.
From time to time, each Fund may invest 25% or more of the current value of
its total assets in certain "private activity bonds," such as pollution control
bonds; provided, however, that such investments will be made only to the extent
they are consistent with the Funds' fundamental policy of investing, under
normal circumstances, at least 80% of their net assets in municipal obligations
that are exempt from federal income taxes and not subject to the federal
alternative minimum tax, and provided further that the Funds may not invest 25%
or more of their assets in industrial development bonds.
A-1 PROSPECTUS
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For a further discussion of factors affecting purchases of municipal
obligations by the Funds, see "Special Considerations Affecting California
Municipal Obligations" in the SAI for each Fund.
Taxable Investments
Pending the investment of proceeds from the sale of shares of the Funds or
proceeds from sales of portfolio securities or in anticipation of redemptions or
to maintain a "defensive" posture when, in the opinion of Wells Fargo Bank, as
investment adviser, it is advisable to do so because of market conditions, each
Fund may elect to invest temporarily up to 20% of the current value of its net
assets in cash reserves, in instruments that pay interest which is exempt from
federal income taxes, but not from California personal income taxes, or the
following taxable high-quality money market instruments: (i) U.S. Government
obligations; (ii) negotiable certificates of deposit, bankers' acceptance and
fixed time deposits and other obligations of domestic banks (including foreign
branches) that have more than $1 billion in total assets at the time of
investment and are members of the Federal Reserve System or are examined by the
Comptroller of the Currency or whose deposits are insured by the FDIC; (iii)
commercial paper rated at the date of purchase "P-1" by Moody's or "A-1+" or
"A-1" by S&P; (iv) certain repurchase agreements; and (v) high-quality municipal
obligations, the income from which may or may not be exempt from federal income
taxes.
U.S. Government Obligations
U.S. Government obligations include securities issued or guaranteed as to
principal and interest by the U.S. Government and supported by the full faith
and credit of the U.S. Treasury. U.S. Treasury obligations differ mainly in the
length of their maturity. Treasury bills, the most frequently issued marketable
government securities, have a maturity of up to one year and are issued on a
discount basis. U.S. Government obligations also include securities issued or
guaranteed by federal agencies or instrumentalities, including
government-sponsored enterprises. Some obligations of agencies or
instrumentalities of the U.S. Government are supported by the full faith and
credit of the United States or U.S. Treasury guarantees; others, by the right of
the issuer or guarantor to borrow from the U.S. Treasury; still others, by the
discretionary authority of the U.S. Government to purchase certain obligations
of the agency or instrumentality; and others, only by the credit of the agency
or instrumentality issuing the obligation. In the case of obligations not backed
by the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government will provide
financial support to its agencies or instrumentalities where it is not obligated
to do so. In addition, U.S. Government obligations are subject to fluctuations
in market value due to fluctuations in market interest rates. As a general
matter, the value of debt instruments,
PROSPECTUS A-2
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including U.S. Government obligations, declines when market rates increase and
rises when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
When-Issued Securities
Certain of the securities in which the Funds invest are purchased on a
when-issued basis, in which case delivery and payment normally take place within
45 days after the date of the commitment to purchase. The Funds make commitments
to purchase securities on a when-issued basis only with the intention of
actually acquiring the securities, but may sell them before the settlement date
if it is deemed advisable. When-issued securities are subject to market
fluctuation, and no income accrues to the purchaser during the period prior to
issuance. The purchase price and the interest rate received on debt securities
are fixed at the time the purchaser enters into the commitment. Purchasing a
security on a when-issued basis can involve a risk that the market price at the
time of delivery may be lower than the agreed-upon purchase price, in which case
there could be an unrealized loss at the time of delivery.
Each Fund establishes a segregated account in which it maintains cash, U.S.
Government obligations or other high-quality debt instruments in an amount at
least equal in value to its respective commitments to purchase when-issued
securities. If the value of these assets declines, the Fund places additional
liquid assets in the account on a daily basis so that the value of the assets in
the account is equal to the amount of such commitments.
Other Tax-Exempt Mutual Funds
The Funds may invest in shares of other open-end investment companies that
have a fundamental policy of investing, under normal circumstances, at least 80%
of their net assets in obligations that are exempt from federal income taxes and
are not subject to the federal alternative minimum tax. Such investment
companies can be expected to charge management fees and other operating expenses
that would be in addition to those charged to the Funds. However, the Funds'
investment adviser has undertaken to waive its advisory fees with respect to
assets so invested. In no event may each Fund, together with any company or
companies controlled by it, own more than 3% of the total outstanding voting
stock of any such company, nor may any Fund, together with any such company or
companies, invest more than 5% of its assets in any one such company or invest
more than 10% of its assets in securities of all such companies combined.
Notwithstanding any other investment policy or limitation (whether or not
fundamental), as a matter of fundamental policy, the California Tax-Free Income
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-3 PROSPECTUS
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Floating- and Variable-Rate Instruments
Certain of the debt instruments that the Funds may purchase bear interest at
rates that are not fixed, but vary, for example, with changes in specified
market rates or indices or at specified intervals. Certain of these instruments
may carry a demand feature that would permit the holder to tender them back to
the issuer at par value prior to maturity. The floating- and variable-rate
instruments that the Funds may purchase include certificates of participation in
such obligations.
Wells Fargo Bank, as investment adviser to the Funds, will monitor on an
ongoing basis the ability of an issuer of a demand instrument to pay principal
and interest on demand. Events affecting the ability of the issuer of a demand
instrument to make payment when due may occur between the time a Fund elects to
demand payment and the time payment is due, thereby affecting such Fund's
ability to obtain payment at par. Demand instruments whose demand feature is not
exercisable within seven days, may be treated as liquid provided that an active
secondary market exists.
Repurchase Agreements
The Funds may enter into repurchase agreements wherein the seller of a
security to a Fund agrees to repurchase that security from such Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. The Funds may enter into repurchase agreements only with respect to U.S.
Government obligations and other obligations that could otherwise be purchased
by the participating Fund. All repurchase agreements will be fully
collateralized based on values that are marked to market daily. While the
maturities of the underlying securities in a repurchase agreement transaction
may be greater than twelve months, the term of any repurchase agreement on
behalf of a Fund will always be less than twelve months. If the seller defaults
and the value of the underlying securities has declined, the participating Fund
may incur a loss. In addition, if bankruptcy proceedings are commenced with
respect to the seller of the security, the participating Fund's disposition of
the security may be delayed or limited. The Funds will enter into repurchase
agreements only with registered broker/dealers, commercial banks and other
financial institutions that meet guidelines established by the Board of
Directors of the Funds and that are not affiliated with Wells Fargo Bank. The
Funds may participate in pooled repurchase agreement transactions with other
funds advised by Wells Fargo Bank.
Loans of Portfolio Securities
The Funds may lend securities from their portfolios to brokers, dealers and
financial institutions (but not individuals) if cash, U.S. Government
obligations or other high-quality debt instruments equal to at least 100% of the
current market value of the securities loan (including accrued interest thereon)
plus the interest payable to a Fund with respect to the loan is maintained with
such Fund. In determining whether to lend a
PROSPECTUS A-4
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security to a particular broker, dealer or financial institution, the Fund's
investment adviser considers all relevant facts and circumstances, including the
security to a particular broker, dealer or financial institution, the Funds'
investment adviser will consider all relevant facts and circumstances, including
the creditworthiness of the broker, dealer or financial institution. Any loans
of portfolio securities will be fully collateralized based on values that are
marked to market daily. The Funds will not enter into any portfolio security
lending arrangement having a duration of longer than one year with respect to
the California Tax-Free Income Fund, and 13 months with respect to the
California Tax-Free Bond Fund. Any securities that a Fund may receive as
collateral will not become part of such Fund's portfolio at the time of the loan
and, in the event of a default by the borrower, such Fund, if permitted by law,
will dispose of such collateral except for such part thereof that is a security
in which such Fund is permitted to invest. During the time securities are on
loan, the borrower will pay such Fund any accrued income on those securities,
and such Fund may invest the cash collateral and earn additional income or
receive an agreed-upon fee from a borrower that has delivered cash-equivalent
collateral. The Funds will not lend securities having a value that exceeds
one-third of the current value of each of their total assets. Loans of
securities by the Funds will be subject to termination at the Funds' or the
borrower's option. The Funds may pay reasonable administrative and custodial
fees in connection with a securities loan and may pay a negotiated portion of
the interest or fee earned with respect to the collateral to the borrower or the
placing broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly, with the Company, the investment adviser, or the Distributor.
INVESTMENT POLICIES
Each Fund's investment objective, as set forth in the "How the Funds Work -
Investment Objectives and Policies," section is fundamental; that is, it may not
be changed without approval by the vote of the holders of a majority of such
Fund's outstanding voting securities, as described under "Capital Stock" in the
SAI for each Fund. In addition, any fundamental investment policy may not be
changed without such shareholder approval. If the Company's Board of Directors
determines, however, that a Fund's investment objective can best be achieved by
a substantive change in a nonfundamental investment policy or strategy, the
Company's Board may make such change without shareholder approval and will
disclose any such material changes in the then-current prospectus.
As matters of fundamental policy (i) the Funds may borrow from banks up to 10%
of the current value of each of their net assets only for temporary purposes in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of each of their net assets (but investments may
not be purchased by a Fund while any such outstanding borrowings exceed 5% of
its net assets); (ii) the California Tax-Free Bond Fund may make loans of
portfolio securities in accordance with its investment policies and (iii) the
Funds may not purchase the securities of issuers
A-5 PROSPECTUS
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conducting their principal business activity in the same industry if,
immediately after the purchase and as a result thereof, the value of a Fund's
investments in that industry would be 25% or more of the current value of such
Fund's total assets, provided that there is no limitation with respect to
investments in (a) municipal securities (for the purpose of this restriction,
private activity bonds shall not be deemed municipal securities if the payment
of principal and interest on such bonds is the ultimate responsibility of
nongovernmental users) and (b) U.S. Government obligations.
As a matter of nonfundamental policy, the California Tax-Free Bond Fund may
invest up to 10%, and the California Tax-Free Income Fund may invest up to 15%,
of the current value of each Fund's net assets in repurchase agreements having
maturities of more than seven days, illiquid securities and fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days.
For purposes of complying with the Code, each Fund will diversify its holdings
so that, at the end of each quarter of the taxable year: (i) at least 50% of the
market value of each Fund's assets is represented by cash, U.S. Government
obligations and other securities limited in respect of any one issuer to an
amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer; and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government obligations and the securities of other regulated investment
companies), or of two or more issuers which the taxpayer controls and which are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses. With respect to paragraph (i), it may be possible that the
Company would own more than 10% of the outstanding voting securities of an
issuer.
PROSPECTUS A-6
<PAGE> 132
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE> 133
SPONSOR, DISTRIBUTOR AND ADMINISTRATOR
Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
INVESTMENT ADVISER, TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN
Wells Fargo Bank, N.A.
P.O. Box 7066
San Francisco, California 94120-7066
LEGAL COUNSEL
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
FOR MORE INFORMATION ABOUT THE FUNDS, SIMPLY CALL 1-800-222-8222, OR WRITE:
STAGECOACH FUNDS, INC.
c/o Stagecoach Shareholder Services
Wells Fargo Bank, N.A.
P.O. Box 7066
San Francisco, California 94120-7066
- --------------------------------------------------------------------------------
STAGECOACH FUNDS:
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
- are NOT insured by the FDIC or U.S. Government
- are NOT obligations or deposits of Wells Fargo Bank nor
guaranteed by the Bank LOGO
- involve investment risk, including possible loss
of principal
- --------------------------------------------------------------------------------
</TABLE>
LOGO SC 0219 (5/96)
Printed on Recycled Paper
<PAGE> 134
<TABLE>
<S> <C>
LOGO
P.O. Box 7066
San Francisco, CA 94120-7066
</TABLE>
- --------------------------------------------------------------------------------
STAGECOACH FUNDS:
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
- are NOT insured by the FDIC or U.S. Government
- are NOT obligations or deposits of Wells Fargo Bank nor
guaranteed by the Bank LOGO
- involve investment risk, including possible loss
of principal
- --------------------------------------------------------------------------------
</TABLE>
LOGO SC 0219 (5/96)
Printed on Recycled Paper
<PAGE> 135
<TABLE>
<S> <C>
------------------
LOGO BULK RATE
P.O. Box 7066 U.S. POSTAGE
San Francisco, CA 94120-7066 PAID
DALLAS, TEXAS
Permit No. 1808
------------------
- ------------------------------------------------------------------------------------
STAGECOACH FUNDS:
--------------------------------------------------------------------------------
- are NOT insured by the FDIC or U.S. Government
- are NOT obligations or deposits of Wells Fargo Bank nor
guaranteed by the Bank LOGO
- involve investment risk, including possible loss
of principal
- ------------------------------------------------------------------------------------
</TABLE>
<PAGE> 136
LOGO
------------------------------
PROSPECTUS
------------------------------
GINNIE MAE FUND
SHORT-INTERMEDIATE
U.S. GOVERNMENT
INCOME FUND
May 1, 1996
<PAGE> 137
STAGECOACH FUNDS(R)
GINNIE MAE FUND
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
Stagecoach Funds, Inc. (the "Company") is an open-end investment company. This
Prospectus contains information about two of the funds in the Stagecoach Family
of Funds - the GINNIE MAE FUND and the SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME
FUND (each a "Fund" and, collectively, the "Funds").
The GINNIE MAE FUND seeks to provide investors with a long-term total rate of
return through preserving capital and earning high interest income by investing
principally in a portfolio of U.S. Government mortgage pass-through securities,
consisting primarily of securities issued by the Government National Mortgage
Association (popularly called "Ginnie Maes"), Federal National Mortgage
Association and Federal Home Loan Mortgage Corporation. The SHORT-INTERMEDIATE
U.S. GOVERNMENT INCOME FUND seeks to provide investors with current income,
while preserving capital, by investing primarily in a portfolio consisting of
short- to intermediate-term securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities.
Please read this Prospectus and retain it for future reference. It is designed
to provide you with important information and to help you decide if the Funds'
goals match your own. Statements of Additional Information ("SAIs"), dated May
1, 1996, for the Funds, have been filed with the Securities and Exchange
Commission ("SEC") and are incorporated by reference. The SAI for each Fund is
available free of charge by writing to Stagecoach Funds, Inc., c/o Stagecoach
Shareholder Services, Wells Fargo Bank, N.A., P.O. Box 7066, San Francisco, CA
94120-7066 or by calling the Company at 1-800-222-8222. If you hold shares in an
IRA, please call 1-800-BEST-IRA (1-800-237-8472) for information or assistance.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, WELLS FARGO BANK, N.A. ("WELLS FARGO BANK") OR ANY OF
ITS AFFILIATES. SUCH SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUNDS INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
PROSPECTUS DATED MAY 1, 1996
PROSPECTUS
<PAGE> 138
The Ginnie Mae Fund offers two classes of shares - Class A Shares and Class B
Shares (each, a "Class"). The Short-Intermediate U.S. Government Income Fund
offers a single class of shares.
Each Fund is advised by Wells Fargo Bank, which also serves as each Fund's
transfer and dividend disbursing agent and custodian. In addition, Wells Fargo
Bank is a Shareholder Servicing Agent and a Selling Agent (each as defined
below). Stephens Inc. ("Stephens") is the Funds' sponsor and administrator and
serves as the distributor of the Funds' shares.
THE FUNDS' SHARES AND PORTFOLIO INVESTMENTS (EXCEPT AS NOTED UNDER "HOW THE
FUNDS WORK - INVESTMENT OBJECTIVES AND POLICIES" AND "PROSPECTUS APPENDIX -
ADDITIONAL INVESTMENT POLICIES") ARE NOT INSURED OR GUARANTEED BY THE UNITED
STATES OR ANY FEDERAL AGENCY OR INSTRUMENTALITY.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND PROVIDES CERTAIN OTHER SERVICES
TO THE FUNDS, FOR WHICH IT IS COMPENSATED. STEPHENS, WHICH IS NOT AFFILIATED
WITH WELLS FARGO BANK, IS THE SPONSOR, ADMINISTRATOR AND DISTRIBUTOR FOR THE
FUNDS.
PROSPECTUS
<PAGE> 139
TABLE OF CONTENTS
-------
PROSPECTUS SUMMARY 1
SUMMARY OF FUND EXPENSES 5
FINANCIAL HIGHLIGHTS 8
HOW THE FUNDS WORK 11
THE FUNDS AND MANAGEMENT 16
INVESTING IN THE FUNDS 18
DIVIDENDS 29
HOW TO REDEEM SHARES 30
ADDITIONAL SHAREHOLDER SERVICES 35
MANAGEMENT, DISTRIBUTION AND SERVICING FEES 38
TAXES 42
PROSPECTUS APPENDIX - ADDITIONAL INVESTMENT POLICIES A-1
PROSPECTUS
<PAGE> 140
PROSPECTUS SUMMARY
The Funds provide you with a convenient way to invest in a portfolio of
securities selected and supervised by professional management. The following
provides you with summary information about the Funds. For more information,
please refer specifically to the identified Prospectus sections and generally to
the Prospectus and SAI for each Fund.
Q. WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
A. The GINNIE MAE FUND seeks to provide investors with a long-term total rate of
return through preserving capital and earning high interest income by
investing principally in a portfolio of U.S. Government mortgage
pass-through securities, consisting primarily of securities issued by the
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC").
Under normal market conditions, the Fund will invest at least 65% of its
assets in securities issued by GNMA.
The SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND seeks to provide
investors with current income, while preserving capital, by investing
primarily in a portfolio consisting of short- to intermediate-term
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. The Fund invests primarily in U.S. Treasury securities,
notes and bonds and obligations issued or guaranteed by federal agencies or
instrumentalities, including government-sponsored enterprises such as GNMA
and FNMA. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in U.S. Government obligations and the
dollar-weighted effective average maturity of the portfolio is expected to
be between two and five years. The Fund may also invest in investment-grade
corporate debt obligations. The Fund is designed for investors with
investment horizons of two to five years.
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the Funds' investment adviser, manages your investments.
Wells Fargo Bank also provides transfer agency and dividend disbursing
agency and custodial services to the Funds. In addition, Wells Fargo Bank is
a Shareholder Servicing Agent and a Selling Agent of the Funds. See "The
Funds and Management" and "Management, Distribution and Servicing Fees."
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF INVESTMENT?
A. An investment in any of the Funds is not insured against loss of principal.
Therefore, you should be prepared to accept some risk with the money you
invest in the Funds.
1 PROSPECTUS
<PAGE> 141
As with all mutual funds, there can be no assurance that the Funds will
achieve their investment objectives.
Each Fund invests primarily in U.S. Government obligations including
securities issued or guaranteed as to principal and interest by the U.S.
Government and supported by the full faith and credit of the U.S. Treasury.
U.S. Government obligations also include securities issued or guaranteed by
federal agencies or instrumentalities, including government-sponsored
enterprises. Some obligations of agencies or instrumentalities of the U.S.
Government are supported by the full faith and credit of the United States
or U.S. Treasury guarantees; others, by the right of the issuer or guarantor
to borrow from the U.S. Treasury; still others, by the discretionary
authority of the U.S. Government to purchase certain obligations of the
agency or instrumentality; and others, only by the credit of the agency or
instrumentality issuing the obligation. In the case of obligations not
backed by the full faith and credit of the United States, the investor must
look principally to the agency or instrumentality issuing or guaranteeing
the obligation for ultimate repayment, which agency or instrumentality may
be privately owned. There can be no assurance that the U.S. Government will
provide financial support to its agencies or instrumentalities where it is
not obligated to do so.
U.S. Government obligations are subject to fluctuations in market value due
to fluctuations in market interest rates. As a general matter, the value of
debt instruments, including U.S. Government obligations, declines when
market interest rates increase, and rises when market interest rates
decrease. Certain types of U.S. Government obligations are subject to
fluctuations in yield or value due to their structure or contract terms.
In addition, the corporate debt securities in which the Short-Intermediate
U.S. Government Income Fund may invest are subject to credit risk, which is
the risk that the issuer cannot pay all or a portion of the obligation
represented by a particular security. The adjustable rate feature of the
mortgages underlying the adjustable rate mortgage securities ("ARMS") and
the collateralized mortgage obligations ("CMOs") in which the
Short-Intermediate U.S. Government Income Fund invests should reduce, but
will not eliminate, price fluctuations in such securities. Accordingly, the
net asset value ("NAV") of shares of this Fund, as well as the Ginnie Mae
Fund, will fluctuate.
Q. HOW DO I INVEST?
A. You may invest by purchasing shares of the Funds at their public offering
price, which is the NAV per share plus any applicable sales charge. You may
open an account by investing at least $1,000, and may add to your account by
making additional investments of at least $100, with certain exceptions.
Class A Shares of the Ginnie Mae Fund are subject to a maximum front-end
sales charge of 4.50%. Class B Shares of the Ginnie Mae Fund that are
redeemed within four years of purchase are
PROSPECTUS 2
<PAGE> 142
subject to a maximum contingent deferred sales charge of 3.00% of the lesser
of NAV at purchase or NAV at redemption. The shares of the
Short-Intermediate U.S. Government Income Fund are subject to a maximum
front-end sales charge of 3.00%. In some cases, such as for investments by
certain fiduciary or retirement accounts, the front-end sales charge may be
waived. In other cases, the front-end sales charge may be reduced. Shares of
a Fund may be purchased by wire, by check or by electing an automatic
investment feature called the AutoSaver Plan on any day the Fund is open.
See "Investing in the Funds." For more details, contact Stephens (the Funds'
Sponsor and Distributor), a Shareholder Servicing Agent or Selling Agent
(such as Wells Fargo Bank).
Q. HOW WILL I RECEIVE DIVIDENDS AND ANY CAPITAL GAINS?
A. Dividends from net investment income of the Funds are declared daily.
Dividends paid by the Short-Intermediate U.S. Government Income Fund are
automatically reinvested at NAV without a sales charge in shares of the Fund
paying the dividends. Dividends paid by the Ginnie Mae Fund are
automatically reinvested in shares of the Class of the Fund which paid such
dividends. You may also elect to receive dividends in cash or to reinvest
the dividends in shares of the same class of another multi-class fund or in
shares of certain other funds in the Stagecoach Family of Funds with which
you have an established account that has met the applicable minimum initial
investment requirement. Any capital gains will be distributed at least
annually in the same manner. The net investment income available for
distribution to holders of Class B Shares will be reduced by the amount of
the higher Rule 12b-1 fee payable on behalf of the Class B Shares. Class B
Shares automatically convert into Class A Shares of the same Fund six years
after the end of the month in which they were acquired. See "Dividends" and
"Additional Shareholder Services."
Q. HOW MAY I REDEEM SHARES?
A. You may redeem your shares by telephone, by letter, or by an automatic
feature called the Systematic Withdrawal Plan on any day the New York Stock
Exchange is open for business. Contingent deferred sales charges may be
charged upon redemption of Class B Shares. In addition, the Company reserves
the right to impose charges for wiring redemption proceeds. See "How To
Redeem Shares" and "How to Purchase Shares - Contingent Deferred Sales
Charges - Class B Shares." For more details, contact Stephens, a Shareholder
Servicing Agent or a Selling Agent (such as Wells Fargo Bank).
Q. WHAT ARE DERIVATIVES AND DO THE FUNDS USE THEM?
A. Derivatives are financial instruments whose value is derived, at least in
part, from the price of another security or a specified asset, index or
rate. Some of the permissible investments described in this Prospectus, such
as adjustable rate mortgage-backed securities, floating- and variable-rate
instruments and certain U.S. Government obligations, are considered
derivatives. Some derivatives may be more sensitive than
3 PROSPECTUS
<PAGE> 143
direct securities to changes in interest rates or sudden market moves. Some
derivatives also may be susceptible to fluctuations in yield or value due to
their structure or contract terms.
Q. WHAT STEPS DO THE FUNDS TAKE TO CONTROL DERIVATIVES-RELATED RISKS?
A. Wells Fargo Bank, as investment adviser, uses a variety of internal risk
management procedures to ensure that derivatives use is consistent with a
Fund's investment objective, does not expose the Fund to undue risks and is
closely monitored. These procedures include providing periodic reports to
the Board of Directors concerning the use of derivatives. Derivatives use by
each Fund also is subject to broadly applicable investment policies. For
example, the Funds may not invest more than a specified percentage of their
assets in "illiquid securities" and may not invest in derivatives that do
not have active secondary markets. Nor may a Fund use certain derivatives
without establishing adequate "cover" in compliance with SEC rules limiting
the use of leverage. For more information on the Funds' investment
activities, see "Prospectus Appendix -- Additional Investment Policies."
PROSPECTUS 4
<PAGE> 144
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE
GINNIE MAE FUND GINNIE MAE FUND U.S. GOVERNMENT
(CLASS A SHARES) (CLASS B SHARES) INCOME FUND
---------------- ---------------- ------------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases (as a
percentage of offering
price) ................. 4.50% None 3.00%
Sales Charge Imposed on
Reinvested Dividends ... None None None
Maximum Sales Charge Imposed
on Redemptions ......... None 3.00% None
Exchange Fees .............. None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE
GINNIE MAE FUND GINNIE MAE FUND U.S. GOVERNMENT
(CLASS A SHARES) (CLASS B SHARES) INCOME FUND
---------------- ---------------- ------------------
<S> <C> <C> <C>
Management Fee (after
waivers or
reimbursements)(1) ....... 0.50% 0.50% 0.27%
Rule 12b-1 Fee ............. 0.05% 0.70% 0.05%
Other Expenses
Shareholder Servicing
Fee (after waivers or
reimbursements)(1) ... 0.16% 0.16% 0.00%
Administrative Fee ..... 0.03% 0.03% 0.03%
Miscellaneous Expenses
(after waivers or
reimbursements)(1) ... 0.08% 0.08% 0.36%
---- ---- ----
Total Other Expenses (after
waivers or
reimbursements)(1) ....... 0.27% 0.27% 0.39%
---- ---- ----
TOTAL FUND OPERATING
EXPENSES (after waivers or
reimbursements)(1) ....... 0.82% 1.47% 0.71%
</TABLE>
- -------------------------------
(1) Absent waivers and reimbursements, the percentages shown above under
"Shareholder Servicing Fee", "Miscellaneous Expenses", "Total Other
Expenses" and "Total Fund Operating Expenses" would be 0.30%, 0.27%, 0.60%
and 1.15%, respectively, for the Class A Shares of the Ginnie Mae Fund and
0.30%, 0.59%, 0.92% and 2.12%, respectively, for the Class B Shares of the
Ginnie Mae Fund. Absent Waivers and reimbursements, the percentages shown
above under "Management Fee", "Shareholder Servicing Fee", "Miscellaneous
Expenses", "Total Other Expenses" and "Total Fund Operating Expenses" would
be 0.50%, 0.30%, 0.79%, 1.12% and 1.67%, respectively, for the
Short-Intermediate U.S. Government Income Fund.
5 PROSPECTUS
<PAGE> 145
<TABLE>
<CAPTION>
EXAMPLE OF EXPENSES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment in shares of the
specified Fund, assuming (A) a 5% annual
return and (B) redemption at the end of
each time period indicated:
Ginnie Mae Fund (Class A Shares)....... $ 53 $70 $88 $142
Short-Intermediate U.S. Government
Income Fund............................ $ 37 $52 $68 $116
</TABLE>
EXAMPLE OF EXPENSES - CLASS B SHARES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000
investment in Class B Shares of the Fund,
assuming (A) a 5% annual return and (B)
redemption at the end of each time period
indicated:
Ginnie Mae Fund........................ $ 45 $56 $80 $142
You would pay the following expenses on a
$1,000 investment in Class B Shares of
the Fund, assuming a 5% annual return and
no redemption:
Ginnie Mae Fund........................ $ 15 $46 $80 $142
</TABLE>
EXPLANATION OF TABLES
The purpose of the foregoing tables is to help you understand the various
costs and expenses that an investor in the Funds will bear directly or
indirectly. The tables do not reflect any charges that may be imposed by Wells
Fargo Bank directly on its customers accounts in connection with an investment
in a Fund.
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell
shares of the Funds. You are subject to a front-end sales charge on purchases of
Class A Shares of the Ginnie Mae Fund and shares of the Short-Intermediate U.S.
Government Income Fund. You may be subject to a contingent deferred sales charge
on Class B Shares if you redeem such shares within a specified period. See
"Investing in the Funds - Sales Charges." The Company reserves the right to
impose a charge for wiring redemption proceeds. In certain instances, you may
qualify for a reduction or waiver of the front-end sales charge. See "Investing
in the Funds - Sales Charges."
ANNUAL FUND OPERATING EXPENSES are based on amounts incurred during the most
recent fiscal year, restated to reflect voluntary fee waivers and expense
reimbursements that are expected to continue to reduce expenses during the
current fiscal year. Wells Fargo Bank and Stephens, at their sole discretion,
may waive or reimburse all or a portion of their respective fees charged to, or
expenses paid by, a Fund. Any waivers or reimbursements would reduce a Fund's
total expenses. There can be no assurances that waivers or reimbursements will
continue. The Funds could pay more in sales charges than the economic equivalent
of the maximum front-end sales charges applicable to mutual funds sold by
members of the National Association of Securities Dealers Inc.
PROSPECTUS 6
<PAGE> 146
("NASD"). For more complete descriptions of the various costs and expenses you
can expect to incur as an investor in each Fund, please see the Prospectus
sections captioned "Investing in the Funds - How To Buy Shares" and "Management,
Distribution and Servicing Fees."
EXAMPLE OF EXPENSES is a hypothetical example that illustrates the expenses
associated with a $1,000 investment in shares of the Funds over stated periods,
based on the expenses in the respective tables above and an assumed annual rate
of return of 5%. This annual rate of return should not be considered an
indication of actual or expected performance of a Fund. In addition, the example
should not be considered a representation of past or future expenses; actual
expenses and returns may be greater or lesser than those shown.
7 PROSPECTUS
<PAGE> 147
FINANCIAL HIGHLIGHTS
The following information for each of the Funds has been derived from the
Financial Highlights in the Funds' 1995 annual financial statements. The
financial statements are incorporated by reference into the SAI for each Fund.
Except for periods ending prior to January 1, 1992, which were audited by other
auditors whose report dated February 19, 1992, expressed an unqualified opinion
on this information, the Financial Statements have been audited by KPMG Peat
Marwick LLP, independent auditors, whose report dated February 14, 1996 also is
incorporated by reference into the SAIs. This information should be read in
conjunction with the Funds' 1995 annual financial statements and the notes
thereto. The SAI for each Fund has been incorporated by reference into this
Prospectus.
GINNIE MAE FUND
FOR A CLASS A SHARE OUTSTANDING AS SHOWN
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED(3)
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.......................... $10.18 $11.31 $11.34 $11.42 $10.00
Income from investment operations:
Net investment income (loss)...... 0.76 0.77 0.83 0.83 0.83
Net realized and unrealized gain
(loss) on investments........... 0.97 (1.13) (0.03) (0.08) 0.59
Total from investment
operations...................... 1.73 (0.36) 0.80 0.75 1.42
Less distributions:
Dividends from net investment
income.......................... (0.76) (0.77) (0.83) (0.83) 0.00
Distributions from net realized
capital gain.................... 0.00 0.00 0.00 0.00 0.00
Total from distributions.......... (0.76) (0.77) (0.83) (0.83) 0.00
Net asset value, end of period.... $11.15 $10.18 $11.31 $11.34 $11.42
Total return (not annualized)(4).. 17.53% (3.23)% 7.19% 6.86% 14.30%
Ratios/supplemental data:
Net assets, end of period (000)... $166,157 $171,288 $303,530 $184,692 $4,870
Number of shares outstanding,
end of period (000)............. 14,904 16,818 26,835 16,289 3,053
Ratios of average net assets
(annualized):
Ratio of expenses to average net
assets(1)....................... 0.82% 0.73% 0.46% 0.46% 1.04%
Ratio of net investment income to
average
net assets(2)................... 7.09% 7.20% 7.19% 7.93% 7.66%
Portfolio turnover................ 118% 69% 121% 73% 241%
- -------------------
(1) Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses........... 1.15% 1.07% 1.02% 1.26% 1.05%
(2) Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses...................... 6.76% 6.86% 6.63% 7.13% 7.65%
(3) The Fund commenced operations on January 3, 1991. The financial information for the
fiscal period ended December 31, 1991 is based on the financial information for the
Ginnie Mae Fund ("IRA Ginnie Mae Fund") of the Wells Fargo Investment Trust for
Retirement Programs ("Trust") which was reorganized into the Ginnie Mae Fund on
January 1, 1992.
(4) Total returns do not include any sales charges.
</TABLE>
PROSPECTUS 8
<PAGE> 148
GINNIE MAE FUND
FOR A CLASS B SHARE OUTSTANDING AS SHOWN
<TABLE>
<CAPTION>
YEAR ENDED
DEC. 31,
1995(3)
----------
<S> <C>
Net asset value, beginning of period............................... $10.00
Income from investment operations:
Net investment income (loss)....................................... 0.66
Net realized and unrealized gain (loss) on investments............. 0.97
Total from investment operations................................... 1.63
Less distributions:
Dividends from net investment income............................... (0.66)
Distributions from net realized capital gain....................... 0.00
Total from distributions........................................... (0.66)
Net asset value, end of period..................................... $10.97
Total return (not annualized)(4)................................... 16.69%
Ratios/supplemental data:
Net assets, end of period (000).................................... $12,227
Number of shares outstanding, end of period (000).................. 1,115
Ratios of average net assets (annualized):
Ratio of expenses to average net assets(1)......................... 1.47%
Ratio of net investment income to average net assets(2)............ 6.01%
Portfolio turnover................................................. 118%
- -------------------
(1) Ratio of expenses to average net assets prior to waived fees and
reimbursed expenses............................................ 2.12%
(2) Ratio of net investment income to average net assets prior to
waived fees and reimbursed expenses............................ 5.36%
(3) The Class B Shares of the Fund commenced operations on January 1, 1995.
(4) Total Returns do not include any sales charges.
</TABLE>
9 PROSPECTUS
<PAGE> 149
SHORT-INTERMEDIATE U.S. GOVERNMENT
INCOME FUND
FOR A SHARE OUTSTANDING AS SHOWN
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED(3)
DEC. 31, 1995 DEC. 31, 1994 DEC. 31, 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of
period........................... $ 9.39 $9.99 $10.00
Income from investment operations:
Net investment income.............. 0.55 0.46 0.06
Net realized and unrealized gain
(loss) on investments............ 0.61 (0.60) (0.01)
Total from investment operations... 1.16 (0.14) 0.05
Less distributions:
Dividends from net investment
income........................... (0.55) (0.46) (0.06)
Distributions from net realized
capital gains.................... 0.00 0.00 0.00
Total distributions................ (0.55) (0.46) (0.06)
Net asset value, end of period..... $10.00 $9.39 $9.99
Total return (not annualized)(4)... 12.67% (1.42)% 0.40%
Ratios/supplemental data:
Net assets, end of period (000).... $39,928 $11,602 $8,557
Number of shares outstanding, end
of period (000).................. 3,994 1,236 857
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets(1)........................ 0.71% 0.25% 0.00%
Ratio of net investment income to
average net assets(2)............ 5.64% 4.75% 3.49%
Portfolio turnover................. 472% 288% N/A
- -------------------
(1) Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses............ 1.67% 2.28% 2.45%
(2) Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses... 4.68% 2.72% 1.04%
(3) The Fund commenced operations on
October 27, 1993.
(4) Total returns do not include any
sales charges.
</TABLE>
PROSPECTUS 10
<PAGE> 150
HOW THE FUNDS WORK
INVESTMENT OBJECTIVES AND POLICIES
GINNIE MAE FUND
The Ginnie Mae Fund seeks to provide investors with a long-term total rate of
return through preserving capital and earning high interest income by investing
principally in a portfolio of U.S. Government mortgage pass-through securities,
consisting primarily of securities issued by GNMA, FNMA and FHLMC. This
investment objective is fundamental and cannot be changed without shareholder
approval. Under normal market conditions, the Fund will invest at least 65% of
its total assets in GNMA securities. These securities may bear interest at rates
that are not fixed ("floating- and variable-rate instruments") or may be
purchased on a "when-issued" or "firm commitment basis." The Fund also may
invest in U.S. Treasury securities, which are backed by the full faith and
credit of the U.S. Government, and repurchase agreements.
GNMAs, FNMAs and FHLMCs are mortgage-backed securities representing part
ownership of a pool of residential mortgage loans. A "pool" or group of such
mortgages is assembled and, after being approved by the entity, is offered to
investors through securities dealers. Once approved by GNMA, a government
corporation within the U.S. Department of Housing and Urban Development, GNMA
guarantees the timely payment of interest and principal. GNMA securities are
backed by the full faith and credit of the U.S. Government. FNMA and FHLMC are
federally chartered corporations supervised by the U.S. Government, acting as
government-sponsored enterprises. FNMA and FHLMC securities are not direct
obligations of the U.S. Treasury, but are supported by the credit of FNMA or
FHLMC only. FNMA guarantees timely payment of interest and principal on its
securities; FHLMC guarantees timely payment of interest and ultimate payment of
principal only.
Although the GNMA securities in the Ginnie Mae Fund's portfolio are guaranteed
by the U.S. Government as to timely payment of principal and interest, the
market value of these securities, upon which the Fund's daily NAV is based, will
fluctuate. The Fund is subject to interest rate risk, that is, the risk that
increases in interest rates may adversely affect the value of the securities in
which the Fund invests, and hence the value of your investment in the Fund. The
value of the securities in which the Fund invests generally changes inversely to
changes in interest rates.
Moreover, no assurance can be given that the U.S. Government would supply
financial support to U.S. Government-sponsored enterprises such as FNMA and
FHLMC in the event of a default in payment on the underlying mortgages which the
government-sponsored enterprise is unable to make good. Principal on the
mortgages underlying the mortgage pass-through securities in which the Ginnie
Mae Fund invests may be prepaid in advance of maturity. Such prepayments tend to
increase when interest rates decline
11 PROSPECTUS
<PAGE> 151
and may present the Fund with more principal to invest at lower rates. The
converse also tends to be the case. Portfolio turnover should not adversely
affect the Fund since portfolio transactions ordinarily will be made directly
with principals on a net basis and, consequently, the Fund will not incur
brokerage expenses.
The Ginnie Mae Fund may temporarily invest some of its assets in high-quality
money market instruments, which include U.S. Government obligations, obligations
of domestic and foreign banks, and short-term corporate debt obligations. Such
temporary investments would most likely be made when there is an unexpected or
abnormal level of investor purchases or redemptions of Fund shares or because of
unusual market conditions. The Fund also may lend its portfolio securities. A
more complete description of the Fund's investments and investment activities is
contained in the "Prospectus Appendix - Additional Investment Policies" and in
the Fund's SAI.
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
The Short-Intermediate U.S. Government Income Fund seeks to provide investors
with current income, while preserving capital, by investing primarily in a
portfolio consisting of short- to intermediate-term securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities. This
investment objective is fundamental and cannot be changed without shareholder
approval.
The Short-Intermediate U.S. Government Income Fund may invest in obligations
of any maturity. Under ordinary circumstances, the dollar-weighted effective
average maturity of the Fund's portfolio is generally expected to be between two
and five years and at least 65% of the value of its total assets will be
invested in U.S. Government obligations. The Fund seeks to enhance its total
return by shortening the average maturity of portfolio securities when interest
rates are expected to increase and lengthening the maturity of such portfolio
securities when interest rates are expected to decline. Portfolio turnover
generally involves some expense to the Fund, including dealer mark-ups.
The Short-Intermediate U.S. Government Income Fund's assets will be invested
and reinvested in U.S. Government obligations and in investment-grade corporate
debt obligations rated at the date of purchase in the top four rating groups by
Standard & Poor's Rating Group ("S&P") or Moody's Investor Services, Inc.
("Moody's"), i.e., AAA/Aaa, AA/Aa, A/A, and BBB/Baa by S&P and Moody's,
respectively. Securities rated BBB/Baa have speculative characteristics. In
addition, it is possible that securities in which the Fund may invest could be
downgraded by a ratings group subsequent to purchase by the Fund. The Fund will
not hold more than 5% of its assets in securities that have been downgraded
below investment grade subsequent to purchase. The Fund may also purchase
securities which represent the interest portion or the principal portion
(sometimes referred to as "STRIPs") of securities in which the Fund may
otherwise invest. STRIPs have significantly different investment characteristics
than the instruments from which they derive. S&P and Moody's assign ratings
based upon their
PROSPECTUS 12
<PAGE> 152
judgement of the risk of default of the securities underlying the STRIPs.
However, investors should understand that most of the risk of these securities
comes from interest rate risk and not from the risk of default. STRIPs may have
significantly greater interest rate risk than traditional government securities
with identical ratings.
The Short-Intermediate U.S. Government Income Fund may invest in ARMS whose
interest rates are periodically reset when market rates change. The Fund is
designed for investors who seek a relatively stable NAV while providing high
current income relative to high-quality, short-term investment alternatives.
ARMS are pass-through certificates representing ownership interests in a pool of
adjustable rate mortgages and the resulting cash flow from those mortgages. The
ARMS in which the Fund may invest are issued or guaranteed by GNMA, FNMA or
FHLMC. Unlike conventional debt securities, which provide for periodic (usually
semi-annual) payments of interest and payments of principal at maturity or on
specified call dates, ARMS provide for monthly payments based on a pro rata
share of both periodic interest and principal payments and prepayments of
principal on the underlying mortgage pool (less GNMA's, FNMA's or FHLMC's fees
and any applicable loan servicing fees.)
The full and timely payment of principal and interest on GNMA ARMS is
guaranteed by GNMA and backed by the full faith and credit of the U.S.
Government. FNMA also guarantees full and timely payment of both interest and
principal, while FHLMC guarantees full and timely payment of interest and
ultimate payment of principal. FNMA and FHLMC ARMS are not backed by the full
faith and credit of the U.S. Government. However, because FNMA and FHLMC are
government-sponsored enterprises, these securities are considered by some
investors to be high-quality investments that present minimal credit risks. The
yields provided by these ARMS have historically exceeded the yields on other
types of U.S. Government securities with comparable maturities. Of course, there
can be no assurance that this historical performance will continue or that the
Fund will meet its investment objective.
The Short-Intermediate U.S. Government Income Fund also may invest in the
adjustable rate portions of collateralized mortgage obligations ("CMOs") issued
by government agencies, instrumentalities or government-sponsored enterprises
including, primarily, FNMA and FHLMC, and collateralized by pools of mortgage
loans. Payments of principal and interest on the collateral mortgages are used
to pay debt service on the CMOs. All CMOs purchased by the Fund will be rated,
at the time of purchase, AAA by S&P or Aaa by Moody's. S&P and Moody's assign
ratings based upon their judgement of the risk of default (i.e., the risk that
the issuer or guarantor may default in the payment of principal and/or interest)
of the securities underlying the CMOs. However, investors should understand that
most of the risk of these securities comes from interest rate risk (i.e., the
risk that market interest rates may adversely affect the value of the securities
in which the Fund invests) and not from the risk of default. CMOs may have
significantly greater interest rate risk than traditional government securities
with identical ratings. The adjustable rate portions of CMOs have significantly
less interest rate risk.
13 PROSPECTUS
<PAGE> 153
The Short-Intermediate U.S. Government Income Fund, on a temporary basis, may
invest cash balances in U.S. Treasury bills, engage in repurchase agreements and
lend its portfolio securities, provided the value of such loans of portfolio
securities does not exceed one-third of the current value of its total assets.
Such temporary investments would most likely be made when there is an unexpected
or abnormal level of investor purchases or redemptions of Fund shares or because
of unusual market conditions. A more complete description of the Fund's
investments and investment activities is contained in the "Prospectus
Appendix - Additional Investment Policies" and in the Fund's SAI.
Although the ARMS are guaranteed by the U.S. Government, its agencies or
instrumentalities (including government-sponsored enterprises as noted above),
the market value of these securities, upon which the Short-Intermediate U.S.
Government Income Fund's daily NAV is based, will fluctuate. The Fund is subject
to interest rate risk, that is, the risk that increases in interest rates may
adversely affect the value of the securities in which the Fund invests, and
hence the value of your investment in the Fund. The values of these securities
generally change inversely to changes in interest rates. However, the adjustable
rate feature of the mortgages underlying the ARMS and the CMOs in which the Fund
may invest should reduce, but will not eliminate, price fluctuations in such
securities, particularly during periods of extreme fluctuations in market
interest rates.
Moreover, there can be no assurance that the U.S. Government would supply
financial support to its agencies or instrumentalities, where it is not
obligated to do so. Principal on the mortgages underlying the mortgage
pass-through securities in which the Short-Intermediate U.S. Government Income
Fund invests may be prepaid in advance of maturity; these prepayments tend to
increase when interest rates decline, presenting the Fund with more principal to
invest at lower rates. The converse also tends to be the case when interest
rates rise.
A more complete description of the Short-Intermediate U.S. Government Income
Fund's investments and investment activities is contained in the "Prospectus
Appendix - Additional Investment Policies" and in the Fund's SAI.
U.S. Government obligations have been selected by Wells Fargo Bank as the
Short-Intermediate U.S. Government Income Fund's principal investments because
of their relatively low purchase and sale transaction costs and because of the
low default risk associated with them (i.e., they are issued or guaranteed as to
principal and interest by the U.S. Government, its agencies or
instrumentalities).
A more complete description of the Short-Intermediate U.S. Government Income
Fund's investments and investment activities is contained in the "Prospectus
Appendix - Additional Investment Policies" and in the Fund's SAI.
PROSPECTUS 14
<PAGE> 154
PERFORMANCE
The performance of shares of the Short-Intermediate U.S. Government Income
Fund and each Class of shares of the Ginnie Mae Fund may be advertised in terms
of yield and average annual total return. These performance figures are based on
historical results and are not intended to indicate future performance.
The yield of a Class of shares of the Ginnie Mae Fund is calculated by
dividing the net investment income per share earned during a specified period
(usually 30 days) for the Class A shares by the public offering price per share
(which includes the maximum sales charge), or for the Class B shares by the NAV
per share (which does not include the maximum contingent deferred sales charge),
on the last day of such period and annualizing the result. The yield of the
shares of the Short-Intermediate U.S. Government Income Fund is calculated by
dividing the Fund's net investment income per share earned during a specified
period (usually 30 days) by the public offering price per share (which includes
the maximum sales charge) on the last day of such period and annualizing the
result. In addition to presenting a standardized yield, at times, each Fund also
may present nonstandardized yields, total returns and distribution rates for
purposes of sales literature. For example, the performance figure may be
calculated on the basis of an investment in the Funds at the NAV per share or at
NAV per share plus a reduced sales charge, rather than the public offering price
per share. In this case, the figure might not reflect the effect of the sales
charge that you may have paid (see "Investing in the Funds - How To Buy
Shares").
Standardized and nonstandardized total return figures for shares of the Short-
Intermediate U.S. Government Income Fund or a Class of shares of the Ginnie Mae
Fund also may be presented. Average annual total return is based on the overall
dollar or percentage change in value of a hypothetical investment in the Fund or
Class and assumes that all the dividends and capital gain distributions
attributable to the Fund or Class, as the case may be, are reinvested at net
asset value in such Fund or Class. Standardized average annual total return is
calculated for Class A Shares assuming you have paid the maximum sales charge,
and for Class B Shares assuming you have paid the maximum applicable contingent
deferred sales charge, on your investment. Nonstandardized total return may be
calculated assuming no sales charge or a reduced sales charge was paid on such
investment.
Because of differences in the fees and/or expenses borne by Class B Shares,
the performance figures on such shares can be expected, at any given time, to be
lower than the performance figures on Class A Shares. Standardized performance
quotations are computed separately for Class A and Class B Shares.
Additional information about the performance of each Fund is contained in the
Annual Report for each Fund. The Annual Reports may be obtained free of charge
by calling the Company at 800-222-8222.
15 PROSPECTUS
<PAGE> 155
THE FUNDS AND MANAGEMENT
The Funds are two of the funds in the Stagecoach Family of Funds. The Company
was organized as a Maryland corporation on September 9, 1991, and currently
offers shares of 11 other series: the Aggressive Growth, Asset Allocation,
California Tax-Free Bond, California Tax-Free Income, California Tax-Free Money
Market Mutual, Corporate Stock, Diversified Income, Growth and Income, Money
Market Mutual, National Tax-Free Money Market Mutual and U.S. Government
Allocation Funds. The Board of Directors of the Company supervises each Fund's
activities and monitors its contractual arrangements with various
service-providers. Although the Company is not required to hold annual
shareholder meetings, special meetings may be requested for purposes such as
electing or removing Directors, approving advisory contracts and distribution
plans, and changing a Fund's investment objectives or fundamental investment
policies. All shares of the Company have equal voting rights and will be voted
in the aggregate, rather than by series or Class, unless otherwise required by
law (such as when the voting matter affects only one series or Class). As a
shareholder of a Fund, you receive one vote for each share you own and
fractional votes for fractional shares owned. A more detailed description of the
voting rights and attributes of the shares is contained in the "Capital Stock"
section of the Funds' SAIs.
Wells Fargo Bank is the Funds' investment adviser, transfer agent and dividend
disbursing agent and custodian. In addition, Wells Fargo Bank is a Shareholder
Servicing Agent of the Funds and a Selling Agent under Selling Agreements with
the Funds' distributor. Wells Fargo Bank, one of the largest banks in the United
States, was founded in 1852 and is the oldest bank in the western United States.
As of April 1, 1996, Wells Fargo Bank and its affiliates provided investment
advisory services for approximately $56 billion of assets of individuals,
trusts, estates and institutions. Wells Fargo Bank is the investment adviser to
the other separately managed funds (or the Master Portfolios in which a fund may
invest) of the Company, and as adviser or sub-adviser to five other registered,
open-end, management investment companies, which consist of several separately
managed investment portfolios. Wells Fargo Bank, a wholly owned subsidiary of
Wells Fargo & Company, is located at 420 Montgomery Street, San Francisco,
California 94104.
Mr. Paul Single assumed responsibility for the day-to-day management of the
portfolio of the Ginnie Mae Fund on May 1, 1995. Mr. Single has managed taxable
bond portfolios for over a decade, and has specific expertise in mortgage-backed
securities. Prior to joining Wells Fargo Bank, in early 1988, he was a senior
portfolio manager for Benham Capital Management Group. Mr. Single received his
B.S. from Springfield College.
Mr. Mark Kraschel has been responsible for the day-to-day management of the
portfolio of the Short-Intermediate U.S. Government Income Fund since October
1993. He has also been responsible for the day-to-day management of the
portfolio of the Ginnie Mae Fund since May 1, 1995. He has specialized in
short-term bond investment
PROSPECTUS 16
<PAGE> 156
applications for over a decade. He joined Wells Fargo Bank in 1988 after five
years in fixed-income management at First Boston Corporation. Mr. Kraschel holds
a B.S. in business administration from the University of Oregon and an M.B.A. in
finance from the University of San Francisco.
Mr. Scott Smith also has been responsible for the day-to-day management of the
portfolio of the Short-Intermediate U.S. Government Income Fund since 1993 and
has been responsible for the management of the portfolio of the Ginnie Mae Fund
since May 1, 1995. He joined Wells Fargo Bank in 1988 as a taxable money market
portfolio specialist. His experience includes a position with a private money
management firm with mutual fund investment operations. Mr. Smith holds a B.A.
degree from the University of San Diego and is a chartered financial analyst.
Morrison & Foerster LLP, counsel to the Company and special counsel to Wells
Fargo Bank, has advised the Company and Wells Fargo Bank that Wells Fargo Bank
and its affiliates may perform the services contemplated by the Advisory
Contracts and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
Stephens is the Funds' sponsor and administrator, and distributes the Funds'
shares. Stephens is a full service broker/dealer and investment advisory firm
located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its
predecessor have been providing securities and investment services for more than
60 years and have been providing discretionary portfolio management services
since 1983. Stephens currently manages investment portfolios for pension and
profit sharing plans, individual investors, foundations, insurance companies and
university endowments.
17 PROSPECTUS
<PAGE> 157
INVESTING IN THE FUNDS
OPENING AN ACCOUNT
You can buy shares in either Fund in one of the several ways described below.
You must complete and sign an Account Application to open an account. Additional
documentation may be required from corporations, associations and certain
fiduciaries. Do not mail cash. If you have any questions or need extra forms,
you may call 1-800-222-8222.
After an application has been processed and an account has been established,
subsequent purchases of different funds of the Company under the same umbrella
account do not require the completion of additional applications. A separate
application must be processed for each different umbrella account number (even
if the registration is the same).
Call the number on your confirmation statement to obtain information about
what is required to change registration.
The Company or Stephens may make the Prospectus available in an electronic
format. Upon receipt of a request from you or your representative, the Company
or Stephens will transmit or cause to be transmitted promptly, without charge, a
paper copy of the electronic Prospectus.
To invest in the Funds through a tax-deferred retirement plan, please contact
a Shareholder Servicing Agent or a Selling Agent to receive information and the
required separate application. See "Tax-Deferred Retirement Plans" below.
SHARE VALUE
The value of a share of each Fund is its NAV. Wells Fargo Bank calculates the
NAV of the Funds each Business Day (as defined below) as of the close of regular
trading on the NYSE (referred to hereafter as "the close of the NYSE"), which is
currently 1:00 p.m. (Pacific time). The NAV per share of the Short-Intermediate
U.S. Government Income Fund is computed by adding the value of the Fund's
portfolio investments plus cash and other assets, deducting liabilities and then
dividing the result by the total number of Fund shares outstanding. The NAV of a
share of a Class of the Ginnie Mae Fund is the value of total net assets
attributable to each Class divided by the number of outstanding shares of that
Class. The value of the net assets per Class is determined daily by adjusting
the net assets per Class at the beginning of the day by the value of each
Class's shareholder activity, net investment income and net realized and
unrealized gains or losses for that day. Net investment income is calculated
each day for each Class by attributing to each Class a pro rata share of daily
income and common expenses, and by assigning class specific expenses to each
Class as appropriate. The NAV of a share of each Class is expected to fluctuate
daily.
PROSPECTUS 18
<PAGE> 158
The Funds are open for business each day the New York Stock Exchange ("NYSE")
is open for trading ("Business Day"). Currently, the NYSE is closed on New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day (each, a "Holiday"). When any Holiday
falls on a weekend, the NYSE is closed on the weekday immediately before or
after such Holiday.
Except for debt obligations with remaining maturities of 60 days or less,
which are valued at amortized cost, the other assets of the Funds are valued at
current market prices, or if such prices are not readily available, at fair
value as determined in good faith by the Company's Board of Directors. Prices
used for such valuations may be obtained from independent pricing services.
HOW TO BUY SHARES
Shares of the Funds are offered continuously at the applicable offering price
(the NAV plus the applicable sales charge) next determined after a purchase
order is received in the form specified for the purchase method being used, as
described in the following sections. Payment for shares purchased through a
Selling Agent will not be due from the Selling Agent until the settlement date.
The settlement date is normally three Business Days after the order is placed.
It is the responsibility of the Selling Agent to forward payment for shares
being purchased to a Fund promptly. Payment must accompany orders placed
directly through the Transfer Agent.
Payments for shares of each Fund will be invested in full and fractional
shares of the Fund at the applicable offering price. If shares are purchased by
a check which doesn't clear, the Company reserves the right to cancel the
purchase and hold the investor responsible for any losses or fees incurred. In
addition, the Funds may hold payment on any redemption until reasonably
satisfied that your payments made by check have been collected (which may take
up to 10 days).
The minimum initial investment amount is generally $1000. The minimum
investment amount is $100 by the AutoSaver Plan purchase method (described
below) and $250 for any tax sheltered retirement account for which Wells Fargo
Bank serves as trustee or custodian under a prototype trust approved by the
Internal Revenue Service ("IRS") (a "Plan Account"). Generally subsequent
investments must be made in amounts of $100 or more. Where Fund shares are
acquired in exchange for shares of another fund in the Stagecoach Family of
Funds, the minimum initial investment amount applicable to the shares being
exchanged generally carries over. However, if the value of your investment in
the shares you are exchanging has been reduced below the minimum initial
investment amount by changes in market conditions or sales charges (and not by
redemptions), you may carry over the lesser amount into one of the Funds. Plan
Accounts that invest in the Fund through Wells Fargo ExpressInvest(TM)
(available to certain Wells Fargo tax-deferred retirement plans) are not subject
to the minimum initial investment amount or the subsequent investment amount
requirements. If you have any questions regarding purchases of shares call
1-800-222-8222. If you have questions
19 PROSPECTUS
<PAGE> 159
regarding ExpressInvest please contact the Company at 1-800-237-8472. For
additional information on tax-deferred accounts, please refer to the section
"How to Buy Shares" under Tax-Deferred Retirement Plans or contact a Shareholder
Servicing Agent or Selling Agent.
SALES CHARGES
Set forth below are the Front-end Sales Charge Schedules listing the front-end
sales charges applicable to purchases of Class A Shares of the Ginnie Mae Fund
and shares of the Short-Intermediate U.S. Government Income Fund. As shown
below, reductions in the rates of front-end sales charges ("Volume Discounts")
are available as you purchase additional shares (other than Class B Shares). You
should consider the front-end sales charge information set forth below and the
other information contained in this Prospectus when making your investment
decisions.
The following is the Front-end Sales Charge Schedule for purchasing Class A
Shares of the Ginnie Mae Fund:
<TABLE>
<CAPTION>
FRONT-END FRONT-END
SALES CHARGE SALES CHARGE AS DEALER ALLOWANCE
AS % OF % OF NET AS % OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ----------------------- -------------- --------------- ----------------
<S> <C> <C> <C>
Less than $50,000...... 4.50% 4.71% 4.00%
$50,000 up to
$99,999.............. 4.00 4.17 3.55
$100,000 up to
$249,999............. 3.50 3.63 3.125
$250,000 up to
$499,999............. 3.00 3.09 2.65
$500,000 up to
$999,999............. 2.00 2.04 1.75
$1,000,000 and over.... 1.00 1.01 0.85
</TABLE>
The following is the Front-end Sales Charge Schedule for purchasing shares of
the Short-Intermediate U.S. Government Income Fund:
<TABLE>
<CAPTION>
FRONT-END FRONT-END
SALES CHARGE SALES CHARGE AS DEALER ALLOWANCE
AS % OF % OF NET AS % OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ----------------------- -------------- --------------- ----------------
<S> <C> <C> <C>
Less than $100,000..... 3.00% 3.09% 2.65%
$100,000 up to
$249,999............. 2.25 2.30 2.00
$250,000 up to
$599,999............. 1.50 1.52 1.30
$600,000 and over...... 0.60 0.60 0.50
</TABLE>
Class B Shares which are redeemed within one, two, three or four years from
the date of purchase are subject to a contingent deferred sales charge equal to
3.00%, 2.00%,
PROSPECTUS 20
<PAGE> 160
1.00% and 1.00%, respectively, of the dollar amount equal to the lesser of the
NAV at the time of purchase of the shares being redeemed or the NAV of such
shares at the time of redemption (the "NAV Amount"). Class B Shares are not
subject to a front-end sales charge. See "Investing in the Funds - Contingent
Deferred Sales Charges - Class B Shares."
A selling agent or shareholder servicing agent and any other person entitled
to receive compensation for selling or servicing shares may receive different
compensation for selling or servicing Class A Shares as compared with Class B
Shares.
If Class A shares are purchased through a Selling Agent, Stephens reallows the
portion of the sales charge shown above as the Dealer Allowance. Stephens also
compensates Selling Agents for sales of Class B Shares, and is then reimbursed
out of applicable Rule 12b-1 Fees and contingent deferred sales charges
applicable to such shares. When shares are purchased directly through the
Transfer Agent and no Selling Agent is involved with the purchase, the entire
front-end sales charge is paid to Stephens. In addition, Stephens has
established a non-cash compensation program, pursuant to which broker/dealers or
financial institutions that sell shares of the Funds may earn additional
compensation in the form of trips to sales seminars or vacation destinations,
tickets to sporting events, theater or other entertainment, opportunities to
participate in golf or other outings and gift certificates for meals or
merchandise.
REDUCED SALES CHARGE
Volume Discounts
The Volume Discounts described in the Front-end Sales Charge Schedules are
available to you based on the combined dollar amount you invest in shares of one
or more of the Company's funds which assess a front-end sales charge (the "Load
Funds"). Since Class B Shares are not subject to front-end sales charges, you
may not consider the amount of any Class B Shares you hold in determining a
Volume Discount.
Right of Accumulation
The Right of Accumulation allows you to combine the amount you invest in Class
A Shares of the Ginnie Mae Fund and in shares of the Short-Intermediate U.S.
Government Income Fund with the total NAV of Class A Shares or other shares
(other than Class B Shares) in any of the Load Funds to determine reduced sales
charges in accordance with the above Sales Charge Schedules. In addition, you
also may combine the total NAV of shares (other than Class B Shares) which you
currently have invested in any other mutual fund that assesses a front-end sales
charge and is advised by Wells Fargo Bank and sponsored by Stephens. For
example, if you own Class A Shares of the Load Funds with an aggregate NAV of
$90,000 and you invest an additional $20,000 in Class A Shares of a Fund, the
front-end sales charge on the additional $20,000 investment would be 3.50% of
the applicable offering price for the Ginnie Mae Fund and 2.25% for the Short-
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Intermediate U.S. Government Income Fund. To obtain such discount, you must
provide sufficient information at the time of your purchase to verify that your
purchase qualifies for the reduced front-end sales charge. Confirmation of the
order is subject to such verification. The Right of Accumulation may be modified
or discontinued at any time without prior notice with respect to all subsequent
shares purchased.
Letter of Intent
A Letter of Intent allows you to purchase Class A Shares of the Ginnie Mae
Fund and shares of the Short-Intermediate U.S. Government Income Fund over a
13-month period at a reduced front-end sales charge based on the total amount
you intend to purchase plus the total NAV of shares (other than Class B Shares)
in any of the Load Funds you already own. Each investment you make during the
period may be made at the reduced front-end sales charge that is applicable to
the total amount you intend to invest. If you do not invest the total amount
within the period, you must pay the difference between the higher front-end
sales charge rate that would have been applied to the purchases you made and the
reduced front-end sales charge rate you have paid. The minimum initial
investment for a Letter of Intent is 5% of the total amount you intend to
purchase, as specified in the Letter. Shares of a Fund equal to 5% of the amount
you intend to invest will be held in escrow and, if you do not pay the
difference within 20 days following the mailing of a request, a sufficient
amount of escrowed shares will be redeemed for payment of the additional
front-end sales charge. Dividend and capital gains paid on such shares held in
escrow will be reinvested in additional Fund shares.
Reinvestment
You may reinvest proceeds from a redemption of Class A Shares or shares of the
Short-Intermediate U.S. Government Income Fund in Class A Shares of a Fund or in
shares of another of the Company's funds registered in your state of residence
at NAV, without a front-end sales charge, within 120 days after your redemption.
However, if the fund you are purchasing imposes a front-end sales charge that is
higher than the one you have paid in connection with the shares you have
redeemed, you pay the difference. You may reinvest at NAV up to the total amount
of the redemption proceeds. A written purchase order for the shares must be
delivered to the Company, a Selling Agent, a Shareholder Servicing Agent, or the
Transfer Agent at the time of reinvestment.
If you realized a gain on your redemption, your reinvestment would not alter
the amount of any federal capital gains tax you pay on the gain. If you realized
a loss on your redemption, your reinvestment may cause some or all of the loss
to be disallowed as a tax deduction, depending on the number of shares you
purchase by reinvestment, the period of time that elapses after the redemption,
and which Fund's shares are purchased; although for tax purposes, the amount
disallowed is added to the cost of the shares you acquire upon the reinvestment.
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Reductions for Families or Fiduciaries
Reductions in front-end sales charges apply to purchases by a single "person,"
including an individual, members of a family unit, consisting of a husband, wife
and children under the age of 21 purchasing securities for their own account, or
a trustee or other fiduciary purchasing for a single fiduciary account or single
trust estate.
Waivers for Investments of Proceeds From Other Investments
Purchases may be made at NAV, without a front-end sales charge, to the extent
that: (i) you are investing proceeds from a redemption of (a) shares of another
open-end investment company or (b) units of a unit investment trust, sold
through Wells Fargo Securities, Inc., (ii) on which you paid a front-end sales
charge, and (iii) such redemption occurred within thirty (30) days prior to the
date of the purchase order. You must notify the Fund and/or the Transfer Agent
at the time you place such purchase order of your eligibility for the waiver of
front-end sales charges and provide satisfactory evidence thereof (e.g., a
confirmation of the redemption and the sales charge paid). Front-end sales
charges will not be waived to the extent the investment proceeds are from a
redemption of shares of another open-end investment company that is affiliated
with the Company on which you paid a contingent deferred sales charge upon
redemption.
Reductions for Qualified Groups
Reductions in front-end sales charges also apply to purchases by individual
members of a "qualified group." The reductions are based on the aggregate dollar
amount of shares purchased by all members of the qualified group. For purposes
of this paragraph, a qualified group consists of a "company," as defined in the
Investment Company Act of 1940 (the "1940 Act"), which has been in existence for
more than six months and which has a primary purpose other than acquiring shares
of a Fund at a reduced front-end sales charge, and the "related parties" of such
company. For purposes of this paragraph, a "related party" of a company is: (i)
any individual or other company who directly or indirectly owns, controls or has
the power to vote 5% or more of the outstanding voting securities of such
company; (ii) any other company of which such company directly or indirectly
owns, controls or has the power to vote 5% or more of its outstanding voting
securities; (iii) any other company under common control with such company; (iv)
any executive officer, director or partner of such company or of a related
party; and (v) any partnership of which such company is a partner. Investors
seeking to rely on their membership in a qualified group to purchase shares at a
reduced sales load must provide evidence satisfactory to the Transfer Agent of
the existence of a bona fide qualified group and their membership therein.
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Waivers for Certain Parties
Shares of a Fund may be purchased at NAV, without a front-end sales charge, by
directors, officers and employees (and their spouses, parents, children and
siblings) of the Company, Stephens, its affiliates and Selling Agents. Shares of
a Fund also may be purchased at NAV, without a front-end sales charge, by
present and retired directors, officers and employees (and their spouses,
parents, children and siblings) of Wells Fargo Bank and its affiliates if Wells
Fargo Bank and/or the respective affiliates agree. Shares also may be purchased
at NAV, without a front-end sales charge, by employee benefit and thrift plans
for such persons and by investment advisory, trust or other fiduciary accounts,
including certain Plan Accounts, that are maintained, managed or advised by
Wells Fargo Bank or its affiliates ("Fiduciary Accounts"). In addition, you may
purchase shares of a Fund at NAV, without a front-end sales charge, with
proceeds from a required minimum distribution from any Individual Retirement
Account ("IRA"), Simplified Employee Pension Plan or other self-directed
retirement plan for which Wells Fargo Bank serves as trustee, provided that the
proceeds are invested in the Fund within 30 days of such distribution and such
distribution is required as a result of reaching age 70 1/2.
CONTINGENT DEFERRED SALES CHARGE - CLASS B SHARES
Class B Shares may be subject to contingent deferred sales charges but are not
subject to front-end sales charges. Class B Shares which are redeemed within
one, two, three or four years from the receipt of a purchase order for such
shares will be subject to a contingent deferred sales charge equal to 3.00%,
2.00%, 1.00% and 1.00%, respectively, of the NAV Amount. Contingent deferred
sales charges will not be imposed on amounts representing increases in NAV above
the NAV at time of purchase. Contingent deferred sales charges will not be
assessed on Class B Shares purchased through reinvestment of dividends or
capital gain distributions. Class B Shares automatically convert into Class A
Shares of the same Fund six years after the end of the month in which such Class
B Shares were acquired.
The amount of a contingent deferred sales charge, if any, paid upon redemption
of Class B Shares is determined in a manner designed to result in the lowest
sales charge rate being assessed. When a redemption request is made, Class B
Shares acquired pursuant to the reinvestment of dividends and capital gain
distributions are considered to be redeemed first. After this, Class B Shares
are considered redeemed on a first-in, first-out basis so that Class B Shares
held for a longer period of time are considered redeemed prior to more recently
acquired Class B Shares. For a discussion of the interaction between the
optional Exchange Privilege and contingent deferred sales charges on Class B
Shares, see "Additional Shareholder Services - Exchange Privilege."
Contingent deferred sales charges are waived on redemptions of Class B Shares
(i) following the death or disability (as defined in the Internal Revenue Code
of 1986, as amended (the "Code")) of a shareholder, (ii) to the extent that the
redemption
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represents a scheduled distribution from an individual retirement account or
other retirement plan to a shareholder who has reached age 59 1/2, (iii)
effected pursuant to the Company's right to liquidate a shareholder's account if
the aggregate NAV of the shareholder's account is less than the minimum account
size, or (iv) in connection with the combination of the Company with any other
registered investment company by a merger, acquisition of assets, or by any
other transaction.
In deciding whether to purchase Class A or Class B Shares, you should compare
the fees assessed on Class A Shares (including front-end sales charges) against
those assessed on Class B Shares (including potential contingent deferred sales
charges and higher Rule 12b-1 Fees than Class A Shares) in light of the amount
to be invested and the anticipated time that the shares will be owned. If your
purchase amount would qualify you for a reduced sales charge on Class A Shares,
you should consider carefully whether you would pay lower fees ultimately on
Class A Shares or on Class B Shares. See "Investing in the Funds - Sales
Charges" for information on reduced sales charges for Class A Shares.
You may buy shares of a Fund on any Business Day by any of the methods
described below. The Company reserves the right to reject any purchase order or
suspend sales at any time. Payment for orders that are not received is returned
after prompt inquiry. The issuance of shares is recorded on the Company's books,
and share certificates are not issued.
INITIAL PURCHASES BY WIRE
1. Complete an Account Application.
2. Instruct the wiring bank to transmit the specified amount in federal funds
($1,000 or more) to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000587
Attention: Stagecoach Funds (Name of Fund) (designate a Class, if applicable)
Account Name(s): Name(s) in which to be registered
Account Number: (if investing into an existing account)
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3. A completed Account Application should be mailed, or sent by telefacsimile
with the original subsequently mailed, to the following address immediately
after the funds are wired and must be received and accepted by the Transfer
Agent before an account can be opened:
Wells Fargo Bank, N.A.
Stagecoach Shareholder Services
P.O. Box 7066
San Francisco, California 94120-7066
Telefacsimile: 1-415-543-9538
4. Share purchases are effected at the public offering price or, in the case of
Class B Shares, at the NAV next determined after the Account Application is
received and accepted.
INITIAL PURCHASES BY MAIL
1. Complete an Account Application. Indicate the services to be used.
2. Mail the Account Application and a check for $1,000 or more payable to
"Stagecoach Funds (Name of Fund) (designate a Class, if applicable)," to the
address set forth in "Initial Purchases by Wire."
3. Share purchases are effected at the public offering price or, in the case of
Class B Shares, at the NAV next determined after the Account Application is
received and accepted.
AUTOSAVER PLAN PURCHASES
The Company's AutoSaver Plan provides you with a convenient way to establish
and automatically add to a Fund account on a monthly basis. To participate in
the AutoSaver Plan, you must specify an amount ($100 or more) to be withdrawn
automatically by the Transfer Agent on a monthly basis from an account with a
bank, which is designated in your Account Application and which is approved by
the Transfer Agent ("Approved Bank Account"). You may open an Approved Bank
Account with Wells Fargo Bank. The Transfer Agent withdraws and uses this amount
to purchase specified shares of the designated Fund on your behalf each month on
or about the day that you have selected, or, if you have not selected a day, on
or about the 20th day of each month. The Transfer Agent requires a minimum of
ten (10) Business Days to implement your AutoSaver Plan purchases. There are no
separate fees charged to you by the Funds for participating in the AutoSaver
Plan.
You may change your investment amount, or the date on which your AutoSaver
purchase is effected, suspend purchases or terminate your election at any time
by notifying the Transfer Agent at least five (5) Business Days prior to any
scheduled transaction.
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<PAGE> 166
TAX-DEFERRED RETIREMENT PLANS
You may be entitled to invest in the Funds through a Plan Account or other
tax-deferred retirement plan. Contact a Shareholder Servicing Agent or a Selling
Agent (such as Wells Fargo Bank) for materials describing Plan Accounts
available through it, and the benefits, provisions, and fees of such Plan
Accounts. The minimum initial investment amount for Fund shares acquired through
a Plan Account is $250 (the minimum initial investment amount is not applicable
if you participate in ExpressInvest through a Plan Account).
Pursuant to the Code, individuals who are not active participants (and who do
not have a spouse who is an active participant) in certain types of retirement
plans ("qualified retirement plans") may deduct contributions to an IRA, up to
specified limits. Investment earnings in the IRA will be tax-deferred until
withdrawn, at which time the individual may be in a lower tax bracket.
The maximum annual deductible contribution to an IRA for individuals under age
70 1/2 is 100% of includible compensation up to a maximum of (i) $2,000 for
single individuals; (ii) $4,000 for a married couple when both spouses earn
income; and (iii) $2,250 when one spouse earns, or elects for IRA purposes to be
treated as earning, no income (together the "IRA contribution limits").
The IRA deduction is also available for single individual taxpayers and
married couples who are active participants in qualified retirement plans but
who have adjusted gross incomes which do not exceed certain specified limits. If
their adjusted gross income exceeds these limits, the amount of the deductible
contribution is phased down and eventually eliminated.
Any individual who works may make nondeductible contributions to an IRA in
addition to any deductible contributions. Total aggregate deductible and
nondeductible contributions are limited to the IRA contribution limits discussed
above. Nondeductible contributions in excess of the applicable IRA contribution
limit are "nondeductible excess contributions". In addition, contributions made
to an IRA for the year in which an individual attains the age of 70 1/2, or any
year thereafter, are also nondeductible excess contributions. Nondeductible
excess contributions are subject to a 6% excise tax penalty which is charged
each year that the nondeductible excess contribution remains in the IRA.
An employer also may contribute to an individual's IRA by establishing a
Simplified Employee Pension Plan known as a "SEP-IRA" through a Shareholder
Servicing Agent or a Selling Agent. Participating employers may make an annual
contribution in an amount up to the lesser of 15% of earned income or $30,000,
subject to certain provisions of the Code. Investment earnings will be
tax-deferred until withdrawn.
The foregoing discussion regarding IRAs is based on the Code and regulations
in effect as of the date of this Prospectus and summarizes only some of the
important federal
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income tax considerations generally affecting IRA contributions made by
individuals or their employers. It is not intended as a substitute for careful
tax planning. Investors should consult their tax advisors with respect to their
specific tax situations as well as with respect to state and local taxes.
Further federal tax information is contained under the heading "Taxes" of this
Prospectus and in the SAI.
A Shareholder Servicing Agent or Selling Agent also may offer other types of
tax-deferred or tax-advantaged plans, including a Keogh retirement plan for
self-employed professional persons, sole proprietors and partnerships.
Application materials for opening a tax-deferred retirement plan can be
obtained from a Shareholder Servicing Agent or a Selling Agent. Return your
completed tax-deferred retirement plan application to your Shareholder Servicing
Agent or a Selling Agent for approval and processing. If your tax-deferred
retirement plan application is incomplete or improperly filled out, there may be
a delay before a Fund account is opened. You should ask your Shareholder
Servicing Agent or Selling Agent about the investment options available to your
tax-deferred retirement plan, since some of the funds in the Stagecoach Family
of Funds may be unavailable. Moreover, certain features described herein, such
as the AutoSaver Plan and the Systematic Withdrawal Plan, may not be available
to individuals or entities who invest through a tax-deferred retirement plan.
ADDITIONAL PURCHASES
You may make additional purchases of $100 or more by instructing a Fund's
Transfer Agent to debit your Approved Bank Account, by wire by instructing the
wiring bank to transmit the specified amount as directed above for initial
purchases, or by mail with a check payable to "Stagecoach Funds (Name of Fund)
(designate a Class, if applicable)" to the address set forth in "Initial
Purchases by Wire." Write your Fund account number on the check and include the
detachable stub from your Statement of Account or a letter providing your Fund
account number.
PURCHASES THROUGH SELLING AGENTS
You may place a purchase order for shares of a Fund through a broker/dealer or
financial institution which has entered into a Selling Agreement with Stephens,
as the Funds' Distributor ("Selling Agent"). If your order is placed by the
close of the NYSE, the purchase order will be executed on the same day if the
order is received by the Transfer Agent before the close of business. If your
purchase order is received by a Selling Agent after the close of the NYSE or by
the Transfer Agent after the close of business, then your purchase order will be
executed on the next Business Day following the day your order is placed. The
Selling Agent is responsible for the prompt transmission of your purchase order
to the Funds. Because payment for shares of a Fund will not be due until
settlement date, the Selling Agent might benefit from the temporary use of your
payment.
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PURCHASES THROUGH SHAREHOLDER SERVICING AGENTS
Purchase orders for shares of the Funds may be transmitted to the Transfer
Agent through any entity that has entered into a Shareholder Servicing Agreement
with the Funds ("Shareholder Servicing Agent"), such as Wells Fargo Bank. See
"Management, Distribution and Servicing Fees - Shareholder Servicing Agent."
The Shareholder Servicing Agent may transmit a purchase order to the Transfer
Agent, on your behalf, including a purchase order for which payment is to be
transferred from an Approved Bank Account or wired from a financial institution.
If your order is transmitted by the Shareholder Servicing Agent, on your behalf,
to the Transfer Agent before the close of the NYSE, the purchase order will be
executed on the same day. If your Shareholder Servicing Agent transmits your
purchase order to the Transfer Agent after the close of the NYSE, then your
order generally will be executed on the next Business Day following the day your
order is received. The Shareholder Servicing Agent is responsible for the prompt
transmission of your purchase order to the Transfer Agent.
STATEMENTS AND REPORTS
The Funds, or a Shareholder Servicing Agent on their behalf, will typically
send you a confirmation or statement of your account after every transaction
that affects your share balance or your Fund account registration. A statement
with tax information for the previous year will be mailed to you by January 31
of each year, and also will be filed with the IRS. At least twice a year, you
will receive financial statements.
DIVIDENDS
Each Fund intends to declare a daily dividend of substantially all of its net
investment income. Dividends declared in a month generally are paid on the last
Business Day of such month to shareholders of record. The Funds will distribute
any capital gains at least annually. You have several options for receiving
dividends and capital gain distributions. They are discussed under "Additional
Shareholder Services - Dividend and Distribution Options."
Dividends and capital gain distributions will have the effect of reducing the
NAV per share by the amount distributed. Although such distributions paid to you
on newly issued shares shortly after your purchase would represent, in
substance, a return of your capital, the distributions would consist of net
investment income and, accordingly, would be taxable to you.
Net investment income available for distribution to the holders of Class B
Shares will be reduced by the amount of the higher Rule 12b-1 Fee payable on
such shares. Other
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expenses, such as state securities registration fees and transfer agency fees,
that are attributable to a particular class also may affect the relative
dividends and/or capital gain distributions of Class A Shares and Class B
Shares.
Dividends for a Saturday, Sunday or Holiday are declared payable to
shareholders of record as of the preceding Business Day.
If you redeem shares before the dividend payment date, any dividends credited
to you are paid on the following dividend payment date unless you have redeemed
all shares in your account, in which case you will receive your accrued
dividends together with your redemption proceeds.
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares in a Fund on any Business Day.
Your shares will be redeemed at the NAV next calculated after the Funds have
received your redemption request in proper form. Redemption proceeds may be more
or less than the amount invested and, therefore, a redemption may result in a
gain or loss for federal and state income tax purposes. The Funds ordinarily
will remit redemption proceeds, net of any contingent deferred sales charge
applicable with respect to Class B Shares (the "net redemption proceeds"),
within seven days after your redemption order is received in proper form, unless
the SEC permits a longer period under extraordinary circumstances. Such
extraordinary circumstances could include a period during which an emergency
exists as a result of which (a) disposal by a Fund of securities owned by it is
not reasonably practicable or (b) it is not reasonably practicable for a Fund
fairly to determine the value of its net assets, or a period during which the
SEC by order permits deferral of redemptions for the protection of security
holders of such Fund. In addition, the Funds may hold payment on your
redemptions until reasonably satisfied that your investments made by check have
been collected (which can take up to 10 days from the purchase date). To ensure
acceptance of your redemption request, please follow the procedures described
below. Although it is not the Funds' current intention, the Funds may make
payment of redemption proceeds in securities if conditions warrant, subject to
regulation by some state securities commissions. In addition, the Funds reserve
the right to impose charges for wiring redemption proceeds.
Due to the high cost of maintaining Fund accounts with small balances, the
Funds reserve the right to close your account and send you the proceeds if the
balance falls below the applicable minimum balance because of a redemption
(including a redemption of shares of a Fund after an investor has made only the
applicable minimum initial investment). However, you will be given 30 days'
notice to make an additional investment to increase your account balance to an
amount equal to or greater than the
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<PAGE> 170
applicable minimum balance. Plan Accounts are not subject to minimum Fund
account balance requirements. For a discussion of applicable minimum balance
requirements, see "Investing in the Funds -- How To Buy Shares."
REDEMPTIONS BY TELEPHONE
Telephone redemption or exchange privileges are made available to you
automatically upon opening an account, unless you specifically decline the
privileges. Telephone redemption privileges authorize the Transfer Agent to act
on telephone instructions from any person representing himself or herself to be
the investor and reasonably believed by the Transfer Agent to be genuine. The
Company will require the Transfer Agent to employ reasonable procedures, such as
requiring a form of personal identification, to confirm that instructions are
genuine and, if it does not follow such procedures, the Company and the Transfer
Agent may be liable for any losses due to unauthorized or fraudulent
instructions. Neither the Company nor the Transfer Agent will be liable for
following telephone instructions reasonably believed to be genuine.
REDEMPTIONS BY MAIL
1. Write a letter of instruction. Indicate the Class, if applicable, and the
dollar amount or number of Fund shares you want to redeem. Refer to your Fund
account number and give your social security or taxpayer identification
number (where applicable).
2. Sign the letter in exactly the same way the account is registered. If there
is more than one owner of the shares, all must sign.
3. Signature guarantees are not required for redemption requests unless
redemption proceeds of $5,000 or more are to be paid to someone other than
you at your address of record or your Approved Bank Account, or other unusual
circumstances exist which cause the Transfer Agent to determine that a
signature guarantee is necessary or prudent to protect against unauthorized
redemption requests. If required, a signature must be guaranteed by an
"eligible guarantor institution," which includes a commercial bank that is an
FDIC member, a trust company, a member firm of a domestic stock exchange, a
savings association, or a credit union that is authorized by its charter to
provide a signature guarantee. Signature guarantees by notaries public are
not acceptable. Further documentation may be requested from corporations,
administrators, executors, personal representatives, trustees or custodians.
4. Mail your letter to the Transfer Agent at the mailing address set forth under
"Investing in the Funds - Initial Purchases by Wire."
Unless other instructions are given in proper form, a check for your net
redemption proceeds is sent to your address of record.
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EXPEDITED REDEMPTIONS BY MAIL OR TELEPHONE
You may request an expedited redemption of shares of a Fund by letter, in
which case your receipt of redemption proceeds, but not the Fund's receipt of
your redemption request, would be expedited. In addition, you also may request
an expedited redemption of shares of a Fund by telephone on any Business Day, in
which case both your receipt of redemption proceeds and the Fund's receipt of
your redemption request would be expedited. You may request expedited redemption
by telephone only if the total value of the shares redeemed is $100 or more.
You may request expedited redemption by telephone by calling the Transfer
Agent at the telephone number listed on your transaction confirmation or by
calling 1-800-222-8222.
You may request expedited redemption by mail by mailing your expedited
redemption request to the Transfer Agent at the mailing address set forth under
"Investing in the Funds - Initial Purchases by Wire."
Upon request, net redemption proceeds of your expedited redemptions of $5,000
or more will be wired or credited to an Approved Bank Account or wired to the
Selling Agent designated in your Account Application. The Company reserves the
right to impose a charge for wiring redemption proceeds. When proceeds of your
expedited redemption are to be paid to someone else, to an address other than
that of record, or to your Approved Bank Account or Selling Agent that you have
not predesignated in your Account Application, your expedited redemption request
must be made by letter and the signature(s) on the letter may be required to be
guaranteed, regardless of the amount of the redemption. If your expedited
redemption request is received by the Transfer Agent by the close of the NYSE on
a Business Day, your redemption proceeds will be transmitted to your Approved
Bank Account or Selling Agent on the next Business Day (assuming your investment
check has cleared as described above), absent extraordinary circumstances. Such
extraordinary circumstances could include those described above as potentially
delaying redemptions and also could include situations involving an unusually
heavy volume of wire transfer orders on a national or regional basis or
communication or transmittal delays that could cause a brief delay in the wiring
or crediting of funds. A check for net redemption proceeds is mailed to your
address of record or, at your election, credited to an Approved Bank Account.
During periods of drastic economic or market activity or changes, you may
experience problems implementing an expedited redemption by telephone. In the
event you are unable to reach the Transfer Agent by telephone, you should
consider using overnight mail to implement an expedited redemption. The Funds
reserve the right to modify or terminate the expedited telephone redemption
privilege at any time.
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<PAGE> 172
SYSTEMATIC WITHDRAWAL PLAN
The Company's Systematic Withdrawal Plan provides you with a convenient way to
redeem Fund shares from your account and have the net redemption proceeds
distributed to you on a monthly basis. You may participate in the Systematic
Withdrawal Plan only if you have a Fund account valued at $10,000 or more as of
the date of your election to participate, your dividends and capital gain
distributions are being reinvested automatically and you are not participating
in the AutoSaver Plan at any time while participating in the Systematic
Withdrawal Plan. You specify an amount ($100 or more) to be distributed by check
to your address of record or deposited in your Approved Bank Account. The
Transfer Agent redeems sufficient shares and mails or deposits your net
redemption proceeds as instructed on or about the fifth Business Day prior to
the end of each month. There are no separate fees charged to you by the Funds
for participating in the Systematic Withdrawal Plan. However, you should not
participate in the Systematic Withdrawal Plan if you also are purchasing shares
of a Fund that is subject to a sales charge.
It may take up to ten (10) days after receipt of your request to establish
your participation in the Systematic Withdrawal Plan. You may change your
withdrawal amount, suspend withdrawals or terminate your election at any time by
notifying the Transfer Agent at least five (5) Business Days prior to any
scheduled transaction. Your participation in the Systematic Withdrawal Plan is
terminated automatically if your Fund account is closed or, in some cases, if
your Approved Bank Account is closed.
REDEMPTIONS THROUGH SELLING AGENTS
If your redemption order for shares of a Fund is received by a Selling Agent
before the close of the NYSE and received by the Transfer Agent before the close
of business on the same day, the order will be executed at the NAV determined as
of the close of the NYSE on that day. If your redemption order is received by a
Selling Agent after the close of the NYSE, or not received by the Transfer Agent
prior to the close of business, your order will be executed at the NAV
determined as of the close of the NYSE on the next Business Day. The Selling
Agent is responsible for the prompt transmission of your redemption order to the
Funds.
Unless you have made other arrangements with the Selling Agent, and the
Transfer Agent has been informed of such arrangements, net redemption proceeds
of a redemption order made by you through a Selling Agent will be credited to
your Approved Bank Account. If no such account is designated, a check for the
net redemption proceeds will be mailed to your address of record or, if such
address is no longer valid, the net proceeds will be credited to your account
with the Selling Agent. You may request a check from the Selling Agent or elect
to retain the net redemption proceeds in such account. The Selling Agent may
charge you a service fee. In addition, the Selling Agent may benefit from the
use of your redemption proceeds until the check
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it issues to you has cleared or until such proceeds have been disbursed or
reinvested on your behalf.
REDEMPTIONS THROUGH SHAREHOLDER SERVICING AGENTS
You may request a redemption of shares of a Fund through your Shareholder
Servicing Agent. Any redemption request made by telephone through your
Shareholder Servicing Agent must redeem shares with a total value equal to $100
or more. If your redemption order is transmitted by the Shareholder Servicing
Agent, on your behalf, to the Transfer Agent before the close of the NYSE, the
redemption order will be executed at the NAV determined as of the close of the
NYSE on that day. If your Shareholder Servicing Agent transmits your redemption
order to the Transfer Agent after the close of the NYSE, then your order will be
executed on the next Business Day following the date your order is received. The
Shareholder Servicing Agent is responsible for the prompt transmission of your
redemption order to the Funds.
Unless you have made other arrangements with your Shareholder Servicing Agent,
and the Transfer Agent has been informed of such arrangements, net redemption
proceeds of a redemption order made by you through your Shareholder Servicing
Agent will be credited to your Approved Bank Account. If no such account is
designated, a check for the net redemption proceeds will be mailed to your
address of record or, if such address is no longer valid, the net proceeds will
be credited to your account with your Shareholder Servicing Agent or to another
account designated in your agreement with your Shareholder Servicing Agent. The
Shareholder Servicing Agent may charge you a fee. In addition, the Shareholder
Servicing Agent may benefit from the use of proceeds credited to your account
until any check it issues to you has cleared or until such proceeds have been
disbursed or reinvested on your behalf.
PROSPECTUS 34
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ADDITIONAL SHAREHOLDER SERVICES
The Company offers you a number of optional services. As noted above, you can
take advantage of the AutoSaver Plan, Tax-Deferred Retirement Plans, the
Systematic Withdrawal Plan and Expedited Redemptions by Letter and Telephone. In
addition, the Funds offer you several dividend and distribution payment options
and an exchange privilege, which are described below. If you have any questions
about the options available to you, please call 1-800-222-8222.
DIVIDEND AND DISTRIBUTION OPTIONS
When you fill out your Account Application, you can choose from the following
dividend and distribution options:
A. The Automatic Reinvestment Option provides for the reinvestment of your
dividends and capital gain distributions in additional shares of the same class
of the Fund which paid such dividend or capital gain distribution. Dividends and
distributions declared in a month generally are reinvested at NAV on the last
Business day of such month. You are assigned this option automatically if you
make no choice on your Account Application.
B. The Fund Purchase Option lets you use your dividends and/or capital gain
distributions from the Funds to purchase, at NAV, shares of another fund in the
Stagecoach Family of Funds with which you have an established account that has
met the applicable minimum initial investment requirement. Dividends and
distributions paid on Class A or Class B Shares of the Ginnie Mae Fund may be
invested in Class A or Class B Shares, respectively, of another fund, in Retail
Shares of another fund or in shares of a Money Market Mutual Fund (the
California Tax-Free Money Market Mutual Fund, National Tax-Free Money Market
Mutual Fund and Money Market Mutual Fund -- Class A Shares are sometimes
referred to as the "Money Market Mutual Funds"). Dividends and distributions
paid on Class A Shares may also be invested in shares of a non-money market fund
with a single class of shares (a "single class fund"). Dividends and
distributions paid on Class B Shares may not be invested in shares of a single
class fund. Dividends and distributions paid on shares of the Short-Intermediate
U.S. Government Income Fund may be invested in Class A Shares, in Retail Shares
of another fund, in shares of a single class fund or in shares of the Money
Market Mutual Funds.
C. The Automatic Clearing House Option permits you to have dividends and
capital gain distributions deposited in your Approved Bank Account. In the event
your Approved Bank Account is closed and such distribution is returned to the
Funds' dividend disbursing agent, the distribution will be reinvested in your
Fund account at the NAV next determined after the distribution has been
returned. Your Automatic Clearing House Option will be converted to the
Automatic Reinvestment Option.
35 PROSPECTUS
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D. The Check Payment Option lets you receive a check for all dividends and/or
capital gain distributions, which generally is mailed either to your designated
address or your Approved Bank Account shortly following declaration. If the U.S.
Postal Service cannot deliver your checks, or if your checks remain uncashed for
six months, those checks will be reinvested in your Fund account at the NAV next
determined after the earlier of the date the checks have been returned to the
dividend disbursing agent or the date six months after the payment of such
dividend or distribution. Your Check Payment Option will be converted to the
Automatic Reinvestment Option.
The Company takes reasonable efforts to locate investors whose checks are
returned or uncashed after six months.
EXCHANGE PRIVILEGE
Wells Fargo Bank advises a variety of other funds, each with its own
investment objective and policies. The exchange privilege is a convenient way to
buy shares in other funds in the Stagecoach Family of Funds that are registered
in your state of residence in order to respond to changes in your investment and
savings goals or in market conditions. Shares of the Short-Intermediate U.S.
Government Income Fund may be exchanged for Class A Shares or Retail Shares of
another fund, for shares of a single class fund or for shares of the Money
Market Mutual Funds. Class A Shares of the Ginnie Mae Fund may be exchanged for
Class A Shares or Retail Shares of another fund, for shares of the Money Market
Mutual Funds or for shares of a single class fund. Class B Shares of the Ginnie
Mae Fund may be exchanged for Class B Shares of another fund or for shares of
the Money Market Mutual Funds.
Before making an exchange from a Fund into another fund in the Stagecoach
Family of Funds, please observe the following:
- - Obtain and carefully read the prospectus of the fund into which you want to
exchange.
- - If you exchange into another fund with a front-end sales charge, you must pay
the difference between that fund's sales charge and any sales charge you
already have paid in connection with the shares you are exchanging.
- - If you exchange Class B Shares for Class B Shares of another fund or for
shares of one of the Money Market Mutual Funds a contingent deferred sales
charge will not be imposed upon the exchange.
- - Each exchange, in effect, represents the redemption of shares of one fund and
the purchase of shares in another, which may produce a gain or loss for tax
purposes. A confirmation of each exchange transaction will be sent to you.
- - The dollar amount of shares you exchange generally must meet the minimum
initial and/or subsequent investment amounts of the fund from which you are
exchanging. If the value of your investment in the shares of the fund from
which you are
PROSPECTUS 36
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exchanging has been reduced below the minimum initial investment amount by
changes in market conditions or sales charges (and not by redemption), you
may carry over the lesser amount into the shares you acquire.
- - The Company reserves the right to limit the number of times shares may be
exchanged between funds, to reject any telephone exchange order, or otherwise
to modify or discontinue exchange privileges at any time. Under SEC rules,
subject to limited exceptions, the Company must notify you 60 days before it
modifies or discontinues the exchange privilege.
- - If you exchange Class B Shares for Class B Shares of another fund or for
shares of one of the Money Market Mutual Funds, the remaining period of time
(if any) that the contingent deferred sales charge applicable to such shares
is in effect will be computed from the time of initial purchase of the
previously held shares. For example, if you exchange Class B Shares of a Fund
for shares of the California Tax-Free Money Market Mutual Fund and redeem
those shares of the California Tax-Free Money Market Mutual Fund within four
years of the purchase of the exchanged Class B Shares, you will be required
to pay a contingent deferred sales charge equal to the charge which would
have applied had you redeemed the original Class B Shares at that time.
- - If you exchange Class B Shares for shares of one of the Money Market Mutual
Funds as described above, you subsequently may re-exchange the acquired
shares only for Class B Shares of one of the Company's funds or for shares of
the other Money Market Mutual Fund.
The procedures applicable to Fund redemptions generally apply to Fund
exchanges.
To exchange shares, write the Transfer Agent at the mailing address under
"Investing in the Funds - Initial Purchases by Wire" or call the Transfer Agent
at the telephone number listed on your transaction confirmation, or contact your
Shareholder Servicing Agent or Selling Agent. The procedures applicable to
telephone redemptions, including the discussion regarding the responsibility for
the authenticity of telephone instructions, are also applicable to telephone
exchange requests. See "How to Redeem Shares - Expedited Redemptions by Letter
and Telephone."
CONVERSION
Class B Shares of the Ginnie Mae Fund that have been outstanding for six years
after the end of the month in which the shares were initially purchased
automatically convert to Class A Shares of the same Fund and, consequently, will
no longer be subject to the higher Rule 12b-1 fees applicable to Class B Shares.
Such conversion will be on the basis of the relative net asset values of the two
Classes, without the imposition of any sales charge or other charge except that
the lower Rule 12b-1 fees applicable to Class A Shares shall thereafter be
applied to such converted shares. Because the per share net asset value of the
Class A Shares may be higher than that of the Class B Shares at the time of
37 PROSPECTUS
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conversion, a shareholder may receive fewer Class A Shares than the number of
Class B Shares converted, although the dollar value will be the same. A
conversion should not produce a gain or loss for federal income tax purposes.
Reinvestments of dividends and distributions in Class B Shares will be
considered new purchases for purposes of the conversion feature.
If a shareholder effects one or more exchanges among Class B Shares of any
fund or among shares of the Money Market Mutual Funds during the six-year period
and exchanges back into Class B Shares, the holding period for shares so
exchanged will be counted toward the six-year period and any Class B Shares held
at the end of six years will be converted into Class A Shares.
MANAGEMENT, DISTRIBUTION AND SERVICING FEES
INVESTMENT ADVISER
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank, as the Funds' investment adviser, provides investment guidance and
policy direction in connection with the management of the Funds' assets. Wells
Fargo Bank also furnishes the Board of Directors with periodic reports on the
Funds' investment strategy and performance.
For these services, Wells Fargo Bank is entitled to a monthly investment
advisory fee from the Ginnie Mae Fund, at an annual rate equal to 0.50% of the
first $250 million of the Fund's average daily net assets, 0.40% of the next
$250 million, and 0.30% in excess of $500 million, Wells Fargo Bank is entitled
to a monthly investment advisory fee from the Short-Intermediate U.S. Government
Income Fund at an annual rate equal to 0.50% of the Fund's average daily net
assets. From time to time, Wells Fargo Bank may waive such fees in whole or in
part. Any such waiver will reduce the Funds' expenses and, accordingly, have a
favorable impact on the Funds' yield and total return. For the year ended
December 31, 1995, the Ginnie Mae Fund and the Short-Intermediate U.S.
Government Income Fund paid a fee at an annual rate equal to 0.50% and 0.27%,
respectively, of their average daily net assets to Wells Fargo Bank for its
services as investment adviser.
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
PROSPECTUS 38
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for the Funds and other accounts managed by Wells Fargo Bank, Wells Fargo Bank
undertakes to allocate those transactions among the participants equitably. From
time to time, the Funds, to the extent consistent with their investment
objectives, policies and restrictions, may invest in securities of companies
with which Wells Fargo Bank has a lending relationship.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank serves as the custodian for the Funds. Under its Custody
Agreement with Wells Fargo Bank, each Fund may, at times, borrow money from
Wells Fargo Bank as needed to satisfy temporary liquidity needs. Wells Fargo
Bank charges interest on such overdrafts at a rate determined pursuant to each
Fund's Custody Agreement. Wells Fargo Bank performs the custodial services at
525 Market Street, San Francisco, California 94105.
Wells Fargo Bank also serves as the transfer and dividend disbursing agent for
the Funds. Wells Fargo Bank performs the transfer and dividend disbursing agency
activities at 525 Market Street, San Francisco, California 94163.
SHAREHOLDER SERVICING AGENT
The Funds have entered into Shareholder Servicing Agreements with Wells Fargo
Bank and may enter into similar agreements with other entities. Under such
agreements, Shareholder Servicing Agents (including Wells Fargo Bank) agree, as
agent for their customers, to provide various administrative services with
respect to Fund shares, such as maintaining shareholder accounts and records,
assisting shareholders with purchases, exchanges and redemptions and provide
such other related services as the Company or a shareholder may reasonably
request. For these services, a Shareholder Servicing Agent receives a fee, as
calculated on an annualized basis for the Fund's then-current fiscal year, up to
(1) 0.30% of the average daily net assets of the Fund represented by shares
owned during the period for which payment is being made by investors with whom
the Shareholder Servicing Agent maintains a servicing relationship, or (2) an
amount which equals the maximum amount payable to the Shareholder Servicing
Agent under applicable laws, regulations or rules, including the Rules of Fair
Practice of the NASD ("NASD Rules"). In no event will the portion of such fees
that constitutes a "service fee," as that term is used by the NASD, exceed 0.25%
of the average net asset value of the Fund. In no event will shareholder
servicing fees for the Ginnie Mae Fund, as calculated on an annualized basis for
the Fund's then-current fiscal year, exceed the lesser of (1) 0.30% of the
average daily net assets of the Fund represented by Class A or Class B Shares,
as the case may be, owned during the period for which payment is being made by
investors with whom the Shareholder Servicing Agent maintains a servicing
relationship, or (2) an amount which equals the maximum amount payable to the
Shareholder Servicing Agent under applicable laws, regulations or rules,
including the NASD Rules. In no event will the portion of such fees that
constitutes a "service fee," as
39 PROSPECTUS
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that term is used by the NASD, exceed 0.25% of the average NAV attributable to
the Class A and Class B Shares of the Fund.
A Shareholder Servicing Agent also may impose certain conditions on its
customers, subject to the terms of this Prospectus, in addition to or different
from those imposed by the Funds, such as requiring a higher minimum initial
investment or by directly charging its customers for its services. Each
Shareholder Servicing Agent will be required to agree to disclose any fees it
may directly charge its customers who are shareholders of a Fund and to notify
them in writing at least 30 days before it imposes any transaction fees.
SPONSOR, ADMINISTRATOR AND DISTRIBUTOR
Subject to the overall supervision of the Company's Board of Directors,
Stephens provides the Funds with administrative services, including general
supervision of each Fund's operation, coordination of the other services
provided to each Fund, compilation of information for reports to the SEC and the
state securities commissions, preparation of proxy statements and shareholder
reports, and general supervision of data compilation in connection with
preparing periodic reports to the Company's Directors and officers. Stephens
also furnishes office space and certain facilities to conduct each Fund's
business, and compensates the Company's Directors, officers and employees who
are affiliated with Stephens. For these services, Stephens is entitled to
receive from each Fund a monthly fee at the annual rate of up to 0.03% of each
Fund's average daily net assets. From time to time, Stephens may waive its fees
from a Fund in whole or in part. Any such waiver will reduce a Fund's expenses
and, accordingly, have a favorable impact on such Fund's performance.
Stephens, as the principal underwriter of the Funds within the meaning of the
1940 Act, has entered into a Distribution Agreement with the Company pursuant to
which Stephens has the responsibility for distributing shares of the Funds. The
Company also has adopted a Distribution Plan on behalf of each of the Funds
under the SEC's Rule 12b-1 (each, a "Plan"). Under the Plan for the Class A
Shares of the Ginnie Mae Fund, the Fund may defray all or part of the cost of
preparing and printing prospectuses and other promotional materials and of
delivering prospectuses and those materials to prospective Class A shareholders
by paying on an annual basis up to 0.05% of the average daily net assets
attributable to Class A Shares of such Fund. Under the Plan for the shares of
the Short-Intermediate U.S. Government Income Fund, the Fund may defray all or a
part of the cost of preparing and printing prospectuses and other promotional
material to prospective shareholders by paying on an annual basis up to 0.05% of
the average daily net assets attributable to the Fund. The Plan for the shares
of the Short-Intermediate U.S. Government Income Fund provides only for the
reimbursement of actual expenses. Under the Class B Plan for the Ginnie Mae
Fund, the Fund may defray all or part of such costs and pay compensation to the
Distributor and Selling Agents for sales support services. The Class B Plan for
the Ginnie Mae Fund provides for payments, on an annual basis, of up to 0.70% of
the average daily net assets
PROSPECTUS 40
<PAGE> 180
attributable to the Class B Shares of the Fund. The Distribution Agreement
provides that Stephens shall act as agent for the Funds for the sale of their
shares, and may enter into Selling Agreements with Selling Agents that wish to
make available shares of the Funds to their respective customers. The Funds may
participate in joint distribution activities with any of the other funds of the
Company, in which event, expenses reimbursed out of the assets of the Funds may
be attributable, in part, to the distribution-related activities of another fund
of the Company. Generally, the expenses attributable to joint distribution
activities will be allocated among each Fund and the other funds of the Company
in proportion to their relative net asset sizes, although the Company's Board of
Directors may allocate such expenses in any other manner that it deems fair and
equitable.
In addition, the Plans contemplate that, to the extent any fees payable
pursuant to a Shareholder Servicing Agreement (discussed above) are deemed to be
for distribution-related services, such payments are approved and payable
pursuant to the Plans subject to any limits under applicable law, regulations or
rules, including the NASD Rules. Financial Institutions acting as Selling
Agents, Shareholder Servicing Agents, or in certain other capacities may be
required to register as dealers pursuant to applicable state securities laws
which may differ from Federal law and any interpretations expressed herein.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective
fees in whole or in part and reimburse expenses payable to others. Any such
waivers or reimbursements will reduce a Fund's expenses and, accordingly, have a
favorable impact on a Fund's performance. Except for the expenses borne by Wells
Fargo Bank and Stephens, the Company bears all costs of its operations,
including advisory, shareholder servicing, transfer agency, custody and
administration fees, payments pursuant to any Plans, fees and expenses of
independent auditors and legal counsel, and any extraordinary expenses. Expenses
attributable to each Fund or class are charged against the assets of the Fund or
class. General expenses of the Company are allocated among all of the funds of
the Company, including the Funds, in a manner proportionate to the net assets of
each fund, on a transactional basis, or on such other basis as the Company's
Board of Directors deems equitable.
41 PROSPECTUS
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TAXES
The Company intends to qualify each Fund as a regulated investment company
under Subchapter M of the Code, as long as such qualification is in the best
interest of each Fund's shareholders. In addition, net capital gains, net
investment income and operating expenses will be determined separately for each
Fund.
By complying with the applicable provisions of the Code, the Funds are not
subject to federal income taxes with respect to net investment income and net
realized capital gains distributed to their shareholders. The Funds intend to
pay out substantially all their net investment income and net realized capital
gains (if any) for each year. Dividends from net investment income (including
net short-term capital gains, if any) declared and paid by each Fund will be
taxable as ordinary income to Fund shareholders. Whether you take such dividend
payments in cash or have them automatically reinvested in additional shares,
they will be taxable as ordinary income. Generally, dividends and distributions
of capital gain are taxable to shareholders when paid. However, dividends and
distributions declared payable in October, November and December and made
payable to shareholders of record in such a month are treated as paid and are
thereby taxable as of December 31, provided that such dividends or distributions
are actually paid no later than January 31 of the following year. You may be
eligible to defer the taxation of dividend and capital gain distributions on
shares of a Fund which are held under a qualified tax-deferred retirement plan.
See "Investing in the Funds - Tax-Deferred Retirement Plans" above. The Funds'
dividends do not qualify for the dividends-received deduction allowed to
corporate shareholders.
Portions of the investment income of the Funds may be subject to foreign taxes
withheld at the source; however, the Fund will not be able to pass through any
portion of the foreign taxes to its shareholders.
The Funds, or your Shareholder Servicing Agent on their behalf, will inform
you of the amount and nature of such Fund dividends and capital gains. You
should keep all statements you receive to assist in your personal recordkeeping.
The Company is required by federal law to withhold, subject to certain
exemptions, at a rate of 31% on dividends, capital gain distributions, and
redemption proceeds (including proceeds from exchanges) paid or credited to
individual shareholders of the Funds, if a shareholder has not complied with IRS
regulations or if a correct Taxpayer Identification Number, certified when
required, is not on file with the Company or the Transfer Agent. In connection
with this withholding requirement, you will be asked to certify on your Account
Application that the social security or taxpayer identification number you
provide is correct and that you are not subject to 31% backup withholding for
previous underreporting to the IRS.
PROSPECTUS 42
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Foreign shareholders may be subject to different tax treatment, including a
withholding tax. See "Federal Income Taxes - Foreign Shareholders" in the SAIs
for each Fund.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important federal income tax considerations generally affecting the Funds and
their shareholders. It is not intended as a substitute for careful tax planning;
you should consult your tax advisor with respect to your specific tax situation
as well as with respect to state and local taxes.
43 PROSPECTUS
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PROSPECTUS APPENDIX -
ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
Ginnie Mae Fund
FHLMC issues two types of mortgage pass-through securities: mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA certificates in that each PC represents a pro rata
share of all interest and principal payments made and owed on the underlying
pool of mortgages. GMCs also represent a pro rata interest in a pool of
mortgages. These instruments, however, pay interest semiannually and return
principal once a year in guaranteed minimum payments.
These mortgage-backed securities differ from bonds in that principal is paid
back by the borrower over the length of the loan rather than returned in a lump
sum at maturity. They are called "pass-through" securities because both interest
and principal payments, including prepayments, are passed through to the holder
of the security. The GNMA securities in which the Ginnie Mae Fund will invest
are of the "modified" type, which entitles the holder of such certificates to
receive its share of all interest and principal payments owed on the underlying
pool of mortgage loans, regardless of whether or not the mortgagors actually
make the payments.
The payment of principal on the underlying mortgages may exceed the minimum
required by the schedule of payments for the mortgages. Such prepayments are
made at the option of the mortgagors for a wide variety of reasons reflecting
their individual circumstances. For example, mortgagors may speed up the rate at
which they prepay their mortgages when interest rates decline sufficiently to
encourage refinancing. The Ginnie Mae Fund, when such prepayments are passed
through to it, may be able to reinvest them only at a lower rate of interest. As
a result, if the Fund purchases such securities at a premium, a prepayment rate
that is faster than expected will reduce yield to maturity, while a prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity. Conversely, if the Fund purchased such securities at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce, yield to maturity. Accelerated prepayments on
securities purchased by the Fund at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is repaid in full. In choosing specific issues, Wells Fargo Bank, as
investment adviser, will have made assumptions about the likely speed of
prepayment. Actual experience may vary from this assumption resulting in a
higher or lower investment return than anticipated.
A-1 PROSPECTUS
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Short-Intermediate U.S. Government Income Fund
The mortgages underlying ARMS guaranteed by GNMA are fully insured or
guaranteed by the Federal Housing Administration, the Veterans Administration or
the Farmers Home Administration, while those underlying ARMS issued by FNMA or
FHLMC are typically conventional residential mortgages which are not so insured
or guaranteed, but which conform to specific underwriting, size and maturity
standards.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specified
coupon rate and has a stated maturity or final distribution date. The principal
and interest payment on the underlying mortgages may be allocated among the
classes of CMOs in several ways. Typically, payments of principal, including any
prepayments, on the underlying mortgages are applied to the classes in the order
of their respective stated maturities or final distribution dates, so that no
payment of principal is made on CMOs of a class until all CMOs of other classes
having earlier stated maturities or final distribution dates have been paid in
full. One or more classes of CMOs may have coupon rates that reset periodically
based on an index, such as the London Interbank Offered Rate ("LIBOR").
The interest rates on the mortgages underlying the ARMS and the CMOs in which
the Short-Intermediate U.S. Government Income Fund may invest generally are
readjusted at intervals of one year or less in response to changes in a
predetermined interest rate index. There are two main categories of indices:
those based on U.S. Treasury securities and those derived from a calculated
measure, such as cost-of-funds index or a moving average of mortgage rates.
Commonly utilized indices include the one-year and five-year constant maturity
U.S. Treasury note rates, the three-month U.S. Treasury bill rate, the 180-day
U.S. Treasury bill rate, rates on longer-term U.S. Treasury securities, the
National Median Cost of Funds, the one-month, three-month, six-month or one-year
LIBOR, a published prime rate, or commercial paper rates. Certain of these
indices follow overall market interest rates more closely than others.
Adjustable rate mortgages, an increasingly common form of residential
financing, generally are originated by banks and thrift institutions and have a
specified maturity date. Most provide for amortization of principal in a manner
similar to fixed-rate mortgages but have interest payment amounts that change in
response to changes in a specified interest rate index. The rate of interest due
on such a mortgage is calculated by adding an agreed-upon "margin" to the
specified index, although there generally are limitations or "caps" on interest
rate movements in any given period or over the life of the mortgage. To the
extent that the interest rates on adjustable rate mortgages underlying the ARMS
or the CMOs in which the Short-Intermediate U.S. Government Income Fund may
invest cannot be adjusted in response to interest rate changes because of such
caps, the ARMS or CMOs are likely to respond to changes in market rates more
like fixed-rate securities. In other words, interest rate increases in excess of
such caps can be expected to cause the ARMS or CMOs backed by mortgages that
have such caps to decline in value to a greater extent than would be the case in
the absence of such caps.
PROSPECTUS A-2
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Conversely, interest rate decreases below such floors can be expected to cause
the ARMS or CMOs backed by mortgages that have such floors to increase in value
to a greater extent than would be the case in the absence of such floors.
Since the interest rates on many mortgages underlying ARMS and CMOs are reset
on an annual basis and generally are subject to caps, it can be expected that
the prices of such ARMS and CMOs will fluctuate to the extent prevailing market
interest rates are not reflected in the interest rates payable on the underlying
adjustable rate mortgages or the CMO. In this regard, the NAV of the
Short-Intermediate U.S. Government Income Fund's shares could fluctuate to the
extent interest rates on underlying mortgages differ from prevailing market
interest rates during interim periods between interest rate reset dates.
Accordingly, investors could experience some principal loss or less gain than
might otherwise be achieved if they redeem their Fund shares before the interest
rates on the mortgages underlying the Fund's portfolio securities are adjusted
to reflect prevailing market interest rate.
The holder of ARMS and certain CMOs receives not only monthly scheduled
payments of principal and interest but also may receive unscheduled principal
payments representing prepayments on the underlying mortgages. An investor,
therefore, may have to reinvest the periodic payments and any unscheduled
prepayments of principal it receives at a rate of interest which is lower than
the rate on the ARMS and CMOs held by it.
The Short-Intermediate U.S. Government Income Fund also may invest cash
balances temporarily in U.S. Treasury bills, which are short-term U.S.
Government obligations with maturities which do not exceed one year. As
described further in its SAI, the Fund may purchase certain securities on a
when-issued basis, although it currently does not expect to invest more than 5%
of its assets in such securities.
INVESTMENT ACTIVITIES
Money Market Instruments and Temporary Investments
The Funds may have temporary cash balances on account of new purchases,
dividends, interest and reserves for redemptions, which will generally be less
than 5% of a Fund's portfolio and which will be invested in the following
high-quality money market instruments: (i) U.S. Government obligations; (ii)
negotiable certificates of deposit, bankers' acceptances and fixed time deposits
and other obligations of domestic banks (including foreign branches) that have
more than $1 billion in total assets at the time of investment and are members
of the Federal Reserve System or are examined by the Comptroller of the Currency
or whose deposits are insured by the FDIC; (iii) commercial paper rated at the
date of purchase "P-1" by Moody's or "A-1+" or "A-1" by S&P, or, if unrated, of
comparable quality as determined by Wells Fargo Bank, as investment adviser;
(iv) nonconvertible corporate debt securities (e.g., bonds and debentures) with
remaining maturities of no more than one year that are rated at least
A-3 PROSPECTUS
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"Aa" by Moody's or "AA" by S&P; (v) repurchase agreements; and (vi) short-term,
U.S. dollar-denominated obligations of foreign banks (including U.S. branches)
that at the time of investment: (a) have more than $10 billion, or the
equivalent in other currencies, in total assets; (b) are among the 75 largest
foreign banks in the world as determined on the basis of assets; (c) have
branches or agencies in the United States; and (d) in the opinion of Wells Fargo
Bank, as investment adviser, are of comparable quality to obligations of U.S.
banks which may be purchased by the Funds.
U.S. Government Obligations
U.S. Government obligations include securities issued or guaranteed as to
principal and interest by the U.S. Government and supported by the full faith
and credit of the U.S. Treasury. U.S. Treasury obligations differ mainly in the
length of their maturity. Treasury bills, the most frequently issued marketable
government securities, have a maturity of up to one year and are issued on a
discount basis. U.S. Government obligations also include securities issued or
guaranteed by federal agencies or instrumentalities, including
government-sponsored enterprises. Some obligations of agencies or
instrumentalities of the U.S. Government are supported by the full faith and
credit of the United States or U.S. Treasury guarantees; others, by the right of
the issuer or guarantor to borrow from the U.S. Treasury; still others, by the
discretionary authority of the U.S. Government to purchase certain obligations
of the agency or instrumentality; and others, only by the credit of the agency
or instrumentality issuing the obligation. In the case of obligations not backed
by the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government would
provide financial support to its agencies or instrumentalities where it is not
obligated to do so. In addition, U.S. Government obligations are subject to
fluctuations in market value due to fluctuations in market interest rates. As a
general matter, the value of debt instruments, including U.S. Government
obligations, declines when market interest rates increase and rises when market
interest rates decrease. Certain types of U.S. Government obligations are
subject to fluctuations in yield or value due to their structure or contract
terms.
Corporate Debt Instruments
The Funds may invest in commercial paper (including variable amount master
demand notes) which refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations which permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby
PROSPECTUS A-4
<PAGE> 188
both parties have the right to vary the amount of the outstanding indebtedness
on the notes.
The Short-Intermediate U.S. Government Income Fund may invest in
nonconvertible corporate debt securities (e.g., bonds and debentures). The
Ginnie Mae Fund also may invest in nonconvertible corporate debt securities with
no more than one year remaining to maturity at the date of settlement, provided
that such corporate bonds and debentures are rated at the time of purchase at
least "Aa" by Moody's or "AA" by S&P.
Floating- and Variable-Rate Instruments
Certain of the instruments which the Funds may purchase bear interest at rates
that are not fixed but vary, for example, with changes in specified market rates
or indices or specified intervals. Certain of these instruments may carry a
demand feature that would permit the holder to tender them back to the issuer at
par value prior to maturity. The floating- and variable-rate instruments that
the Funds may purchase include certificates of participation in such obligations
purchased from banks. Wells Fargo Bank monitors on an ongoing basis the ability
of an issuer of a demand instrument to pay principal and interest on demand.
Events affecting the ability of the issuer of a demand instrument to make
payment when due may occur between the date a Fund elects to demand payment and
the date payment is due. Such events may affect the ability of the issuer of the
instrument to make payment when due, thereby affecting the Funds' ability to
obtain payment at par. Demand instruments whose demand feature is not
exercisable within seven days may be treated as liquid, provided that an active
secondary market exists.
Repurchase Agreements
The Funds may enter into repurchase agreements wherein the seller of a
security to a Fund agrees to repurchase that security from such Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. The Funds may enter into repurchase agreements only with respect to U.S.
Government obligations and other obligations that would be permissible
investments for the Funds. All repurchase agreements will be fully
collateralized based on values that are marked to market daily. While the
maturities of the underlying securities in a repurchase agreement transaction
entered into by the Funds may be greater than twelve months, the term of any
repurchase agreement on behalf of a Fund will always be less than twelve months.
If the seller defaults and the value of the underlying securities has declined,
a Fund may incur a loss. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the security, the participating Fund's disposition
of the security may be delayed or limited. A Fund will enter into repurchase
agreements only with registered broker/dealers, commercial banks and other
financial institutions which meet guidelines established by the Company's Board
of Directors and are not affiliated with the Fund's investment adviser.
A-5 PROSPECTUS
<PAGE> 189
The Funds may participate in pooled repurchase agreement transactions with other
funds advised by Wells Fargo Bank.
Loans of Portfolio Securities
The Short-Intermediate U.S. Government Income Fund may lend securities from
their portfolio to brokers, dealers and financial institutions (but not
individuals) if cash, U.S. Government obligations or other high-quality debt
instruments equal to at least 100% of the current market value of the securities
loan (including accrued interest thereon) plus the interest payable to the Fund
with respect to the loan are maintained with the Fund. In determining whether to
lend a security to a particular broker, dealer or financial institution, the
Fund's investment adviser considers all relevant facts and circumstances,
including the credit-worthiness of the broker, dealer or financial institution.
Any loans of portfolio securities will be fully collateralized based on values
that are marked to market daily. The Fund will not enter into any portfolio
security lending arrangement having a duration of longer than one year. Any
securities that the Fund may receive as collateral will not become part of the
Fund's portfolio at the time of the loan and, in the event of a default by the
borrower, the Fund, if permitted by law, will dispose of such collateral except
for such part thereof that is a security in which the Fund is permitted to
invest. During the time securities are on loan, the borrower will pay the Fund
any accrued income on those securities, and the Fund may invest the cash
collateral and earn income or receive an agreed-upon fee from a borrower that
has delivered cash-equivalent collateral. The Fund does not lend securities
having a value that exceeds one-third of the current value of its assets. Loans
of securities by the Fund are subject to termination at the Fund's or the
borrower's option. The Fund may pay reasonable administrative and custodial fees
in connection with a securities loan and may pay a negotiated portion of the
interest or fee earned with respect to the collateral to the borrower or the
placing broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly, with the Company, the investment adviser, or the Distributor.
Foreign Obligations
The Short-Intermediate U.S. Government Income Fund may invest up to 25% of its
assets in high-quality, short-term debt obligations of foreign branches of U.S.
banks or U.S. branches of foreign banks that are denominated in and pay interest
in U.S. dollars. Investments in foreign obligations involve certain
considerations that are not typically associated with investing in domestic
obligations. There may be less publicly available information about a foreign
issuer than about a domestic issuer. Foreign issuers also are not subject to the
same uniform accounting, auditing and financial reporting standards or
governmental supervision as domestic issuers. In addition, with respect to
certain foreign countries, taxes may be withheld at the source under foreign
income tax laws, and there is a possibility of expropriation or confiscatory
taxation, political or social instability or diplomatic developments that could
adversely affect investments in,
PROSPECTUS A-6
<PAGE> 190
the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries.
Other Investment Companies
The Funds may invest in shares of other open-end, management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act,
provided that any such purchases will be limited to temporary investments in
shares of unaffiliated investment companies and the Funds' investment adviser
will waive its advisory fees for that portion of the Funds' assets so invested,
except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition. Notwithstanding any other investment policy or
limitation (whether or not fundamental), as a matter of fundamental policy, the
Short-Intermediate U.S. Government Income 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.
When-Issued Securities and Firm Commitment Agreements
The Ginnie Mae Fund may engage in securities transactions on a "when-issued"
or "firm commitment" basis. The price of such securities is fixed at the time a
commitment to purchase or sell is made, but delivery and payment for the
when-issued securities take place at a later date. Normally, the settlement date
occurs within one month of the purchase or sale. As an operating policy, the
settlement date always will be within 120 days. At the time securities purchased
on a when-issued basis are actually delivered to the Fund, their value may be
higher or lower than the price the Fund agreed to pay for such securities.
During the period between commitment and settlement, no payment is made by the
Fund and no interest accrues to the Fund. In some instances, the Fund may sell a
security and at the same time make a commitment to purchase the same security at
a future date at a specified price. Conversely, the Fund may purchase a security
and at the same time make a commitment to sell the same security at a future
date at a specified price. These types of transactions are executed
simultaneously in what are known as "roll" transactions. For example, a
securities dealer may seek to purchase a particular security which the Fund
owns. The Fund will sell that security to the dealer and simultaneously enter
into a "firm commitment" agreement to buy back the same security at a future
date, as described above. The net effect of these transactions is to generate
income for the Fund since the dealer is willing to execute these transactions at
prices favorable to the Fund in order to acquire the specific security which it
buys in the initial purchase transaction. Wells Fargo Bank will limit these
transactions to a maximum of 35% of the Fund's total assets.
There is a risk that a party with whom the Ginnie Mae Fund enters into
when-issued or firm commitment agreements may not perform its obligation to
deliver or purchase the securities, which could result in a gain or loss to the
Fund. To minimize the risk of
A-7 PROSPECTUS
<PAGE> 191
default, the Fund enters into such transactions only with those major banks and
non-bank U.S. Government securities dealers who are recognized by the Board of
Governors of the Federal Reserve System as primary dealers.
INVESTMENT POLICIES
Each Fund's investment objective, as set forth in "How the Funds
Work - Investment Objectives and Policies," is fundamental; that is, it may not
be changed without approval by the vote of the holders of a majority of such
Fund's outstanding voting securities, as described under "Capital Stock" in the
SAI for each Fund. In addition, any fundamental investment policy may not be
changed without such share-holder approval. If the Board of Directors
determines, however, that a Fund's investment objective can best be achieved by
a substantive change in a nonfundamental investment policy or strategy, the
Company's Board may make such change without shareholder approval and will
disclose any such material changes in the then-current prospectus.
As matters of fundamental policy, a Fund may: (i) not purchase securities of
any issuer (except U.S. Government obligations) if as a result more than 5% of
the value of a Fund's total assets would be invested in the securities of such
issuer or a Fund would own more than 10% of the outstanding voting securities of
such issuer; (ii) make loans of portfolio securities in accordance with its
investment policies; and (iii) not invest 25% or more of its assets (i.e.,
concentrate) in any particular industry, except that the Fund may invest 25% or
more of its assets in U.S. Government obligations. In addition, as a matter of
fundamental policy, the Short-Intermediate U.S. Government Income Fund may
borrow from banks up to 10% of the current value of its net assets for temporary
purposes only in order to meet redemptions, and these borrowings may be secured
by the pledge of up to 10% of the current value of its net assets. As a matter
of fundamental policy, the Ginnie Mae Fund may borrow from banks up to 20% of
the current value of its net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 20% of
the current value of its net assets. Each Fund may not purchase investments
while any such outstanding borrowing exceeds 5% of such Fund's net assets.
With respect to fundamental investment policy (i) above, the
Short-Intermediate U.S. Government Income Fund is subject to this restriction
only with respect to 75% of the Fund's assets, and, with regard to both Funds,
it may be possible that the Company would own more than 10% of the outstanding
voting securities of the issuer. With respect to fundamental investment policy
concerning bank borrowing above, the Ginnie Mae Fund presently does not intend
to put at risk more than 5% of its assets during the coming year. With respect
to fundamental investment policy (ii) above, the Short-Intermediate U.S.
Government Income Fund does not intend to make loans of its portfolio securities
during the coming year, and the Ginnie Mae Fund does not intend to put at risk
more than 5% of its assets during the coming year.
PROSPECTUS A-8
<PAGE> 192
As a matter of nonfundamental policy, the Ginnie Mae Fund may invest up to 10%
of the current value of its net assets in repurchase agreements having
maturities of more than seven days, illiquid securities and fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days.
As a matter of nonfundamental policy, the Short-Intermediate U.S. Government
Income Fund may invest up to 15% of the current value of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
A-9 PROSPECTUS
<PAGE> 193
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE> 194
SPONSOR, DISTRIBUTOR AND ADMINISTRATOR
Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
INVESTMENT ADVISER, TRANSFER AND DIVIDEND DISBURSING AGENT AND
CUSTODIAN
Wells Fargo Bank, N.A.
P.O. Box 7066
San Francisco, California 94120-7066
LEGAL COUNSEL
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
FOR MORE INFORMATION ABOUT THE FUNDS, SIMPLY CALL 1-800-222-8222, OR WRITE:
STAGECOACH FUNDS, INC.
c/o Stagecoach Shareholder Services
Wells Fargo Bank, N.A.
P.O. Box 7066
San Francisco, California 94120-7066
STAGECOACH FUNDS:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- are NOT insured by the FDIC or U.S. Government
- are NOT obligations or deposits of Wells Fargo Bank nor
guaranteed by the Bank LOGO
- involve investment risk, including possible loss
of principal
</TABLE>
LOGO SC 0218 (5/96)
Printed on Recycled Paper
<PAGE> 195
<TABLE>
<S> <C>
LOGO
P.O. Box 7066
San Francisco, CA 94120-7066
</TABLE>
STAGECOACH FUNDS:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- are NOT insured by the FDIC or U.S. Government
- are NOT obligations or deposits of Wells Fargo Bank nor
guaranteed by the Bank LOGO
- involve investment risk, including possible loss
of principal
</TABLE>
LOGO SC 0218 (5/96)
Printed on Recycled Paper
<PAGE> 196
<TABLE>
<S> <C>
------------------
LOGO BULK RATE
P.O. Box 7066 U.S. POSTAGE
San Francisco, CA 94120-7066 PAID
DALLAS, TEXAS
Permit No. 1808
------------------
- ------------------------------------------------------------------------------------
STAGECOACH FUNDS:
--------------------------------------------------------------------------------
- are NOT insured by the FDIC or U.S. Government
- are NOT obligations or deposits of Wells Fargo Bank nor
guaranteed by the Bank LOGO
- involve investment risk, including possible loss
of principal
- ------------------------------------------------------------------------------------
</TABLE>
<PAGE> 197
Cross Reference Sheet
MONEY MARKET MUTUAL FUND-CLASS S SHARES
Form N-1A Item Number
Part A Prospectus Captions
1 Cover Page
2 Prospectus Summary; Summary of Fund Expenses; Account Fees and
Charges; Explanation of Tables
3 Financial Highlights
4 The Fund and Management; Prospectus Appendix -
Additional Investment Policies
5 How the Fund Works; Limiting Investment Risks; The Fund and
Management; Management, Distribution and Servicing Fees
6 The Fund and Management; Investing in the Fund;
Class A Shares
7 Investing in the Funds; Dividends; Taxes; Additional Shareholder Services
8 How to Redeem Shares
9 Not Applicable
Part B Statement of Additional Information Captions
10 Cover Page
11 Table of Contents
12 Introduction
13 Investment Restrictions; Additional Permitted
Investment Activities; SAI Appendix
14 Management
15 Management
16 Management; Distribution Plan; Custodian and Transfer
and Dividend Disbursing Agent; Independent Auditors
17 Portfolio Transactions
18 Capital Stock; Other
19 Determination of Net Asset Value; Fund Expenses
20 Federal Income Taxes
21 Distribution Plan
22 Calculation of Yield and Total Return
23 Financial Information
Part C Other Information
24-32 Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of this Document.
<PAGE> 198
STAGECOACH FUNDS(R)
MONEY MARKET MUTUAL FUND -- CLASS S SHARES
Stagecoach Funds, Inc. (the "Company") is an open-end investment company.
This Prospectus contains information about one class of shares of a fund in the
Stagecoach Family of Funds -- the CLASS S SHARES of the MONEY MARKET MUTUAL FUND
(the "Fund"). The MONEY MARKET MUTUAL FUND seeks to provide investors with a
high level of income, while preserving capital and liquidity, by investing in
high-quality, short-term securities.
Currently, Class S Shares are available only to qualified business
investors who purchase such shares through a Managed Sweep Account (sometimes,
an "Account") offered by Wells Fargo Bank, N.A. ("Wells Fargo Bank"). A Managed
Sweep Account combines a non-interest bearing Wells Fargo Bank deposit account
with a daily sweep of balances to or from the Fund's Class S Shares. Persons
investing in Class S Shares through a Managed Sweep Account also receive a
Business Account Disclosure (the "Disclosure Statement") describing the various
features and operations of the Account. The Disclosure Statement should be
reviewed in conjunction with this Prospectus.
AN INVESTMENT IN THE FUND, THROUGH A MANAGED SWEEP ACCOUNT OR OTHERWISE, IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A CONSTANT
$1.00 NET ASSET VALUE PER SHARE.
Please read this Prospectus and retain it for future reference. It is
designed to provide you with important information and to help you decide if the
Fund's Class S Shares' goals meet your own. A Statement of Additional
Information (the "SAI"), dated April 1, 1996, for the Money Market Mutual Fund
has been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference. The SAI for the Fund is available free of charge by
writing to Stagecoach Funds, Inc., c/o Stagecoach Shareholder Services, Wells
Fargo Bank, N.A., P.O. Box 7066, San Francisco, CA 94120-7066 or by calling the
Company at 1-800-222-8222.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK OR ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT
INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PROSPECTUS, DATED
MAY 1, 1996
PROSPECTUS
<PAGE> 199
This Prospectus describes one class of shares of the Fund -- the Class S
Shares. The Fund also offers a class of shares designated the Class A Shares.
Investors who are not eligible to invest in Class S Shares may be eligible to
invest in Class A Shares. Investments in Class A Shares may be made through the
Fund's distributor or through selling agents authorized to sell such shares on
behalf of the distributor, or directly from the Fund. Information regarding
investments in Class A Shares of the Fund, including a separate prospectus
describing such shares, may be obtained by calling 1-800-222-8222.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND PROVIDES CERTAIN OTHER SERVICES
TO THE FUND FOR WHICH IT IS COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH WELLS FARGO BANK, IS THE SPONSOR,
ADMINISTRATOR AND DISTRIBUTOR FOR THE FUND.
PROSPECTUS
<PAGE> 200
TABLE OF CONTENTS
-------
PROSPECTUS SUMMARY 1
SUMMARY OF FUND EXPENSES 3
ACCOUNT FEES AND CHARGES 4
EXPLANATION OF TABLES 5
FINANCIAL HIGHLIGHTS 6
HOW THE FUND WORKS 7
INVESTMENT RISKS 7
THE FUND AND MANAGEMENT 8
INVESTING IN THE FUND 10
DIVIDENDS 11
HOW TO REDEEM SHARES 11
ADDITIONAL SHAREHOLDER SERVICES 12
MANAGEMENT, DISTRIBUTION AND SERVICING FEES 12
TAXES 15
CLASS A SHARES 16
PROSPECTUS APPENDIX -- ADDITIONAL INVESTMENT POLICIES A-1
PROSPECTUS
<PAGE> 201
PROSPECTUS SUMMARY
The following provides you with summary information about the Fund. For
more information, please refer specifically to the identified Prospectus
sections and generally to the Prospectus and SAI for the Fund.
Q. WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
A. The MONEY MARKET MUTUAL FUND seeks to provide investors with a high level
of income, while preserving capital and liquidity, by investing in
high-quality, short-term securities. In pursuing this objective, the Fund
invests in securities with remaining maturities not exceeding thirteen
months, as determined in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"). The securities in which
the Fund invests include obligations of the U.S. Government, its agencies
and instrumentalities, high-quality debt obligations such as corporate
debt, certain obligations of U.S. banks and certain repurchase agreements.
The Fund seeks to maintain a net asset value of $1.00 per share; however,
there is no assurance that this will be achieved. See "How the Fund
Works -- Investment Objectives and Policies" and "Prospectus
Appendix -- Additional Investment Policies."
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the Fund's investment adviser, manages your
investments. Wells Fargo Bank also provides the Fund with transfer agency,
dividend disbursing agency and custodial services. In addition, Wells Fargo
Bank is a Shareholder Servicing Agent and a Selling Agent (each as defined
below) of the Fund. See "The Fund and Management" and "Management,
Distribution and Servicing Fees."
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF
INVESTMENT?
A. An investment in the Fund is not insured against loss of principal.
Although the Fund seeks to maintain a stable net asset value of $1.00 per
share, there is no assurance that it will be able to do so. Deposits to the
Accounts are eligible for federal deposit insurance only for the brief
period they are in the Transaction Account prior to being swept into the
Fund. The Fund's shares are neither insured nor guaranteed by the U.S.
Government. You should be prepared to accept some risk with the money you
invest in the Fund. As with all mutual funds, there can be no assurance
that the Fund will achieve its investment objective. See "How The Fund
Works -- Risk Factors" and "Prospectus Appendix -- Additional Investment
Policies."
Q. HOW DO I INVEST?
A. This Prospectus is designed only for businesses that invest in Class S
Shares of the Fund through a Managed Sweep Account with Wells Fargo Bank. A
Managed Sweep Account combines a non-interest bearing Wells Fargo Bank
deposit account (the "Transaction Account") with a daily
1 PROSPECTUS
<PAGE> 202
sweep of Transaction Account balances to or from the Fund. Wells Fargo Bank
computes the net amount of deposits to and withdrawals from your
Transaction Account (the "Net Sweep Amount") each day Wells Fargo Bank is
open for business. If deposits exceed withdrawals from your Transaction
Account, Wells Fargo Bank transmits a purchase order on your behalf to the
Fund in an amount equal to the dollar value of the Net Sweep Amount. The
information in this Prospectus should be read in conjunction with the
Disclosure Statement related to your Account. See "Investing in the Fund."
Q. HOW WILL I RECEIVE DIVIDENDS AND ANY CAPITAL GAINS?
A. Dividends from net investment income of the Fund are declared daily and
paid monthly to your Account through automatic reinvestment in Class S
Shares of the Fund. Any capital gains will be distributed at least
annually in a similar manner. Various dividend and distribution options,
such as the option to direct the payment of proceeds from dividends and
distributions to another account, which may be available to holders of
the Fund's Class A Shares, are not available to persons investing in Class
S Shares through a Managed Sweep Account. See "Dividends" and "Additional
Shareholder Services."
Q. HOW MAY I REDEEM SHARES?
A. If, on any day Wells Fargo Bank is open for business, withdrawals from your
Managed Sweep Account exceed deposits, Wells Fargo Bank transmits a
redemption order on your behalf to the Fund in the dollar amount of that
day's Net Sweep Amount. If your Managed Sweep Account with Wells Fargo Bank
is closed as described in the applicable Disclosure Statement, Wells Fargo
Bank will transmit a redemption request on your behalf to the Fund for the
balance of your Fund shares held through such Account. See "How To Redeem
Shares."
PROSPECTUS 2
<PAGE> 203
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
MONEY MARKET
MUTUAL FUND
(CLASS S SHARES)
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................. None
Sales Charge Imposed on Reinvested Dividends.................................................. None
Sales Charge Imposed on Redemptions........................................................... None
Exchange Fees................................................................................. None
</TABLE>
ANNUAL FUND OPERATING EXPENSES(1)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
MONEY MARKET
MUTUAL FUND
(CLASS S SHARES)
<S> <C> <C>
Management Fee................................................................................ 0.40%
Rule 12b-1 Fee................................................................................ 0.75%
Other Expenses
Shareholder Servicing Fee (after waivers or reimbursements)(2).............................. 0.22%
Administrative Fee.......................................................................... 0.03%
Miscellaneous Expenses (after waivers or reimbursements)(2)................................. 0.03%
-----
Total Other Expenses (after waivers or reimbursements)(2)..................................... 0.28%
-----
TOTAL FUND OPERATING EXPENSES (after waivers or reimbursements)(2)............................ 1.43%
=====
</TABLE>
- -------------------------------
<TABLE>
<C> <S>
1 Additional fees charged by Wells Fargo Bank related to an Account are not included in this
table. See Account Fees and Charges.
2 Absent waivers and reimbursements, the percentages shown above under "Shareholder Servicing
Fees," "Miscellaneous Expenses," "Total Other Expenses" and "Total Fund Operating Expenses"
would be 0.25%, 0.10%, 0.38% and 1.53%, respectively.
</TABLE>
3 PROSPECTUS
<PAGE> 204
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment in
the Fund, assuming (A) a 5% annual return and (B) redemption at
the end of each time period indicated:
Money Market Mutual Fund (Class S Shares)................... $ 15 $ 45 $ 78 $171
</TABLE>
ACCOUNT FEES AND CHARGES
Set forth below is a summary of fees which may be charged by Wells Fargo
Bank for various banking services available through a Managed Sweep Account. For
additional information on Account fees and charges please refer to the
Disclosure Statement accompanying this Prospectus.
<TABLE>
<CAPTION>
MANAGED
SWEEP
ACCOUNT(1)
----------
<S> <C>
Monthly Account Fees
Managed Sweep Account Fee......................................................... $ 25.00
Checking Maintenance Fee.......................................................... $ 15.00
Transaction Fees(2)
Per Check Written................................................................. $ 0.14
Per Deposit Slip Processed........................................................ $ 1.40
Per Check Deposited............................................................... $ 0.095
Per $1000 Cash Deposited.......................................................... $ 1.20
Miscellaneous Fees.................................................................... Variable (3)
Minimum Opening Balance............................................................... $ 10,000
</TABLE>
- -------------------------------
<TABLE>
<C> <S>
(1) Currently, Class S Shares of the Fund may be purchased only through a Managed Sweep Account.
Class A Shares of the Fund may be purchased without opening an Account and without incurring
the fees for, or deriving the benefits of, the Account Services described above. Information
regarding Class A Shares may be obtained by calling 1-800-222-8222.
(2) A Transaction Fee is charged whenever one of the listed transactions occurs.
(3) Various miscellaneous fees may be charged on a per transaction, per statement or other basis
as described in "Miscellaneous Fees and Charges" and elsewhere in the Disclosure Statement.
</TABLE>
PROSPECTUS 4
<PAGE> 205
EXPLANATION OF TABLES
The purpose of the foregoing tables is to help you understand the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The tables do not reflect any charges that may be imposed by Wells
Fargo Bank directly on its customer accounts in connection with an investment in
Class S Shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell
Fund shares. There are no Shareholder Transaction Expenses for the Fund, except
that the Company reserves the right to impose a charge for wiring redemption
proceeds.
The ANNUAL FUND OPERATING EXPENSES table illustrates the operating expenses
of the Class S Shares of the Fund as a percentage of the average daily net
assets attributable to the Class S Shares. Wells Fargo Bank and Stephens, at
their sole discretion, may waive or reimburse all or a portion of their
respective fees charged to, or expenses paid by, the Fund. Any waivers or
reimbursements would reduce the Fund's total expenses. There can be no assurance
that waivers or reimbursements will continue. The percentages shown above under
"Shareholder Servicing Fees," "Miscellaneous Expenses," "Total Other Expenses"
and "Total Fund Operating Expenses" reflect voluntary fee waivers and expense
reimbursements that are expected to reduce expenses during the current fiscal
year. Long-term shareholders in the Fund could pay more in sales charges than
the economic equivalent of the maximum front-end sales charges applicable to
mutual funds sold by members of the National Association of Securities Dealers
("NASD"). For more complete descriptions of the various costs and expenses you
can expect to incur as an investor in Class S Shares of the Fund, please see the
Prospectus section captioned "Management, Distribution and Servicing Fees."
EXAMPLE OF EXPENSES is a hypothetical example which illustrates the
expenses associated with a $1,000 investment over the periods shown, based on
the expenses in the table above and an assumed annual rate of return of 5%. This
rate of return should not be considered an indication of actual or expected
performance of the Fund. In addition, the example should not be considered a
representation of past or future expenses; actual expenses and returns may be
greater or lesser than those shown.
ACCOUNT FEES AND CHARGES are charges you pay to Wells Fargo Bank for
banking services offered to you as a Managed Sweep Account holder. The fees and
charges applicable to your Account are discussed on the next page. Wells Fargo
Bank currently charges monthly account fees for the Managed Sweep Account. In
addition, your Account is subject to various other fees and charges which may be
assessed on a monthly or other periodic basis, or on a per transaction, per
statement or other basis. For additional information with respect to Account
fees and charges, including a description of the services available to Account
holders, you should refer to the Disclosure Statement, particularly the section
captioned "Miscellaneous Fees and Charges."
5 PROSPECTUS
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FINANCIAL HIGHLIGHTS
The following information relating to the Class S Shares of the Money
Market Mutual Fund has been derived from the Financial Highlights in such Fund's
1995 annual financial statements. The financial statements are incorporated by
reference into the SAI for such Fund and have been audited by KPMG Peat Marwick
LLP, independent auditors, whose report dated February 14, 1996 also is
incorporated by reference into the SAI. This information should be read in
conjunction with the 1995 annual financial statement for the Fund and notes
thereto. The SAI for the Fund has been incorporated by reference into this
Prospectus.
MONEY MARKET MUTUAL FUND
FOR A CLASS S SHARE OUTSTANDING*
<TABLE>
<CAPTION>
PERIOD
ENDING
DEC. 31, 1995
-------------
<S> <C>
Net Asset Value Beginning of Period................................................. $ 1.00
Income from Investment Operations:
Net Investment Income........................................................... 0.03
Net Realized & Unrealized Gain (Loss) on Investments............................ 0.00
--------
Total from Investment Operations.................................................... 0.03
Less Distributions:
Dividends from Net Investment Income............................................ (0.03)
Distributions from Net Realized Gain............................................ 0.00
--------
Total From Distributions............................................................ (0.03)
--------
Net Asset Value End of Period....................................................... $ 1.00
--------
Total Return (not annualized)....................................................... 2.73%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)............................................... $ 618,899
Number of shares outstanding, End of Period (000's)............................. 619,098
Ratios to Average Net Assets (annualized):
Ratio of Expenses to Average Net Assets(1)...................................... 1.43%
Ratio of Net Investment Income to Average Net Assets(2)......................... 4.40%
- -------------------
(1) Ratio of Expenses to Average Net Assets Prior To Waived Fees and Reimbursed
Expenses........................................................................ 1.53%
(2) Ratio of Net Investment Income to Average Net Assets Prior To Waived Fees and
Reimbursed Expenses............................................................. 4.30%
* The Class S shares commenced operations on May 25, 1995.
</TABLE>
PROSPECTUS 6
<PAGE> 207
HOW THE FUND WORKS
INVESTMENT OBJECTIVES AND POLICIES
The MONEY MARKET MUTUAL FUND seeks to provide investors with a high level
of income, while preserving capital and liquidity, by investing in high-quality,
short-term securities. The Fund invests its assets only in U.S.
dollar-denominated, high-quality money market instruments, and may engage in
certain other investment activities as described in this Prospectus. Permitted
investments include U.S. Government short-term obligations, obligations of
domestic and foreign banks, commercial paper, and repurchase agreements. In
pursuing its objective, the Fund invests in instruments with remaining
maturities not exceeding thirteen months, as determined in accordance with Rule
2a-7 under the 1940 Act. As with all mutual funds, there can be no assurance
that the Fund, which is a diversified portfolio, will achieve its investment
objective. A more complete description of these investments and investment
activities is contained in the "Prospectus Appendix -- Additional Investment
Policies" and in the SAI.
INVESTMENT RISKS
The Fund seeks to reduce risk by investing its assets in securities of
various issuers. As such, the Fund is considered to be diversified for purposes
of the 1940 Act. In addition, the Fund, since its inception, has emphasized
safety of principal and high credit quality. In particular, the internal
investment policies of the Fund's investment adviser, Wells Fargo Bank, have
always prohibited the purchase for the Fund of many types of floating-rate
instruments commonly referred to as "derivatives" that are considered
potentially volatile. The following types of derivative instruments ARE NOT
permitted investments for the Fund:
- capped floaters (on which interest is not paid when market rates move
above a certain level);
- leveraged floaters (whose interest-rate reset provisions are based on a
formula that magnifies changes in interest rates);
- range floaters (which do not pay any interest if market interest rates
move outside of a specified range);
- dual index floaters (whose interest-rate reset provisions are tied to
more than one index so that a change in the relationship between these
indices may result in the value of the instrument falling below face
value); and
- inverse floaters (which reset in the opposite direction of their index).
Additionally, the Fund may not invest in instruments whose interest rate
reset provisions are tied to an index that materially lags short-term interest
rates, such as Cost of Funds Index ("COFI") floaters. The Fund may only invest
in floating-rate instruments that bear interest at a rate that resets quarterly
or more frequently, and which resets based on changes in standard money market
rate
7 PROSPECTUS
<PAGE> 208
indices such as U.S. Treasury bills, London Interbank Offered Rate, the prime
rate, published commercial paper rates, federal funds rates, Public Securities
Associates ("PSA") floaters or J.J. Kenney index floaters.
Pursuant to the 1940 Act, the Fund must comply with certain investment
criteria designed to provide liquidity, reduce risk, and allow the Fund to
maintain a stable net asset value of $1.00 per share. Of course, the Fund cannot
guarantee a $1.00 share price. The Fund maintains a dollar-weighted average
portfolio maturity of no more than 90 days. Any security that the Fund purchases
must have a remaining maturity of not more than thirteen months. In addition,
any security that the Fund purchases must present minimal credit risks and be of
high quality (i.e., be rated in the top two rating categories by the required
number of nationally recognized statistical rating organizations ("NRSROs") or,
if unrated, determined to be of comparable quality to such rated securities).
These determinations are made by Wells Fargo Bank, as the Fund's Investment
Adviser, pursuant to guidelines adopted by the Company's Board of Directors.
PERFORMANCE
The performance of the Class S Shares may be advertised in terms of current
yield or effective yield. Performance figures are based on historical results
calculated under uniform SEC formulas and are not intended to indicate future
performance.
Yield refers to the income generated by an investment in the Class S Shares
of the Fund over a seven-day period, expressed as an annual percentage rate.
Effective yields are calculated similarly, but assume that the income earned
from the Fund is reinvested in the Fund. Because of the effects of compounding,
effective yields are slightly higher than yields.
Additional information about the Fund's performance is contained in the
Fund's Annual Report. The Annual Report may be obtained free of charge by
calling the Company at 1-800-222-8222.
THE FUND AND MANAGEMENT
The MONEY MARKET MUTUAL FUND is a fund of the Company. The Company was
organized as a Maryland corporation on September 9, 1991 and currently offers
shares of twelve other series: the Aggressive Growth, Asset Allocation,
California Tax-Free Bond, California Tax-Free Income, California Tax-Free Money
Market Mutual, Corporate Stock, Diversified Income, Growth and Income, Ginnie
Mae, National Tax-Free Money Market Mutual, Short-Intermediate U.S. Government
Income and U.S. Government Allocation Funds. The Company's Board of Directors
supervises these funds' activities and monitors their contractual arrangements
with various service-providers. Although Stagecoach Funds is not required to
hold annual shareholder meetings, special meetings may be required for purposes
such as electing or removing Directors, approving advisory contracts and
distribution plans, and changing the Funds' investment objectives or fundamental
investment policies. All shares of Stagecoach Funds have equal voting rights and
will be voted in the aggregate, rather than by series or Class, unless otherwise
required by law (such as when the voting matter
PROSPECTUS 8
<PAGE> 209
affects only one series or Class). As a shareholder of the Fund, you are
entitled to one vote for each share you own and fractional votes for fractional
shares owned. The Money Market Mutual Fund also offers a second class of
shares -- Class A Shares. Class A Shares are subject to different levels of fees
and expenses than Class S Shares and the performance of such shares may vary
accordingly. A more detailed description of the voting rights and attributes of
the shares is contained in the "Capital Stock" section of the Fund's SAI.
INVESTMENT ADVISER
Wells Fargo Bank is the Fund's investment adviser. Wells Fargo Bank, one of
the largest banks in the United States, was founded in 1852 and is the oldest
bank in the western United States. As of April 1, 1996, Wells Fargo Bank and its
affiliates provided investment advisory services for approximately $56 billion
of assets of individuals, trusts, estates and institutions. Wells Fargo Bank
also serves as the investment adviser to the other separately managed funds (or
the Master Portfolios in which such funds invest) of the Company and as adviser
or sub-adviser to Funds of five other registered, open-end, management
investment companies, each of which consists of several separately managed
investment portfolios. Wells Fargo Bank, a wholly owned subsidiary of Wells
Fargo & Company, is located at 420 Montgomery Street, San Francisco, California
94104.
Morrison & Foerster LLP, counsel to the Company and special counsel to
Wells Fargo Bank, has advised the Company and Wells Fargo Bank that Wells Fargo
Bank and its affiliates may perform the services contemplated by the Advisory
Contract and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank is also the Fund's custodian and transfer and dividend
disbursing agent. In addition, Wells Fargo Bank is a Shareholder Servicing Agent
and Selling Agent of the Fund.
SPONSOR, ADMINISTRATOR AND DISTRIBUTOR
Stephens is the Fund's sponsor and administrator, and distributes the
Fund's shares. Stephens is a full service broker/dealer and investment advisory
firm located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its
predecessor have been providing securities and investment services for more than
60 years. Additionally, they have been providing discretionary portfolio
management services since 1983. Stephens currently manages investment portfolios
for pension and
9 PROSPECTUS
<PAGE> 210
profit-sharing plans, individual investors, foundations, insurance companies and
university endowments.
INVESTING IN THE FUND
OPENING AN ACCOUNT
Class S Shares of the Fund are offered by this Prospectus to businesses
that establish a Managed Sweep Account with Wells Fargo Bank. Each Account
combines a Transaction Account (a non-interest bearing deposit account) with a
periodic sweep of balances to or from the Fund. Investors may open an Account by
completing and signing an Account Application and appropriate Disclosure
Statement. The Disclosure Statement contains important information about the
various features and operations of the Accounts and should be reviewed in
conjunction with this Prospectus. Wells Fargo Bank may, in the future, permit
investors to acquire shares of the Fund through additional accounts not
described in this Prospectus.
SHARE VALUE
The value of a share of each Class of the Fund is its net asset value
("NAV"). The NAV of Fund shares is calculated as of 9:00 a.m. and 1:00 p.m.
(Pacific time) each Business Day (as defined below). The NAV of a share of each
Class of the Money Market Mutual Fund is the value of total net assets
attributable to each Class divided by the number of outstanding shares of that
Class. The value of the net assets per Class is determined daily by adjusting
the net assets per Class at the beginning of the day by the value of each
Class's shareholder activity, net investment income and net realized and
unrealized gains or losses for that day. Net investment income is calculated
each day for each Class by attributing to each Class a pro rata share of daily
income and common expenses, and by assigning class-specific expenses to each
Class as appropriate. As noted above, the Fund seeks to maintain a constant
$1.00 per share NAV, although there is no assurance that it will be able to do
so.
Shares of the Fund may be purchased on any day the Fund is open (a
"Business Day"). The Fund is open on any day that either the New York Stock
Exchange or Wells Fargo Bank is open. Currently, the holidays observed by both
the New York Stock Exchange and Wells Fargo Bank are New Year's Day, Presidents'
Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day (each, a "Holiday").
The Funds' portfolio investments are valued on the basis of the amortized
cost method. This valuation method is based on the receipt of a steady rate of
payment on portfolio instruments from the date of purchase until maturity rather
than actual changes in market value. The Company's Board of Directors believes
that this valuation method accurately reflects fair value.
PROSPECTUS 10
<PAGE> 211
HOW TO BUY SHARES
Class S Shares may be purchased by making a deposit into your Account. On
each day Wells Fargo Bank and the Fund are open Wells Fargo Bank computes the
Net Sweep Amount, which is the net amount of all deposits, withdrawals, charges
and credits made to and from a Transaction Account. If deposits and credits
exceed withdrawals and charges, you authorize Wells Fargo Bank, on your behalf,
to transmit a purchase order to the Fund designated in your Account in the
amount of that day's Net Sweep Amount. For example, if you make a $500 deposit
and withdraw $100 on the same day, and there are no other transactions on that
day, the Net Sweep Amount for that day would be $400. Wells Fargo Bank, on your
behalf, would transmit a purchase order to the designated Fund on the next
Business Day in the amount of $400. Your purchase order will be made effective
and full and fractional Shares will be purchased at the next determined NAV,
which is expected to remain a constant $1.00 per share. Deposits and other
transactions to your Account are sometimes not immediately included in the Net
Sweep Amount. Cash and items drawn on Wells Fargo Bank are generally credited to
the Net Sweep Amount on the same Business Day as the day of deposit. Local and
non-local checks are usually credited to your Net Sweep Amount on the first or
second Business Day, respectively, after the day of your deposit. In addition,
adjustments may sometimes be made to your Account to reflect dishonored or
returned items. For additional information refer to the applicable Disclosure
Statement and, specifically therein, "Holds and Funds Availability."
DIVIDENDS
The Fund declares dividends daily payable to shareholders of record as of
9:00 a.m. (Pacific time). You begin earning dividends on your Class S shares of
the Fund on the day your purchase order for such shares is effective and
continue to earn dividends through the day prior to the date you redeem such
shares. Dividends for a Saturday, Sunday or Holiday are credited on the
preceding Business Day. If you redeem shares before the dividend payment date,
any dividends credited to you will be paid on the following dividend payment
date. The Fund declares any capital gains at least annually. Dividends declared
in a month are reinvested in Class S Shares of the Fund early in the following
month.
HOW TO REDEEM SHARES
If, on any day Wells Fargo Bank and the Fund are open for business,
withdrawals from your Managed Sweep Account, including check transactions,
exceed deposits and credits, Wells Fargo Bank will transmit a redemption order
on your behalf to the Fund in the dollar amount of that day's Net Sweep Amount.
If your Managed Sweep Account with Wells Fargo Bank is closed as described in
the applicable Disclosure Statement, Wells Fargo Bank transmits a redemption
request on your behalf to the Fund for the balance of the Class S Shares of the
Fund held through your Account. Your shares are normally redeemed at the next
NAV, expected to be a constant $1.00 per share, calculated after the Fund has
received the redemption order transmitted on your behalf. Redemption proceeds
11 PROSPECTUS
<PAGE> 212
may be more or less than the amount invested and, therefore, a redemption of
Fund shares may result in a gain or loss for federal and state income tax
purposes. The Fund ordinarily will remit your redemption proceeds within seven
days after your redemption order is received from Wells Fargo Bank unless the
SEC permits a longer period under extraordinary circumstances. Such
extraordinary circumstances could include a period during which an emergency
exists as a result of which (a) disposal by the Fund of securities owned by it
is not reasonably practicable or (b) it is not reasonably practicable for the
Fund to determine fairly the value of its net assets, or a period during which
the SEC by order permits deferral of redemptions for the protection of security
holders of the Fund. In addition, Wells Fargo Bank may withhold redemption
proceeds pending check collection or processing or for other reasons all as set
forth more fully in "Holds and Funds Availability" and elsewhere in the
applicable Disclosure Statement.
ADDITIONAL SHAREHOLDER SERVICES
Certain optional services available to persons who invest directly in Class
A Shares of the Fund, including certain exchange privileges which allow
shareholders to exchange their Fund shares for shares of other funds in the
Stagecoach Family of Funds, are not available to persons who invest in Class S
Shares of the Fund. These services are described in a separate prospectus
describing direct investments in Class A Shares of the Fund, which is available
from Stagecoach Shareholder Services by calling 1-800-222-8222.
MANAGEMENT, DISTRIBUTION AND SERVICING FEES
INVESTMENT ADVISER
Subject to the overall supervision of the Company's Board of Directors,
Wells Fargo Bank, as the investment adviser to the Fund, provides investment
guidance and policy direction in connection with the management of the Fund's
assets. Wells Fargo Bank also furnishes the Board of Directors with periodic
reports on the investment strategies and performance of the Fund. For its
services as investment adviser, Wells Fargo Bank is entitled to a monthly
investment advisory fee at the annual rate of 0.40% of the average daily net
assets of the Fund. From time to time, Wells Fargo Bank, may waive such fees in
whole or in part. Any such waiver will reduce the Fund's expenses and,
accordingly, have a favorable impact on the Fund's yield. From time to time the
Fund consistent with its investment objectives, policies and restrictions, may
invest in securities of companies with which Wells Fargo Bank has a lending
relationship. For the year ended December 31, 1995, Wells Fargo Bank was paid at
an annual rate equal to 0.40% of the average daily net assets of the Fund for
its services as investment adviser.
PROSPECTUS 12
<PAGE> 213
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank also serves as the Fund's custodian, transfer agent and
dividend disbursing agent. Under its Custody Agreement with Wells Fargo Bank,
the Fund may, at times, borrow money from Wells Fargo Bank as needed to satisfy
temporary liquidity needs. Wells Fargo Bank charges interest on such overdrafts
at a rate determined pursuant to the Fund's Custody Agreement. The custodial,
transfer and dividend disbursing agency services are performed at 525 Market
Street, San Francisco, California 94105.
SHAREHOLDER SERVICING AGENT
The Company has entered into a Shareholder Servicing Agreement with Wells
Fargo Bank on behalf of the Class S Shares and may enter into similar agreements
with other entities. Under such agreements, Shareholder Servicing Agents agree,
as agent for their customers, to provide various administrative services with
respect to Fund shares, such as maintaining shareholder accounts and records;
assisting shareholders with purchases, exchanges and redemptions; and provide
such other related services as the Company or a shareholder may reasonably
request. For these services, a Shareholder Servicing Agent receives a fee, as
calculated on an annualized basis for the Fund's then-current fiscal year, up to
(1) 0.25% of the average daily net assets attributable to the Class S Shares of
the Fund, as represented by shares owned during the period for which payment is
being made by investors with whom the Shareholder Servicing Agent maintains a
servicing relationship, or (2) an amount which equals the maximum amount payable
to the Shareholder Servicing Agent under applicable laws, regulations or rules,
including the Rules of Fair Practice of the National Association of Securities
Dealers, Inc. ("NASD").
A Shareholder Servicing Agent may impose certain conditions on its
customers, subject to the terms of this Prospectus, in addition to or different
from those imposed by the Fund, such as requiring a minimum initial investment
or payment of a separate fee for additional services. Each Shareholder Servicing
Agent will be required to agree to disclose any fees it may directly charge its
customers who are shareholders of the Fund and to notify them in writing at
least 30 days before it imposes any transaction fees.
SPONSOR, ADMINISTRATOR AND DISTRIBUTOR
Subject to the overall supervision of the Company's Board of Directors,
Stephens provides the Fund with administrative services, including general
supervision of the Fund's operation, coordination of the other services provided
to the Fund, compilation of information for reports to the SEC and the state
securities commissions, preparation of proxy statements and shareholder reports
and general supervision of data compilation in connection with preparing
periodic reports. Stephens also furnishes office space and certain facilities to
conduct the Fund's business, and compensates the Directors, officers and
employees who are affiliated with Stephens. For these services, Stephens is
entitled to a monthly fee at the annual rate of 0.03% of the Fund's average
daily net assets. From time to time, Stephens may waive its fees charged to the
Fund in whole or in part. Any such waivers will reduce the Fund's expenses and,
accordingly, have a favorable impact on the Fund's performance.
13 PROSPECTUS
<PAGE> 214
Stephens also has entered into a Distribution Agreement pursuant to which
it has the responsibility for distributing Fund shares. The Company has adopted
a Distribution Plan on behalf of the Class S Shares of the Fund under the SEC's
Rule 12b-1 (the "Plan"). Under the Plan and pursuant to the Distribution
Agreement, the Fund pays Stephens, as compensation for distribution-related
services, a monthly fee at the annual rate of up to 0.75% of the average daily
net assets attributable to the Class S Shares of the Fund or the maximum amount
payable under applicable laws, regulations and rules, whichever is less. The
actual fee payable to Stephens is determined, within the applicable limit, from
time to time by mutual agreement between the Company and Stephens. Stephens may
retain any portion of the total distribution fee payable under the Distribution
Agreement to compensate it for distribution-related services provided by it or
to reimburse it for other distribution-related expenses. Since the fee payable
to Stephens under the Distribution Agreement is not based upon the actual
expenditures of Stephens, the expenses of Stephens (which may include overhead
expenses) may be more or less than the fees received by it under the
Distribution Agreement. The Plan contemplates further that, to the extent any
fees payable pursuant to a Shareholder Servicing Agreement (discussed above) are
deemed to be for distribution-related services, rather than shareholder
services, such payments are approved and payable pursuant to the Plan. In
addition, Stephens has established a non-cash compensation program, pursuant to
which broker/dealers or financial institutions that sell shares of the Fund may
earn additional compensation in the form of trips to sales seminars or vacation
destinations, tickets to sporting events, theater or other entertainment,
opportunities to participate in golf or other outings and gift certificates for
meals or merchandise.
Financial institutions acting as Selling Agents, Shareholder Servicing
Agents, or in certain other capacities, may be required to register as dealers
pursuant to applicable state securities laws which may differ from federal law
and any interpretations expressed herein.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective
fees in whole or in part and reimburse expenses payable to others. Any such
waivers or reimbursements will reduce the Fund's expenses and, accordingly, have
a favorable impact on the yield of the Fund's shares. Except for the expenses
borne by Wells Fargo Bank and Stephens, the Company bears all costs of its
operations, including advisory, shareholder servicing, transfer agency, custody
and administration fees; payments pursuant to the Plan; interest, fees and
expenses of independent auditors and legal counsel; and any extraordinary
expenses. Expenses attributable to the Fund are charged against the Fund's
assets. Certain expenses attributable only to Class S Shares or Class A Shares
are charged to such shares. General expenses of the Company are allocated among
all of the Company's funds, in a manner proportionate to the net assets of each
fund, on a transactional basis or on such other basis as the Company's Board of
Directors deems equitable.
PROSPECTUS 14
<PAGE> 215
TAXES
The Company intends to qualify the Fund as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986 (the "Code"), as long as
such qualification is in the best interest of Fund Shareholders.
By complying with the applicable provisions of the Code, the Fund will not
be subject to federal income taxes with respect to net investment income and net
realized capital gains distributed to its shareholders. The Fund intends to pay
out substantially all of its net investment income and net realized capital
gains (if any) for each year. Dividends from net investment income (including
net short-term capital gains, if any) declared and paid by the Fund will be
taxable as ordinary income to Fund shareholders, even if such dividends are
automatically reinvested in Class S Shares. The Fund does not expect its
dividends to qualify for the dividends-received deduction allowed to corporate
shareholders.
The Fund, or the Fund's Shareholder Servicing Agent on its behalf, will
inform you of the amount and nature of the Fund's dividends and capital gains.
You should keep all statements you receive to assist in your personal record
keeping. The Company is required to withhold, subject to certain exemptions, at
a rate of 31% on dividends paid and redemption proceeds (including proceeds from
exchanges) paid or credited to individual shareholders of the Fund if a
shareholder has not complied with IRS regulations or if a correct Taxpayer
Identification Number, certified when required, is not on file with the Company
or the Transfer Agent. In connection with this withholding requirement, you will
be asked to certify on your Account Application that the social security or
taxpayer identification number you provide is correct and that you are not
subject to 31% back-up withholding for previous underreporting to the IRS.
Foreign shareholders may be subject to different tax treatment, including a
withholding tax. See "Federal Income Taxes -- Foreign Shareholders" in the
Fund's SAI.
Further federal tax considerations are discussed in the Fund's SAI. All
investors should consult their individual tax advisers with respect to their
particular tax situations as well as the state and local tax status of
investments in shares of the Fund.
15 PROSPECTUS
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CLASS A SHARES
In addition to the Class S Shares, the Fund also offers another class of
shares -- the Class A Shares. Class A Shares are available through direct
investment or through Wells Fargo Bank sweep accounts. Class A Shares are
subject to the same fees and expenses as the Class S Shares, except that Class A
shares are subject to a Rule 12b-1 fee of 0.05% of net assets and a shareholder
services fee of up to 0.30% of net assets. Under the Distribution Plan for Class
A Shares of the Fund, Stephens is entitled to receive as compensation for
distribution-related services, a monthly fee at an annual rate of up to 0.05% of
the Fund's average daily net assets attributable to Class A Shares. This fee may
be used by Stephens to compensate Selling Agents or to compensate or reimburse
Stephens for distribution-related expenses. Further, the Class A Shares have
exactly the same preference and conversion rights, restrictions, limitations,
qualifications, terms and conditions of redemption as the Class S Shares. The
Class A Shares also have identical voting rights except that, on matters that
affect one class but not another, only shareholders of the affected class have
voting rights and they vote as a class. Class A Shares of the Fund may be
exchanged for Class A Shares of any other investment portfolio of the Company or
for shares of certain other funds in the Stagecoach Family of Funds (provided
that shares of the investment portfolio to be acquired are registered for sale
in your state of residence). You may call 1-800-222-8222 to obtain additional
information about Class A Shares and a prospectus describing such shares.
PROSPECTUS 16
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PROSPECTUS APPENDIX --
ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
The Money Market Mutual Fund may invest in the following:
<TABLE>
<S> <C>
(i) obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, including government-sponsored enterprises ("U.S. Government
obligations") (discussed below);
(ii) negotiable certificates of deposit, fixed time deposits, bankers' acceptances or
other short-term obligations of U.S. banks (including foreign branches) that have
more than $1 billion in total assets at the time of investment and are members of
the Federal Reserve System or are examined by the Comptroller of the Currency or
whose deposits are insured by the Federal Deposit Insurance Corporation ("FDIC")
("bank instruments");
(iii) commercial paper rated at the date of purchase P-1 by Moody's Investors Service,
Inc. ("Moody's") or "A-1+" or "A-1" by Standard & Poor's Rating Group ("S&P")
("rated commercial paper");
(iv) commercial paper unrated at the date of purchase but secured by a letter of
credit from a U.S. bank that meets the above criteria for investment;
(v) certain floating and variable rate instruments ("variable rate instruments")
(discussed below);
(vi) certain repurchase agreements ("repurchase agreements") (discussed below); and
(vii) short-term, U.S. dollar-denominated obligations of U.S. branches of foreign banks
that at the time of investment have more than $10 billion, or the equivalent in
other currencies, in total assets ("foreign bank obligations") (discussed below).
</TABLE>
Municipal Obligations
Municipal bonds generally have a maturity at the time of issuance of up to
40 years. Medium-term municipal notes are generally issued in anticipation of
the receipt of tax funds, of the proceeds of bond placements, or of other
revenues. The ability of an issuer to make payments on notes is therefore
especially dependent on such tax receipts, proceeds from bond sales or other
revenues, as the case may be. Municipal commercial paper is a debt obligation
with a stated maturity of 270 days or less that is issued to finance seasonal
working capital needs or as short-term financing in anticipation of longer-term
debt.
A-1 PROSPECTUS
<PAGE> 218
U.S. Government Obligations
U.S. Government obligations include securities issued or guaranteed as to
principal and interest by the U.S. Government and supported by the full faith
and credit of the U.S. Treasury. U.S. Treasury obligations differ mainly in the
length of their maturity. Treasury bills, the most frequently issued marketable
government securities, have a maturity of up to one year and are issued on a
discount basis. U.S. Government obligations also include securities issued or
guaranteed by federal agencies or instrumentalities, including
government-sponsored enterprises. Some obligations of agencies or
instrumentalities of the U.S. Government are supported by the full faith and
credit of the United States or U.S. Treasury guarantees; others, by the right of
the issuer or guarantor to borrow from the U.S. Treasury; still others, by the
discretionary authority of the U.S. Government to purchase certain obligations
of the agency or instrumentality; and others, only by the credit of the agency
or instrumentality issuing the obligation. In the case of obligations not backed
by the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government will provide
financial support to its agencies or instrumentalities where it is not obligated
to do so. In addition, U.S. Government obligations are subject to fluctuations
in market value due to fluctuations in market interest rates. As a general
matter, the value of debt instruments, including U.S. Government obligations,
declines when market interest rates increase and rises when market interest
rates decrease. Certain types of U.S. Government obligations are subject to
fluctuations in yield or value due to their structure or contract terms.
Floating- and Variable-Rate Instruments
Certain of the debt instruments that the Fund may purchase bear interest at
rates that are not fixed, but vary, for example, with changes in specified
market rates or indices or at specified intervals. Certain of these instruments
may carry a demand feature that would permit the holder to tender them back to
the issuer at par value prior to maturity. The Fund may, in accordance with SEC
rules, account for these instruments as maturing at the next interest rate
readjustment date or the date at which the Fund may tender the instrument back
to the issuer, whichever is later. The floating- and variable-rate instruments
that the Fund may purchase include certificates of participation in such
obligations. The Fund may invest in floating- and variable-rate obligations even
if they carry stated maturities in excess of thirteen months, upon compliance
with certain conditions of the SEC, in which case such obligations will be
treated in accordance with these conditions as having maturities not exceeding
thirteen months.
Wells Fargo Bank, as investment adviser to the Fund, monitors on an ongoing
basis the ability of an issuer of a demand instrument to pay principal and
interest on demand. Events affecting the ability of the issuer of a demand
instrument to make payment when due may occur between the time a Fund elects to
demand payment and the time payment is due, thereby affecting such Fund's
ability to obtain payment at par. Demand instruments whose demand feature is not
exercisable within
PROSPECTUS A-2
<PAGE> 219
seven days may be treated as liquid, provided that an active secondary market
exists for those instruments.
Repurchase Agreements
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. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. The Fund may enter into repurchase agreements only with respect to U.S.
Government obligations and other obligations that could otherwise be purchased
by the Fund. All repurchase agreements will be fully collateralized based on
values that are marked to market daily. While the maturities of the underlying
securities in a repurchase agreement transaction may be greater than twelve
months, the term of any repurchase agreement on behalf of the Fund will always
be less than twelve months. If the seller defaults and the value of the
underlying securities has declined, the Fund may incur a loss. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the security,
the Fund's disposition of the security may be delayed or limited. The Fund will
enter into repurchase agreements only with registered broker/dealers, commercial
banks and other financial institutions that meet guidelines established by the
Company's Board of Directors and that are not affiliated with Wells Fargo Bank
or Stephens. The Fund may participate in pooled repurchase agreement
transactions with other funds advised by Wells Fargo Bank.
Letters of Credit
Certain of the debt obligations, certificates of participation, commercial
paper and other short-term obligations which the Fund is permitted to purchase
may be backed by an unconditional and irrevocable letter of credit of a bank,
savings and loan association or insurance company that assumes the obligation
for payment of principal and interest in the event of default by the issuer.
Letter of credit-backed investments must, in the opinion of Wells Fargo Bank, be
of investment quality comparable to other permitted investments of the Fund.
Foreign Obligations
The Fund may invest up to 25% of its assets in high-quality, short-term
debt obligations of foreign branches of U.S. banks or U.S. branches of foreign
banks that are denominated in and pay interest in U.S. dollars. Investments in
foreign obligations raise certain considerations that are not typically
associated with investing in domestic obligations. There may be less publicly
available information about a foreign issuer than about a domestic issuer.
Foreign issuers also are not subject to the same uniform accounting, auditing
and financial reporting standards or governmental supervision as domestic
issuers. In addition, with respect to certain foreign countries, taxes may be
withheld at the source under foreign income tax laws, and there is a possibility
of expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect investments in, the
liquidity of and the ability to enforce contractual obligations with respect to
securities of issuers located in those countries.
A-3 PROSPECTUS
<PAGE> 220
Illiquid Securities
Certain securities may be sold only pursuant to certain legal restrictions,
and may be difficult to sell. The Fund will not knowingly invest more than 10%
of the value of its net assets in securities that are illiquid or such lower
percentage as may be required by the states in which the Fund sells its shares.
Repurchase agreements and time deposits that do not provide for payment to a
Fund within seven days after notice, guaranteed investment contracts and some
commercial paper issued in reliance upon the exemption in Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act") (other than variable amount
master demand notes with maturities of nine months or less), are subject to the
limitation on illiquid securities. In addition, interests in privately arranged
loans may be subject to this limitation.
If otherwise consistent with its investment objective and policies, the
Fund may purchase securities which are not registered under the 1933 Act but
which can be sold to "qualified institutional buyers" in accordance with Rule
144A under the 1933 Act. Any such security will not be considered illiquid so
long as it is determined by the Company's Board of Directors, acting under
guidelines approved and monitored by the Company's Board, that an adequate
trading market exists for that security.
INVESTMENT POLICIES
The Fund's investment objective, as set forth in "How the Fund
Works -- Investment Objective and Policies," is fundamental; that is, it may not
be changed without approval by the vote of the holders of a majority of the
Fund's outstanding voting securities, as described under "Capital Stock" in the
Fund's SAI. If the Company's Board of Directors determines, however, that the
investment objective of the Fund can best be achieved by a substantive change in
a nonfundamental investment policy or strategy, the Company's Board may make
such change without shareholder approval and will disclose any such material
changes in the then-current prospectus.
As matters of fundamental policy, the Fund may: (i) borrow from banks up to
10% of the current value of its net assets only for temporary purposes in order
to meet redemptions, and these borrowings may be secured by the pledge of up to
10% of the current value of the Fund's net assets (but investments may not be
purchased by the Fund while any such outstanding borrowing in excess of 5% of
its net assets exists); (ii) not make loans of portfolio securities or other
assets, except that loans for purposes of this restriction will not include the
purchase of fixed time deposits, repurchase agreements, commercial paper and
other short-term obligations, and other types of debt instruments commonly sold
in a public or private offering; and (iii) not invest more than 25% of its
assets (i.e., concentrate) in any particular industry, excluding U.S. Government
obligations and obligations of domestic banks (for purposes of this restriction,
domestic bank obligations do not include obligations of foreign branches of U.S.
banks and obligations of U.S. branches of foreign banks).
PROSPECTUS A-4
<PAGE> 221
As a matter of nonfundamental policy: (i) the Fund may not purchase
securities of any issuer (except for U.S. Government obligations, for certain
temporary purposes and for certain guarantees and unconditional puts) if as a
result more than 5% of the value of the Fund's total assets would be invested in
the securities of such issuer or the Fund would own more than 10% of the
outstanding voting securities of such issuer; and (ii) the Fund may not invest
more than 10% of the current value of its net assets in securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale and fixed time deposits that are subject to
withdrawal penalties and that have maturities of more than seven days. With
respect to item (i), it may be possible that the Company would own more than 10%
of the outstanding voting securities of an issuer.
A-5 PROSPECTUS
<PAGE> 222
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE> 223
SPONSOR, DISTRIBUTOR AND ADMINISTRATOR
Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
INVESTMENT ADVISER, TRANSFER AND
DIVIDEND DISBURSING AGENT AND
CUSTODIAN
Wells Fargo Bank, N.A.
P.O. Box 7066
San Francisco, California 94120-7066
LEGAL COUNSEL
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
FOR MORE INFORMATION ABOUT THE FUND
SIMPLY CALL 1-800-222-8222,
OR WRITE:
STAGECOACH FUNDS
C/O STAGECOACH
SHAREHOLDER SERVICES
WELLS FARGO BANK, N.A.
P.O. BOX 7066
SAN FRANCISCO, CALIFORNIA 94120-7066
<TABLE>
<S> <C>
----------------------------------------------------------
STAGECOACH MONEY MARKET MUTUAL FUNDS:
------------------------------------------------------
- are NOT insured by the FDIC or
U.S. GOVERNMENT
- are NOT obligations or deposits of Wells
Fargo Bank nor guaranteed by the Bank
- involve investment risk, including possible
loss of principal LOGO
- Money Market Mutual Funds seek to maintain a
stable net asset value of $1.00 per share,
however; there can be no assurance that the
Fund will meet this objective.
- -----------------------------------------------------------
</TABLE>
LOGO
------------------------
PROSPECTUS
------------------------
Money Market Mutual Fund
(Class S Shares)
------------------------
May 1, 1996
------------------------
NOT FDIC INSURED
Bus 189(5/96)
<PAGE> 224
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL 29, 1996
AGGRESSIVE GROWTH FUND
----------------------
Stagecoach Funds, Inc. (the "Company") is a professionally
managed, open-end, series investment company, commonly referred to as a "mutual
fund." This Statement of Additional Information ("SAI") contains information
about one of the funds in the Stagecoach Family of Funds -- the Aggressive
Growth Fund (the "Fund"). The Fund offers two classes of shares -- Class A
Shares and Class B Shares. This SAI relates to both such classes of shares.
The investment objective of the Fund is described in its Prospectus under the
section entitled "How the Fund Works -- Investment Objectives and Policies."
The Fund seeks to achieve its investment objective by investing all of its
assets in the Capital Appreciation Master Portfolio (at times, the "Master
Portfolio") of Master Investment Trust (the "Trust"), which has the same
investment objective as the Fund. The Fund may withdraw its investment in the
Capital Appreciation Master Portfolio at any time, if the Board of Directors of
the Company determines that such action is in the best interests of the Fund
and its shareholders. Upon such withdrawal, the Company's Board would consider
alternative investments, including investing all of the Fund's assets in
another investment company with the same investment objective as the Fund or
hiring an investment adviser to manage the Fund's assets in accordance with the
investment policies and restrictions described in the Prospectus and below with
respect to the Trust.
This SAI is not a prospectus and should be read in conjunction
with the Fund's Prospectus, dated April 29, 1996. All terms used in this SAI
that are defined in the Prospectus have the meanings assigned in the
Prospectus. A copy of the Prospectus for the Fund may be obtained without
charge by writing Stephens Inc., the Company's sponsor, administrator and
distributor, at 111 Center Street, Little Rock, Arkansas 72201 or by calling
the Transfer Agent at the telephone number indicated above.
----------------------
1
<PAGE> 225
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Servicing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Calculation of Yield and Total Return . . . . . . . . . . . . . . . . . . . . . . 12
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . 15
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Federal Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Custodian and Transfer and Dividend Disbursing Agent . . . . . . . . . . . . . . 23
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
2
<PAGE> 226
INVESTMENT RESTRICTIONS
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Investment Objectives
and Policies." The Fund and the Master Portfolio are subject to the following
investment restrictions, all of which are fundamental policies. These
restrictions cannot be changed, as to either the Fund or the Master Portfolio
without approval by the holders of a majority (as defined by the 1940 Act) of
the outstanding voting securities of the Fund or the Master Portfolio, as
appropriate. Whenever the Fund is requested to vote on a fundamental policy of
the Master Portfolio, the Fund will hold a meeting of Fund shareholders and it
will cast its votes as instructed by such shareholders.
Neither the Fund nor the Master Portfolio may:
(1) purchase the securities of issuers conducting their
principal business activity in the same industry if, immediately after the
purchase and as a result thereof, the value of the Fund's investments in that
industry would be 25% or more of the current value of the Fund's total assets,
provided that there is no limitation with respect to investments in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities;
and provided further, that the Fund may invest all its assets in a diversified,
open-end management investment company, or a series thereof, with substantially
the same investment objective, policies and restrictions as such Fund, without
regard to the limitations set forth in this paragraph (1);
(2) purchase or sell real estate or real estate limited
partnerships (other than securities secured by real estate or interests therein
or securities issued by companies that invest in real estate or interests
therein), commodities or commodity contracts, or interests in oil, gas, or
other mineral exploration or development programs;
(3) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions) or make short sales of
securities;
(4) underwrite securities of other issuers, except to the
extent that the purchase of permitted investments directly from the issuer
thereof or from an underwriter for an issuer and the later disposition of such
securities in accordance with the Fund's investment program may be deemed to be
an underwriting; and provided further, that the purchase by the Fund of
securities issued by a diversified, open-end management investment company, or
a series thereof, with substantially the same investment objective, policies
and restrictions as such Fund shall not constitute an underwriting for purposes
of this paragraph (4);
(5) make investments for the purpose of exercising control or
management; provided that the Fund may invest all its assets in a diversified
open-end management company, or a series thereof, with substantially the same
investment objective, policies and restrictions as such Fund, without regard to
the limitations set forth in this paragraph (5);
3
<PAGE> 227
(6) issue senior securities except that the Fund may borrow
from banks up to 10% of the current value of its net assets for temporary
purposes only in order to meet redemptions, and these borrowings may be secured
by the pledge of up to 10% of the current value of its net assets (but
investments may not be purchased while any such outstanding borrowings exceed
5% of its net assets);
(7) make loans of portfolio securities having a value that
exceeds 50% of the current value of its total assets, provided that, this
restriction does not apply to the purchase of fixed time deposits, repurchase
agreements, commercial paper and other types of debt instruments commonly sold
in a public or private offering; nor
(8) purchase securities of any issuer (except securities issued
by the U.S. Government, its agencies or instrumentalities ) if, as a result,
with respect to 75% of its total assets, more than 5% of the value of its total
assets would be invested in the securities of any one issuer or, with respect
to 100% of its total assets the Fund's ownership would be more than 10% of the
outstanding voting securities of such issuer; provided that the Fund may invest
all its assets in a diversified, open-end management investment company, or a
series thereof, with substantially the same investment objective, policies and
restrictions as such Fund, without regard to the limitations set forth in this
paragraph (8).
With respect to fundamental investment policy (7), the Fund and the Master
Portfolio do not intend to loan their portfolio securities during the coming
year.
The Fund and the Master Portfolio are subject to the following
non-fundamental policies. These restrictions may be changed by a vote of a
majority of the Directors of the Company or the Trustees of the Trust, as the
case may be, at any time.
Neither the Fund nor the Master Portfolio may:
(1) purchase or retain securities of any issuer if the officers
or directors of the Fund or its investment adviser owning beneficially more
than one-half of one percent (0.5%) of the securities of the issuer together
owned beneficially more than 5% of such securities;
(2) purchase or sell real estate limited partnership interests;
(3) write, purchase or sell puts, calls or options or any
combination thereof, except to the extent described in the Prospectus and
except that the Fund may purchase securities with put rights in order to
maintain liquidity;
(4) invest in securities of issuers who, with their
predecessors, have been in existence less than three years, unless the
securities are fully guaranteed or insured by the U.S. Government if, by reason
thereof, the value of its aggregate investment in such securities will exceed
5% of its total assets;
4
<PAGE> 228
(5) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if, as
a result, more than 5% of the value of the Fund's total assets would be
invested in the securities of any one issuer; nor
(6) invest more than 15% of the Fund's net assets in illiquid
securities. For this purpose, illiquid securities include, among others, (a)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (b) fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, and (c) repurchase agreements not terminable within seven days.
In addition, as a matter of non-fundamental policy, the Fund may
invest in shares of other open-end, management investment companies, subject to
the limitations of Section 12(d)(1) of the Act, provided that any such
purchases will be limited to temporary investments in shares of unaffiliated
investment companies and the investment adviser will waive its advisory fees
for that portion of the Fund's assets so invested, except when such purchase is
part of a plan of merger, consolidation, reorganization or acquisition. The
Fund does not intend to invest more than 5% of its net assets in such
securities during the coming year. Notwithstanding any other investment policy
or limitation (whether or not fundamental), as a matter of fundamental policy,
the Fund may invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental
investment objective, policies and limitations as the Fund.
As a matter of non-fundamental policy, the Fund and the Master
Portfolio may each invest up to 25% of their respective net assets in
securities of foreign governmental issues that are denominated in and pay
interest in U.S. dollars.
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "The Fund, the Master
Portfolio and Management." The principal occupations during the past five
years of the Directors and principal executive Officer of the Company are
listed below. The address of each, unless otherwise indicated, is 111 Center
Street, Little Rock, Arkansas 72201. Directors deemed to be "interested
persons" of the Company for purposes of the 1940 Act are indicated by an
asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Address and Age Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Jack S. Euphrat, 73 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
</TABLE>
5
<PAGE> 229
<TABLE>
<S> <C> <C>
*R. Greg Feltus, 44 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 53 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy: Associate Professor of
Finance of the School of Business and
Accounting at Wake Forest University
since 1983.
*Zoe Ann Hines, 46 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource
Management.
*W. Rodney Hughes, 69 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 77 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 51 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 39 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
</TABLE>
6
<PAGE> 230
<TABLE>
<S> <C>
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
COMPENSATION TABLE
For the Fiscal Year Ended December 31, 1995
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- ---------------------- ------------------
<S> <C> <C>
Jack S. Euphrat $10,188 $39,750
Director
*R. Greg Feltus 0 0
Director
Thomas S. Goho 10,188 39,750
Director
*Zoe Ann Hines 0 0
Director
*W. Rodney Hughes 9,438 37,000
Director
Robert M. Joses 9,938 39,000
Director
*J. Tucker Morse 8,313 33,250
Director
</TABLE>
Directors of the Company are compensated annually by the Company
and by all the registrants in the fund complex for their services as indicated
above and also are reimbursed for all out-of-pocket expenses relating to
attendance at board meetings. Each of the Directors and Officers of the
Company serves in the identical capacity as Directors and Officers of Overland
Express Funds, Inc. and Stagecoach Inc., and as Trustees and/or Officers of
Stagecoach Trust, Master Investment Portfolio, Life & Annuity Trust, Master
Investment Trust and Managed Series Investment Trust, each of which is a
registered open-end management investment company and each of which is
considered to be in the same "fund complex," as such term is defined in Form
N-1A under the 1940 Act, as the Company. The Directors are compensated by
other Companies and Trusts within the fund complex for their services as
Directors/Trustees to such Companies and Trusts.
7
<PAGE> 231
Currently the Directors do not receive any retirement benefits or deferred
compensation from the Company or any other member of the fund complex.
As of the date of this SAI, the Directors and Principal Officer of
the Company as a group beneficially owned less than 1% of the outstanding
shares of the Company.
Investment Adviser. The Fund has not engaged an investment
adviser. The Master Portfolio (which has the same investment objective as the
Fund, and in which the Fund invests all its assets) is advised by Wells Fargo
Bank. The Advisory Contract provides that Wells Fargo Bank shall furnish to
the Master Portfolio investment guidance and policy direction in connection
with the daily portfolio management of the Master Portfolio. Pursuant to the
Advisory Contract, Wells Fargo Bank furnishes to the Board of Trustees periodic
reports on the investment strategy and performance of the Master Portfolio.
Wells Fargo Bank has agreed to provide to the Master Portfolio,
among other things, money market and fixed- income research, analysis and
statistical and economic data and information concerning interest rate and
security market trends, portfolio composition, credit conditions and average
maturities of the portfolio of the Master Portfolio.
The Advisory Contract will continue in effect for more than two
years provided the continuance is approved annually (i) by the holders of a
majority of the Master Portfolio's outstanding voting securities or by the
Trust's Board of Trustees and (ii) by a majority of the Trustees of the Trust
who are not parties to the Advisory Contract or "interested persons" (as
defined in the 1940 Act) of any such party. The Advisory Contract may be
terminated on 60 days' written notice by either party and will terminate
automatically if assigned.
The Strategic Growth Fund of Overland Express Funds, Inc. (as
defined in the Prospectus, the "Predecessor Fund") previously retained Wells
Fargo Bank as investment adviser. For the period from inception of the
Predecessor Fund (January 20, 1993) to February 20, 1996, the Predecessor Fund
operated on a stand-alone basis, did not participate in a master/feeder
structure. From January 20, 1993 to December 31, 1993, Wells Fargo Bank waived
payment of all advisory fees of $68,217. For the year ended December 31, 1994,
the Predecessor Fund incurred $207,239 in advisory fees payable to Wells Fargo
Bank, and $9,550 of such fees were waived. For the year ended December 31,
1995, the Predecessor Fund incurred $302,821 in advisory fees payable to Wells
Fargo Bank. Wells Fargo Bank did not waive any such fees.
Wells Fargo Bank also serves as Custodian and Transfer and
Dividend Disbursing Agent for the Fund and the Master Portfolio. See
"Custodian and Transfer and Dividend Disbursing Agent".
8
<PAGE> 232
Administrator and Distributor. The Company has retained Stephens
as administrator and distributor on behalf of the Fund. In addition, the Trust
has retained Stephens as administrator on behalf of the Master Portfolio.
Under the respective Administration Agreements with the Company and the Trust,
Stephens furnishes the Company and the Trust with office facilities, together
with those ordinary clerical and bookkeeping services that are not furnished by
Wells Fargo Bank. Stephens also has entered into a Distribution Agreement with
the Company pursuant to which Stephens has the responsibility of distributing
shares of the Fund.
Prior to February 20, 1996, Stephens served as administrator and
distributor on behalf of the Predecessor Fund.
For the period from inception to December 31, 1993, the
Predecessor Fund's administrative fees totaled $20,483. For the year ended
December 31, 1993, the aggregate dollar amount of underwriting commissions paid
to Stephens by Overland Express Funds, Inc. was $3,604,377, and Stephens
retained $3,457,989 of such commissions. For the same period, Wells Fargo
Securities Inc. ("WFSI"), a subsidiary of Wells Fargo Bank and an affiliated
broker-dealer of the Company, and its registered representatives, received
$146,388 of such commissions.
For the year ended December 31, 1994, the Predecessor Fund's
administrative fees totaled $62,623. For the same period, the aggregate dollar
amount of underwriting commissions paid by Overland Express Funds, Inc. was
$1,408,759, and Stephens retained $1,351,388 of such commissions. WFSI and its
registered representatives received $57,371 of such commissions for the year
ended December 31, 1994.
For the year ended December 31, 1995, the Predecessor Fund's
administrative fees totaled $91,128. For the same period, the aggregate dollar
amount of underwriting commissions paid on sales/redemptions of the shares of
Overland Express Funds, Inc. was $1,424,127, and Stephens retained $152,656 of
such commissions. WFSI and its registered representatives received $31,366 of
such commissions for the year.
Custodian and Transfer and Dividend Disbursing Agent. The
following information supplements and should be read in conjunction with the
section of the Prospectus entitled "Custodian, Transfer and Dividend Disbursing
Agent." Wells Fargo Bank has been retained to act as Custodian and Transfer
and Dividend Disbursing Agent for the Fund and the Master Portfolio. The
Custodian, among other things, maintains a custody account or accounts in the
name of the Fund and the Master Portfolio; receives and delivers all assets for
the Fund and the Master Portfolio upon purchase and upon sale or maturity;
collects and receives all income and other payments and distributions on
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account of the assets of the Fund and the Master Portfolio and pays all
expenses of the Fund and the Master Portfolio. For its services as Custodian,
Wells Fargo Bank receives an asset-based fee and transaction charge from the
Master Portfolio; and for its services as transfer and dividend and disbursing
agent, it receives a base fee and per-account fees from the Fund.
DISTRIBUTION PLAN
The following information supplements and should be read in
conjunction with the Prospectus section entitled "Distribution Plans." As
indicated in the Prospectus, the Fund has adopted a distribution plan (a
"Plan") under Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the
"Rule") for each class of shares of the Fund. The Plan for the Class A Shares
and the Plan for the Class B Shares were each adopted by the Board of Directors
on November 15, 1995, including a majority of the Directors who were not
"interested persons" (as defined in the 1940 Act) of the Fund and who had no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan (the "Non-Interested Directors").
Under the Plan and pursuant to the Distribution Agreement, the
Fund may pay the Distributor, as reimbursement for distribution-related
expenses and compensation for distribution-related services, a monthly fee at
an annual rate of up to 0.10% of the average daily net assets attributable to
Class A Shares and up to 0.75% of the average daily net assets attributable to
the Class B Shares of the Fund. The actual fee payable to the Distributor is
determined, within such limits, from time to time by mutual agreement between
the Company and the Distributor and will not exceed the maximum sales charges
payable by mutual funds sold by members of the National Association of
Securities Dealers, Inc. ("NASD") under the NASD Rules of Fair Practice. The
Distributor may enter into selling agreements with one or more selling agents
under which such agents may receive compensation for distribution-related
services from the Distributor, including, but not limited to, commissions or
other payments to such agents based on the average daily net assets of Fund
shares attributable to them. The Distributor may retain any portion of the
total distribution fee payable thereunder to compensate it for
distribution-related services provided by it or to reimburse it for other
distribution-related expenses.
Each Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Non-Interested Directors. Agreements related to the Plans also must be
approved by such vote of the directors and the Non-Interested Directors. Such
Agreements will terminate automatically if assigned, and may be terminated at
any time, without payment of any penalty, by a vote of a majority of the
outstanding voting securities of the relevant class of the Fund or by vote of a
majority of the Non-Interested Directors on not more than 60 days' written
notice. Each Plan may not be amended to increase materially the amounts
payable thereunder without the approval of a majority of the outstanding voting
securities of the
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relevant class of the Fund, and no material amendment to the Plans may be made
except by a majority of both the Directors of the Company and the
Non-Interested Directors.
Each Plan requires that the Company shall provide to the
Directors, and the directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Plan. The Rule also
requires that the selection and nomination of Directors who are not "interested
persons" of the Company be made by such disinterested directors.
The Class A and Class D Shares of the Predecessor Fund have
distribution plans under Rule 12b-1 currently in place. Pursuant to these
Plans, the Predecessor Fund may pay a monthly fee at the annual rate of up to
0.25% of the average daily net assets attributable to the Class A Shares and up
to 0.75% of the average daily net assets attributable to the Class D Shares of
the Predecessor Fund.
For the year ended December 31, 1995 the Class A Shares and Class
D Shares of the Predecessor Fund incurred $102,390 and $148,475, respectively,
in fees under their respective distribution plans; the fees were paid as
compensation to underwriters.
SERVICING PLAN
As indicated in the Fund's Prospectus, the Fund has adopted a
Servicing Plan ("Servicing Plan") with respect to its Class A and Class B
Shares. The Board of Directors adopted each Servicing Plan on November 15,
1995. The Board of Directors included a majority of the Directors who were not
"interested persons" (as defined in the Act) of the Fund and who had no direct
or indirect financial interest in the operation of the Servicing Plan or in any
agreement related to the Servicing Plan (the "Servicing Plan Non-Interested
Directors").
Under the Servicing Plan and pursuant to the Servicing Agreements
for the Class A Shares, the Fund may pay one or more servicing agents, as
compensation for performing certain services, a fee at an annual rate of up to
0.25% of the average daily net assets of the Fund attributable to its Class A
Shares. Under the Servicing Plan and pursuant to the Servicing Agreements for
the Class B Shares, the Fund may pay one or more servicing agents, as
compensation for performing certain services, a fee at an annual rate of up to
0.25% of the average daily net assets of the Fund attributable to the Class B
Shares. The actual fee payable to servicing agents is determined, within such
limits, from time to time by mutual agreement between the Company and each
servicing agent and will not exceed the maximum service fees payable by mutual
funds sold by members of the NASD under the NASD Rules of Fair Practice.
Each Servicing Plan will continue in effect from year to year if
such continuance is approved by a majority vote of both the Directors of the
Company and the Servicing Plan
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Non-Interested Directors. Any form of Servicing Agreement related to the
Servicing Plan also must be approved by such vote of the Directors and the
Servicing Plan Non-Interested Directors. Servicing Agreements will terminate
automatically if assigned, and may be terminated at any time, without payment
of any penalty, by a vote of a majority of the Servicing Plan Non-Interested
Directors. No material amendment to the Servicing Plans may be made except by
a majority of both the Directors of the Company and the Servicing Plan
Non-Interested Directors.
Each Servicing Plan requires that the Treasurer of the Company
shall provide to the Directors, and the Directors shall review, at least
quarterly, a written report of the amounts expended (and purposes therefor)
under the Servicing Plan.
The Predecessor Fund has a Servicing Plan currently in place with
respect to its Class D Shares. Pursuant to the Servicing Plan the Predecessor
Fund may pay one or more servicing agents a fee of up to 0.25% of the average
daily net assets of the Fund attributable to the Class D Shares as compensation
for certain services. The Predecessor Fund paid the following amounts in
servicing fees during each of the last three fiscal years pursuant to the Plan
for the Class D Shares:
<TABLE>
<S> <C>
1993 $ 7,839
1994 $37,050
1995 $49,492
</TABLE>
CALCULATION OF YIELD AND TOTAL RETURN
The following information supplements and should be read in
conjunction with the sections in the Prospectus entitled "Determination of Net
Asset Value" and "Performance Data."
As indicated in the Prospectus, the Fund may advertise certain
total return information computed in the manner described in the Prospectus.
As and to the extent required by the SEC, an average annual compound rate of
return ("T") will be computed by using the redeemable value at the end of a
specified period ("ERV") of a hypothetical initial investment ("P") over a
period of years ("n") according to the following formula: P(1+T)n = ERV. In
addition, as indicated in the Prospectus, the Fund also may, at times,
calculate total return based on net asset value per share (rather than the
public offering price), in which case the figures would not reflect the effect
of any sales charges that would have been paid by an investor, or based on the
assumption that a sales charge other than the maximum sales charge (reflecting
a Volume Discount) was assessed, provided that total return data derived
pursuant to the calculation described above also are presented.
The average annual total returns on the Class A Shares of the
Predecessor Fund for the period from the Predecessor Fund's commencement of
operations (January 20, 1993) to December 31, 1995, assuming a 4.50% sales
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<PAGE> 236
load and no sales load, were 25.05% and 27.01%, respectively. The average
annual total return on the Class D Shares of the Predecessor Fund for the
period from inception (July 1, 1993) to December 31, 1995 was 22.68%. The
annual total returns on the Class A Shares of the Fund for the one year ended
December 31, 1995, assuming a 4.50% sales loan and no sales load were 36.06%
and 42.51% respectively. The annual total return on the Class D Shares of the
Predecessor Fund for the one-year ended December 31, 1995 was 40.57%, assuming
payment of the 1% CDSC.
The Fund may advertise the cumulative total return of the
Predecessor Fund. Cumulative total return is computed by determining the
aggregate compounded rate of return during specified periods that equate the
initial amount invested to the ending redeemable value of such investment.
In addition to the above performance information, the Fund may
also advertise the cumulative total return of the Fund for one-month,
three-month, six-month, and year-to-date periods. The cumulative total return
for such periods is based on the overall percentage change in value of a
hypothetical investment in the Fund, assuming all Fund dividends and capital
gain distributions are reinvested, without reflecting the effect of any sales
charge that would be paid by an investor, and is not annualized.
The cumulative total return on the Class A Shares of the
Predecessor Fund for the period from the Predecessor Fund's commencement of
operations (January 20, 1993) to December 31, 1995, assuming a 4.50% sales load
and no sales load, were 102.84% and 93.74%, respectively.
The average annual total return on the Class D Shares of the
Predecessor Fund for the period from inception (July 1, 1993) to December 31,
1995, based on the expenses and performance history of the Class D Shares and
restated to include the maximum CDSC of 1.0% applicable on redemption of the
Fund's Class B Shares, was 22.38%. The cumulative total return on the Class D
Shares of the Predecessor Fund for the same period, based on the expenses and
performance history of the Class D Shares and restated to include the maximum
CDSC of 1.0% applicable on redemption of the Fund's Class B Shares, was 65.69%.
The annual total return on the Class D Shares of the Predecessor Fund for the
year ended December 31, 1995, based on the expenses and performance history of
the Class D Shares and restated to include the maximum CDSC of 3.0% applicable
on redemption of the Fund's Class B Shares, was 38.64%.
From time to time and only to the extent the comparison is
appropriate for a class of Shares of the Fund, the Company may quote
performance or price-earning ratios of a class of Shares of the Fund in
advertising and other types of literature as compared to the performance of the
Lehman Brothers Municipal Bond Index, 1-Year Treasury Bill Rate, S&P Index, the
Dow Jones Industrial Average, the Lehman Brothers 20+ Years Treasury Index, the
Lehman Brothers 5-7 Year Treasury Index, IBC/Donoghue's Money Fund Averages,
Real Estate Investment Averages (as reported by the National Association of
Real Estate Investment Trusts), Gold Investment Averages (provided by the World
Gold Council), Bank Averages (which is calculated from figures supplied by the
U.S. League of Savings Institutions based on effective annual rates of interest
on both passbook and certificate accounts), average annualized certificate of
deposit rates (from the Federal Reserve G-13 Statistical Releases or the Bank
Rate Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer
Price Index (as published by the U.S. Bureau of Labor Statistics), Ten Year
U.S. Government Bond Average, S&P's Corporate Bond Yield
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<PAGE> 237
Averages, Schabacter Investment Management Indices, Salomon Brothers High Grade
Bond Index, Lehman Brothers Long-Term High Quality Government/Corporate Bond
Index, other managed or unmanaged indices or performance data of bonds, stocks
or government securities (including data provided by Ibbotson Associates), or
by other services, companies, publications or persons who monitor mutual funds
on overall performance or other criteria. The S&P Index and the Dow Jones
Industrial Average are unmanaged indices of selected common stock prices. The
performance of a class of shares of the Fund also may be compared to the
performance of other mutual funds having similar objectives. This comparative
performance could be expressed as a ranking prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc., Bloomberg Financial Markets
or Morningstar, Inc., independent services which monitor the performance of
mutual funds. The performance of a class of shares the Fund is calculated by
relating net asset value per share at the beginning of a stated period to the
net asset value of the investment, assuming reinvestment of all gains
distributions and dividends paid, at the end of the period. Any such
comparisons may be useful to investors who wish to compare the Fund's past
performance with that of its competitors. Of course, past performance cannot
be a guarantee of future results. The Company also may include, from time to
time, a reference to certain marketing approaches of the Distributor,
including, for example, a reference to a potential shareholder being contacted
by a selected broker or dealer. General mutual fund statistics provided by the
Investment Company Institute may also be used.
In addition, the Company also may use, in advertisements and other
types of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank, and
its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and
the related "Tax Freedom Day."
The Company also may use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for a class of shares of the Fund: (i) the Consumer
Price Index may be used to assess the real rate of return from an investment in
a class of shares of the Fund; (ii) other government statistics, including, but
not limited to, The Survey of Current Business, may be used to illustrate
investment attributes of a class of shares of the Fund or the general economic,
business, investment, or financial environment in which the Fund operates;
(iii) the effect of tax-deferred compounding on the investment returns of a
class of shares of the Fund, or on returns in general, may be illustrated by
graphs, charts, etc., where such graphs or charts would compare, at various
points in time, the return from an investment in a class of shares of the Fund
(or returns in general) on a tax-deferred basis (assuming reinvestment of
capital gains and dividends and assuming one or more tax rates) with the return
on a taxable basis; and (iv) the sectors or industries in which the Fund or the
Master Portfolio invests may be
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<PAGE> 238
compared to relevant indices of stocks or surveys (e.g., S&P Industry Surveys)
to evaluate the historical performance of the Fund or the Master Portfolio or
current or potential value with respect to the particular industry or sector.
The Company also may discuss in advertising and other types of
literature that the Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as S&P or Moody's. Such rating
would assess the creditworthiness of the investments held by the Fund. The
assigned rating would not be a recommendation to purchase, sell or hold any
class of the Fund's shares since the rating would not comment on the market
price of the Fund's shares or the suitability of the Fund for a particular
investor. In addition, the assigned rating would be subject to change,
suspension or withdrawal as a result of changes in, or unavailability of,
information relating to the Fund or its investments. The Company may compare
the Fund's performance with other investments which are assigned ratings by
NRSROs. Any such comparisons may be useful to investors who wish to compare
the Fund's past performance with other rated investments.
The Company also may disclose in advertising and other types of
literature, information and statements the distribution rate on the shares of
each class of the Fund. Distribution rate, which may be annualized, is the
amount determined by dividing the dollar amount per share of the most recent
dividend by the most recent NAV or maximum offering price per share as of a
date specified in the sales literature. Distribution rate will be accompanied
by the standard 30-day yield as required by the SEC.
The Company also may disclose, in advertising statements and other
types of literature, information and statements that the Company's investment
adviser, Wells Fargo Bank, is listed in Nelson Publications' ("Nelson's") "Top
20" performance rankings as published in the 1994 edition of "America's Best
Money Managers." The Nelson survey ranks the performance of money managers in
over 30 asset/style categories and is based on analysis of performance
composites and surveys of institutional money managers. The Company may also
disclose in advertising and other types of sales literature the assets and
categories of assets under management by the Company's investment adviser and
the total amount of assets under management by Wells Fargo Investment
Management Group ("IMG"). As of December 31, 1995, IMG had $30.1 billion in
assets under management. The Company may disclose in advertising, statements
and other types of literature the amount of assets and mutual fund assets
managed by Wells Fargo Bank. As of April 1, 1996, Wells Fargo Bank provided
investment advisory services for approximately $56 billion of assets of
individuals, trusts, estates and institutions and $17 billion of mutual fund
assets.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the Prospectus section entitled "Purchase of Shares." Net
asset value per share for each
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<PAGE> 239
class of the Fund and net asset value per unit of the Master Portfolio are each
determined by the Custodian of the Fund on each day the Exchange is open for
trading as of the close of regular trading on the Exchange, which is currently
4:00 p.m. New York time.
Securities of the Master Portfolio for which market quotations are
available are valued at latest prices. Any security for which the primary
market is an exchange is valued at the last sale price on such exchange on the
day of valuation or, if there was no sale on such day, the latest bid price
quoted on such day. In the case of other securities, including U.S. Government
securities but excluding money market instruments maturing in 60 days or less,
the valuations are based on latest quoted bid prices. Money market instruments
maturing in 60 days or less are valued at amortized cost. The assets of the
Master Portfolio other than money market instruments maturing in 60 days or
less are valued at latest quoted bid prices. Prices may be furnished by a
reputable independent pricing service approved by the Board of Trustees.
Prices provided by an independent pricing service may be determined without
exclusive reliance on quoted prices and may take into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data. All other securities and other assets of the Master
Portfolio for which current market quotations are not readily available are
valued at fair value as determined in good faith by the Trust's Trustees and in
accordance with procedures adopted by the Trustees.
Expenses and fees, including advisory fees, are accrued daily and
are taken into account for the purpose of determining the net asset value of
the Master Portfolio's interests and the Fund's shares.
PORTFOLIO TRANSACTIONS
Purchases and sales of securities by the Master Portfolio usually
are principal transactions. Portfolio securities normally are purchased or
sold from or to dealers serving as market makers for the securities at a net
price. The Master Portfolio also may purchase portfolio securities in
underwritten offerings and may purchase securities directly from the issuer.
The cost of executing the Master Portfolio's portfolio securities transactions
consists primarily of dealer spreads and underwriting commissions. Under the
1940 Act, persons affiliated with the Trust are prohibited from dealing with
the Trust as a principal in the purchase and sale of securities unless an
exemptive order allowing such transactions is obtained from the SEC or an
exemption is otherwise available. The Master Portfolio may purchase securities
from underwriting syndicates of which Stephens or Wells Fargo Bank is a member
under certain conditions in accordance with the provisions of a rule adopted
under the 1940 Act and in compliance with procedures adopted by the Board of
Trustees.
Wells Fargo Bank, as the investment adviser of the Master
Portfolio, may, in circumstances in which two or more dealers are in a position
to offer comparable results for the Master Portfolio's portfolio transaction,
give preference to a dealer that has provided statistical or other research
services to Wells Fargo Bank. By allocating transactions in this
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<PAGE> 240
manner, Wells Fargo Bank is able to supplement its research and analysis with
the views and information of securities firms. Information so received is in
addition to, and not in lieu of, the services required to be performed by Wells
Fargo Bank under the Advisory Contract, and the expenses of Wells Fargo Bank
are not necessarily reduced as a result of the receipt of this supplemental
research information. Furthermore, research services furnished by dealers
through which Wells Fargo Bank places securities transactions for the Master
Portfolio may be used by Wells Fargo Bank in servicing its other accounts, and
not all of these services may be used by Wells Fargo Bank in connection with
advising the Master Portfolio.
The Trust has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Trust's Board of Trustees, Wells Fargo Bank is
responsible for the Master Portfolio's portfolio decisions and the placing of
portfolio transactions. In placing orders, it is the policy of the Company and
Trust to obtain the best results taking into account the dealer's general
execution and operational facilities, the type of transaction involved and
other factors such as the dealer's risk in positioning the securities involved.
While Wells Fargo Bank generally seeks reasonably competitive spreads or
commissions, the Master Portfolio does not necessarily pay the lowest spread or
commission available.
Securities of Regular Brokers or Dealers. On December 31, 1995,
the Predecessor Fund to the Master Portfolio owned securities of its "regular
brokers or dealers or their parents", as defined in the 1940 Act, as follows:
$1,638,000 of Goldman Sachs & Co. Government Repurchase Agreement.
Brokerage Commissions. For the year ended December 31, 1994, the
Predecessor Fund paid brokerage commissions in the amount of $171,356.
For the year ended December 31, 1995, the Predecessor Fund paid
brokerage commissions in the amount of $190,359; brokerage commissions were not
paid to any affiliated brokers.
Portfolio Turnover. Portfolio turnover generally involves some
expenses to the Master Portfolio, including brokerage commissions or dealer
mark-ups and other transaction costs on the sale of securities and the
reinvestment in other securities. A high portfolio turnover rate should not
result in the Master Portfolio paying substantially more brokerage commissions,
since most transactions in government securities and municipal securities are
effected on a principal basis. Portfolio turnover can generate short-term
capital gain tax consequences. The portfolio turnover rate will not be a
limiting factor when Wells Fargo Bank deems portfolio changes appropriate.
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<PAGE> 241
FEDERAL INCOME TAX
The following information supplements and should be read in
conjunction with the Prospectus sections entitled "Dividends and Distributions"
and "Taxes." The Prospectus of the Fund describes generally the tax treatment
of distributions by the Master Portfolio and the Fund. This section of the
SAI includes additional information concerning federal income taxes.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) the Fund derive at least 90% of its
annual gross income from interest, payments with respect to securities loans,
dividends and gains from the sale or other disposition of securities or options
thereon; (b) the Fund derive less than 30% of its gross income from gains from
the sale or other disposition of securities or options thereon held for less
than three months; and (c) the Fund diversify its holdings so that, at the end
of each quarter of the taxable year, (i) at least 50% of the market value of
the Fund's assets is represented by cash, government securities and other
securities limited in respect of any one issuer to an amount not greater than
5% of the Fund's assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in
the securities of any one issuer (other than U.S. Government securities and the
securities of other regulated investment companies), or in two or more issuers
which the taxpayer controls and which are determined to be engaged in the same
or similar trades or businesses. For purposes of complying with these
qualification requirements, the Fund will be deemed to own a proportionate
share of the Master Portfolio's assets. As a regulated investment company, the
Fund will not be subject to federal income tax on its net investment income and
net capital gains distributed to its shareholders, provided that it
distributes to its stockholders at least 90% of the sum of its net investment
income and net tax-exempt income earned in each year.
A 4% nondeductible excise tax will be imposed on the Fund to the
extent it does not meet certain minimum distribution requirements by the end of
each calendar year. The Fund will either actually or be deemed to distribute
all of its net investment income and net capital gains by the end of each
calendar year and, thus, expects not to be subject to the excise tax.
Income and dividends received by the Fund from sources within
foreign countries may be subject to withholding and other taxes (generally at
rates from 10% to 40%) imposed by such countries. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes.
Because the Master Portfolio does not expect to hold more than 50% of the
value of its total assets in securities of foreign issuers, the Fund does not
expect to be eligible to elect to "pass through" foreign tax credits to
shareholders.
The Master Portfolio will be treated as a non-publicly traded
partnership rather than as a regulated investment company or a corporation
under the Code. As a non-publicly traded partnership under the Code, any
interest, dividends and gains or losses of the Master Portfolio will be deemed
to have been "passed through" to the Fund and other investors in the Master
Portfolio, regardless of whether such interest, dividends or gains
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<PAGE> 242
have been distributed by the Master Portfolio or losses (through contribution)
have been realized by the Fund and other investors. Therefore, to the extent
the Master Portfolio were to accrue but not distribute any interest, dividends
or gains, the Fund would be deemed to have realized and recognized its
proportionate share of interest, dividends or gains without receipt of any
corresponding distribution. However, the Master Portfolio will seek to
minimize recognition by investors of interest, dividends, gains or losses
without a corresponding distribution.
Gains or losses on sales of portfolio securities by the Master
Portfolio will generally be long-term capital gains or losses if the securities
have been held by it for more than one year, except in certain cases such as
where the Master Portfolio acquires a put or writes a call thereon. Other
gains or losses on the sale of securities will be short-term capital gains or
losses.
To the extent that the Fund recognizes long-term capital gains,
such gains will be distributed at least annually and these distributions will
be taxable to shareholders as long-term capital gains, regardless of how long a
shareholder has held Fund shares. Such distributions will be designated as
capital gain distributions in a written notice mailed by the Fund to
shareholders not later than 60 days after the close of the Fund's taxable year.
If a shareholder receives such a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any
Fund share and such Fund share is held for six months or less, then (unless
otherwise disallowed) any loss on the sale or exchange of that Fund share will
be treated as a long-term capital loss to the extent of the designated capital
gain distribution. Gains recognized on the disposition of a debt obligation
(including tax-exempt obligations purchased after April 30, 1993) purchased by
the Fund at a market discount (generally at a price less than its principal
amount) will be treated as ordinary income to the extent of the portion of
market discount which accrued during the period of time the Master Portfolio
held the debt obligation.
As of the printing of this SAI, the maximum individual marginal
tax rate applicable to ordinary income is 39.60% (marginal rates may be higher
for some individuals due to phase out of exemptions and elimination of
deductions); the maximum individual marginal tax rate applicable to net capital
gains is 28.00%; and the maximum marginal corporate tax rate applicable to
ordinary income and net capital gains is 35.00% (except that to eliminate the
benefit of lower marginal corporate income tax rates, corporations which have
taxable income in excess of $100,000 for a taxable year will be required to pay
an additional amount of income tax of up to $11,750 and corporations which have
taxable income in excess of $15,000,000 for a taxable year will be required to
pay an additional amount of tax of up to $100,000). Naturally, the amount of
tax payable by an individual or corporation will be affected by a combination
of tax laws covering, for example, deductions, credits, deferrals, exemptions,
sources of income and other matters.
If a shareholder exchanges or otherwise disposes of shares of the
Fund within 90 days of having acquired such shares and if, as a result of
having acquired those shares, the shareholder subsequently pays a reduced sales
charge for shares of the Fund or of a
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different fund, the sales charge previously incurred acquiring the Fund's
shares shall not be taken into account (to the extent such previous sales
charges do not exceed the reduction in sales charges) for the purpose of
determining the amount of gain or loss on the exchange, but will be treated as
having been incurred in the acquisition of such other shares.
Also, any loss realized on a redemption or exchange of shares of
the Fund will be disallowed to the extent that substantially identical shares
are reacquired within the 61-day period beginning 30 days before and ending 30
days after the shares are disposed of. If an option written by a Master
Portfolio lapses or is terminated through a closing transaction, such as a
repurchase by such Master Portfolio of the option from its holder, the Master
Portfolio will realize a short-term capital gain or loss, depending on whether
the premium income is greater or less than the amount paid by the Master
Portfolio in the closing transaction. Some realized capital losses may be
deferred if they result from a position which is part of a tax straddle.
If securities are sold by a Master Portfolio pursuant to the
exercise of a call option written by it, such Master Portfolio will add the
premium received to the sale price of the securities delivered in determining
the amount of gain or loss on the sale. If securities are purchased by a
Master Portfolio pursuant to the exercise of a put option written by it, such
Master Portfolio will subtract the premium received from its cost basis in the
securities purchased. The requirement that the Master Portfolio derive less
than 30% of its gross income from gains from the sale of securities held for
less than three months may limit the Master Portfolio's ability to write
options.
Offsetting positions held by a regulated investment company
involving certain financial forward, futures or options contracts may be
considered, for tax purposes, to constitute "straddles." "Straddles" are
defined to include "offsetting positions" in actively traded personal property.
The tax treatment of "straddles" is governed by Section 1092 of the Code which,
in certain circumstances, overrides or modifies the provisions of Section 1256.
If a regulated investment company were treated as entering into
"straddles" by reason of its engaging in certain financial forward, futures or
option contracts, such straddles could be characterized as "mixed straddles" if
the futures, forwards, or options comprising a part of such straddles were
governed by Section 1256 of the Code. The regulated investment company may
make one or more elections with respect to "mixed straddles." Depending upon
which election is made, if any, the results with respect to the regulated
investment company may differ. Generally, to the extent the straddle rules
apply to positions established by the regulated investment company, losses
realized by the regulated investment company may be deferred to the extent of
unrealized gain in any offsetting positions. Moreover, as a result of the
straddle and the conversion transaction rules, short-term capital loss on
straddle positions may be recharacterized as long-term capital loss,
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and long-term capital gain may be characterized as short-term capital gain or
ordinary income.
Foreign Shareholders. Under the Code, distributions of net
investment income by the Fund to a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or a lower treaty rate). Withholding will not apply if a
dividend paid by the Fund to a foreign shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents or domestic
corporations will apply. Distributions of net long-term capital gains are not
subject to tax withholding, but in the case of a foreign shareholder who is a
nonresident alien individual, such distributions ordinarily will be subject to
U.S. income tax at a rate of 30% if the individual is physically present in the
U.S. for more than 182 days during the taxable year.
Other Matters. Investors should be aware that the investments to
be made by the Master Portfolio may involve sophisticated tax rules such as
marked to market rules that would result in income or gain recognition by the
Master Portfolio without corresponding current cash receipts. Although the
Master Portfolio will seek to avoid significant noncash income, such noncash
income could be recognized by the Master Portfolio, in which case the Fund may
distribute cash derived from other sources in order to meet the minimum
distribution requirements described above.
The foregoing discussion and the discussions in the Prospectus
address only some of the federal tax considerations generally affecting
investments in a Fund. Each investor is urged to consult his or her tax
adviser regarding specific questions as to Federal, state or local taxes.
CAPITAL STOCK
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "The Fund, the Master
Portfolio and Management."
The Company, an open-end management investment company, was
incorporated in Maryland on September 9, 1991. The authorized capital stock of
the Company consists of 17,000,000,000 shares having a par value of $.001 per
share. As of the date of this SAI, the Company's Board of Directors has
authorized the issuance of thirteen series of shares, each representing an
interest in one of the following funds -- the Asset Allocation, California
Tax-Free Bond, California Tax-Free Income, California Tax-Free Money Market
Mutual, Corporate Stock, Diversified Income, Ginnie Mae, Growth and Income,
Money Market Mutual, National Tax-Free Money Market Mutual, Short-Intermediate
U.S. Government Income, U.S. Government Allocation and Variable Rate
Government Funds -- and the Board of Directors may, in the future, authorize
the
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issuance of other series of capital stock representing shares of additional
investment portfolios.
The Fund is comprised of two classes of shares, Class A Shares and
Class B Shares. With respect to matters that affect one class but not another,
shareholders vote as a class; for example, the approval of a Plan. Subject to
the foregoing, on any matter submitted to a vote of shareholders, all shares
then entitled to vote will be voted separately by series unless otherwise
required by the Act, in which case all shares will be voted in the aggregate.
For example, a change in a series' fundamental investment policy affects only
one series and would be voted upon only by shareholders of the series and not
by shareholders of the Company's other series. Additionally, approval of an
advisory contract is a matter to be determined separately by each series.
Approval by the shareholders of one series is effective as to that series
whether or not sufficient votes are received from the shareholders of the other
series to approve the proposal as to those series. As used in the Prospectus
and in this SAI, the term "majority" when referring to approvals to be obtained
from shareholders of a class of the Fund, means the vote of the lesser of (i)
67% of the shares of such class the Fund represented at a meeting if the
holders of more than 50% of the outstanding shares such class of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of such class the Fund. The term "majority," when referring to the approvals
to be obtained from shareholders of the Company as a whole, means the vote of
the lesser of (i) 67% of the Company's shares represented at a meeting if the
holders of more than 50% of the Company's outstanding shares are present in
person or by proxy, or (ii) more than 50% of the Company's outstanding shares.
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held.
The Company may dispense with an annual meeting of shareholders in
any year in which it is not required to elect directors under the 1940 Act.
Each share of a class of the Fund represents an equal proportional
interest in the Fund with each other share in the same class and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to the Fund as are declared in the discretion of the Directors. In
the event of the liquidation or dissolution of the Company, shareholders of the
Fund are entitled to receive the assets attributable to the relevant class of
shares of the Fund that are available for distribution, and a distribution of
any general assets not attributable to a particular investment portfolio that
are available for distribution in such manner and on such basis as the
Directors in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All
shares, when issued for the consideration described in the Prospectus, will be
fully paid and non-assessable by the Company.
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The Trust is a business trust organized under the laws of
Delaware. In accordance with Delaware law and in connection with the tax
treatment sought by the Trust, the Trust's Declaration of Trust provides that
its investors would be personally responsible for Trust liabilities and
obligations, but only to the extent the Trust property is insufficient to
satisfy such liabilities and obligations. The Declaration of Trust also
provides that the Trust shall maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its investors, Trustees, officers, employees and agents covering
possible tort and other liabilities, and that investors will be indemnified to
the extent they are held liable for a disproportionate share of Trust
obligations. Thus, the risk of an investor incurring financial loss on account
of investor liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of the
Trust are not binding upon the Trustees individually but only upon the property
of the Trust and that the Trustees will not be liable for any action or failure
to act. However, nothing in the Declaration of Trust protects a Trustee
against any liability to which the Trustee would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of the Trustee's office.
The interests in the Master Portfolio have substantially identical
voting and other rights as those rights enumerated above for Fund shares. The
Trust also intends to dispense with annual meetings, but will hold a special
meeting and assist investor communications under the circumstances described
above with respect to the Company in accord with provisions under Section 16(c)
of the Act. Whenever the Fund is requested to vote on a matter with respect to
the Master Portfolio, the Fund will hold a meeting of Fund shareholders and
will cast its votes as instructed by such shareholders. In a situation where
the Fund does not receive instruction from certain of its shareholders on how
to vote the corresponding shares of the Master Portfolio, the Fund will vote
such shares in the same proportion as the shares for which the Fund does
receive voting instructions.
As of April 15, 1996, Stephens was the beneficial owner of 100%
of the outstanding voting securities of the Fund and, as such, could be
considered a "controlling person" of the Fund for purposes of the 1940 Act.
Upon commencement of the public offering of the Fund's shares it is expected
that Stephens will own a significantly smaller percentage of the Fund's shares
and will no longer be considered a controlling person.
OTHER
The Registration Statement of the Trust and the Company, including
the Fund's Prospectus, the SAI and the exhibits filed therewith, may be
examined at the office of the SEC in Washington, D.C. Statements contained in
the Prospectus or the SAI as to the
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contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company and the Trust. KPMG Peat Marwick LLP provides audit
services, tax return preparation and assistance and consultation in connection
with review of certain SEC filings. KPMG Peat Marwick LLP's address is Three
Embarcadero Center, San Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments, financial statements and
independent auditors' report of the Predecessor Fund for the year ended
December 31, 1995 are incorporated by reference to Post-Effective Amendment
No. 20 to the Company's Registration Statement as filed with the SEC on Form
N-1A on February 28, 1996. The portfolio of investments, audited financial
statements and independent auditors' report are attached to all SAIs delivered
to current or prospective shareholders.
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STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1996
CALIFORNIA TAX-FREE INCOME FUND
---------------------------
Stagecoach Funds, Inc. (the "Company") is an open-end series
investment company. This Statement of Additional Information ("SAI") contains
information about one of the funds in the Stagecoach Family of Funds -- the
California Tax-Free Income Fund (the "Fund"). The investment objective of the
Fund is described in its Prospectus under the section entitled "How the Fund
Works -- Investment Objectives and Policies."
This SAI is not a prospectus and should be read in conjunction
with the Prospectus of the Fund, dated May 1, 1996. All terms used in this SAI
that are defined in the Prospectus will have the meanings assigned in the
Prospectus. A copy of the Prospectus for the Fund may be obtained without
charge by writing Stephens Inc., the Company's sponsor, administrator and
distributor, at 111 Center Street, Little Rock, Arkansas 72201 or calling the
Transfer Agent at the telephone number indicated above.
---------------------------
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TABLE OF CONTENTS
Statement of Additional Information
<TABLE>
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities. . . . . . . . . . . . . . . . . . . . 5
Special Considerations Affecting California Municipal Obligations . . . . . . . . 7
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Calculation of Yield and Total Return . . . . . . . . . . . . . . . . . . . . . . 15
Determination of Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . 19
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Federal Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
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INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Fund is subject to the
following investment restrictions, all of which are fundamental policies.
(1) The Fund may not purchase the securities of issuers
conducting their principal business activity in the same industry if,
immediately after the purchase and as a result thereof, the value of the Fund's
investments in that industry would be 25% or more of the current value of the
Fund's total assets, provided that there is no limitation with respect to
investments in (i) municipal securities (for the purpose of this restriction,
private activity bonds and notes shall not be deemed municipal securities if
the payments of principal and interest on such bonds or notes is the ultimate
responsibility of non-governmental issuers), and (ii) obligations of the United
States Government, its agencies or instrumentalities.
(2) The Fund may not purchase or sell real estate or real
estate limited partnerships (other than municipal obligations or other
securities secured by real estate or interests therein or securities issued by
companies that invest in real estate or interests therein), commodities or
commodity contracts (including futures contracts).
(3) The Fund may not purchase securities on margin (except for
short-term credits necessary for the clearance of transactions) or make short
sales of securities.
(4) The Fund may not underwrite securities of other issuers,
except to the extent that the purchase of municipal securities or other
permitted investments directly from the issuer thereof or from an underwriter
for an issuer and the later disposition of such securities in accordance with
the Fund's investment program may be deemed to be an underwriting.
(5) The Fund may not make investments for the purpose of
exercising control or management.
(6) The Fund may not issue senior securities, except that the
Fund may borrow from banks up to 10% of the current value of its net assets for
temporary purposes only in order to meet redemptions, and these borrowings may
be secured by the pledge of up to 10% of the current value of its net assets,
but investments may not be purchased while any such outstanding borrowings
exceed 5% of its net assets.
(7) The Fund may not write, purchase or sell puts, calls,
options or any combination thereof, except that the Fund may purchase
securities with put rights in order to maintain liquidity.
(8) The Fund may not make loans of portfolio securities having
a value that exceeds 50% of the current value of its total assets provided
that, for purposes of this restriction, loans will not include the purchase of
fixed time deposits, repurchase agreements, commercial paper and other types of
debt instruments commonly sold in a public or private offering.
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With respect to fundamental investment policy (8), the Fund does
not intend to loan its portfolio securities during the coming year.
Non-Fundamental Investment Policies. The Fund is subject to the
following non-fundamental policies.
(1) The Fund may not purchase or retain securities of any
issuer if the Officers or Directors of the Company or the investment adviser
owning beneficially more than one-half of one percent (0.5%) of the securities
of the issuer together own beneficially more than 5% of such securities.
(2) The Fund may not purchase interests, leases, or limited
partnership interests in oil, gas, or other mineral exploration or development
programs.
(3) The Fund may not purchase securities of issuers who, with
their predecessors, have been in existence less than three years, unless the
securities are fully guaranteed or insured by the U.S. Government, a state,
commonwealth, possession, territory, the District of Columbia or by an entity
in existence at least three years, or the securities are backed by the assets
and revenues of any of the foregoing if, by reason thereof, the value of its
aggregate investments in such securities will exceed 5% of its total assets.
(4) The Fund may not purchase securities of unseasoned issuers,
including their predecessors, which have been in operation for less than three
years, and equity securities of issuers which are not readily marketable if by
reason thereof the value of the Fund's aggregate investment in such classes of
securities will exceed 5% of its total assets.
(5) The Fund may invest not more than 5% of its net assets at
the time of purchase in warrants, and not more than 2% of its net assets in
warrants which are not listed on the New York or American Stock Exchange.
(6) The Fund will not invest more than 15% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
(7) The Fund may invest in shares of other open-end, management
investment companies, subject to the limitations of Section 12(d)(1) of the
1940 Act, provided that any such purchases will be limited to temporary
investments in shares of unaffiliated investment companies that have a
fundamental investment policy of investing at least 80% of their net assets in
obligations that are exempt from federal income taxes and are not subject to
the federal alternative minimum tax. However, the Fund's investment adviser
will waive its advisory fees for that portion of the Fund's assets so invested,
except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition. Notwithstanding any other investment policy or
limitation (whether or not fundamental), the Fund may invest all of its assets
in the securities of a
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single open-end management investment company with substantially the same
fundamental investment objective, policies and limitations as the Fund.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Unrated Investments. The Fund may purchase instruments that are
not rated if, in the opinion of Wells Fargo Bank, such obligations are of
comparable quality to other rated investments that are permitted to be
purchased by the Fund. After purchase by the Fund, a security may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require a sale of such security by the Fund. To
the extent the ratings given by Moody's or S&P may change as a result of
changes in such organizations or their rating systems, the Fund will attempt to
use comparable ratings as standards for investments in accordance with the
investment policies contained in the Fund's Prospectus and in this SAI. The
ratings of Moody's and S&P are more fully described in the SAI Appendix.
Letters of Credit. Certain of the debt obligations (including
municipal securities, certificates of participation, commercial paper and other
short-term obligations) which the Fund may purchase may be backed by an
unconditional and irrevocable letter of credit of a bank, savings and loan
association or insurance company which assumes the obligation for payment of
principal and interest in the event of default by the issuer. Only banks,
savings and loan associations and insurance companies which, in the opinion of
Wells Fargo Bank, are of comparable quality to issuers of other permitted
investments of the Fund may be used for letter of credit-backed investments.
Pass-Through Obligations. Certain of the debt obligations which
the Fund may purchase may be pass-through obligations that represent an
ownership interest in a pool of mortgages and the resultant cash flow from
those mortgages. Payments by homeowners on the loans in the pool flow through
to certificate holders in amounts sufficient to repay principal and to pay
interest at the pass-through rate. The stated maturities of pass-through
obligations may be shortened by unscheduled prepayments of principal on the
underlying mortgages. Therefore, it is not possible to predict accurately the
average maturity of a particular pass-through obligation. Variations in the
maturities of pass-through obligations will affect the yield of the Fund.
Furthermore, as with any debt obligation, fluctuations in interest rates will
inversely affect the market value of pass-through obligations. The Fund may
invest in pass-through obligations that are supported by the full faith and
credit of the U.S. Government (such as those issued by the Government National
Mortgage Association) or those that are guaranteed by an agency or
instrumentality of the U.S. Government (such as the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation) or bonds
collateralized by any of the foregoing.
When-Issued Securities. Certain of the securities in which the
Fund may invest will be purchased on a when-issued basis, in which case
delivery and payment normally take place within 45 days after the date of the
commitment to purchase. The Fund will only make commitments to purchase
securities on a when-issued basis with the intention of actually acquiring the
securities, but may sell them before the settlement date if it is deemed
advisable. When-issued securities are
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subject to market fluctuation, and no income accrues to the purchaser during
the period prior to issuance. The purchase price and the interest rate that
will be received on debt securities are fixed at the time the purchaser enters
into the commitment. Purchasing a security on a when-issued basis involves the
risk that the market price at the time of delivery may be lower than the
agreed-upon purchase price, in which case there could be an unrealized loss at
the time of delivery.
The Fund will segregate cash, U.S. Government obligations or other
high-quality debt instruments in an amount at least equal in value to their
respective commitments to purchase when-issued securities. If the value of
these assets declines, the Fund will segregate additional liquid assets on a
daily basis so that the value of the segregated assets is equal to the amount
of such commitments.
Municipal Bonds. The Fund may invest in municipal bonds. As
discussed in the Prospectus of the Fund, the two principal classifications of
municipal bonds are "general obligation" and "revenue" bonds. Municipal bonds
are debt obligations issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as
bridges, highways, housing, hospitals, mass transportation, schools, streets,
and water and sewer works. Other purposes for which municipal bonds may be
issued include the refunding of outstanding obligations and obtaining funds for
general operating expenses or to loan to other public institutions and
facilities. Industrial development bonds are a specific type of revenue bond
backed by the credit and security of a private user. Certain types of
industrial development bonds are issued by or on behalf of public authorities
to obtain funds to provide privately-operated housing facilities, sports
facilities, convention or trade show facilities, airport, mass transit, port or
parking facilities, air or water pollution control facilities and certain local
facilities for water supply, gas, electricity, or sewage or solid waste
disposal. The Fund may not invest 25% or more of its assets in industrial
development bonds. Assessment bonds, wherein a specially created district or
project area levies a tax (generally on its taxable property) to pay for an
improvement or project may be considered a variant of either category. There
are, of course, other variations in the types of municipal bonds, both within a
particular classification and between classifications, depending on numerous
factors. Some or all of these bonds may be considered "private activity bonds"
for federal income tax purposes.
Municipal Notes. Municipal notes include, but are not limited to,
tax anticipation notes ("TANs"), bond anticipation notes ("BANs"), revenue
anticipation notes ("RANs") and construction loan notes. Notes sold as interim
financing in anticipation of collection of taxes, a bond sale or receipt of
other revenues are usually general obligations of the issuer.
TANs. An uncertainty in a municipal issuer's capacity to raise
taxes as a result of such things as a decline in its tax base or a rise in
delinquencies could adversely affect the issuer's ability to meet its
obligations on outstanding TANs. Furthermore, some municipal issuers mix
various tax proceeds into a general fund that is used to meet obligations other
than those of the outstanding TANs. Use of such a general fund to meet various
obligations could affect the likelihood of making payments on TANs.
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BANs. The ability of a municipal issuer to meet its obligations
on its BANs is primarily dependent on the issuer's adequate access to the
longer term municipal bond market and the likelihood that the proceeds of such
bond sales will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as
anticipated revenues from another level of government, could adversely affect
an issuer's ability to meet its obligations on outstanding RANs. In addition,
the possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
The values of outstanding municipal securities will vary as a
result of changing market evaluations of the ability of their issuers to meet
the interest and principal payments (i.e., credit risk). Such values also will
change in response to changes in the interest rates payable on new issues of
municipal securities (i.e., market risk). Should such interest rates rise, the
values of outstanding securities, including those held in a Fund's portfolio,
will decline and (if purchased at par value) the securities would sell at a
discount. If interest rates fall, the values of outstanding securities will
generally increase and (if purchased at par value) the securities would sell at
a premium. Changes in the value of municipal securities held in the Fund's
portfolio arising from these or other factors will cause changes in the net
asset value per share of the Fund.
Investments in Warrants. Although it has no present intention to
do so, the Fund may invest up to 5% of its net assets at the time of purchase
in warrants (other than those that have been acquired in units or attached to
other securities), and not more than 2% of its net assets in warrants which are
not listed on the New York or American Stock Exchange. Warrants represent
rights to purchase securities at a specific price valid for a specific period
of time. The prices of warrants do not necessarily correlate with the prices
of the underlying securities. The Fund only may purchase warrants on
securities in which such Funds may invest directly.
SPECIAL CONSIDERATIONS AFFECTING
CALIFORNIA MUNICIPAL OBLIGATIONS
Certain debt obligations held by the Fund may be obligations of
issuers which rely in whole or in substantial part on California state revenues
for the continuance of their operations and the payment of their obligations.
The extent to which the California Legislature will continue to appropriate a
portion of the state's general funds to counties, cities and their various
entities, is not entirely certain. To the extent local entities do not receive
money from the state to pay for their operations and services, their ability to
pay service on obligations held by the Funds may be impaired.
Certain of the municipal obligations in which the Fund may invest
may be obligations of California issuers that rely in whole or in part,
directly or indirectly, on ad valorem real property taxes as a source of
revenue. The California Constitution limits the powers of
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municipalities to impose and collect ad valorem taxes on real property, which,
in turn, restricts the ability of municipalities to service their debt
obligations from such taxes.
For example, Article XIIIA of the California Constitution, as
amended, limits ad valorem real property taxes to 1% of the full cash value of
the property, defined as the county tax assessor's valuation as of March 1,
1975, plus adjustments not to exceed 2% per year, adjustments upon purchase,
change of ownership or new construction after that date, and certain other
adjustments. Article XIIIB provides that state and local government
appropriations from certain revenue sources each year may not exceed the
"appropriations limit" related to such revenue sources set forth for the fiscal
year 1978-79, with certain adjustments made for changes in the cost of living
and population and certain limited exemptions. Because of the complex nature
of Articles XIIIA and XIIIB, ambiguities and possible inconsistencies in their
respective terms, the existence of litigation challenging these provisions and
the impossibility of predicting future appropriations and changes in population
and cost of living, it is not possible to determine the impact of Article XIIIA
or Article XIIIB or any implementing or related legislation on the municipal
obligations in the Fund or the ability of state or local government to pay the
interest on, or repay the principal of, such municipal obligations.
Certain debt obligations held by the Fund may be obligations
payable solely from lease payments on real or personal property leased to the
state, cities, counties or their various public entities. California law
provides that a lessor may not be required to make payments during any period
that it is denied use and occupancy of the property in proportion to such loss.
Moreover, the lessor only agrees to appropriate funding for lease payments in
its annual budget for each fiscal year. In case of a default under the lease,
the only remedy available against the lessor is that of reletting the property;
no acceleration of lease payments is permitted. Each of these factors presents
a risk that the lease financing obligations held by the Fund would not be paid
in a timely manner.
Certain debt obligations held by the Fund may be obligations which
are payable solely from the revenues of health care institutions. The method
of reimbursement for indigent care, California's selective contracting with
health care providers for such care and selective contracting by health
insurers for care of its beneficiaries now in effect under California and
federal law may adversely affect these revenues and, consequently, payment on
those debt obligations.
There can be no assurance that general economic difficulties or
the financial circumstances of California or its towns and cities will not
adversely affect the market value of California municipal securities or the
ability of obligors to continue to make payments on such securities.
* * *
The taxable securities market is a broader and more liquid market
with a greater number of investors, issuers and market makers than the market
for municipal securities. The more limited marketability of municipal
securities may make it difficult in certain circumstances to dispose of large
investments advantageously.
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<PAGE> 256
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "The Fund and
Management." The principal occupations during the past five years of the
Directors and principal executive Officer of the Company are listed below.
The address of each, unless otherwise indicated, is 111 Center Street, Little
Rock, Arkansas 72201. Directors deemed to be "interested persons" of the
Company for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Address and Age Position During Past 5 Years
--------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 73 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 44 Director, Senior Vice President
Chairman and of Stephens ; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 53 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate Professor of Finance
of the School of Business and Accounting at
Wake Forest University since 1983.
</TABLE>
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<PAGE> 257
<TABLE>
<S> <C> <C>
*Zoe Ann Hines, 46 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource
Management.
*W. Rodney Hughes, 69 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 77 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 51 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 39 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
COMPENSATION TABLE
For the Year Ended December 31, 1995
<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>
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<PAGE> 258
<TABLE>
<S> <C> <C>
*R. Greg Feltus 0 0
Director
Thomas S. Goho 10,188 39,750
Director
*Zoe Ann Hines 0 0
Director
*W. Rodney Hughes 9,438 37,000
Director
Robert M. Joses 9,938 39,000
Director
*J. Tucker Morse 8,313 33,250
Director
</TABLE>
Directors of the Company are compensated annually by the Company
and by all the registrants in the fund complex for their services as indicated
above and also are reimbursed for all out-of-pocket expenses relating to
attendance at board meetings. Each of the Directors and Officers of the
Company serves in the identical capacity as Directors and Officers of Overland
Express Funds, Inc. and Stagecoach Inc., and as Trustees and/or Officers of
Stagecoach Trust, Master Investment Portfolio, Life & Annuity Trust, Master
Investment Trust and Managed Series Investment Trust, each of which is a
registered open-end management investment company and each of which is
considered to be in the same "fund complex," as such term is defined in Form
N-1A under the 1940 Act, as the Company. The Directors are compensated by
other Companies and Trusts within the fund complex for their services as
Directors/Trustees to such Companies and Trusts. Currently the Directors do
not receive any retirement benefits or deferred compensation from the Company
or any other member of the fund complex.
As of the date of this SAI, Directors and Officers of the Company
as a group beneficially owned less than 1% of the outstanding shares of the
Company.
Investment Adviser. The Fund is advised by Wells Fargo Bank
pursuant to an Advisory Contract which provides that Wells Fargo Bank shall
furnish to the Fund investment guidance and policy direction in connection with
the daily portfolio management of the Fund. Pursuant to the Advisory Contract,
Wells Fargo Bank furnishes to the Company's Board of Directors periodic reports
on the investment strategy and performance of the Fund.
Wells Fargo Bank has agreed to provide to the Fund, among other
things, money market security and fixed- income research, analysis and
statistical and economic data and
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<PAGE> 259
information concerning interest rate and security market trends, portfolio
composition, credit conditions and average maturities of the Fund's portfolio.
The Advisory Contract will continue in effect for more than two
years provided the continuance is approved annually (i) by the holders of a
majority of the Fund's outstanding voting securities or by the Company's Board
of Directors; and (ii) by a majority of the Directors of the Company who are
not parties to the Advisory Contract or "interested persons" (as defined in the
1940 Act) of any such party. The Advisory Contract may be terminated on 60
days' written notice by either party and will terminate automatically if
assigned.
For the years ended December 31, 1993, 1994 and 1995, the Fund
paid to Wells Fargo Bank the advisory fees indicated below and Wells Fargo Bank
waived the indicated amounts:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
Fees Fees Fees Fees Fees Fees
Fund Paid Waived Paid Waived Paid Waived
- ---- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
California Tax-Free $38,402 $122,967 -0- $279,496 $236,632 $31,013
Income Fund
</TABLE>
Administrator and Distributor. The Company has retained Stephens
as administrator and distributor on behalf of the Fund. The Administration
Agreement between Stephens and the Fund states that Stephens shall provide as
administrative services, among other things: (i) general supervision of the
operation of the Fund, including coordination of the services performed by the
Fund's investment adviser, transfer agent, custodian, shareholder servicing
agent(s), independent public accountants and legal counsel, regulatory
compliance, including the compilation of information for documents such as
reports to, and filings with, the SEC and state securities commissions; and
preparation of proxy statements and shareholder reports for the Fund; and (ii)
general supervision relative to the compilation of data required for the
preparation of periodic reports distributed to the Company's Officers and Board
of Directors. Stephens also furnishes office space and certain facilities
required for conducting the business of the Fund together with those ordinary
clerical and bookkeeping services that are not being furnished by Wells Fargo
Bank. Stephens also pays the compensation of the Company's Directors, Officers
and employees who are affiliated with Stephens.
For the years ended December 31, 1993, 1994 and 1995, the Funds
paid administrative fees to Stephens as follows:
<TABLE>
<CAPTION>
Fund 1993 1994 1995
- ---- ---- ---- ----
<S> <C> <C> <C>
California Tax-Free Income Fund $9,912 $0 $16,793
</TABLE>
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<PAGE> 260
The Advisory Contract and Administration Agreement for the Fund
provide that if, in any fiscal year, the total expenses of the Fund incurred
by, or allocated to, the Fund (excluding taxes, interest, brokerage commissions
and other portfolio transaction expenses, expenditures that are capitalized in
accordance with generally accepted accounting principles, extraordinary
expenses and amounts accrued or paid under the Plan, but including the fees
provided for in the Advisory Contract and the Administration Agreement) exceed
the most restrictive expense limitation applicable to the Fund imposed by the
securities laws or regulations of the states in which the Fund's shares are
registered for sale, Wells Fargo Bank and Stephens shall waive their fees
proportionately under the Advisory Contract and the Administration Agreement,
respectively, for the Fund for the fiscal year to the extent of the excess or
reimburse the excess, but only to the extent of their respective fees. The
Advisory Contract and the Administration Agreement for the Fund further provide
that the Fund's total expenses shall be reviewed monthly so that, to the extent
the annualized expenses for such month exceed the most restrictive applicable
annual expense limitation, the monthly fees under the contract and the
agreement shall be reduced as necessary. The most stringent applicable
restriction limits these expenses for any fiscal year to 2.5% of the first $30
million of the Fund's average net assets, 2% of the next $70 million of average
net assets, and 1.5% of the average net assets in excess of $100 million.
Shareholder Servicing Agent. As discussed in the Fund's
prospectus under the heading "Shareholder Servicing Agent," the Fund has
entered into a shareholder servicing agreement with Wells Fargo Bank. The
dollar amount of shareholder servicing fees paid by the Fund for the fiscal
year ended December 31, 1995 was as follows:
<TABLE>
<CAPTION>
Fund 1995
---- ----
<S> <C>
California Tax-Free Income Fund $0
</TABLE>
Custodian and Transfer and Dividend Disbursing Agent. Wells Fargo
Bank has been retained to act as custodian and transfer and dividend disbursing
agent for the Fund. The custodian, among other things, maintains a custody
account or accounts in the name of the Fund; receives and delivers all assets
for the Fund upon purchase and upon sale or maturity; collects and receives all
income and other payments and distributions on account of the assets of the
Fund and pays all expenses of the Fund. For its services as custodian, Wells
Fargo Bank receives an asset-based fee and transaction charges from the Fund.
For its services as transfer and dividend disbursing agent, it receives a base
fee and per-account fees from the Fund. For the year ended December 31, 1995,
the Fund did not pay any custody or transfer and dividend disbursing agency
fees to Wells Fargo Bank.
Underwriting Commissions. For the fiscal years ended December 31,
1993 and 1994, the Company's distributor retained $26,215,173 and $5,415,227,
respectively in underwriting commissions (front-end sales loads and CDSCs, if
any) in connection with the purchase or redemption of Company shares. For the
fiscal years ended December 31, 1993 and 1994, Wells Fargo Securities Inc.
("WFSI"), an affiliated broker-dealer of the
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<PAGE> 261
Company, and its registered representatives received $378,895 and $904,274,
respectively, in underwriting commissions in connection with the purchase or
redemption of Company shares.
For the year ended December 31, 1995, the aggregate amount of
underwriting commissions on sales/redemptions of the Company's shares was
$1,584,545. Stephens retained $1,251,311 of such commissions. WFSI and its
registered representatives retained $333,234 of such commissions.
DISTRIBUTION PLAN
As indicated in the Prospectus, the Fund, has adopted a
distribution plan ("Plan") under Section 12(b) of the 1940 Act and Rule 12b-1
thereunder. The Plan for the Fund was adopted by the Company's Board of
Directors, including a majority of the Directors who were not "interested
persons" (as defined in the 1940 Act) of the Fund and who had no direct or
indirect financial interest in the operation of the Plan or in any agreement
related to the Plan (the "Qualified Directors") on October 21, 1992, and was
approved by the initial shareholder of the Fund on November 16, 1992.
Under the Plan, the Fund may defray all or part of the cost of
preparing and printing prospectuses and other promotional materials and of
delivering prospectuses and those materials to prospective Fund shareholders by
paying on an annual basis up to 0.05% of the Fund's average daily net assets.
The Plan provides only for reimbursement of actual expenses. In addition, the
Plan contemplates that to the extent any fees payable pursuant to the
Shareholder Servicing Agreement are deemed to be for distribution-related
services, rather than shareholder services, such payments are approved and
payable pursuant to the Plan. The Fund may not pay under the applicable Plan
an amount that exceeds the maximum fee payable under the Rules of Fair Practice
of the National Association of Securities Dealers, Inc.
The Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Qualified Directors. Any agreements related to the Plan also must be
approved by a majority vote of the Directors and the Qualified Directors. Such
agreements will terminate automatically if assigned, and may be terminated at
any time, without payment of any penalty, by a vote of a majority of the
outstanding voting securities of the Fund. The Plan may not be amended to
increase materially the amounts payable thereunder without the approval of a
majority of the outstanding voting securities of the Fund, and no material
amendment to a Plan may be made except by a majority of both the Directors of
the Company and the Qualified Directors.
The Plan requires that the Treasurer of the Company shall provide
to the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under the Plan. The
Rule also requires that the selection and nomination of
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<PAGE> 262
Directors who are not "interested persons" of the Company be made by such
disinterested Directors.
For the year ended December 31, 1995, the Funds' distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under the Fund's Plan.
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<PAGE> 263
<TABLE>
<CAPTION>
Printing & Mailing Marketing Compensation to
Fund Total Prospectus Brochures Underwriters
---- ----- ----------------- --------- ---------------
<S> <C> <C> <C> <C>
California Tax-Free Income Fund $13,063 $10,246 $2,817 N/A
</TABLE>
For the year ended December 31, 1995, WFSI and its registered
representatives received no compensation under the Fund's Plan.
CALCULATION OF YIELD AND TOTAL RETURN
As indicated in the Prospectus, the Fund may advertise certain
total return information computed in the manner described in its Prospectus.
As and to the extent required by the SEC, an average annual compound rate of
return ("T") will be computed by using the redeemable value at the end of a
specified period ("ERV") of a hypothetical initial investment ("P") over a
period of years ("n") according to the following formula: P(1+T)n = ERV. In
addition, as indicated in the Fund's Prospectus, the Fund, at times, also may
calculate total return based on net asset value per share (rather than the
public offering price), in which case the figures would not reflect the effect
of any sales charges that would have been paid by an investor, or based on the
assumption that a sales charge other than the maximum sales charge (reflecting
a Volume Discount) was assessed, provided that total return data derived
pursuant to the calculation described above also are presented.
The average annual total return on shares of the Fund for the one
year ended December 31, 1995, assuming a 3.00% sales load, was 5.91%. The
total return for the same period, assuming no sales load, was 9.14%. The
average annual total return on shares of the Fund for the period since
inception (November 18, 1992) to December 31, 1995, assuming a 3.00% sales
load, was 4.01%. The average annual total return for the same period, assuming
no sales load, was 5.03%.
The Fund may advertise the cumulative total return of its shares.
Cumulative total return of shares is computed on a per share basis and assumes
the reinvestment of dividends and distributions. Cumulative total return of
shares generally is expressed as a percentage rate which is calculated by
combining the income and principal changes for a specified period and dividing
by the net asset value per share at the beginning of the period.
Advertisements may include the percentage rate of total return of shares or may
include the value of a hypothetical investment in shares at the end of the
period which assumes the application of the percentage rate of total return.
In addition to the above performance information, the Fund may
also advertise the cumulative total return of the Fund for one-month,
three-month, six-month, and year-to-date periods. The cumulative total return
for such periods is based on the overall percentage change in value of a
hypothetical investment in the Fund, assuming all Fund dividends and capital
gain distributions are reinvested, without reflecting the effect of any sales
charge that would be paid by an investor, and is not annualized.
The cumulative total return on shares of the Fund for the period
since inception (November 18, 1992) to December 31, 1995, assuming a 3.00%
sales load, was 13.07%. The cumulative total return for the same period,
assuming no sales load, was 16.58%.
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<PAGE> 264
As indicated in its Prospectus, the Fund also may advertise
certain yield information. As and to the extent required by the SEC, yield
will be calculated based on a 30-day (or one month) period, computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to
the following formula: YIELD = 2[((a-b/cd)+1)6-1], where a = dividends and
interest earned during the period; b = expenses accrued for the period (net of
reimbursements); c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and d = the maximum offering
price per share on the last day of the period. The net investment income of
the Fund includes actual interest income, plus or minus amortized purchase
discount (which may include original issue discount) or premium, less accrued
expenses. Realized and unrealized gains and losses on portfolio securities are
not included in the Fund's net investment income. For purposes of sales
literature, yield of the Fund also may be calculated on the basis of the net
asset value per share rather than the public offering price, provided that the
yield data derived pursuant to the calculation described above also are
presented. The yields on shares of the Fund for the 30-day period ended
December 31, 1995, assuming the maximum 3.00% sales charge and no sales
charge, were 3.55% and 3.66%, respectively.
The tax-equivalent yield for the Fund also will be computed by
dividing that portion of the yield of the Fund which is tax-exempt by one minus
a stated income tax rate and adding the product to that portion, if any, of the
yield of the Fund that is not tax-exempt. The tax-equivalent yields of the
Fund for the 30-day period ended December 31, 1995, assuming the maximum 3.00%
sales charge and no sales charge, were 6.60% and 6.81%, respectively (based
on a 46.24% assumed federal and state tax rate).
The yield for the Fund will fluctuate from time to time, unlike
bank deposits or other investments that pay a fixed yield for a stated period
of time, and does not provide a basis for determining future yields since it is
based on historical data. Yield is a function of portfolio quality,
composition, maturity and market conditions as well as the expenses allocated
to the Funds.
In addition, investors should recognize that changes in the net
asset value of shares of the Fund will affect the yield of the Fund for any
specified period, and such changes should be considered together with the yield
of the Fund in ascertaining the total return of the Fund to shareholders for
the period. Yield information for the Fund may be useful in reviewing the
performance of the Fund and for providing a basis for comparison with
investment alternatives. The yield of the Fund, however, may not be comparable
to the yields from investment alternatives because of differences in the
foregoing variables and differences in the methods used to value portfolio
securities, compute expenses and calculate yield.
The Company may also disclose in advertising and other types of
literature, information and statements, the distribution rate on the shares of
the Fund. Distribution rate, which may be annualized, is the amount determined
by dividing the dollar amount per Fund share of the most recent dividend by the
most recent NAV or maximum offering
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<PAGE> 265
price per share as of a date specified in the sales literature. Distribution
rate will be accompanied by the standard 30-day yield as required by the SEC.
The Company may also disclose in advertising and other types of
literature, information and statements the average credit quality of the Fund's
portfolio, or categories of investments therein, as of a specified date or
period. Average credit quality is calculated on a dollar weighted average
basis based on ratings assigned each issue or issuer, as the case may be, by
S&P and/or Moody's. In the event one rating agency does not rate the issue or
issuer, as the case may be, in the same tier as the other agency, the highest
rating is used in the calculation.
From time to time and only to the extent the comparison is
appropriate to the Fund, the Company may quote the performance or price-earning
ratio of the Fund in advertising and other types of literature as compared to
the performance of the Lehman Brothers Municipal Bond Index, 1-Year Treasury
Bill Rate, S&P Index, the Dow Jones Industrial Average, the Lehman Brothers 20+
Treasury Index, the Lehman Brothers 5-7 Year Treasury Index, Donoghue's Money
Fund Averages, Real Estate Investment Averages (as reported by the National
Association of Real Estate Investment Trusts), Gold Investment Averages
(provided by World Gold Council), Bank Averages (which are calculated from
figures supplied by the U.S. League of Savings Institutions based on effective
annual rates of interest on both passbook and certificate accounts), average
annualized certificate of deposit rates (from the Federal Reserve G-13
Statistical Releases or the Bank Rate Monitor), the Salomon One Year Treasury
Benchmark Index, the Consumer Price Index (as published by the U.S. Bureau of
Labor Statistics), other managed or unmanaged indices or performance data of
bonds, municipal securities, stocks or government securities (including data
provided by Ibbotson Associates), or by other services, companies, publications
or persons who monitor mutual funds on overall performance or other criteria.
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stock prices. The performance of the Fund also may be compared
to those of other mutual funds having similar objectives. This comparative
performance could be expressed as a ranking prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc., Bloomberg Financial Markets
or Morningstar, Inc., independent services which monitor the performance of
mutual funds. Comparative performance of the California Tax-Free Income Fund
will be based on a comparison of yields, as described above, or total return,
as reported by Lipper, Survey Publications, Donoghue or Morningstar, Inc.
Any such comparisons may be useful to investors who wish to
compare the past performance of the Fund with that of its competitors. Of
course, past performance cannot be a guarantee of future results. The Company
may also include, from time to time, a reference to certain marketing
approaches of the Distributor, including, for example, a reference to a
potential shareholder being contacted by a selected broker or dealer. General
mutual fund statistics provided by the Investment Company Institute may also be
used.
The Company also may disclose in sales literature, information and
statements, the distribution rate on the Fund's shares. Distribution rate,
which may be annualized, is the amount determined by dividing the dollar amount
per share of the most recent
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<PAGE> 266
dividend by the most recent NAV or maximum offering price per share as of a
date specified in the sales literature. Distribution rate will be accompanied
by the standard 30-day yield as required by the SEC.
The Company may also use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for the Fund: (i) the Consumer Price Index may be
used to assess the real rate of return from an investment in the Fund; (ii)
other government statistics, including, but not limited to, The Survey of
Current Business, may be used to illustrate investment attributes of the Fund
or the general economic, business, investment, or financial environment in
which the Fund operates; (iii) the effect of tax-deferred compounding on the
investment returns the Fund, or on returns in general, may be illustrated by
graphs, charts, etc., where such graphs or charts would compare, at various
points in time, the return from an investment in the Fund (or returns in
general) on a tax-deferred basis (assuming reinvestment of capital gains and
dividends and assuming one or more tax rates) with the return on a taxable
basis; and (iv) the sectors or industries in which the Fund invests may be
compared to relevant indices of stocks or surveys (e.g., S&P Industry Surveys)
to evaluate the Fund's historical performance or current or potential value
with respect to the particular industry or sector.
In addition, the Company also may use, in advertisements and other
types of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank, and
its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and
the related "Tax Freedom Day."
The Company also may discuss in advertisements and other types of
literature that the Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to
purchase, sell or hold the Fund's shares since the rating would not comment on
the market price of the Fund's shares or the suitability of the Fund for a
particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. The Company may
compare the Fund's performance with other investments which are assigned
ratings by NRSROs. Any such comparisons may be useful to investors who wish to
compare the Fund's past performance with other rated investments.
From time to time, the Fund may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Company, provides various
services to its customers that are also shareholders of the Funds. These
services may include access to the Company's account information through
Automated Teller Machines (ATMs), the placement of purchase and redemption
requests for shares of the Funds through ATMs and the availability of combined
Wells Fargo Bank and the
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<PAGE> 267
Company account statements." The Company may also disclose in advertisements
and other types of sales literature the assets and categories of assets under
management by the Company's investment adviser. The Company may also disclose
in advertisements and other types of sales literature the assets and categories
of assets under management by a fund's investment adviser or sub-adviser and
the total amount of assets under management by Wells Fargo Investment
Management Group. As of December 31, 1995, IMG had $30.1 billion in assets
under management. The Company may disclose in advertising, statements and
other literature the amount of assets and mutual fund assets managed by Wells
Fargo Bank. As of April 1, 1996, Wells Fargo Bank provided investment advisory
services for approximately $56 billion of assets of individuals, trusts,
estates and institutions and $17 billion of mutual fund assets.
DETERMINATION OF NET ASSET VALUE
Net asset value per share the Fund is determined by the Custodian
on each Business Day.
The assets of the Fund, other than debt securities maturing in 60
days or less, are valued at latest quoted bid prices. Debt securities maturing
in 60 days or less are valued at amortized cost. Prices may be furnished by a
reputable independent pricing service approved by the Board of Directors.
Prices provided by an independent pricing service may be determined without
exclusive reliance on quoted prices and may take into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data. All other securities and other assets of the Fund for
which current market quotations are not readily available are valued at fair
value as determined in good faith by the Company's Directors and in accordance
with procedures adopted by the Directors.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors, Wells Fargo Bank is
responsible for the Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company to obtain the
best results taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. While Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions, the Funds will
not necessarily be paying the lowest spread or commission available.
Purchase and sale orders of the securities held by the Fund may be
combined with those of other accounts that Wells Fargo Bank manages, and for
which it has brokerage placement authority, in the interest of seeking the most
favorable overall net results. When Wells Fargo Bank determines that a
particular security should be bought or sold for the Fund and other
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<PAGE> 268
accounts managed by Wells Fargo Bank, Wells Fargo Bank undertakes to allocate
those transactions among the participants equitably.
Purchases and sales of securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or
to dealers serving as market makers for the securities at a net price. The
Fund also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, municipal obligations
and taxable money market securities are traded on a net basis and do not
involve brokerage commissions. The cost of executing the Fund's portfolio
securities transactions will consist primarily of dealer spreads and
underwriting commissions. Under the 1940 Act, persons affiliated with the
Company are prohibited from dealing with the Company as a principal in the
purchase and sale of securities unless an exemptive order allowing such
transactions is obtained from the SEC or an exemption is otherwise available.
The Fund may purchase municipal obligations from underwriting
syndicates of which Stephens or Wells Fargo Bank is a member under certain
conditions in accordance with the provisions of a rule adopted under the 1940
Act and in compliance with procedures adopted by the Board of Directors.
Wells Fargo Bank, as the investment adviser of the Fund, may, in
circumstances in which two or more dealers are in a position to offer
comparable results for the Fund portfolio transaction, give preference to a
dealer that has provided statistical or other research services to Wells Fargo
Bank. By allocating transactions in this manner, Wells Fargo Bank is able to
supplement its research and analysis with the views and information of
securities firms. Information so received will be in addition to, and not in
lieu of, the services required to be performed by Wells Fargo Bank under the
Advisory Contract, and the expenses of Wells Fargo Bank will not necessarily be
reduced as a result of the receipt of this supplemental research information.
Furthermore, research services furnished by dealers through which Wells Fargo
Bank places securities transactions for each Fund may be used by Wells Fargo
Bank in servicing its other accounts, and not all of these services may be used
by Wells Fargo Bank in connection with advising the Fund.
Brokerage Commissions. For the years ended December 31, 1993,
1994 and 1995, the Fund did not pay any brokerage commissions on portfolio
transactions.
Securities of Regular Broker/Dealers. As of December 31, 1995,
the Fund did not own any securities of its "regular brokers or dealers" or
their parents, as defined in the Act.
Portfolio Turnover. Portfolio turnover generally involves some
expenses to the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gain tax
consequences. The portfolio turnover rate for the Fund generally is not
expected to exceed 300%. The portfolio turnover rate is not a limiting factor
when Wells Fargo Bank deems portfolio changes appropriate.
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FEDERAL INCOME TAXES
The Prospectus describes generally the tax treatment of
distributions by the Fund. This section of the SAI includes additional
information concerning federal income taxes.
Qualification as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, (the "Code") requires, among other
things, that (a) at least 90% of the Fund's annual gross income be derived from
interest, payments with respect to securities loans, dividends and gains from
the sale or other disposition of securities or options thereon; (b) the Fund
derives less than 30% of its gross income from gains from the sale or other
disposition of securities or options thereon held for less than three months;
and (c) the Fund diversifies its holdings so that, at the end of each quarter
of the taxable year, (i) at least 50% of the market value of the Fund's assets
is represented by cash, government securities and other securities limited in
respect of any one issuer to an amount not greater than 5% of the Fund's assets
and 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. Government securities and the securities of other
regulated investment companies), or of two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades
or businesses or related trades or businesses. As a regulated investment
company, the Fund will not be subject to federal income tax on its net
investment income and net capital gains distributed to its shareholders,
provided that it distributes to its stockholders at least 90% of its net
investment income and tax-exempt income earned in each year.
In order to qualify under the Code to pay exempt-interest
dividends, the Fund intends that at least 50% of the value of its total assets
at the close of each quarter of a taxable year will consist of obligations the
interest on which is exempt from federal income tax. The portion of total
dividends paid by the Fund with respect to any taxable year that constitutes
exempt-interest dividends will be the same for all shareholders receiving
dividends during such year. The exemption of interest income derived from
investments in tax-exempt obligations for federal income tax purposes may not
result in a similar exemption under the laws of a particular state or local
taxing authority. However, see "California Tax Issues" below.
Any income or gain retained by the Fund that is subject to income
tax will be considered to have been distributed by year-end. Generally,
dividends and distributions of capital gain are taxable to shareholders when
they are received. However, such dividends and distributions declared payable
as of a record date in October, November or December of any calendar year are
deemed under the Code to have been paid by the Fund and received by the
shareholders on December 31 of that calendar year if the dividend and
distributions are actually paid in the following January. Such dividends and
distributions will, accordingly, be taxable to the recipient shareholders in
the year in which the record date falls. The Fund will either distribute, or
be deemed to distribute, all of its net investment income and net capital
gains by the end of each calendar year and, thus, expects not to be subject to
the excise tax. In addition, a 4% nondeductible excise tax will be imposed on
the Fund (other than to the
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extent of the Fund's tax-exempt income) to the extent it does not meet certain
minimum distribution requirements by the end of each calendar year.
Gains or losses on sales of portfolio securities by the Fund will
generally be long-term capital gains or losses if the securities sold have been
held by it for more than one year. Other gains or losses on the sale of
securities will be short-term capital gains or losses. To the extent that the
Fund recognizes long-term capital gains, such gains will be distributed at
least annually. The Fund will have no tax liability with respect to such
gains, and the distributions will be taxable to shareholders as long-term
capital gains, regardless of how long a shareholder has held Fund shares. Such
distributions will be designated as capital gain distributions in a written
notice mailed by the Fund to shareholders not later than 60 days after the
close of the Fund's taxable year. Gain recognized on the disposition of a
debt obligation (including tax-exempt obligations purchased after April 30,
1993) purchased by the Fund at a market discount (generally, at a price less
than its principal amount) will be treated as ordinary income to the extent of
the portion of the market discount which accrued during the period of time the
Fund held the debt obligation.
If a shareholder receives a designated capital gain distribution
(to be treated by the shareholder as a long-term capital gain) with respect to
any Fund share and such Fund share is held for six months or less, then (unless
otherwise disallowed) any loss on the sale or exchange of that Fund share will
be treated as a long-term capital loss to the extent of the designated capital
gain distribution. In addition, any loss realized by a shareholder upon the
sale or redemption of Fund shares held less than six months in disallowed to
the extent of any tax-exempt interest dividends received by the shareholder
thereon. These rules shall not apply, however, to losses incurred under a
periodic redemption plan.
As of the printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.6%; (marginal rates may be higher for some
individuals due to phase out of exemption and elimination of deductions), the
maximum individual rate applicable to net realized capital gains is 28% and
the maximum corporate tax rate applicable to ordinary income and net realized
capital gains is 35% (however, to eliminate the benefit of lower marginal
corporate income tax rates, corporations which have taxable income in excess of
$100,000 for a taxable year will be required to pay an additional amount of
income tax of up to $11,750 and corporations which have taxable income in
excess of $15,000,000 for a taxable year will be required to pay an additional
amount of tax of up to $100,000).
If a shareholder exchanges or otherwise disposes of shares of the
Fund within 90 days of having acquired such shares, and if, as a result of
having acquired those shares, the shareholder subsequently pays a reduced sales
charge for shares of the Fund, or of a different fund, the sales charge
previously incurred acquiring the Fund's shares shall not be taken into account
(to the extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares.
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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.
Shareholders who may be "substantial users" (or related persons of
substantial users) with respect to municipal securities held by the Fund should
consult their tax advisors to determine whether exempt-interest dividends and
California exempt-interest dividends (as defined below) paid by the Fund with
respect to such obligations retain their federal and California tax exclusions.
In this connection, the rules regarding the possible unavailability of exempt
dividend treatment to substantial users are similar for federal and California
state tax purposes.
Although dividends will be declared daily with respect to the
Fund based on the Fund's daily earnings, for federal income tax purposes, the
Fund's earnings and profits will be determined at the end of each taxable year
and will be allocated pro rata over the entire year. For federal income tax
purposes, only amounts paid out of earnings and profits will qualify as
dividends. Thus, if during a taxable year the Fund's declared dividends (as
declared daily throughout the year) exceed the Fund's net income (as determined
at the end of the year), only that portion of the year's distributions which
equals the year's earnings and profits will be deemed to have constituted a
dividend. It is expected that the Fund's net income, on an annual basis, will
equal the dividends declared during the year.
Foreign Shareholders. Under the Code, distributions of net
investment income by the Fund to a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or a lower treaty rate). Withholding will not apply if a
dividend paid by the Fund to a foreign shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents or domestic
corporations will apply. Distributions of net long-term capital gains are not
subject to tax withholding, but in the case of a foreign shareholder who is a
nonresident alien individual, such distributions ordinarily will be subject to
U.S. withholding tax at a rate of 30% if the individual is physically present
in the U.S. for more than 182 days during the taxable year.
California Tax Issues -- The Fund is expected to be exempt from
tax in California on the same basis as under Subchapter M of the Code as
described above. Moreover, if at the close of each quarter of the Fund's
taxable year, at least 50% of the value of its total assets consists of
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obligations the interest on which, if such obligations were held by an
individual, would be exempt from California personal income tax (under either
the laws of California or of the United States), the Fund will be entitled to
pay dividends to its shareholders which will be exempt from California personal
income tax (hereinafter referred to as "California exempt-interest dividends").
Under normal market conditions, the Fund will invest primarily in municipal
securities of the State of California, its cities, municipalities and other
political authorities. The Fund intends to qualify under the above
requirements so that it can pay California exempt-interest dividends.
Not later than 60 days after the close of its taxable year, the
Fund will notify its shareholders of the portion of the dividends paid which
constitutes California exempt-interest dividends with respect to such taxable
year. The total amount of California exempt-interest dividends paid by the
Fund to all of its shareholders with respect to any taxable year cannot exceed
the amount of interest received by the Fund during such year on California
municipal securities and other obligations the interest on which is tax exempt,
less any expenses or expenditures (including any expenditures attributable to
the acquisition of securities of other investment companies). Dividends paid
by the Fund in excess of this limitation will be treated as ordinary dividends
subject to California personal income tax at ordinary rates.
Long-term and/or short-term capital gain distributions will not
constitute California exempt-interest dividends and will be taxed as capital
gains and ordinary income dividends, respectively. Moreover, interest on
indebtedness incurred by a shareholder to purchase or carry shares of the Fund
is not deductible for California personal income tax purposes to the extent the
shareholder receives California exempt-interest dividends during his or her
taxable year. Exempt-interest dividends will be tax exempt for purposes of the
California personal income tax. For corporate shareholders, dividends will be
subject to the corporate franchise taxes in California.
Other Matters. Investors should be aware that the investments to
be made by the Fund may involve sophisticated tax rules such as the original
issue discount, marked to market and real estate mortgage investment conduit
("REMIC") rules that would result in income or gain recognition by the Fund
without corresponding current cash receipts. Although the Fund will seek to
avoid significant noncash income, such noncash income could be recognized by the
Fund, in which case the Fund may distribute cash derived from other sources in
order to meet the minimum distribution requirements described above.
Shares of the Fund would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and IRAs since such plans and accounts
are generally tax-exempt and, therefore, would not benefit from the exempt
status of dividends from the Fund. Such dividends would be ultimately taxable
to the beneficiaries when distributed to them.
CAPITAL STOCK
The Company, an open-end, management investment company, was
incorporated in Maryland on September 9, 1991. The authorized capital stock of
the Company consists of
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10,000,000,000 shares having a par value of $.001 per share. As of the date of
this SAI, the Company's Board of Directors has authorized the issuance of
thirteen series of shares, each representing an interest in one fund -- the
Aggressive Growth Fund, Asset Allocation Fund, California Tax-Free Bond Fund,
California Tax-Free Income Fund, California Tax-Free Money Market Mutual Fund,
Corporate Stock Fund, Diversified Income Fund, Ginnie Mae Fund, Growth and
Income Fund, Money Market Mutual Fund, National Tax-Free Money Market Mutual
Fund, Short-Intermediate U.S. Government Income Fund and U.S. Government
Allocation Fund -- the Board of Directors may, in the future, authorize the
issuance of other series of capital stock representing shares of additional
investment portfolios or funds.
All shares of the Company have equal voting rights and will be
voted in the aggregate, and not by series, except where voting by a series is
required by law or where the matter involved only affects one series. For
example, a change in a Fund's fundamental investment policy would affect only
one series and would be voted upon only by shareholders of the Fund involved.
Additionally, approval of an advisory contract is a matter to be determined
separately by each Fund. Approval by the shareholders of one Fund is effective
as to that Fund whether or not sufficient votes are received from the
shareholders of the other investment portfolios to approve the proposal as to
those investment portfolios. As used in the Prospectus of each Fund and in
this SAI, the term "majority," when referring to approvals to be obtained from
shareholders of the Fund, means the vote of the lesser of (i) 67% of the shares
of the Fund represented at a meeting if the holders of more than 50% of the
outstanding shares of such Fund are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of such Fund. The term "majority," when
referring to the approvals to be obtained from shareholders of the Company as a
whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held.
The Company may dispense with an annual meeting of shareholders in
any year in which it is not required to elect Directors under the 1940 Act.
Each share of a Fund represents an equal proportional interest in
the Fund with each other share and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Fund as
are declared in the discretion of the Directors. In the event of the
liquidation or dissolution of the Company, shareholders of a Fund are entitled
to receive the assets attributable to the Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular investment portfolio that are available for distribution in such
manner and on such basis as the Directors in their sole discretion may
determine.
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Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.
As of February 29, 1996, there were no shareholders known by the
Company to own 5% or more of the outstanding shares of the Fund.
OTHER
The Registration Statement, including the Prospectus of the Fund,
the SAI and the exhibits filed therewith, may be examined at the office of the
SEC in Washington, D.C. Statements contained in the Prospectus or the SAI as
to the contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent public
auditors for the Company. KPMG Peat Marwick LLP provides audit services, tax
return preparation and assistance and consultation in connection with review of
certain SEC filings. KPMG Peat Marwick LLP's address is Three Embarcadero
Center, San Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments, financial statements and
independent auditors' report for the Funds contained in Post-Effective
Amendment No. 21 to the Company's Registration Statement, as filed with the SEC
on Form N-1A on February 29, 1996, are hereby incorporated by reference into
this SAI. The portfolio of investments, audited financial statements and
independent auditors' reports are attached to all SAIs delivered to current or
prospective shareholders.
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SAI APPENDIX
The following is a description of the ratings given by Moody's and
S&P to corporate and municipal bonds, municipal notes, and corporate and
municipal commercial paper.
Corporate and Municipal Bonds
Moody's: The four highest ratings for corporate and municipal
bonds are "Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of
the "best quality" and carry the smallest amount of investment risk. Bonds
rated "Aa" are of "high quality by all standards," but margins of protection or
other elements make long-term risks appear somewhat greater than "Aaa" rated
bonds. Bonds rated "A" possess many favorable investment attributes and are
considered to be upper medium grade obligations. Bonds rated "Baa" are
considered to be medium grade obligations; interest payments and principal
security appear adequate for the present, but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds have speculative characteristics as well. Moody's applies
numerical modifiers: 1, 2 and 3 in each rating category from "Aa" through
"Baa" in its rating system. The modifier 1 indicates that the security ranks
in the higher end of its category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds
are "AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings
assigned by S&P and have an extremely strong capacity to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity to pay interest and
repay principal" and differ "from the highest rated issued only in small
degree." Bonds rated "A" have a "strong capacity" to pay interest and repay
principal, but are "somewhat more susceptible" to adverse effects of changes in
economic conditions or other circumstances than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having an "adequate capacity" to
pay interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of
a plus or minus sign to show relative standing within the category.
Municipal Notes
Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG
2" or "VMIG 2" are of "high quality," with margins of protections "ample
although not as large as in the preceding
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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."
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STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL 29, 1996
DIVERSIFIED INCOME FUND
-----------------------
Stagecoach Funds, Inc. (the "Company") is an open-end series
investment company. This Statement of Additional Information ("SAI") contains
information about one of the Company's investment portfolios -- the
Diversified Income Fund (the "Fund"). The Fund offers two classes of shares
(each a "Class") -- Class A and Class B shares. It formerly offered only Class
A Shares which were not designated as a Class. This SAI relates to both
Classes of shares. The investment objective of the Fund is described in the
Prospectus under the selection entitled "How the Fund Works -- Investment
Objective and Policies."
This SAI is not a prospectus and should be read in conjunction
with the Fund's Prospectus, dated April 29, 1996. All terms used in this SAI
that are defined in the Prospectus will have the meanings assigned in the
Prospectus. A copy of the Prospectus may be obtained without charge by writing
Stephens Inc. ("Stephens"), the Company's sponsor, administrator and
distributor, at 111 Center Street, Little Rock, Arkansas 72201, or calling the
Transfer Agent at the telephone number indicated above.
-----------------------
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TABLE OF CONTENTS
Statement of Additional Information
<TABLE>
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Additional Permitted Investment Activities. . . . . . . . . . . . . . . . . 5
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Calculation of Yield and Total Return . . . . . . . . . . . . . . . . . . . 14
Determination of Net Asset Value. . . . . . . . . . . . . . . . . . . . . . 17
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Federal Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
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INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Fund is subject to the
following investment restrictions, all of which are fundamental policies; that
is, they may not be changed without approval by the vote of the holders of a
majority of the Fund's outstanding voting securities, as described under
"Capital Stock":
(1) The Fund may not purchase the securities of issuers
conducting their principal business activity in the same industry if,
immediately after the purchase and as a result thereof, the value of the
Fund's investments in that industry would equal or exceed 25% of the current
value of the Fund's total assets, provided that there is no limitation with
respect to investments in securities issued or guaranteed by the United States
Government, its agencies or instrumentalities.
(2) The Fund may not purchase or sell real estate (other than
securities secured by real estate or interests therein or securities issued by
companies that invest in real estate or interests therein), commodities or
commodity contracts or interests in oil, gas, or other mineral exploration or
development programs.
(3) The Fund may not purchase securities on margin (except for
short-term credits necessary for the clearance of transactions) or make short
sales of securities.
(4) The Fund may not underwrite securities of other issuers,
except to the extent that the purchase of permitted investments directly from
the issuer thereof or from an underwriter for an issuer and the later
disposition of such securities in accordance with the Fund's investment
program may be deemed to be an underwriting.
(5) The Fund may not make investments for the purpose of
exercising control or management.
(6) The Fund may not issue senior securities, except that the
Fund may borrow from banks up to 10% of the current value of its net assets for
temporary purposes only in order to meet redemptions, and these borrowings may
be secured by the pledge of up to 10% of the current value of its net assets,
but investments may not be purchased while any such outstanding borrowings
exceed 5% of its net assets.
(7) The Fund may not purchase securities of any issuer (except
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities) if, as a result, with respect to 75% of its total assets,
more than 5% of the value of its total assets would be invested in the
securities of any one issuer or, with respect to 100% of its total assets, the
Fund would own more than 10% of the outstanding voting securities of such
issuer.
(8) The Fund may not write, purchase or sell puts, calls or
options or any combination thereof, except that the Fund may purchase
securities with put rights in order to maintain liquidity.
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(9) The Fund may not make loans of portfolio securities having
a value that exceeds 50% of the current value of its total assets, provided
that, for purposes of this restriction, loans will not include the purchase of
fixed time deposits, repurchase agreements, commercial paper and other types of
debt instruments commonly sold in a public or private offering.
With respect to fundamental investment policy (9), the Fund does
not intend to loan its portfolio securities during the coming year.
Non-Fundamental Investment Policies. The Fund is subject to the
following non-fundamental policies; that is, they may be changed by a majority
vote of the Board of Directors without shareholder approval:
(1) The Fund may invest not more than 5% of its net assets at
the time of purchase in warrants, and not more than 2% of its net assets in
warrants which are not listed on the New York or American Stock Exchange.
(2) The Fund may not purchase or retain securities of any
issuer if the officers or Directors of the Company or its Investment Adviser
owning beneficially more than one-half of one percent (0.50%) of the securities
of the issuer together own beneficially more than 5% of such securities.
(3) The Fund may invest in shares of other open-end, management
investment companies, subject to the limitations of Section 12(d)(1) of the
1940 Act, provided that any such purchases will be limited to temporary
investments in shares of unaffiliated investment companies and the Investment
Adviser will waive its advisory fees for that portion of the Fund's assets so
invested, except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition. The Fund does not intend to invest more than 5%
of its net assets in such securities during the coming year. Notwithstanding
any other investment policy or limitation (whether or not fundamental), the
Fund may invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental
investment objective, policies and limitations as the Fund.
(4) The Fund may not invest in securities of issuers who, with
their predecessors, have been in existence less than three years, unless the
securities are fully guaranteed or insured by the U.S. Government if, by reason
thereof, the value of its aggregate investment in such securities will exceed
5% of its total assets.
(5) The Fund may not purchase or sell real estate limited
partnership interests.
(6) The Fund will not invest more than 10% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
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ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Privately Issued Securities (Rule 144A). The Fund may invest in
privately issued securities which may be resold only in accordance with Rule
144A under the Securities Act of 1933 ("Rule 144A Securities"). Rule 144A
Securities are restricted securities and will not be publicly traded.
Accordingly, the liquidity of the market for specific Rule 144A Securities may
vary. The investment adviser, under guidelines approved by Board of Directors
of the Company will evaluate the liquidity characteristics of each Rule 144A
Security proposed for purchase by the Fund on a case-by-case basis and will
consider the following factors, among others, in their evaluation: (1) the
frequency of trades and quotes for the Rule 144A Security; (2) the number of
dealers willing to purchase or sell the Rule 144A Security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the
Rule 144A Security; and (4) the nature of the Rule 144A Security and the nature
of the marketplace trades (e.g., the time needed to dispose of the Rule 144A
Security, the method of soliciting offers and the mechanics of transfer).
Warrants. The Fund may invest not more than 5% of its net assets
at the time of purchase in warrants (other than those that have been acquired
in units or attached to other securities) and not more than 2% of its net
assets in warrants which are not listed on the New York or American Stock
Exchange. Warrants represent rights to purchase securities at a specific price
valid for a specific period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying securities. The Fund may only
purchase warrants on securities in which the Fund may invest directly.
When-Issued Securities. The Fund may purchase securities on a
when-issued basis, in which case delivery and payment normally take place
within 120 days after the date of the commitment to purchase. However, the
Fund does not intend to invest more than 5% of its net assets in when-issued
securities during the coming year. The Fund will only make commitments to
purchase securities on a when-issued basis with the intention of actually
acquiring the securities, but may sell them before the settlement date if it is
deemed advisable. When-issued securities are subject to market fluctuation,
and no income accrues to the purchaser during the period prior to issuance.
The purchase price and the interest rate that will be received on debt
securities are fixed at the time the purchaser enters into the commitment.
Purchasing a security on a when-issued basis can involve a risk that the market
price at the time of delivery may be lower than the agreed-upon purchase price,
in which case there could be an unrealized loss at the time of delivery.
The Fund will segregate cash, U.S. Government obligations, and
other high-quality debt instruments in an amount at least equal in value to the
Fund's commitments to purchase when-issued securities. If the value of these
assets declines, the Fund will segregate additional liquid assets on a daily
basis so that the value of the segregated assets is equal to the amount of such
commitments.
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<PAGE> 282
Other Investment Companies. As a shareholder in another
investment company, the Fund would bear, along with other shareholders, its pro
rata portion of the other investment company's expenses, including advisory
fees, in addition to the advisory and other expenses the Fund bears directly in
connection with its own operations.
Unrated Investments. The Fund may purchase instruments that are
not rated if, in the opinion of Wells Fargo Bank, such obligations are of
investment quality comparable to other rated investments that are permitted to
be purchased by the Fund. After purchase by a Fund, a security may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require a sale of such security by the Fund. To
the extent the ratings given by Moody's or S&P may change as a result of
changes in such organizations or their rating systems, the Fund will attempt to
use comparable ratings as standards for investments in accordance with the
investment policies contained in its Prospectus and in this SAI. The ratings
of Moody's and S&P are more fully described in the SAI Appendix.
Letters of Credit. Certain of the debt obligations (including
certificates of participation, commercial paper and other short-term
obligations) which the Fund may purchase may be backed by an unconditional and
irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of Wells Fargo Bank,
are of comparable quality to issuers of other permitted investments of the Fund
may be used for letter of credit-backed investments.
Convertible Securities (Lower Rated Securities). Subject to the
limitations described in the Fund's Prospectus, the Fund may invest in
convertible securities that are not rated in one of the four highest rating
categories by a NRSRO. The yields on such lower rated securities, which
includes securities also known as junk bonds, generally are higher than the
yields available on higher-rated securities. However, investments in lower
rated securities and comparable unrated securities generally involve greater
volatility of price and risk of loss of income and principal, including the
probability of default by or bankruptcy of the issuers of such securities.
Lower rated securities and comparable unrated securities (a) will likely have
some quality and protective characteristics that, in the judgment of the rating
organization, are outweighed by large uncertainties or major risk exposures to
adverse conditions and (b) are predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation. Accordingly, it is possible that these types of
factors could, in certain instances, reduce the value of securities held in the
Fund's portfolio, with a commensurate effect on the value of the Fund's
shares. Therefore, an investment in the Fund should not be considered as a
complete investment program and may not be appropriate for all investors.
While the market values of lower rated securities and comparable
unrated securities tend to react less to fluctuations in interest rate levels
than the market values of higher-rated securities, the market values of certain
lower rated securities and comparable unrated securities also tend to be more
sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, lower rated securities
and comparable unrated
6
<PAGE> 283
securities generally present a higher degree of credit risk. Issuers of lower
rated securities and comparable unrated securities often are highly leveraged
and may not have more traditional methods of financing available to them so
that their ability to service their debt obligations during an economic
downturn or during sustained periods of rising interest rates may be impaired.
The risk of loss due to default by such issuers is significantly greater
because lower rated securities and comparable unrated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness. The Fund may incur additional expenses to the extent that it is
required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings. The existence of limited markets for lower
rated securities and comparable unrated securities may diminish the Fund's
ability to (a) obtain accurate market quotations for purposes of valuing such
securities and calculating its net asset value and (b) sell the securities at
fair value either to meet redemption requests or to respond to changes in the
economy or in financial markets.
Certain lower rated debt securities and comparable unrated
securities frequently have call or buy-back features that permit their issuers
to call or repurchase the securities from their holders, such as the Fund. If
an issuer exercises these rights during periods of declining interest rates,
the Fund may have to replace the security with a lower yielding security, thus
resulting in a decreased return to the Fund.
The market for certain lower rated securities and comparable
unrated securities is relatively new and has not weathered a major economic
recession. The effect that such a recession might have on such securities is
not known. Any such recession, however, could disrupt severely the market for
such securities and adversely affect the value of such securities. Any such
economic downturn also could adversely affect the ability of the issuers of
such securities to repay principal and pay interest thereon.
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "The Fund and
Management." The principal occupations during the past five years of the
Directors and principal executive Officer of the Company are listed below.
The address of each, unless otherwise indicated, is 111 Center Street, Little
Rock, Arkansas 72201. Directors deemed to be "interested persons" of the
Company for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Address and Age Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 73 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
</TABLE>
7
<PAGE> 284
<TABLE>
<S> <C> <C>
*R. Greg Feltus, 44 Director, Senior Vice President
Chairman and of Stephens ; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 53 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School of
Business and
Accountancy;Associate Professor of Finance
of the School of Business and Accounting at
Wake Forest University since 1983.
*Zoe Ann Hines, 46 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource
Management.
*W. Rodney Hughes, 69 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 77 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
</TABLE>
8
<PAGE> 285
<TABLE>
<S> <C> <C>
*J. Tucker Morse, 51 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 39 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
COMPENSATION TABLE
For the Year Ended December 31, 1995
<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>
9
<PAGE> 286
<TABLE>
<S> <C> <C>
*J. Tucker Morse 8,313 33,250
Director
</TABLE>
Directors of the Company are compensated by the Company for their
services as indicated above and also are reimbursed for all out-of-pocket
expenses relating to attendance at board meetings. Each of the Directors and
Officers, except for Mr. Jeffries, of the Company serves in the identical
capacity as Directors and Officers of Overland Express Funds, Inc. and
Stagecoach Inc., and as Trustees and/or Officers of Stagecoach Trust, Master
Investment Portfolio, Life & Annuity Trust, Master Investment Trust and Managed
Series Investment Trust, each of which are registered open-end management
investment companies and each of which is considered to be in the same "fund
complex", as such term is defined in Form N-1A under the 1940 Act, as the
Company. The Directors are compensated by other Companies and Trusts within
the fund complex for their services as Directors/Trustees to such Companies and
Trusts. Currently the Directors do not receive any retirement benefits or
deferred compensation from the Company or any other member of the fund complex.
As of the date of this SAI, Directors and Officers of the Company
as a group beneficially owned less than 1% of the outstanding shares of the
Company.
Investment Adviser. The Fund is advised by Wells Fargo Bank
pursuant to an Advisory Contract which provides that Wells Fargo Bank shall
furnish to the Fund investment guidance and policy direction in connection with
the daily portfolio management of the Fund. Pursuant to the Advisory Contract,
Wells Fargo Bank furnishes to the Board of Directors periodic reports on the
investment strategy and performance of the Fund.
Wells Fargo Bank has agreed to provide to the Fund, among other
things, money market security and fixed- income research, analysis and
statistical and economic data and information concerning interest rate and
security market trends, portfolio composition, credit conditions and, average
maturities of the Fund.
The Advisory Contract will continue in effect for more than two
years provided the continuance is approved annually (i) by the holders of a
majority of the Fund's outstanding voting securities or by the Company's
Board of Directors and (ii) by a majority of the Directors of the Company who
are not parties to the Advisory Contract or "interested persons" (as defined in
the 1940 Act) of any such party. The Advisory Contract may be terminated on 60
days' written notice by either party and will terminate automatically if
assigned.
For the years ended December 31, 1993, 1994 and 1995, the Fund
paid to Wells Fargo Bank the advisory fees indicated below and Wells Fargo Bank
waived the indicated amounts:
10
<PAGE> 287
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
Fees Fees Fees Fees Fees Fees
Fund Paid Waived Paid Waived Paid Waived
- ---- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Diversified Income $ 0 $63,535 $192,033 $ 0 $312,512 $ 0
Fund
</TABLE>
Administrator and Distributor. The Company has retained Stephens
as administrator and distributor on behalf of the Fund. The Administration
Agreement between Stephens and the Fund states that Stephens shall provide as
administrative services, among other things: (i) general supervision of the
operation of the Fund, including coordination of the services performed by the
Fund's investment adviser, transfer and dividend disbursing agent, custodian,
shareholder servicing agent(s), independent public accountants and legal
counsel, regulatory compliance, including the compilation of information for
documents such as reports to, and filings with, the SEC and state securities
commissions; and preparation of proxy statements and shareholder reports for
the Fund; and (ii) general supervision relative to the compilation of data
required for the preparation of periodic reports distributed to the Company's
Officers and Board of Directors. Stephens also furnishes office space and
certain facilities required for conducting the business of the Fund together
with those ordinary clerical and bookkeeping services that are not being
furnished by Wells Fargo Bank. Stephens also pays the compensation of the
Company's Directors, Officers and employees who are affiliated with Stephens.
For the years ended December 31, 1993, 1994 and 1995, the Fund
paid administrative fees to Stephens as follows:
<TABLE>
<CAPTION>
Fund 1993 1994 1995
- ---- ---- ---- ----
<S> <C> <C> <C>
Diversified Income Fund $3,810 $11,522 $18,751
</TABLE>
The Advisory Contract and Administration Agreement for the Fund
provide that if, in any fiscal year, the total expenses of the Fund incurred
by, or allocated to, the Fund (excluding taxes, interest, brokerage commissions
and other portfolio transaction expenses, expenditures that are capitalized in
accordance with generally accepted accounting principles, extraordinary
expenses and amounts accrued or paid under the Plan but including the fees
provided for in the Advisory Contract and the Administration Agreement) exceed
the most restrictive expense limitation applicable to the Fund imposed by the
securities laws or regulations of the states in which the Fund's shares are
registered for sale, Wells Fargo Bank and Stephens shall waive their fees
proportionately under the Advisory Contract and the Administration Agreement,
respectively, for the Fund for the fiscal year to the extent of the excess or
reimburse the excess, but only to the extent of their respective fees. The
Advisory Contract and the Administration Agreement for the Fund further provide
that the Fund's total expenses shall be reviewed monthly so that, to the
extent the annualized expenses for such month exceed the most restrictive
applicable annual expense limitation, the monthly fees under the contract and
the agreement shall
11
<PAGE> 288
be reduced as necessary. The most stringent applicable restriction limits
these expenses for any year to 2.50% of the first $30 million of the Fund's
average net assets, 2.00% of the next $70 million of average net assets, and
1.5% of the average net assets in excess of $100 million.
Shareholder Servicing Agent. As discussed in the Fund's
prospectus under the heading "Shareholder Servicing Agent," the Fund has
entered into a shareholder servicing agreement with Wells Fargo Bank. The
dollar amount of shareholder servicing fees paid by the Fund to Wells Fargo
Bank or its affiliates for the year ended December 31, 1995 was as follows:
<TABLE>
<CAPTION>
Fund 1995
- ---- ----
<S> <C>
Diversified Income Fund $174,644
</TABLE>
Custodian And Transfer And Dividend Disbursing Agent. Wells
Fargo Bank has been retained to act as custodian and transfer and dividend
disbursing agent for the Fund. The custodian, among other things, maintains a
custody account or accounts in the name of the Fund, receives and delivers all
assets for the Fund upon purchase and upon sale or maturity, collects and
receives all income and other payments and distributions on account of the
assets of the Fund and pays all expenses of the Fund. For its services as
custodian, Wells Fargo Bank receives an asset-based fee and transaction
charges. For its services as transfer and dividend disbursing agent, Wells
Fargo Bank receives a base fee and per-account fees. For the year ended
December 31, 1995, the Fund did not pay any custody fees or transfer and
dividend disbursing agency fees to Wells Fargo Bank for such services.
Underwriting Commissions. For the years ended December 31, 1993
and 1994, the Company's distributor retained $26,215,173 and $5,415,227,
respectively in underwriting commissions (front-end sales loads and CDSCs, if
any) in connection with the purchase or redemption of the Company's shares.
For the years ended December 31, 1993 and 1994, Wells Fargo Securities Inc.
("WFSI"), an affiliated broker-dealer of the Company, and its registered
representatives received $378,895 and $904,274, respectively, in underwriting
commissions in connection with the purchase or redemption of the Company's
shares.
For the year ended December 31, 1995, the aggregate amount of
underwriting commissions on sales/redemptions of the Company's shares was
$1,584,545. Stephens retained $1,251,311 of such commissions. WFSI and its
registered representatives retained $333,234 of such commissions.
12
<PAGE> 289
DISTRIBUTION PLAN
As indicated in the Prospectus, the Fund, on behalf of each Class
of shares, has adopted a distribution plan (a "Plan") under Section 12(b) of
the 1940 Act and Rule 12b-1 thereunder (the "Rule"). The Plan for the shares
of the Fund now designated the Class A Shares was adopted on October 22, 1992,
by the Board of Directors, including a majority of the Directors who were not
"interested persons" (as defined in the 1940 Act) of the Fund and who had no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan (the "Qualified Directors"), and was approved by
the initial shareholder of the Fund on October 21, 1992. The Plan for the
Class B Shares was adopted by the Board of Directors, including a majority of
Qualified Directors, on July 27, 1994.
Under the Class A Plan, the Fund may defray all or part of the
cost of preparing and printing prospectuses and other promotional materials and
of delivering prospectuses and those materials to prospective shareholders of
the Fund by paying on an annual basis up to 0.05% of the average daily net
assets attributable to Class A Shares. The Class A Plan provides only for
reimbursement of actual expenses. Under the Class B Plan the Fund may defray
all or part of the cost of preparing and printing prospectuses and other
promotional materials and of delivering prospectuses and those materials to
prospective Fund shareholders by paying on an annual basis up to 0.70% of the
average daily net assets of Class B Shares. The Class B Plan provides for
reimbursement of actual expenses and payment of compensation to the Distributor
and Selling Agents for sales support services. In addition, the Plans
contemplate that to the extent any fees payable pursuant to a Shareholder
Servicing Agreement are deemed to be for distribution-related services, rather
than shareholder services, such payments are approved and payable pursuant to
such Plan.
Each Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Qualified Directors. Any Distribution Agreement related to the Plans
also must be approved by such vote of the Directors and the Qualified
Directors. Distribution Agreements will terminate automatically if assigned,
and may be terminated at any time, without payment of any penalty, by a vote of
a majority of the outstanding voting securities of the Class involved. The
Plans may not be amended to increase materially the amounts payable thereunder
without the approval of a majority of the outstanding voting securities of the
Class of the Fund to which said Plan applies, and no material amendment to a
Plan may be made except by the affirmative vote of a majority of both the
Directors of the Company and the Qualified Directors.
Each Plan requires that the Treasurer of the Company shall provide
to the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under such Plan. The
Rule also requires that the selection and nomination of Directors who are not
"interested persons" of the Company be made by such disinterested Directors.
13
<PAGE> 290
For the year ended December 31, 1995, the Funds' distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under the Plan for each Class.
<TABLE>
<CAPTION>
Printing & Mailing Marketing Compensation to
Fund Total Prospectus Brochures Underwriters
---- ---- ------------------ --------- ----------------
<S> <C> <C> <C> <C>
Diversified Income Fund
Class A $42,250 $27,257 $14,993 N/A
Class B $14,987 N/A N/A $14,987
</TABLE>
For the year ended December 31, 1995, WFSI and its registered
representatives received no compensation under the Plan for each Class.
CALCULATION OF YIELD AND TOTAL RETURN
As indicated in the Prospectus, the Fund may advertise certain
total return information for a Class of shares computed in the manner described
in the Prospectus. As and to the extent required by the SEC, an average annual
compound rate of return ("T") will be computed by using the redeemable value at
the end of a specified period ("ERV") of a hypothetical initial investment in a
Class of shares ("P") over a period of years ("n") according to the following
formula: P(1+T)n = ERV. In addition, as indicated in the Prospectus, the Fund
also may, at times, calculate total return of a Class of shares based on net
asset value per share of such Class (rather than the public offering price), in
which case the figures would not reflect the effect of any sales charges that
would have been paid by an investor, or based on the assumption that a sales
charge other than the maximum sales charge (reflecting a Volume Discount) was
assessed, provided that total return data derived pursuant to the calculation
described above also are presented.
The average annual total return on the Class A Shares of the Fund
for the year ended December 31, 1995, assuming a 4.50% sales load, was
24.28%. The average annual total return for the same year, assuming no sales
load, was 30.17%. The average annual total return for the period since
inception (November 18, 1992) to December 31, 1995, on the Class A Shares of
the Fund, assuming a 4.50% sales load, was 12.41%. The average annual total
return for the same period, assuming no sales load, was 14.07%.
The Fund may advertise the cumulative total return on its shares.
Cumulative total return of shares is computed on a per share basis and assumes
the reinvestment of dividends and distributions. Cumulative total return of
shares generally is expressed as a percentage rate which is calculated by
combining the income and principal changes for a specified period and dividing
by the net asset value per share at the beginning of the period.
Advertisements may include the percentage rate of total return of shares or may
14
<PAGE> 291
include the value of a hypothetical investment in shares at the end of the
period which assumes the application of the percentage rate of total return.
In addition to the above performance information, the Fund may
also advertise the cumulative total return of the Fund for one-month,
three-month, six-month, and year-to-date periods. The cumulative total return
for such periods is based on the overall percentage change in value of a
hypothetical investment in the Fund, assuming all Fund dividends and capital
gain distributions are reinvested, without reflecting the effect of any sales
charge that would be paid by an investor, and is not annualized.
The cumulative total return on the Class A Shares of the Fund for
the period from inception (November 18, 1992) to December 31, 1995, assuming
a 4.50% sales load, was 44.12%. The cumulative total return for the same
period, assuming no sales load, was 50.89%.
The average annual total return for the year ended December 31,
1995, on the Class B Shares of the Fund, assuming the maximum CDSC, was 26.64%.
The average annual total return for the same period, assuming no CDSC, was
29.64%.
From time to time and only to the extent the comparison is
appropriate for each Class of shares of the Fund, the Company may quote the
performance or price-earning ratio of such Class in advertising and other types
of literature as compared to the performance of the Lehman Brothers Municipal
Bond Index, the 1-Year Treasury Bill Rate, the S&P Index, the Dow Jones
Industrial Average, the Lehman Brothers 20+ Treasury Index, the Lehman Brothers
5-7 Year Treasury Index, Donoghue's Money Fund Averages, Real Estate
Investment Averages (as reported by the National Association of Real Estate
Investment Trusts), Gold Investment Averages (provided by the World Gold
Council), Bank Averages (which are calculated from figures supplied by the U.S.
League of Savings Institutions based on effective annual rates of interest on
both passbook and certificate accounts), average annualized certificate of
deposit rates (from the Federal Reserve G-13 Statistical Releases or the Bank
Rate Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer
Price Index (as published by the U.S. Bureau of Labor Statistics), other
managed or unmanaged indices or performance data of bonds, stocks or government
securities (including data provided by Ibbotson Associates), or by other
services, companies, publications or persons who monitor mutual funds on
overall performance or other criteria. The S&P Index and the Dow Jones
Industrial Average are unmanaged indices of selected common stock prices. The
performance of each Class of the Fund also may be compared to those of other
mutual funds having similar objectives. This comparative performance could be
expressed as a ranking prepared by Lipper Analytical Services, Inc., CDA
Investment Technologies, Inc., Bloomberg Financial Markets or Morningstar,
Inc., independent services which monitor the performance of mutual funds. The
performance of each Class of the Fund will be calculated by relating net asset
value per share of such Class at the beginning of a stated period to the net
asset value of the investment, assuming reinvestment of all gains distributions
and dividends paid, at the end of the period. Any such comparisons may be
useful to investors who wish to compare the Fund's past performance with that
of its competitors. Of course, past performance cannot be a guarantee of
future results. The Company also may include, from time to time, a reference
to certain marketing approaches of the Distributor, including, for example, a
reference to a potential shareholder being contacted by a selected broker or
dealer. General mutual fund statistics provided by the Investment Company
Institute may also be used.
The Company also may use the following information in
advertisements and other types of literature only to the extent the information
is appropriate for each Class of the Fund: (i) the Consumer Price Index may be
used to assess the real rate of return from an investment in a
15
<PAGE> 292
Class of shares of the Fund; (ii) other government statistics, including, but
not limited to, The Survey of Current Business, may be used to illustrate
investment attributes of a Class of shares of the Fund or the general economic,
business, investment, or financial environment in which the Fund operates;
(iii) the effect of tax-deferred compounding on the investment returns of a
Class of the Fund, or on returns in general, may be illustrated by graphs,
charts, etc., where such graphs or charts would compare, at various points in
time, the return from an investment in a Class of the Fund (or returns in
general) on a tax-deferred basis (assuming reinvestment of capital gains and
dividends and assuming one or more tax rates) with the return on a taxable
basis; and (iv) the sectors or industries in which a Fund invests may be
compared to relevant indices of stocks or surveys (e.g., S&P Industry Surveys)
to evaluate a Fund's historical performance or current or potential value with
respect to the particular industry or sector.
In addition, the Company also may use, in advertisements and other
types of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank, and
its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and
the related "Tax Freedom Day."
The Company may also disclose in advertising and other types of
literature, information and statements the average credit quality of the Fund's
portfolio, or categories of investments therein, as of a specified date or
period. Average credit quality is calculated on a dollar weighted average
basis based on ratings assigned each issue or issuer, as the case may be, by
S&P and/or Moody's. In the event one rating agency does not rate the issue or
issuer, as the case may be, in the same tier as the other agency, the highest
rating is used in the calculation.
The Company also may discuss in advertisements and other types of
literature that the Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as Standard & Poor's Ratings
Group. Such rating would assess the creditworthiness of the investments held
by the Fund. The assigned rating would not be a recommendation to purchase,
sell or hold the Fund's shares since the rating would not comment on the
market price of the Fund's shares or the suitability of the Fund for a
particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. The Company may
compare the Fund's performance with other investments which are assigned
ratings by NRSROs. Any such comparisons may be useful to investors who wish to
compare the Fund's past performance with other rated investments.
From time to time, the Fund may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Stagecoach Funds, provides
various services to its customers that are also shareholders of the Funds.
These services may include access to Stagecoach Funds' account
16
<PAGE> 293
information through Automated Teller Machines (ATMs), the placement of purchase
and redemption requests for shares of the Funds through ATMs and the
availability of combined Wells Fargo Bank and Stagecoach Funds account
statements." The Company may also disclose in advertising and other types of
sales literature the assets and categories of assets under management by the
Company's investment adviser. The Company may also disclose in advertising and
other types of sales literature the assets and categories of assets under
management by a fund's investment adviser or sub-adviser and the total amount
of assets under management by Wells Fargo Investment Management Group ("IMG").
As of December 31, 1995, IMG had $30.1 billion in assets under management. The
Company may disclose in advertising, statements and other literature the amount
of assets and mutual fund assets managed by Wells Fargo Bank. As of April 1,
1996, Wells Fargo Bank provided investment advisory services for approximately
$56 billion of assets of individuals, trusts, estates and institutions and $17
billion of mutual fund assets.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each Class of the Fund is determined
by the custodian of the Fund on each day the NYSE is open for trading.
Securities of the Fund for which market quotations are available
are valued at latest prices. Any security for which the primary market is an
exchange is valued at the last sale price on such exchange on the day of
valuation or if there was no sale on such day, the latest bid price quoted on
such day. In the case of other securities, including U.S. Government
securities but excluding money market instruments maturing in 60 days or less,
the valuations are based on latest quoted bid prices. Money market instruments
maturing in 60 days or less are valued at amortized cost. Prices may be
furnished by a reputable independent pricing service approved by the Board of
Directors. Prices provided by an independent pricing service may be determined
without exclusive reliance on quoted prices and may take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. All other securities and other assets
of the Fund for which current market quotations are not readily available are
valued at fair value as determined in good faith by the Company's Directors
and in accordance with procedures adopted by the Directors.
PORTFOLIO TRANSACTIONS
Purchases and sales of equity securities on a securities exchange
are effected through brokers who charge a negotiated commission for their
services. Orders may be directed to any broker including, to the extent and in
the manner permitted by applicable law, Stephens or Wells Fargo Securities,
Inc. In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. In underwritten offerings,
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securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.
Debt securities normally will be purchased or sold from or to
dealers serving as market makers for the securities at a net price. The Fund
also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, debt obligations are
traded on a net basis and do not involve brokerage commissions. The cost of
executing the Fund's portfolio securities transactions will consist primarily
of dealer spreads and underwriting commissions. Under the 1940 Act, persons
affiliated with the Company are prohibited from dealing with the Company as a
principal in the purchase and sale of securities unless an exemptive order
allowing such transactions is obtained from the Commission or an exemption is
otherwise available. The Fund may purchase securities from underwriting
syndicates of which Stephens or Wells Fargo Bank is a member under certain
conditions in accordance with the provisions of a rule adopted under the 1940
Act and in compliance with procedures adopted by the Board of Directors.
The Company has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors, Wells Fargo Bank is
responsible for the Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders for portfolio securities of the Fund, Wells
Fargo Bank is required to give primary consideration to obtaining the most
favorable price and efficient execution. This means that Wells Fargo Bank will
seek to execute each transaction at a price and commission, if any, that
provide the most favorable total cost or proceeds reasonably attainable in the
circumstances. While Wells Fargo Bank will generally seek reasonably
competitive spreads or commissions, the Fund will not necessarily be paying the
lowest spread or commission available.
Commission rates are established pursuant to negotiations with the
broker based on the quality and quantity of execution services provided by the
broker in the light of generally prevailing rates. Furthermore, Wells Fargo
Bank may, in circumstances in which two or more brokers are in a position to
offer comparable results for a Fund portfolio transaction, give preference to a
broker that has provided statistical or other research services to Wells Fargo
Bank. By allocating transactions in this manner, Wells Fargo Bank is able to
supplement its research and analysis with the views and information of
securities firms. Information so received will be in addition to, and not in
lieu of, the services required to be performed by Wells Fargo Bank under the
Advisory Contract, and the expenses of Wells Fargo Bank will not necessarily be
reduced as a result of the receipt of this supplemental research information.
Furthermore, research services furnished by dealers through which Wells Fargo
Bank places securities transactions for the Fund may be used by Wells Fargo
Bank in servicing its other accounts, and not all of these services may be used
by Wells Fargo Bank in connection with advising the Fund.
Brokerage Commissions. For the years ended December 31, 1993,
1994 and 1995 the Fund paid the following for brokerage commissions .
<TABLE>
<CAPTION>
Fund 1993 1994 1995
- ---- ---- ---- ----
<S> <C> <C> <C>
Diversified Income Fund $68,477 $134,777 $193,078
</TABLE>
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Securities of Regular Broker/Dealers. On December 31, 1995 the
Diversified Income Fund owned securities of its "regular brokers or dealers,"
or their parents, as defined in the Act, as follows:
<TABLE>
<CAPTION>
Fund Regular Broker/Dealer Amount
- ---- --------------------- ------
<S> <C> <C>
Diversified Income Fund Goldman Sachs & Co. $2,373,000
</TABLE>
Portfolio Turnover. Portfolio turnover generally involves some
expenses to the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gain tax
consequences. The portfolio turnover rate for the Fund generally is not
expected to exceed 150%. The portfolio turnover rate will not be a limiting
factor when Wells Fargo Bank deems portfolio changes appropriate.
FEDERAL INCOME TAXES
The Prospectus describes generally the tax treatment of
distributions by the Fund. This section of the SAI includes additional
information concerning federal income taxes.
Qualification as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, ("the Code") requires, among other
things, that (a) at least 90% of the Fund's annual gross income be derived
from interest, payments with respect to securities loans, dividends and gains
from the sale or other disposition of securities or foreign currencies, or
other income (including but not limited to gains from options, futures, or
forward contracts) derived with respect to each Fund's business of investing in
such securities or currencies; (b) the Fund generally derives less than 30% of
its gross income from gains from the sale or other disposition of securities,
options, futures or forward contracts held for less than three months; and (c)
the Fund diversifies its holdings so that, at the end of each quarter of the
taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash, government securities and other securities limited in
respect of any one issuer to an amount not greater than 5% of the Fund's
assets and 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its assets is invested in the securities of
any one issuer (other than U.S. Government securities or the securities of
other regulated investment companies), or in two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades
or businesses or related trades or businesses. As a regulated investment
company, the Fund will not be subject to federal income tax on its net
investment income and net capital gains distributed to its shareholders,
provided that the Fund distributes to its shareholders at least 90% of its
net investment income earned in each year.
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<PAGE> 296
A 4% nondeductible excise tax will be imposed on the Fund to the
extent it does not meet certain minimum distribution requirements by the end of
each calendar year. The Fund will either actually or be deemed to distribute
substantially all of its net investment income and net capital gains by the end
of each calendar year and, thus, expects not to be subject to the excise tax.
Income and dividends received by the Fund from sources within
foreign countries may be subject to withholding and other taxes (generally at
rates from 10% to 40%) imposed by such countries. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes.
Because not more than 50% of the value of the total assets of the Fund is
expected to consist of securities of foreign issuers, the Fund will not be
eligible to elect to "pass through" foreign tax credits to shareholders.
Gains or losses on sales of portfolio securities by the Fund will
generally be long-term capital gains or losses if the securities have been held
by it for more than one year, except in certain cases such as where the Fund
acquires a put or writes a call thereon. Other gains or losses will be
short-term capital gains or losses. However, gain recognized on the
disposition of a debt obligation purchased by the Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation.
To the extent that the Fund recognizes long-term capital gains,
such gains will be distributed at least annually, and these distributions will
be taxable to shareholders as long-term capital gains, regardless of how long a
shareholder has held Fund shares. Such distributions will be designated as
capital gain distributions in a written notice mailed by the Fund to
shareholders not later than 60 days after the close of the Fund's taxable
year. If a shareholder receives such a designated capital gain distribution
(to be treated by the shareholder as a long-term capital gain) with respect to
any Fund share and such Fund share is held for six months or less, then (unless
otherwise disallowed) any loss on the sale or exchange of that Fund share will
be treated as a long-term capital loss to the extent of the designated capital
gain distribution.
As of the printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.60%; (marginal rates may be higher for some
individuals due to phase out of exemptions and elimination of deductions), the
maximum individual rate applicable to net realized capital gains is 28.00%
and the maximum corporate tax rate applicable to ordinary income and net
realized capital gains is 35.00%. However, to eliminate the benefit of lower
marginal corporate income tax rates, corporations which have taxable income in
excess of $100,000 for a taxable year will be required to pay an additional
amount of income tax of up to $11,750 and corporations which have taxable
income in excess of $15,000,000 for a taxable year will be required to pay an
additional amount of tax of up to $100,000.
If an option granted by the Fund lapses or is terminated through
a closing transaction, such as a repurchase by the Fund of the option from its
holder, the Fund will
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realize a short-term capital gain or loss, depending on whether the premium
income is greater or less than the amount paid by the Fund in the closing
transaction. If securities are sold by the Fund pursuant to the exercise of a
call option granted by it, the Fund will add the premium received to the sale
price of the securities delivered in determining the amount of gain or loss on
the sale. If securities are purchased by the Fund pursuant to the exercise of
a put option granted by it the Fund will subtract the premium received from its
cost basis in the securities purchased. The requirement that the Fund derives
less than 30% of its gross income from gains from the sale of securities held
for less than three months may limit the Fund's ability to grant options.
If a shareholder exchanges or otherwise disposes of shares of the
Fund within 90 days of having acquired such shares, and if, as a result of
having acquired those shares, the shareholder subsequently pays a reduced sales
charge for shares of the Fund, or of a different fund, the sales charge
previously incurred acquiring the Fund's shares shall not be taken into
account (to the extent such previous sales charges do not exceed the reduction
in sales charges) for the purpose of determining the amount of gain or loss on
the exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of the Fund will be disallowed to the extent that substantially
identical shares are reacquired within the 61-day period beginning 30 days
before and ending 30 days after the shares are disposed of.
If, in the opinion of the Fund, ownership of its shares has or
may become concentrated to an extent that could cause the Fund to be deemed a
personal holding company within the meaning of the Code, the Fund may require
the redemption of shares or reject any order for the purchase of shares in an
effort to prevent such concentration.
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 Fund may involve sophisticated tax rules such as the original
issue discount and real estate mortgage investment conduit ("REMIC"), rules
that would result in income or gain recognition by the Fund without
corresponding current cash receipts. Although the Fund will seek to avoid
significant noncash income, such noncash income could be recognized by the
Fund, in which case the Fund may distribute cash derived from other sources in
order to meet the minimum distribution requirements described above.
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<PAGE> 298
The foregoing discussion, and the discussions in the prospectus
applicable to each shareholder, address only some of the federal tax
considerations generally affecting investments in a Fund. Each investor is
urged to consult his or her tax advisor regarding specific questions as to
federal, state or local taxes.
CAPITAL STOCK
The Company, an open-end, management investment company, was
incorporated in Maryland on September 9, 1991. The authorized capital stock of
the Company consists of 10,000,000,000 shares having a par value of $.001 per
share. As of the date of this SAI, the Company's Board of Directors has
authorized the issuance of thirteen series of shares, each representing an
interest in one portfolio -- the Aggressive Growth Fund, Asset Allocation Fund,
California Tax- Free Bond Fund, California Tax-Free Income Fund, California
Tax-Free Money Market Mutual Fund, Corporate Stock Fund, Diversified Income
Fund, Ginnie Mae Fund, Growth and Income Fund, Money Market Mutual Fund,
National Tax-Free Money Market Mutual Fund, Short-Intermediate U.S. Government
Income Fund and U.S. Government Allocation Fund -- and the Board of Directors
may, in the future, authorize the issuance of other series of capital stock
representing shares of additional investment portfolios.
The Fund is comprised of two Classes of shares -- Class A Shares
and Class B Shares. With respect to matters that affect one Class but not
another (for example, the approval of a Plan), shareholders vote as a Class.
Subject to the foregoing, all shares of a Fund have equal voting rights and
will be voted in the aggregate, and not by series, except where voting by a
series is required by law or where the matter involved only affects one series.
For example, a change in a Fund's fundamental investment policies affects only
one series and would be voted upon only by shareholders of the affected Fund
and not shareholders of the Company's other series. Additionally, approval of
an advisory contract is a matter to be determined separately by series.
Approval by the shareholders of one series is effective as to that series
whether or not sufficient votes are received from the shareholders of the other
series to approve the proposal as to those series. As used in the Prospectus
and in this SAI, the term "majority," when referring to approvals to be
obtained from shareholders of a Class of the Fund, means the vote of the lesser
of (i) 67% of the shares of such Class represented at a meeting if the holders
of more than 50% of the outstanding shares of such Class are present in person
or by proxy, or (ii) more than 50% of the outstanding shares of such Class.
The term "majority," when referring to the approvals to be obtained from
shareholders of the Company as a whole, means the vote of the lesser of (i) 67%
of the Company's shares represented at a meeting if the holders of more than
50% of the Company's outstanding shares are present in person or by proxy, or
(ii) more than 50% of the Company's outstanding shares. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held.
The Company may dispense with annual meetings of shareholders in
any year in which it is not required to elect Directors under the 1940 Act.
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<PAGE> 299
Each share of the Fund represents an equal proportional interest
in the Fund with each other share and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Fund as
are declared in the discretion of the Directors. In the event of the
liquidation or dissolution of the Company, shareholders of the Fund are
entitled to receive the assets attributable to the Fund that are available for
distribution, and a distribution of any general assets not attributable to the
Fund or a particular portfolio that are available for distribution in such
manner and on such basis as the Directors in their sole discretion may
determine.
Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.
As of February 29, 1996 no shareholders were known by the Company
to own 5% or more of the outstanding Class A Shares or Class B Shares of the
Fund.
OTHER
The Registration Statement, including the Prospectus, the SAI and
the exhibits filed therewith, may be examined at the office of the SEC in
Washington, D.C. Statements contained in the Prospectus or the SAI as to the
contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company. KPMG Peat Marwick LLP provides audit services, tax
return preparation and assistance and consultation in connection with review of
certain SEC filings. KPMG Peat Marwick LLP's address is Three Embarcadero
Center, San Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments, financial statements and
independent auditors' report for the Fund contained in Post-Effective Amendment
No. 21 to the Company's Registration Statement, as filed with the SEC on Form
N-1A on February 29, 1996, are hereby incorporated by reference into this SAI.
The portfolio of investments, audited
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<PAGE> 300
financial statements and independent auditors' reports are attached to all SAIs
delivered to current or prospective shareholders.
24
<PAGE> 301
APPENDIX
The following is a description of the ratings given by Moody's
and S&P to corporate bonds and commercial paper.
Corporate Bonds
Moody's: The four highest ratings for corporate bonds are "Aaa,"
"Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best quality"
and carry the smallest amount of investment risk. Bonds rated "Aa" are of
"high quality by all standards, " but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds
rated "A" possess many favorable investment attributes and are considered to be
upper medium grade obligations. Bonds rated "Baa" are considered to be medium
grade obligations; interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1,
2 and 3 in each rating category from "Aa" through "Baa" in its rating system.
The modifier 1 indicates that the security ranks in the higher end of its
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate bonds are "AAA,"
"AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned by
S&P and have an extremely strong capacity to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity to pay interest and repay
principal" and differ "from the highest rated issued only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having an "adequate capacity" to pay interest and
repay principal, but changes in economic conditions or other circumstances are
more likely to lead to a "weakened capacity" to make such repayments. The
ratings from "AA" to "BBB" may be modified by the addition of a plus or minus
sign to show relative standing within the category.
Commercial Paper
Moody's: The highest rating for commercial paper is "P-1"
(Prime-1). Issuers rated "P-1" have a "superior capacity for repayment of
short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations, " but
earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for commercial paper indicates that the
"degree of safety regarding timely payment is either overwhelming or very
strong." Commercial paper with
A-1
<PAGE> 302
"overwhelming safety characteristics" will be rated "A-1+." Commercial paper
with a strong capacity for timely payments on issues will be rated "A-2."
A-2
<PAGE> 303
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1996
GINNIE MAE FUND
GROWTH AND INCOME FUND
----------------------
Stagecoach Funds, Inc. is an open-end series investment company.
This Statement of Additional Information ("SAI") contains information about
two of the funds in the Stagecoach Family of Funds -- the Ginnie Mae Fund and
the Growth and Income Fund (each, a "Fund" and collectively, the "Funds").
Each of the Funds offers two classes (each a "Class") of shares -- Class A
Shares and Class B Shares. The shares currently designated Class A Shares were
previously the only shares offered and were not designated as a Class. This
SAI relates to both Classes of shares offered by each Fund. The investment
objective of each Fund is described in its Prospectus under "How the Funds Work
- -- Investment Objectives and Policies."
This SAI is not a prospectus and should be read in conjunction
with the Prospectus dated May 1, 1996, for each of the Funds. All terms used
in this SAI that are defined in each Fund's Prospectus will have the meaning
assigned in such Prospectus. A copy of the Prospectus for each Fund may be
obtained without charge by writing Stephens Inc., the Company's sponsor,
administrator and distributor, at 111 Center Street, Little Rock, Arkansas
72201 or calling the Transfer Agent at the telephone number indicated above.
----------------------
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TABLE OF CONTENTS
Statement of Additional Information
<TABLE>
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment
Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Calculation of Yield and
Total Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . 20
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
2
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INVESTMENT RESTRICTIONS
Fundmental Investment Policies. The Funds are subject to the
following investment restrictions, all of which are fundamental policies; that
is, they may not be changed without approval by the vote of the holders of a
majority of the Funds' outstanding voting securities, as described under
"Capital Stock":
None of the Funds may:
(1) purchase the securities of issuers conducting their
principal business activity in the same industry if, immediately after the
purchase and as a result thereof, the value of any Fund's investments in that
industry would be 25% or more of the current value of such Fund's total assets,
provided that there is no limitation with respect to investments in
obligations of the United States Government, its agencies or instrumentalities;
(2) purchase or sell real estate or real estate limited
partnerships (other than securities secured by real estate or interests therein
or securities issued by companies that invest in real estate or interests
therein);
(3) purchase commodities or commodity contracts (including
futures contracts), except that a Fund may purchase securities of an issuer
which invests or deals in commodities or commodity contracts;
(4) purchase interests, leases, or limited partnership
interests in oil, gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions and except for margin
payments in connection with options, futures and options on futures) or make
short sales of securities;
(6) underwrite securities of other issuers, except to the
extent that the purchase of permitted investments directly from the issuer
thereof or from an underwriter for an issuer and the later disposition of such
securities in accordance with the Fund's investment program may be deemed to be
an underwriting;
(7) make investments for the purpose of exercising control or
management;
(8) issue senior securities, except the Growth and Income Fund
may borrow from banks up to 10% of the current value of its net assets for
temporary purposes only in order to meet redemptions, and these borrowings may
be secured by the pledge of up to 10% of the current value of each such Fund's
net assets (but investments may not be purchased by such Funds while any such
outstanding borrowings exceed 5% of the respective Fund's net assets), and
except that the Ginnie Mae Fund may borrow up to 20% of the current value of
its net assets for temporary purposes only in order to meet redemptions, and
these borrowings may be secured by
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<PAGE> 306
the pledge of up to 20% of the current value of such Fund's net assets (but
investments may not be purchased by such Fund while any such outstanding
borrowings exceed 5% of the Fund's net assets);
(9) write, purchase or sell puts, calls, straddles, spreads,
warrants, options or any combination thereof, except that the Growth and
Income Fund may purchase securities with put rights in order to maintain
liquidity and may invest up to 5% of its net assets in warrants in accordance
with its investment policies as stated below; or
(10) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies and instrumentalities) if,
as a result, more than 5% of the value of the Fund's total assets would be
invested in the securities of any one issuer or the Fund's ownership would be
more than 10% of the outstanding voting securities of such issuer.
All of the Funds may make loans in accordance with their
investment policies.
Non-Fundamental Investment Policies. The Funds are subject to the
following non-fundamental policies which may be changed by a majority vote of
the Board of Directors without shareholder approval:
None of the Funds may:
(1) purchase or retain securities of any issuer if the officers
or Directors of the Company or its Investment Adviser owning beneficially more
than one-half of one percent (0.50%) of the securities of the issuer together
owned beneficially more than 5% of such securities;
(2) purchase securities of issuers who, with their
predecessors, have been in existence less than three years, unless the
securities are fully guaranteed or insured by the U.S. Government, a state,
commonwealth, possession, territory, the District of Columbia or by an entity
in existence at least three years, or the securities are backed by the assets
and revenues of any of the foregoing if, by reason thereof, the value of its
aggregate investments in such securities will exceed 5% of its total assets;
(3) purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, and
equity securities of issuers which are not readily marketable if by reason
thereof the value of such Fund's aggregate investment in such Classes of
securities will exceed 5% of its total assets; or
(4) invest more than 10% of the current value of its net assets
in repurchase agreements maturing in more than seven days or other illiquid
securities (including restricted securities).
In addition, the Funds may invest in shares of other open-end,
management investment companies, subject to the limitations of Section 12(d)(1)
of the 1940 Act, provided that any such
4
<PAGE> 307
purchases will be limited to temporary investments in shares of unaffiliated
investment companies and the Investment Adviser will waive its advisory fees
for that portion of the Fund's assets so invested, except when such purchase is
part of a plan of merger, consolidation, reorganization or acquisition.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Unrated Investments. The Funds may purchase instruments that are
not rated if, in the opinion of Wells Fargo Bank, such obligations are of
investment quality comparable to other rated investments that are permitted to
be purchased by such Fund. After purchase by a Fund, a security may cease to
be rated or its rating may be reduced below the minimum required for purchase
by such Fund. Neither event will require a sale of such security by such Fund.
To the extent the ratings given by Moody's or S&P may change as a result of
changes in such organizations or their rating systems, each Fund will attempt
to use comparable ratings as standards for investments in accordance with the
investment policies contained in its Prospectus and in this SAI. The ratings
of Moody's and S&P are more fully described in the SAI Appendix.
Letters of Credit. Certain of the debt obligations (including
certificates of participation, commercial paper and other short-term
obligations) which the Funds may purchase may be backed by an unconditional and
irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of Wells Fargo Bank,
are of comparable quality to issuers of other permitted investments of such
Fund may be used for letter of credit-backed investments.
Pass-Through Obligations. Certain of the debt obligations in
which the Ginnie Mae Fund may invest may be pass-through obligations that
represent an ownership interest in a pool of mortgages and the resultant cash
flow from those mortgages. Payments by homeowners on the loans in the pool
flow through to certificate holders in amounts sufficient to repay principal
and to pay interest at the pass-through rate. The stated maturities of
pass-through obligations may be shortened by unscheduled prepayments of
principal on the underlying mortgages. Therefore, it is not possible to
predict accurately the average maturity of a particular pass-through
obligation. Variations in the maturities of pass-through obligations will
affect the yield of the Ginnie Mae Fund. Furthermore, as with any debt
obligation, fluctuations in interest rates will inversely affect the market
value of pass-through obligations. The Ginnie Mae Fund may invest in
pass-through obligations that are supported by the full faith and credit of the
U.S. Government (such as those issued by the Government National Mortgage
Association) or those that are guaranteed by an agency or instrumentality of
the U.S. Government or government-sponsored enterprise (such as the Federal
National Mortgage Association or the Federal Home Loan Mortgage Corporation) or
bonds collateralized by any of the foregoing.
5
<PAGE> 308
When-Issued Securities. Certain of the securities in which the
Funds may invest will be purchased on a when-issued basis, in which case
delivery and payment normally take place within 120 days after the date of the
commitment to purchase. The Funds only will make commitments to purchase
securities on a when-issued basis with the intention of actually acquiring the
securities, but may sell them before the settlement date if it is deemed
advisable. When-issued securities are subject to market fluctuation, and no
income accrues to the purchaser during the period prior to issuance. The
purchase price and the interest rate that will be received on debt securities
are fixed at the time the purchaser enters into the commitment. Purchasing a
security on a when-issued basis can involve a risk that the market price at the
time of delivery may be lower than the agreed-upon purchase price, in which
case there could be an unrealized loss at the time of delivery. The Growth and
Income Fund currently does not intend to invest more than 5% of its assets in
when-issued securities during the coming year.
Each Fund will segregate cash, U.S. Government obligations or
other high-quality debt instruments in an amount at least equal in value to the
Fund's commitments to purchase when-issued securities. If the value of these
assets declines, the Fund will segregate additional liquid assets on a daily
basis so that the value of the segregated assets is equal to the amount of such
commitments.
Loans of Portfolio Securities. All of the Funds may lend
securities from their portfolios to brokers, dealers and financial institutions
(but not individuals) if cash, U.S. Government securities or other high-quality
debt obligations equal to at least 100% of the current market value of the
securities loan (including accrued interest thereon) plus the interest payable
to such Fund with respect to the loan is maintained with the Fund. In
determining whether to lend a security to a particular broker, dealer or
financial institution, the Fund's Investment Adviser will consider all relevant
facts and circumstances, including the creditworthiness of the broker, dealer,
or financial institution. Any loans of portfolio securities will be fully
collateralized based on values that are marked to market daily. The Funds will
not enter into any portfolio security lending arrangement having a duration of
longer than one year. Any securities that a Fund may receive as collateral
will not become part of the Fund's portfolio at the time of the loan and, in
the event of a default by the borrower, the Fund will, if permitted by law,
dispose of such collateral except for such part thereof that is a security in
which the Fund is permitted to invest. During the time securities are on loan,
the borrower will pay the Fund any accrued income on those securities, and the
Fund may invest the cash collateral and earn additional income or receive an
agreed-upon fee from a borrower that has delivered cash-equivalent collateral.
None of the Funds will lend securities having a value that exceeds 33 1/3% of
the current value of its total assets. Loans of securities by any of the Funds
will be subject to termination at the Fund's or the borrower's option. The
Funds may pay reasonable administrative and custodial fees in connection with a
securities loan and may pay a negotiated portion of the interest or fee earned
with respect to the collateral to the borrower or the placing broker.
Borrowers and placing brokers may not be affiliated, directly or indirectly,
with Stagecoach, its Investment Adviser, or its Distributor. The Ginnie Mae
Fund currently intends to limit the practice of lending portfolio securities to
no more than 5% of its net assets during the coming year.
6
<PAGE> 309
Foreign Obligations. Investments in foreign obligations involve
certain considerations that are not typically associated with investing in
domestic obligations. There may be less publicly available information about a
foreign issuer than about a domestic issuer. Foreign issuers also are not
generally subject to uniform accounting, auditing and financial reporting
standards or governmental supervision comparable to those applicable to
domestic issuers. In addition, with respect to certain foreign countries,
taxes may be withheld at the source under foreign income tax laws, and there is
a possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect investments
in, the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries. The Ginnie Mae
Fund does not intend to invest in foreign obligations during the coming year.
The Growth and Income Fund currently does not intend to invest more than 10% of
its assets in foreign obligations. Neither of the Funds may invest 25% or
more of its assets in foreign obligations.
Convertible Securities (Lower Rated Securities) Subject to the
limitations described in its Prospectus, the Growth and Income Fund may invest
in convertible securities that are not rated in one of the four highest rating
categories by an NRSRO. The yields on such lower rated securities, which
include securities also known as junk bonds, generally are higher than the
yields available on higher-rated securities. However, investments in lower
rated securities and comparable unrated securities generally involve greater
volatility of price and risk of loss of income and principal, including the
probability of default by or bankruptcy of the issuers of such securities.
Lower rated securities and comparable unrated securities (a) will likely have
some quality and protective characteristics that, in the judgment of the rating
organization, are outweighed by large uncertainties or major risk exposures to
adverse conditions and (b) are predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation. Accordingly, it is possible that these types of
factors could, in certain instances, reduce the value of securities held in the
Fund's portfolio, with a commensurate effect on the value of the Fund's shares.
Therefore, an investment in the Fund should not be considered as a complete
investment program and may not be appropriate for all investors.
While the market values of lower rated securities and comparable
unrated securities tend to react less to fluctuations in interest rate levels
than the market values of higher-rated securities, the market values of certain
lower rated securities and comparable unrated securities also tend to be more
sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, lower rated securities
and comparable unrated securities generally present a higher degree of credit
risk. Issuers of lower rated securities and comparable unrated securities
often are highly leveraged and may not have more traditional methods of
financing available to them so that their ability to service their debt
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such
issuers is significantly greater because lower rated securities and comparable
unrated securities generally are unsecured and frequently are subordinated to
the prior payment of senior indebtedness. The Fund may incur additional
expenses to the extent that it is required to seek recovery upon a default in
the payment of principal or interest on its portfolio holdings. The existence
of limited markets for lower rated securities and comparable
7
<PAGE> 310
unrated securities may diminish the Fund's ability to (a) obtain accurate
market quotations for purposes of valuing such securities and calculating net
asset value and (b) sell the securities at fair value either to meet redemption
requests or to respond to changes in the economy or in financial markets.
Certain lower rated debt securities and comparable unrated
securities frequently have call or buy-back features that permit their issuers
to call or repurchase the securities from their holders, such as the Fund. If
an issuer exercises these rights during periods of declining interest rates,
the Fund may have to replace the security with a lower yielding security, thus
resulting in a decreased return to the Fund.
The market for certain lower rated securities and comparable
unrated securities is relatively new and has not weathered a major economic
recession. The effect that such a recession might have on such securities is
not known. Any such recession, however, could disrupt severely the market for
such securities and adversely affect the value of such securities. Any such
economic downturn also could adversely affect the ability of the issuers of
such securities to repay principal and pay interest thereon.
Privately Issued Securities (Rule 144A). The Growth and Income
Fund may invest in privately issued securities which may be resold only in
accordance with Rule 144A under the Securities Act of 1933 ("Rule 144A
Securities"). Rule 144A Securities are restricted securities and will not be
publicly traded. Accordingly, the liquidity of the market for specific Rule
144A Securities may vary. The Company's investment adviser, pursuant to
guidelines established by the Board of Directors of the Company will evaluate
the liquidity characteristics of each Rule 144A Security proposed for purchase
by the Fund on a case-by-case basis and will consider the following factors,
among others, in their evaluation: (1) the frequency of trades and quotes for
the Rule 144A Security; (2) the number of dealers willing to purchase or sell
the Rule 144A Security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the Rule 144A Security; and (4) the nature of
the Rule 144A Security and the nature of the marketplace trades (e.g., the time
needed to dispose of the Rule 144A Security, the method of soliciting offers
and the mechanics of transfer). The Growth and Income Fund does not intend to
invest more than 5% of its net assets in Rule 144A Securities during the coming
year.
The Funds so indicated below may engage in the following
investment activities although none has a present intention to do so:
Investment in Warrants. The Growth and Income Fund may invest no
more than 5% of its net assets at the time of purchase in warrants (other than
those that have been acquired in units or attached to other securities), and
not more than 2% of its net assets in warrants which are not listed on the New
York or American Stock Exchange. Warrants represent rights to purchase
securities at a specific price valid for a specific period of time. The prices
of warrants do not necessarily correlate with the prices of the underlying
securities. The Growth and Income Fund may only purchase warrants on
securities in which it may invest directly.
8
<PAGE> 311
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "The Fund and
Management." The principal occupations during the past five years of the
Directors and principal executive Officer of the Company are listed below.
The address of each, unless otherwise indicated, is 111 Center Street, Little
Rock, Arkansas 72201. Directors deemed to be "interested persons" of the
Company for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Address and Age Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 73 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 44 Director, Senior Vice President
Chairman and of Stephens ; Manager
President of Financial Services
Group; President of
Stephens Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 53 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and Accountancy;
Associate Professor of Finance
of the School of Business and
Accounting at Wake Forest
University since 1983.
</TABLE>
9
<PAGE> 312
<TABLE>
<S> <C> <C>
*Zoe Ann Hines, 46 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource
Management.
*W. Rodney Hughes, 69 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 77 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 51 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 39 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
COMPENSATION TABLE
For the Year Ended December 31, 1995
<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>
10
<PAGE> 313
<TABLE>
<S> <C> <C>
*R. Greg Feltus 0 0
Director
Thomas S. Goho 10,188 39,750
Director
*Zoe Ann Hines 0 0
Director
*W. Rodney Hughes 9,438 37,000
Director
Robert M. Joses 9,938 39,000
Director
*J. Tucker Morse 8,313 33,250
Director
</TABLE>
Directors of the Company are compensated annually by the Company
and by all the registrants in the fund complex for their services as indicated
above and also are reimbursed for all out-of-pocket expenses relating to
attendance at board meetings. Each of the Directors and Officers of the Company
serves in the identical capacity as Directors and Officers of Overland Express
Funds, Inc. and Stagecoach Inc., and as Trustees and/or Officers of Stagecoach
Trust, Master Investment Portfolio, Life & Annuity Trust, Master Investment
Trust and Managed Series Investment Trust, each of which is a registered
open-end management investment company and each of which is considered to be in
the same "fund complex," as such term is defined in Form N-1A under the 1940
Act, as the Company. The Directors are compensated by other Companies and
Trusts within the fund complex for their services as Directors/Trustees to such
Companies and Trusts. Currently the Directors do not receive any retirement
benefits or deferred compensation from the Company or any other member of the
fund complex.
As of the date of this SAI, Directors and Officers of the Company
as a group beneficially owned less than 1% of the outstanding shares of the
Company.
Investment Adviser. Each of the Funds is advised by Wells Fargo
Bank pursuant to an Advisory Contract. The Advisory Contracts provide that
Wells Fargo Bank shall furnish to the Funds investment guidance and policy
direction in connection with the daily portfolio management of each Fund.
Pursuant to the Advisory Contracts, Wells Fargo Bank furnishes to the Board of
Directors periodic reports on the investment strategy and performance of each
Fund. Wells Fargo Bank has agreed to provide to the Funds, among other
things, money market security and fixed-income research, analysis and
statistical and economic data and information concerning interest rate and
security market trends, portfolio composition, credit conditions and, in the
case of the Ginnie Mae Fund, the average maturities of its portfolios .
11
<PAGE> 314
Each Advisory Contract will continue in effect for more than two
years provided the continuance is approved annually (i) by the holders of a
majority of the respective Fund's outstanding voting securities or by the
Company's Board of Directors and (ii) by a majority of the Directors of the
Company who are not parties to the Advisory Contract or "interested persons"
(as defined in the 1940 Act) of any such party. Each Advisory Contract may be
terminated on 60 days' written notice by either party and will terminate
automatically if assigned.
For the years ended December 31, 1993, 1994 and 1995, the Funds
paid to Wells Fargo Bank the advisory fees indicated below and Wells Fargo Bank
waived the indicated amounts:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
Fees Fees Fees Fees Fees Fees
Fund Paid Waived Paid Waived Paid Waived
- ---- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Ginnie Mae $888,174 $437,110 $1,185,036 -0- $840,112 -0-
Growth and $443,874 -0- $ 587,977 -0- $754,149 -0-
Income
</TABLE>
Administrator and Distributor. The Company has retained Stephens
as administrator and distributor on behalf of each of its Funds. Each
Administration Agreement between Stephens and a Fund states that Stephens shall
provide as administrative services, among other things: (i) general
supervision of the operation of the Fund, including coordination of the
services performed by the Fund's investment adviser, transfer and dividend
disbursing agent, custodian, shareholder servicing agent(s), independent public
accountants and legal counsel, regulatory compliance, including the compilation
of information for documents such as reports to, and filings with, the SEC and
state securities commissions; and preparation of proxy statements and
shareholder reports for the Fund; and (ii) general supervision relative to the
compilation of data required for the preparation of periodic reports
distributed to the Company's Officers and Board of Directors. Stephens also
furnishes office space and certain facilities required for conducting the
business of the Fund together with those ordinary clerical and bookkeeping
services that are not being furnished by Wells Fargo Bank. Stephens also pays
the compensation of the Company's Directors, Officers and employees who are
affiliated with Stephens.
For the fiscal years ended December 31, 1993, 1994 and 1995, the
Funds paid administrative fees to Stephens as follows:
<TABLE>
<CAPTION>
Fund 1993 1994 1995
---- ---- ---- ----
<S> <C> <C> <C>
Ginnie Mae Fund $ 81,058 $71,842 $50,407
Growth and Income Fund $ 26,644 $35,279 $45,249
</TABLE>
12
<PAGE> 315
The Advisory Contract and Administration Agreement for each Fund provide that
if, in any fiscal year, the total expenses of the Fund incurred by, or
allocated to, the Fund (excluding taxes, interest, brokerage commissions and
other portfolio transaction expenses, expenditures that are capitalized in
accordance with generally accepted accounting principles, extraordinary
expenses and amounts accrued or paid under the Plan but including the fees
provided for in the Advisory Contract and the Administration Agreement) exceed
the most restrictive expense limitation applicable to the Fund imposed by the
securities laws or regulations of the states in which the Fund's shares are
registered for sale, Wells Fargo Bank and Stephens shall waive their fees
proportionately under the Advisory Contract and the Administration Agreement,
respectively, for each Fund for the fiscal year to the extent of the excess or
reimburse the excess, but only to the extent of their respective fees. The
Advisory Contract and the Administration Agreement for each Fund further
provide that the respective Fund's total expenses shall be reviewed monthly so
that, to the extent the annualized expenses for such month exceed the most
restrictive applicable annual expense limitation, the monthly fees under the
contract and the agreement shall be reduced as necessary. The most stringent
applicable restriction limits these expenses for any fiscal year to 2.50% of
the first $30 million of the Fund's average net assets, 2.00% of the next $70
million of average net assets, and 1.50% of the average net assets in excess of
$100 million.
Shareholder Servicing Agent. As discussed in each Fund's
prospectus under the heading "Shareholder Servicing Agent," the Funds have
entered into shareholder servicing agreements with Wells Fargo Bank. The
dollar amount of shareholder servicing fees paid by each Fund to Wells Fargo
Bank or its affiliates for the year ended December 31, 1995 was as follows:
<TABLE>
<CAPTION>
Fund 1995
- ---- ----
<S> <C>
Ginnie Mae Fund $255,060
Growth and Income Fund $452,488
</TABLE>
Custodian and Transfer and Dividend Disbursing Agent. Wells Fargo
Bank has been retained to act as custodian for the Funds. The custodian, among
other things, maintains a custody account or accounts in the name of each Fund;
receives and delivers all assets for each Fund upon purchase and upon sale or
maturity; collects and receives all income and other payments and distributions
on account of the assets of each Fund and pays all expenses of each Fund. For
its services as custodian, Wells Fargo Bank receives an asset-based fee and
transaction charge from the respective Funds.
For the year ended December 31, 1995, the Funds paid custody fees
to Wells Fargo Bank as follows:
13
<PAGE> 316
<TABLE>
<CAPTION>
Fund 1995
- ---- ----
<S> <C>
Ginnie Mae $ -0-
Growth and Income $15,578
</TABLE>
For the year ended December 31, 1995, the Funds paid transfer and
dividend disbursing agency fees to Wells Fargo Bank or its affiliates as
follows:
<TABLE>
<CAPTION>
Fund 1995
- ---- ----
<S> <C>
Ginnie Mae $ -0-
Growth and Income $160,168
</TABLE>
Underwriting Commissions. For the years ended December 31, 1993
and 1994, the Company's distributor retained $26,215,173 and $5,415,227,
respectively in underwriting commissions (front-end sales loads and CDSCs, if
any) in connection with the purchase or redemption of Company shares. For the
years ended December 31, 1993 and 1994, Wells Fargo Securities Inc. ("WFSI"),
an affiliated broker-dealer of the Company, and its registered representatives
received $378,895 and $904,274, respectively, in underwriting commissions in
connection with the purchase or redemption of Company shares.
For the year ended December 31, 1995, the aggregate amount of
underwriting commissions on sales/redemptions of the Company's shares was
$1,584,545. Stephens retained $1,251,311 of such commissions. WFSI and its
registered representatives retained $333,234 of such commissions.
DISTRIBUTION PLANS
As indicated in each Fund's respective Prospectus, each of the
Funds has adopted a distribution plan (a "Plan") under Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Rule"). The Plans for the Class A
Shares of each Fund were adopted by the Company's Board of Directors on
October 22, 1991, including a majority of the Directors who were not
"interested persons" (as defined in the 1940 Act) of the respective Fund and
who had no direct or indirect financial interest in the operation of the Plan
or in any agreement related to the Plan (the "Qualified Directors"), and were
approved by the initial shareholder of each Fund on December 31, 1991. The
Plans for the Class B shares of each Fund were adopted by the Company's Board
of Directors, including a majority of the Qualified Directors, on July 27,
1994.
The Plans in effect for the Class A Shares of each Fund allow
the Funds to defray all or part of the cost of preparing and printing
prospectuses and other promotional materials and of delivering prospectuses and
those materials to prospective shareholders of each Fund by paying on an
annual basis up to 0.05% of the respective Fund's average daily net assets
attributable to Class A Shares. The Plans for the Class A Shares provide only
for the
14
<PAGE> 317
reimbursement of actual expenses. The Plans for the Class B Shares allow each
Fund to defray all or part of the cost of printing prospectuses and other
promotional materials and of delivering materials to prospective shareholders
by paying on an annual basis up to 0.70% of the average daily net assets
attributable to the Class B Shares of each respective Fund. In addition, each
Plan contemplates that to the extent any fees payable pursuant to a Shareholder
Servicing Agreement are deemed to be for distribution-related services, rather
than shareholder services, such payments are approved and payable pursuant to
such Plan.
Each Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Qualified Directors. Any agreements related to the Plans
("Agreements") also must be approved by majority vote of the Directors and the
Qualified Directors. Such Agreements will terminate automatically if assigned.
Each Fund may terminate such Agreements at any time, without payment of any
penalty, by a vote of a majority of outstanding voting securities of the Class
of shares affected by such Agreement. The amounts payable under each Plan may
not be increased materially without the approval of a majority of the voting
securities of each Class of Funds affected by such Agreements. Material
amendments to a Plan may not be made except by affirmative vote of a majority
of both the Directors of the Company and the Qualified Directors.
Each Plan requires that the Treasurer of the Company shall provide
to the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under the Plan. The
Rule also requires that the selection and nomination of Directors who are not
"interested persons" of the Company be made by such disinterested directors.
For the year ended December 31, 1995, the Funds' distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under the Plans.
<TABLE>
<CAPTION>
Printing & Mailing Marketing Compensation to
Fund Total Prospectus Brochures Underwriters
---- ----- ------------------ --------- ---------------
<S> <C> <C> <C> <C>
Ginnie Mae Fund
Class A $66,400 $20,590 $45,810 N/A
Class B $29,355 N/A N/A $29,355
Growth and Income Fund
Class A $50,138 $ 41,902 $ 8,236 N/A
Class B $13,068 N/A N/A $13,068
</TABLE>
For the year ended December 31, 1995, WFSI and its registered
representatives received no compensation under the Plans.
15
<PAGE> 318
CALCULATION OF YIELD AND TOTAL RETURN
As described in the Prospectuses for each Fund, the IRA Funds of
the Trust were reorganized into the corresponding Funds of the Company on
January 2, 1992. Therefore, the performance information for the Funds is based
on that of the IRA Funds for the periods prior to January 2, 1992, and
reference should be made to the footnotes to the condensed financial
information in the "Financial Highlights" section of each Prospectus regarding
differences in investment objectives, policies and/or restrictions between
certain of the Funds and the IRA Funds, which may affect the relevance of the
performance information provided below.
Each Fund may advertise certain total return information computed
in the manner described in its Prospectus. As and to the extent required by
the SEC, an average annual compound rate of return ("T") will be computed by
using the redeemable value at the end of a specified period ("ERV") of a
hypothetical initial investment in a Class of shares ("P") over a period of
years ("n") according to the following formula: P(1+T)n = ERV. In addition,
a Fund that assesses a sales charge, at times, also may calculate total return
based on net asset value per share of each Class (rather than the public
offering price), in which case the figures would not reflect the effect of any
sales charges that would have been paid by an investor, or based on the
assumption that a sales charge other than the maximum sales charge (reflecting
a Volume Discount) was assessed, provided that total return data derived
pursuant to the calculation described above also are presented.
The Funds may advertise the cumulative total return on each class
of shares. Cumulative total return of shares is computed on a per share basis
and assumes the reinvestment of dividends and distributions. Cumulative total
return of shares generally is expressed as a percentage rate which is
calculated by combining the income and principal changes for a specified period
and dividing by the net asset value per share at the beginning of the period.
Advertisements may include the percentage rate of total return of shares or may
include the value of a hypothetical investment in shares at the end of the
period which assumes the application of the percentage rate of total return.
In addition to the above performance information, the Funds may
also advertise the cumulative total return of a Fund for one-month, three-month,
six-month, and year-to-date periods. The cumulative total return for such
periods is based on the overall percentage change in value of a hypothetical
investment in a Fund, assuming all Fund dividends and capital gain distributions
are reinvested, without reflecting the effect of any sales charge that would
be paid by an investor, and is not annualized.
The average annual total return for the period from inception
(January 3, 1991) to December 31, 1995 on the Class A Shares of the Ginnie Mae
Fund, assuming a 4.50% sales load, was 7.28%. The average annual total return
for the same period, assuming no sales load, was 8.27%. The average annual
total return on the Class A Shares for the Ginnie Mae Fund for the year ended
December 31, 1995, assuming a 4.50% sales load, was 12.24%. The average
annual total return for the same year, assuming no sales load, was 17.53%.
The average annual total return for the year ended December 31, 1995, on the
Class B Shares of the Ginnie Mae Fund, assuming the maximum CDSC, was 13.69%.
The cumulative total return for the period from inception
(January 3, 1991) to December 31, 1995 on the Class A Shares of the Ginnie Mae
Fund, assuming a 4.50% sales load, was 42.09%. The cumulative total return
for the same period on the Class A Shares of the Ginnie Mae Fund, assuming no
sales load, was 48.77%.
16
<PAGE> 319
The average annual total return for the period since inception
(August 2, 1990) to December 31, 1995, on the Class A Shares of the Growth and
Income Fund, assuming a 4.50% sales load, was 13.00%. The average annual
total return for the same period, assuming no sales load, was 13.97%. The
average annual total return for the five-year period ended December 31, 1995,
on the Class A Shares of the Growth and Income Fund, assuming a 4.50% sales
load, was 13.52%. The average annual total return for the same period,
assuming no sales load, was 14.56%. The average annual total return for the
year ended December 31, 1995, on the Class A Shares of the Growth and Income
Fund assuming a 4.50% sales load, was 23.14%. The average annual total return
for the same year, assuming no sales load, was 28.90%. The average annual
total return for the year ended December 31, 1995, on the Class B Shares of
the Growth and Income Fund, assuming the maximum CDSC, was 25.47%. The average
annual total return for the year ended December 31, 1995, on the Class B
Shares of the Growth and Income Fund, assuming no sales charge, was 28.47%.
The cumulative total return for the period since inception
(August 2, 1990) to December 31, 1995, on the Class A Shares of the Growth and
Income Fund, assuming a 4.50% sales load, was 93.91%. The cumulative total
return for the same period, assuming no sales load, was 103.02%. The
cumulative total return for the five-year period ended December 31, 1995, on
the Class A Shares of the Growth and Income Fund, assuming a 4.50% sales load,
was 88.51%. The cumulative total return for the same period, assuming no
sales load, was 97.30%.
The Ginnie Mae Fund may advertise certain yield information on
its shares. As and to the extent required by the SEC, yield on each Class of
shares will be calculated based on a 30-day (or one month) period, computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to
the following formula: YIELD = 2[((a-b/cd)+1)6-1], where a = dividends and
interest earned during the period; b = expenses accrued for the period (net of
reimbursements); c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and d = the maximum offering
price per share on the last day of the period. The net investment income of a
Fund includes actual interest income, plus or minus amortized purchase discount
(which may include original issue discount) or premium, less accrued expenses.
Realized and unrealized gains and losses on portfolio securities are not
included in a Fund's net investment income. For purposes of sales literature,
yield also may be calculated on the basis of the net asset value per share
rather than the public offering price, provided that the yield data derived
pursuant to the calculation described above also are presented.
The yields for the 30-day period ended December 31, 1995 on the
Class A Shares of the Ginnie Mae Fund assuming a maximum sales charge of 4.50%,
was 5.80%. The 30-day yield for the same period, assuming no sales charge, was
6.08%. The yield for the 30-day period ended December 31, 1995 on the Class B
Shares of the Ginnie Mae Fund, assuming the maximum CDSC, was 5.41%. The yield
for the same period, assuming no CDSC, was 5.41%.
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The yield on each Class of the Ginnie Mae Fund will fluctuate
from time to time, unlike bank deposits or other investments that pay a fixed
yield for a stated period of time, and does not provide a basis for determining
future yields since it is based on historical data. Yield is a function of
portfolio quality, composition, maturity and market conditions as well as the
expenses allocated to the Fund.
In addition, investors should recognize that changes in the net
asset values of shares of each Class of shares of the Ginnie Mae Fund will
affect the yield of each such Class for any specified period, and such changes
should be considered together with the yield of each Class in ascertaining the
total return for the period to shareholders . Yield information for each
Class of shares of the Fund may be useful in reviewing the Fund's performance
and for providing a basis for comparison with investment alternatives. The
yield of each Class of the Fund, however, may not be comparable to the yields
from investment alternatives because of differences in the foregoing variables
and differences in the methods used to value portfolio securities, compute
expenses and calculate yield.
From time to time and only to the extent the comparison is
appropriate for a Class of shares of a Fund, the Company may quote the
performance or price-earning ratio of a Class of shares in advertising and
other types of literature as compared to the performance of the Lehman Brothers
Municipal Bond Index, the 1-Year Treasury Bill Rate, the S&P Index, the Dow
Jones Industrial Average, the Lehman Brothers 20+ Treasury Index, the Lehman
Brothers 5-7 Year Treasury Index, Donoghue's Money Fund Averages, Real Estate
Investment Averages (as reported by the National Association of Real Estate
Investment Trusts), Gold Investment Averages (provided by the World Gold
Council), Bank Averages (which is calculated from figures supplied by the U.S.
League of Savings Institutions based on effective annual rates of interest on
both passbook and certificate accounts), average annualized certificate of
deposit rates (from the Federal Reserve G-13 Statistical Releases or the Bank
Rate Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer
Price Index (as published by the U.S. Bureau of Labor Statistics), Ten Year
U.S. Government Bond Average, S&P's Corporate Bond Yield Averages, Schabacter
Investment Management Indices, Salomon Brothers High Grade Bond Index, Lehman
Brothers Long-Term High Quality Government/Corporate Bond Index, other managed
or unmanaged indices or performance data of bonds, stocks or government
securities (including data provided by Ibbotson Associates), or by other
services, companies, publications or persons who monitor mutual funds on
overall performance or other criteria. The S&P Index and the Dow Jones
Industrial Average are unmanaged indices of selected common stock prices. The
performance of a Class of shares of a Fund also may be compared to those of
other mutual funds having similar objectives. This comparative performance
could be expressed as a ranking prepared by Lipper Analytical Services, Inc.,
CDA Investment Technologies, Inc., Bloomberg Financial Markets or Morningstar,
Inc., independent services which monitor the performance of mutual funds. The
performance of a Class of shares of a Fund will be calculated by relating net
asset value per share at the beginning of a stated period to the net asset
value of the investment, assuming reinvestment of all gains, distributions and
dividends paid, at the end of the period. Any such comparisons may be useful
to investors who wish to compare the past performance of a Class of shares of
a Fund with that of its competitors. Of course, past performance cannot be a
guarantee of future results. The Company also may include, from time
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<PAGE> 321
to time, a reference to certain marketing approaches of the Distributor,
including, for example, a reference to a potential shareholder being contacted
by a selected broker or dealer. General mutual fund statistics provided by the
Investment Company Institute may also be used.
In addition, the Company also may use, in advertisements and other
types of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank, and
its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and
the related "Tax Freedom Day."
The Company also may disclose in sales literature, information and
statements the distribution rate on the shares of each class of the Funds.
Distribution rate, which may be annualized, is the amount determined by
dividing the dollar amount per share of the most recent dividend by the most
recent NAV or maximum offering price per share as of a date specified in the
sales literature. Distribution rate will be accompanied by the standard 30-day
yield as required by the SEC.
The Company may also disclose in advertising and other types of
literature, information and statements the average credit quality of the Fund's
portfolio, or categories of investments therein, as of a specified date or
period. Average credit quality is calculated on a dollar weighted average
basis based on ratings assigned each issue or issuer, as the case may be, by
S&P and/or Moody's. In the event one rating agency does not rate the issue or
issuer, as the case may be, in the same tier as the other agency, the highest
rating is used in the calculation.
The Company also may use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for a Fund: (i) the Consumer Price Index may be
used to assess the real rate of return from an investment in a Fund; (ii) other
government statistics, including, but not limited to, The Survey of Current
Business, may be used to illustrate investment attributes of a Fund or the
general economic, business, investment, or financial environment in which a
Fund operates; (iii) the effect of tax-deferred compounding on the investment
returns of a Class of Fund shares, or on returns in general, may be
illustrated by graphs, charts, etc., where such graphs or charts would compare,
at various points in time, the return from an investment in a Class of Fund
shares (or returns in general) on a tax-deferred basis (assuming reinvestment
of capital gains and dividends and assuming one or more tax rates) with the
return on a taxable basis; and (iv) the sectors or industries in which a Fund
invests may be compared to relevant indices of stocks or surveys (e.g., S&P
Industry Surveys) to evaluate a Fund's historical performance or current or
potential value with respect to the particular industry or sector.
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<PAGE> 322
The Company also may include, from time to time, a reference to
certain marketing approaches of the Distributor, including, for example, a
reference to a potential shareholder being contacted by a selected broker or
dealer.
The Company also may discuss in advertising and other types of
literature that a Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by a Fund. The assigned rating would not be a recommendation to
purchase, sell or hold a Fund's shares since the rating would not comment on
the market price of the Fund's shares or the suitability of the Fund for a
particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. The Company may
compare a Fund's performance with other investments which are assigned ratings
by NRSROs. Any such comparisons may be useful to investors who wish to compare
the Fund's past performance with other rated investments.
From time to time, the Funds may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Stagecoach Funds, provides
various services to its customers that are also shareholders of the Funds.
These services may include access to Stagecoach Funds' account information
through Automated Teller Machines (ATMs), the placement of purchase and
redemption requests for shares of the Funds through ATMs and the availability
of combined Wells Fargo Bank and Stagecoach Funds account statements." The
Company may also disclose in advertising and other types of sales literature
the assets and categories of assets under management by the Company's
investment adviser. The Company may also disclose in advertising and other
types of sales literature the assets and categories of assets under management
by a fund's investment adviser or sub-adviser and the total amount of assets
under management by Wells Fargo Investment Management Group ("IMG"). As of
December 31, 1995, IMG had $30.1 billion in assets under management. The
Company may disclose in advertising, statements and other literature the amount
of assets and mutual fund assets managed by Wells Fargo Bank. As of April 1,
1996, Wells Fargo Bank provided investment advisory services for approximately
$56 billion of assets of individuals, trusts, estates and institutions and $17
billion of mutual fund assets.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each Class of each Fund is
determined by the Custodian of the Fund on each day the NYSE is open for
trading.
Securities of a Fund for which market quotations are available are
valued at latest prices. Securities of a Fund for which the primary market is
a national securities exchange or the National Association of Securities
Dealers Automated Quotations National Market System are valued at last sale
prices. In the absence of any sale of such securities on the valuation date
and in the case of other securities, including U.S. Government securities but
excluding money market
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instruments maturing in 60 days or less, the valuations are based on latest
quoted bid prices. Money market instruments maturing in 60 days or less are
valued at amortized cost. Futures contracts will be marked to market daily at
their respective settlement prices determined by the relevant exchange. These
prices are not necessarily final closing prices, but are intended to represent
prices prevailing during the final 30 seconds of the trading day. Options
listed on a national exchange are valued at the last sale price on the exchange
on which they are traded at the close of the NYSE, or, in the absence of any
sale on the valuation date, at latest quoted bid prices. Options not listed on
a national exchange are valued at latest quoted bid prices. Debt securities
maturing in 60 days or less are valued at amortized cost. In all cases, bid
prices will be furnished by a reputable independent pricing service approved by
the Board of Directors. Prices provided by an independent pricing service may
be determined without exclusive reliance on quoted prices and may take into
account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data. All other securities and other
assets of the Funds for which current market quotations are not readily
available are valued at fair value as determined in good faith by the Company's
Directors and in accordance with procedures adopted by the Directors.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors, Wells Fargo Bank is
responsible for each Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company to obtain the
best results taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. While Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions, the Funds will
not necessarily be paying the lowest spread or commission available.
Except in the case of equity securities purchased by the Growth
and Income Fund, purchases and sales of securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or
to dealers serving as market makers for the securities at a net price. Each of
the Funds also will purchase portfolio securities in underwritten offerings and
may purchase securities directly from the issuer. Generally, money market
securities, ARMS and CMOs are traded on a net basis and do not involve
brokerage commissions. The cost of executing a Fund's portfolio securities
transactions will consist primarily of dealer spreads and underwriting
commissions. Under the 1940 Act, persons affiliated with the Company are
prohibited from dealing with the Company as a principal in the purchase and
sale of securities unless an exemptive order allowing such transactions is
obtained from the SEC or an exemption is otherwise available.
Wells Fargo Bank, as the investment adviser of each of the Funds,
may, in circumstances in which two or more dealers are in a position to offer
comparable results for a Fund portfolio transaction, give preference to a
dealer that has provided statistical or other research services to Wells Fargo
Bank. By allocating transactions in this manner, Wells Fargo Bank is able to
supplement its research and analysis with the views and information of
securities
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<PAGE> 324
firms. Information so received will be in addition to, and not in lieu of, the
services required to be performed by Wells Fargo Bank under the Advisory
Contracts, and the expenses of Wells Fargo Bank will not necessarily be reduced
as a result of the receipt of this supplemental research information.
Furthermore, research services furnished by dealers through which Wells Fargo
Bank places securities transactions for a Fund may be used by Wells Fargo Bank
in servicing its other accounts, and not all of these services may be used by
Wells Fargo Bank in connection with advising the Funds.
The Growth and Income Fund. Purchases and sales of equity
securities on a securities exchange are effected through brokers who charge a
negotiated commission for their services. Orders may be directed to any broker
including, to the extent and in the manner permitted by applicable law,
Stephens or Wells Fargo Securities Inc. In the over-the- counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. No Fund will deal with Stephens, Wells Fargo Bank or
their affiliates in any transaction in which any of them acts as principal
without an exemptive order from the SEC or unless an exemption is otherwise
available.
In placing orders for portfolio securities of the Growth and
Income Fund, Wells Fargo Bank is required to give primary consideration to
obtaining the most favorable price and efficient execution. This means that
Wells Fargo Bank will seek to execute each transaction at a price and
commission, if any, that provide the most favorable total cost or proceeds
reasonably attainable in the circumstances. While Wells Fargo Bank will
generally seek reasonably competitive spreads or commissions, the Fund will
not necessarily be paying the lowest spread or commission available.
Commission rates are established pursuant to negotiations with the broker based
on the quality and quantity of execution services provided by the broker in the
light of generally prevailing rates. The allocation of orders among brokers
and the commission rates paid are reviewed periodically by the Board of
Directors.
Brokerage Commissions. For the years ended December 31, 1993,
1994 and 1995 the Funds paid the following for brokerage commissions:
<TABLE>
<CAPTION>
Fund 1993 1994 1995
- ---- ---- ---- ----
<S> <C> <C> <C>
Ginnie Mae Fund $ 0 $ 0 $ 0
Growth and Income Fund $ 347,779 $ 407,643 $ 607,442
</TABLE>
Securities of Regular Broker/Dealers. As of December 31, 1995,
each Fund owned securities of its "regular brokers or dealers" or their parents
as defined in the Act, as follows:
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<PAGE> 325
<TABLE>
<CAPTION>
Fund Amount Regular Broker/Dealer
- ---- ------ ---------------------
<S> <C> <C>
Ginnie Mae Fund $ 587,000 Goldman Sachs & Co.
Growth and Income Fund $1,998,000 Goldman Sachs & Co.
</TABLE>
Portfolio Turnover Rate. The higher portfolio turnover rates for
the Ginnie Mae Fund should not adversely affect it because portfolio
transactions ordinarily are made directly with principals on a net basis and,
consequently, the Fund usually does not incur brokerage expenses. Portfolio
turnover rate is not a limiting factor when Wells Fargo Bank deems portfolio
changes appropriate.
FEDERAL INCOME TAXES
The Prospectus of each Fund describes generally the tax treatment
of distributions. This section of the SAI includes additional information
concerning federal income taxes.
Qualification as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"), requires, among other
things, that (a) at least 90% of each Fund's annual gross income be derived
from interest, payments with respect to securities loans, dividends and gains
from the sale or other disposition of securities or options thereon; (b) each
Fund derives less than 30% of its gross income from gains from the sale or
other disposition of securities or options thereon held for less than three
months; and (c) each Fund diversifies its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash, government securities and other securities
limited in respect of any one issuer to an amount not greater than 5% of the
Fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government securities and the securities of
other regulated investment companies), or of two or more issuers which the
Fund controls and which are determined to be engaged in the same or similar
trades or businesses or related trades or businesses. As a regulated
investment company, each Fund will not be subject to federal income tax on
its net investment income and net capital gains distributed to their
shareholders, provided that it distributes to its shareholders at least 90% of
its net investment income earned in each year.
A 4% nondeductible excise tax will be imposed on each Fund to the
extent it does not meet certain minimum distribution requirements by the end of
each calendar year. Each Fund will distribute, or be deemed to distribute,
substantially all of its net investment income and net capital gains and, thus,
does not expect to be subject to the excise tax.
Income and dividends received by a Fund from sources within
foreign countries may be subject to withholding and other taxes (generally at
rates of 10% to 40%) imposed by such countries. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes.
Because not more than 50% of the value of the total assets of any Fund is
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<PAGE> 326
expected to consist of securities of foreign issuers, no Fund will be eligible
to elect to "pass through" foreign tax credits to shareholders.
Although dividends on the Ginnie Mae Fund will be declared daily
based on each day's earnings, for federal income tax purposes, the Fund's
earnings and profits will be determined at the end of each taxable year and
will be allocated pro rata over the entire year. For federal income tax
purposes, only amounts paid out of earnings and profits will qualify as
dividends. Thus, if during a taxable year the Fund's declared dividends (as
declared daily throughout the year) exceed the Fund's net income (as determined
at the end of the year), only that portion of the year's distributions which
equals the year's earnings and profits will be deemed to have constituted a
dividend. It is expected that the Fund's net income, on an annual basis, will
equal the dividends declared during the year. Gains or losses on sales of
portfolio securities by a Fund will generally be long-term capital gains or
losses if the securities have been held by it for more than one year. Other
gains or losses on the sale of securities will be short-term capital gains or
losses. To the extent that a Fund recognizes long-term capital gains, such
gains will be distributed at least annually. Such distributions will be
taxable to shareholders as long-term capital gains, regardless of how long a
shareholder has held Fund shares. Such distributions will be designated as a
capital gain distribution in a written notice mailed by the Fund to
shareholders not later than 60 days after the close of the Fund's taxable year.
If a shareholder receives such a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any
Fund share and such Fund share is held for six months or less, then (unless
otherwise disallowed) any loss on the sale or exchange of that Fund share will
be treated as a long-term capital loss to the extent of the designated capital
gains distribution. Gain recognized on the disposition of a debt obligation
purchased by the Fund at a market discount (generally, at a price less than its
principal amount) will be treated as ordinary income to the extent of the
portion of the market discount which accrued during the period of time the Fund
held the debt obligation.
As of the printing of this SAI, the maximum individual marginal
tax rate applicable to ordinary income is 39.60% (effective marginal rates may
be higher for some individuals due to phase out of exemptions and elimination
of deductions), the maximum individual rate applicable to net realized capital
gains is 28.00% and the maximum corporate tax rate applicable to ordinary
income and net realized capital gains is 35.00%. However, to eliminate the
benefit of lower marginal income tax rates, corporations which have taxable
income in excess of $100,000 for a taxable year will be required to pay an
additional amount of income tax of up to $11,750 and corporations which have
taxable income in excess of $15,000,000 for a taxable year will be required to
pay an additional amount of income tax of up to $100,000.
If a shareholder exchanges or otherwise disposes of shares of a
Fund within 90 days of having acquired such shares, and if, as a result of
having acquired those shares, the shareholder subsequently pays a reduced sales
charge for shares of the Fund, or of a different fund, the sales charge
previously incurred acquiring the Fund's shares shall not be taken into account
(to the extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares.
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<PAGE> 327
Also, any loss realized on a redemption or exchange of shares of a
Fund will be disallowed to the extent shares are reacquired within the 61-day
period beginning 30 days before and ending 30 days after the shares are
disposed of.
Corporate shareholders of the Growth Fund may be eligible for the
dividends-received deduction on the dividends paid out of the Fund's net
investment income attributable to dividends received from domestic corporations
which, if received directly, would qualify for such deduction. In order to
qualify for the dividends-received deduction, a corporate shareholder must hold
the Fund shares paying the dividends upon which the deduction is based for at
least 46 days.
If, in the opinion of the Company, ownership of its shares has or
may become concentrated to an extent that could cause the Company to be deemed
a personal holding company within the meaning of the Code, the Company may
require the redemption of shares or reject any order for the purchase of shares
in an effort to prevent such concentration.
Foreign Shareholders. Under the Code, distributions of net
investment income by a Fund to a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or a lower treaty rate). Withholding will not apply if a
dividend paid by a Fund to a foreign shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents or domestic
corporations will apply. Distributions of net long-term capital gains are not
subject to tax withholding, but in the case of a foreign shareholder who is a
nonresident alien individual, such distributions ordinarily will be subject to
U.S. income tax at a rate of 30% if the individual is physically present in the
U.S. for more than 182 days during the taxable year.
Other Matters. Investors should be aware that the investments to
be made by the Funds may involve sophisticated tax rules such as the original
issue discount, marked to market and real estate mortgage investment conduit
("REMIC") rules that would result in income or gain recognition by the Funds
without corresponding current cash receipts. Although the Funds will seek to
avoid significant noncash income, such noncash income could be recognized by
the Funds, in which case a Fund may distribute cash derived from other sources
in order to meet the minimum distribution requirements described above.
FUND EXPENSES
Except for the expenses borne by Wells Fargo Bank and Stephens,
the Company bears all costs of its operations, including the compensation of
its Directors who are not affiliated with Stephens or Wells Fargo Bank or any
of their affiliates; advisory, shareholder servicing and administration fees;
payments pursuant to any Plan; interest charges; taxes; fees and expenses of
its independent accountants, legal counsel, transfer agent and dividend
disbursing agent; expenses of redeeming shares; expenses of preparing and
printing prospectuses (except the expense of
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<PAGE> 328
printing and mailing prospectuses used for promotional purposes, unless
otherwise payable pursuant to a Plan), shareholders' reports, notices, proxy
statements and reports to regulatory agencies; insurance premiums and certain
expenses relating to insurance coverage; trade association membership dues;
brokerage and other expenses connected with the execution of portfolio
transactions; fees and expenses of its custodian, including those for keeping
books and accounts and calculating the NAV per share of a Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of Fund shares; pricing services, and any extraordinary expenses.
Expenses attributable to a Fund are charged against a Fund's assets. General
expenses of the Company are allocated among all of the funds of the Company,
including a Fund, in a manner proportionate to the net assets of each Fund, on
a transactional basis, or on such other basis as the Company's Board of
Directors deems equitable.
CAPITAL STOCK
The Company, an open-end, management investment company, was
incorporated in Maryland on September 9, 1991. The authorized capital stock of
the Company consists of 10,000,000,000 shares having a par value of $.001 per
share. As of the date of this SAI, the Company's Board of Directors has
authorized the issuance of thirteen series of shares, each representing an
interest in one portfolio -- the Aggressive Growth Fund, Asset Allocation Fund,
California Tax- Free Bond Fund, California Tax-Free Income Fund, California
Tax-Free Money Market Mutual Fund, Corporate Stock Fund, Diversified Income
Fund, Ginnie Mae Fund, Growth and Income Fund, Money Market Mutual Fund,
National Tax-Free Money Market Mutual Fund, Short-Intermediate U.S. Government
Income Fund and U.S. Government Allocation Fund -- and the Board of Directors
may, in the future, authorize the issuance of other series of capital stock
representing shares of additional investment portfolios.
Each of the Funds, other than the Corporate Stock Fund, has two
classes of shares -- Class A shares and Class B shares. With respect to
matters affecting one Class but not another, shareholders vote as a Class.
Subject to the foregoing, all shares of a Fund have equal voting rights and
will be voted in the aggregate, and not by series, except where voting by a
series is required by law or where the matter involved only affects one series.
For example, a change in a Fund's fundamental investment policy affects only
one series and would be voted upon only by shareholders of the Fund involved.
Additionally, approval of an advisory contract, since it affects only one Fund,
is a matter to be determined separately by Series. Approval by the
shareholders of one Series is effective as to that Series whether or not
sufficient votes are received from the shareholders of the other Series to
approve the proposal as to those Series. As used in the Prospectus of each
Fund and in this SAI, the term "majority," when referring to approvals to be
obtained from shareholders of a Class of shares of a Fund, means the vote of
the lesser of (i) 67% of the shares of the Class represented at a meeting if
the holders of more than 50% of the outstanding shares of the Class are present
in person or by proxy, or (ii) more than 50% of the outstanding shares of the
Class of the Fund. As used in the Prospectus of each Fund and in this SAI, the
term "majority," when referring to approvals to be obtained from shareholders
of the Fund, means the vote of the lesser of (i) 67% of the shares of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of the Fund are present in person or by
26
<PAGE> 329
proxy, or (ii) more than 50% of the outstanding shares of the Fund. The term
"majority," when referring to the approvals to be obtained from shareholders of
the Company as a whole, means the vote of the lesser of (i) 67% of the
Company's shares represented at a meeting if the holders of more than 50% of
the Company's outstanding shares are present in person or by proxy, or (ii)
more than 50% of the Company's outstanding shares. Shareholders are entitled
to one vote for each full share held and fractional votes for fractional shares
held.
The Company may dispense with an annual meeting of shareholders in
any year in which it is not required to elect Directors under the 1940 Act.
Each share represents an equal proportional interest in the Fund
with each other share in the same Class of shares and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
the Fund as are declared in the discretion of the Directors. In the event of
the liquidation or dissolution of the Company, shareholders of a Fund are
entitled to receive the assets attributable to the Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular investment portfolio that are available for distribution in such
manner and on such basis as the Directors in their sole discretion may
determine.
Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.
As of February 29, 1996, no shareholders of the Class A or Class
B Shares of the Funds were known by the Company to own 5% or more of their
respective outstanding Shares.
OTHER
The Registration Statement, including the Prospectus for each
Fund, the SAI and the exhibits filed therewith, may be examined at the office
of the SEC in Washington, D.C. Statements contained in a Prospectus or the SAI
as to the contents of any contract or other document referred to herein or in a
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company. KPMG Peat Marwick LLP provides audit services, tax
return preparation and
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<PAGE> 330
assistance and consultation in connection with review of certain SEC filings.
KPMG Peat Marwick LLP's address is Three Embarcadero Center, San Francisco,
California 94111.
FINANCIAL INFORMATION
The portfolio of investments, financial statements and
independent auditors' report for the Funds contained in Post-Effective
Amendment No. 21 to the Company's Registration Statement, as filed with the SEC
on Form N-1A on February 29, 1996, are hereby incorporated by reference into
this SAI. The portfolio of investments, audited financial statements and
independent auditors' report are attached to all SAIs delivered to current or
prospective shareholders.
28
<PAGE> 331
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+." Commercial paper with a strong capacity for timely payments
on issues will be rated "A-2."
A-1
<PAGE> 332
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1996
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
-------------------------
Stagecoach Funds, Inc. (the "Company") is an open-end series
investment company. This Statement of Additional Information ("SAI") contains
information about one of the funds in the Stagecoach Family of Funds -- the
Short-Intermediate U.S. Government Income Fund (the "Fund"). The investment
objective of the Fund is described in its Prospectus under the section entitled
"How the Funds Work -- Investment Objectives and Policies."
This SAI is not a prospectus and should be read in conjunction
with the Fund's Prospectus, dated May 1, 1996. All terms used in this SAI that
are defined in the Prospectus will have the meanings assigned in the
Prospectus. A copy of the Prospectus for the Fund may be obtained without
charge by writing Stephens Inc., the Company's sponsor, administrator and
distributor, at 111 Center Street, Little Rock, Arkansas 72201 or calling the
Transfer Agent at the telephone number indicated above.
-------------------------
1
<PAGE> 333
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities . . . . . . . . . . . . . . . . . . . 4
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Calculation of Yield and Total Return . . . . . . . . . . . . . . . . . . . . . . 11
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . 15
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
2
<PAGE> 334
INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Fund is subject to the
following investment restrictions, all of which are fundamental policies; that
is, they may not be changed without approval by the vote of the holders of a
majority of the Fund's outstanding voting securities, as described under
"Capital Stock":
The Fund may not:
(1) purchase the securities of issuers conducting their
principal business activity in the same industry if, immediately after the
purchase and as a result thereof, the value of the Fund's investments in that
industry would be 25% or more of the current value of the Fund's total assets,
provided that there is no limitation with respect to investments in U.S.
Government Obligations;
(2) purchase or sell real estate or real estate limited
partnerships (other than securities secured by real estate or interests therein
or securities issued by companies that invest in real estate or interests
therein);
(3) purchase commodities or commodity contracts (including
futures contracts), except that the Fund may purchase securities of an issuer
which invests or deals in commodities or commodity contracts;
(4) purchase interests, leases, or limited partnership
interests in oil, gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions) or make short sales of
securities;
(6) underwrite securities of other issuers, except to the
extent that the purchase of permitted investments directly from the issuer
thereof or from an underwriter for an issuer and the later disposition of such
securities in accordance with the Fund's investment program may be deemed to be
an underwriting;
(7) make investments for the purpose of exercising control or
management;
(8) borrow money or issue senior securities as defined in the
1940 Act, except that the Fund may borrow from banks up to 10% of the current
value of its net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 10% of
the current value of its net assets (but investments may not be purchased while
any such outstanding borrowings exceed 5% of its net assets), and except that
the Fund may issue multiple Classes of shares in accordance with applicable
laws, rules, regulations or orders;
(9) write, purchase or sell straddles, spreads, warrants, or
any combination thereof;
3
<PAGE> 335
(10) purchase securities of any issuer (except U.S. Government
Obligations) if, as a result, with respect to 75% of its total assets, more
than 5% of the value of the Fund's total assets would be invested in the
securities of any one issuer or, with respect to 100% of its total assets the
Fund's ownership would be more than 10% of the outstanding voting securities of
such issuer; or
(11) make loans, except that the Fund may purchase or hold debt
instruments or lend its portfolio securities in accordance with its investment
policies, and may enter into repurchase agreements.
Non-Fundamental Investment Policies. The Fund is subject to the
following non-fundamental policies; that is, they may be changed by a majority
vote of the Board of Directors without shareholder approval:
(1) The Fund may not:
(a) purchase or retain securities of any issuer if the
officers or Directors of the Company or of the Investment Adviser owning
beneficially more than one-half of one percent (0.5%) of the securities of the
issuer together owned beneficially more than 5% of such securities;
(b) purchase securities of issuers who, with their
predecessors, have been in existence less than three years, unless the
securities are fully guaranteed or insured by the U.S. Government, a state,
commonwealth, possession, territory, the District of Columbia or by an entity
in existence at least three years, or the securities are backed by the assets
and revenues of any of the foregoing if, by reason thereof, the value of its
aggregate investments in such securities will exceed 5% of its total assets.
(2) The Fund reserves the right to invest up to 15% of the
current value of its net assets in fixed time deposits that are subject to
withdrawal penalties and that have maturities of more than seven days,
repurchase agreements maturing in more than seven days or other illiquid
securities. However, as long as the Fund's shares are registered for sale in a
state that imposes a lower limit on the percentage of a fund's assets that may
be so invested, the Fund will comply with such lower limit. The Fund presently
is limited to investing 10% of its net assets in such securities due to limits
applicable in several states.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Pass-Through Obligations. The Fund may invest in pass-through
obligations that represent an ownership interest in a pool of mortgages and the
resultant cash flow from those mortgages. Payments by homeowners on the loans
in the pool flow through to certificate holders in amounts sufficient to repay
principal and to pay interest at the pass-through rate. The stated maturities
of pass-through obligations may be shortened by unscheduled prepayments of
principal on the underlying mortgages. Therefore, it is not possible to
predict accurately the average maturity of a particular pass-through
obligation. Variations in the maturities of pass-through
4
<PAGE> 336
obligations will affect the yield of the Fund. Furthermore, as with any debt
obligation, fluctuations in interest rates will inversely affect the market
value of pass-through obligations. The Fund may invest in pass-through
obligations that are supported by the full faith and credit of the U.S.
Government (such as those issued by the Government National Mortgage
Association) or those that are guaranteed by an agency or instrumentality of
the U.S. Government (such as the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation) or bonds collateralized by any of the
foregoing.
When-Issued Securities. The Fund may purchase securities on a
when-issued basis, in which case delivery and payment normally take place
within 45 days after the date of the commitment to purchase. However, the Fund
does not intend to invest more than 5% of its net assets in when-issued
securities during the coming year. The Fund will only make commitments to
purchase securities on a when-issued basis with the intention of actually
acquiring the securities, but may sell them before the settlement date if it is
deemed advisable. When-issued securities are subject to market fluctuation,
and no income accrues to the purchaser during the period prior to issuance.
The purchase price and the interest rate that will be received on debt
securities are fixed at the time the purchaser enters into the commitment.
Purchasing a security on a when-issued basis can involve a risk that the market
price at the time of delivery may be lower than the agreed-upon purchase price,
in which case there could be an unrealized loss at the time of delivery.
The Fund will establish a segregated account in which it will
maintain cash, U.S. Government obligations or other high-quality debt
instruments in an amount at least equal in value to the Fund's commitments to
purchase when- issued securities. If the value of these assets declines, the
Fund will place additional liquid assets in the account on a daily basis so
that the value of the assets in the account is equal to the amount of such
commitments.
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "The Fund and
Management." The principal occupations during the past five years of the
Directors and principal executive Officer of the Company are listed below. The
address of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Directors deemed to be "interested persons" of the Company
for purposes of the 1940 Act are indicated by an asterisk.
5
<PAGE> 337
<TABLE>
<CAPTION>
Principal Occupations
Name, Address and Age Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 73 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 44 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 53 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate Professor of
Finance of the School of Business and
Accounting at Wake Forest University
since 1983.
</TABLE>
6
<PAGE> 338
<TABLE>
<S> <C> <C>
*Zoe Ann Hines, 46 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource Management.
*W. Rodney Hughes, 69 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 77 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 51 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment Corporation; and
Co-Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 39 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
7
<PAGE> 339
COMPENSATION TABLE
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- ---------------------- ------------------
<S> <C> <C>
Jack S. Euphrat $10,188 $39,750
Director
*R. Greg Feltus 0 0
Director
Thomas S. Goho 10,188 39,750
Director
*Zoe Ann Hines 0 0
Director
*W. Rodney Hughes 9,438 37,000
Director
Robert M. Joses 9,938 39,000
Director
*J. Tucker Morse 8,313 33,250
Director
</TABLE>
Directors of the Company are compensated annually by the Company
and by all the registrants in the fund complex for their services as indicated
above and also are reimbursed for all out-of-pocket expenses relating to
attendance at board meetings. Each of the Directors and Officers of the
Company serves in the identical capacity as Directors and Officers of Overland
Express Funds, Inc. and Stagecoach Inc., and as Trustees and/or Officer of
Stagecoach Trust, Master Investment Portfolio, Life & Annuity Trust, Master
Investment Trust and Managed Series Investment Trust, each of which is a
registered open-end management investment company and each of which is
considered to be in the same "fund complex," as such term is defined in Form
N-1A under the 1940 Act, as the Company. The Directors are compensated by
other Companies and Trusts within the fund complex for their services as
Directors/Trustees to such Companies and Trusts. Currently the Directors do
not receive any retirement benefits or deferred compensation from the Company
or any other member of the fund complex.
As of the date of this SAI, Directors and Officers of the Company
as a group beneficially owned less than 1% of the outstanding shares of the
Company.
8
<PAGE> 340
Investment Adviser. The Fund is advised by Wells Fargo Bank. The
Advisory Contract provides that Wells Fargo Bank shall furnish to the Fund
investment guidance and policy direction in connection with the daily portfolio
management of the Fund. Pursuant to the Advisory Contract, Wells Fargo Bank
furnishes to the Board of Directors periodic reports on the investment strategy
and performance of the Fund.
As of December 31, 1995, mutual funds advised by Wells Fargo had
in excess of $10 billion in total assets.
Wells Fargo Bank has agreed to provide to the Fund, among other
things, money market security and fixed- income research, analysis and
statistical and economic data and information concerning interest rate and
security market trends, portfolio composition, credit conditions and average
maturities of the portfolio of the Fund.
The Advisory Contract will continue in effect for more than two
years provided the continuance is approved annually (i) by the holders of a
majority of the Fund's outstanding voting securities or by the Company's Board
of Directors and (ii) by a majority of the Directors of the Company who are not
parties to the Advisory Contract or "interested persons" (as defined in the
1940 Act) of any such party. The Advisory Contract may be terminated on 60
days' written notice by either party and will terminate automatically if
assigned.
For the years ended December 31, 1993, 1994 and 1995, the Fund
paid to Wells Fargo Bank the advisory fees indicated below and Wells Fargo Bank
waived the indicated amounts:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
Fees Fees Fees Fees Fees Fees
Fund Paid Waived Paid Waived Paid Waived
- ---- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Short-Inter. U.S. -0- $3,704 -0- $58,270 $56,387 $60,241
Gov't Income
</TABLE>
9
<PAGE> 341
Administrator and Distributor. The Company has retained Stephens
as administrator and distributor on behalf of the Fund. The Administration
Agreement between Stephens and the Fund states that Stephens shall provide as
administrative services, among other things: (i) general supervision of the
operation of the Fund, including coordination of the services performed by the
Fund's investment adviser, transfer and dividend disbursing agent, custodian,
shareholder servicing agent(s), independent public accountants and legal
counsel, regulatory compliance, including the compilation of information for
documents such as reports to, and filings with, the SEC and state securities
commissions; and preparation of proxy statements and shareholder reports for
the Fund; and (ii) general supervision relative to the compilation of data
required for the preparation of periodic reports distributed to the Company's
Officers and Board of Directors. Stephens also furnishes office space and
certain facilities required for conducting the business of the Fund together
with those ordinary clerical and bookkeeping services that are not being
furnished by Wells Fargo Bank. Stephens also pays the compensation of the
Company's Directors, Officers and employees who are affiliated with Stephens.
The Advisory Contract and Administration Agreement for the Fund
provide that if, in any fiscal year, the total expenses of the Fund incurred
by, or allocated to, the Fund (excluding taxes, interest, brokerage commissions
and other portfolio transaction expenses, expenditures that are capitalized in
accordance with generally accepted accounting principles, extraordinary
expenses and amounts accrued or paid under the Plan but including the fees
provided for in the Advisory Contract and the Administration Agreement) exceed
the most restrictive expense limitation applicable to the Fund imposed by the
securities laws or regulations of the states in which the Fund's shares are
registered for sale, Wells Fargo Bank and Stephens shall waive their fees
proportionately under the Advisory Contract and the Administration Agreement,
respectively, for the Fund for the fiscal year to the extent of the excess or
reimburse the excess, but only to the extent of their respective fees. The
Advisory Contract and the Administration Agreement for the Fund further provide
that the Fund's total expenses shall be reviewed monthly so that, to the extent
the annualized expenses for such month exceed the most restrictive applicable
annual expense limitation, the monthly fees under the contract and the
agreement shall be reduced as necessary. The most stringent applicable
restriction limits these expenses for any fiscal year to 2.50% of the first $30
million of the Fund's average net assets, 2.00% of the next $70 million of
average net assets, and 1.50% of the average net assets in excess of $100
million.
For the fiscal years ended December 31, 1993, 1994 and 1995, the
Fund paid administrative fees to Stephens as follows:
10
<PAGE> 342
<TABLE>
<CAPTION>
Fund 1993 1994 1995
- ---- ---- ---- ----
<S> <C> <C> <C>
Short Intermediate U.S. Government $3,522 $3,522 $6,998
Income Fund
</TABLE>
Shareholder Servicing Agent. As discussed in the Fund's
prospectus under the heading "Shareholder Servicing Agent," the Fund has
entered into a shareholder servicing agreement with Wells Fargo Bank. The Fund
did not pay any shareholder servicing fees to Wells Fargo Bank for the fiscal
year ended December 31, 1995.
Custodian and Transfer and Dividend Disbursing Agent. Wells Fargo
Bank has been retained to act as custodian for the Fund. The custodian, among
other things, maintains a custody account or accounts in the name of the Fund;
receives and delivers all assets for the Fund upon purchase and upon sale or
maturity; collects and receives all income and other payments and distributions
on account of the assets of the Fund and pays all expenses of the Fund. For
its services as custodian, Wells Fargo Bank receives an asset-based fee and
transaction charge from the Fund. Wells Fargo Bank also has been retained to
act as the transfer and dividend disbursing agent for the Fund, and receives
for its services a base fee and per-account fees from the Fund. For the year
ended December 31, 1995, the Fund did not pay any custody fees or transfer and
dividend disbursing agency fees to Wells Fargo Bank for such services.
Underwriting Commissions. For the fiscal years ended December 31,
1993 and 1994, the Funds' distributor retained $26,215,173 and $5,415,227,
respectively in underwriting commissions (front-end sales loads and CDSCs, if
any) in connection with the purchase or redemption of Fund shares. For the
fiscal years ended December 31, 1993 and 1994, Wells Fargo Securities Inc.
("WFSI"), an affiliated broker-dealer of the Company, and its registered
representatives received $378,895 and $904,274, respectively, in underwriting
commissions in connection with the purchase or redemption of Fund shares.
11
<PAGE> 343
For the year ended December 31, 1995, the aggregate amount of
underwriting commissions on sales/redemptions of the Company's shares was
$1,584,545. Stephens retained $1,251,311 of such commissions. WFSI and its
registered representatives retained $333,234 of such commissions.
DISTRIBUTION PLAN
As indicated in the Prospectus, the Fund has adopted a
distribution plan (a "Plan") under Section 12(b) of the 1940 Act and Rule 12b-1
thereunder (the "Rule"). The Plan was adopted by the Board of Directors,
including a majority of the Directors who were not "interested persons" (as
defined in the 1940 Act) of the Fund and who had no direct or indirect
financial interest in the operation of the Plan or in any agreement related to
the Plan (the "Qualified Directors") and approved by the initial shareholder of
the Fund.
Under the Plan, the Fund may defray all or part of the cost of
preparing and printing prospectuses and other promotional materials and of
delivering prospectuses and those materials to prospective shareholders by
paying on an annual basis up to 0.05% of the Fund's average daily net assets.
The Plan provides only for reimbursement of actual expenses. In addition, each
Plan contemplates that to the extent any fees payable pursuant to a Shareholder
Servicing Agreement are deemed to be for distribution-related services, rather
than shareholder services, such payments are approved and payable pursuant to
such Plan.
The Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Qualified Directors. Any Distribution Agreements related to the Plan
also must be approved by such vote of the Directors and the Qualified
Directors. Such Agreements will terminate automatically if assigned, and may
be terminated at any time, without payment of any penalty, by a vote of a
majority of the outstanding voting securities of the Fund. The Plan may not be
amended to increase materially the amounts payable thereunder without the
approval of a majority of the outstanding voting securities of the Fund, and no
material amendment to the Plans may be made except by a majority of both the
Directors of the Company and the Qualified Directors.
The Plan requires that the Treasurer of the Company shall provide
to the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and
12
<PAGE> 344
purposes therefor) under the Plan. The Rule also requires that the selection
and nomination of Directors who are not "interested persons" of the Company be
made by such disinterested directors.
For the year ended December 31, 1995, the Fund's distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under the Fund's Plan.
<TABLE>
<CAPTION>
Printing & Mailing Marketing Compensation to
Fund Total Prospectus Brochures Underwriters
---- ----- ------------------ --------- ------------
<S> <C> <C> <C> <C>
Short Intermediate U.S.
Government Income Fund $7,200 $6,422 $778 N/A
</TABLE>
For the year ended December 31, 1995, WFSI and its registered
representatives received no compensation under each Fund's Plans.
CALCULATION OF YIELD AND TOTAL RETURN
As indicated in the Prospectus, the Fund may advertise certain
total return information computed in the manner described in the Prospectus.
As and to the extent required by the SEC, an average annual compound rate of
return ("T") will be computed by using the redeemable value at the end of a
specified period ("ERV") of a hypothetical initial investment ("P") over a
period of years ("n") according to the following formula: P(1+T)n = ERV. In
addition, as indicated in the Prospectus, if the Fund assesses a sales charge,
at times, it also may calculate total return based on net asset value per share
(rather than the public offering price), in which case the figures would not
reflect the effect of any sales charges that would have been paid by an
investor, or based on the assumption that a sales charge other than the maximum
sales charge (reflecting a Volume Discount) was assessed, provided that total
return data derived pursuant to the calculation described above also are
presented.
The average annual total return for the Fund for the period since
inception (October 27, 1993) to December 31, 1995, assuming a 3.00% sales load,
was 3.72%. The average annual total return for the same period, assuming no
sales load, was 5.20%. The annual total return for the one year ended December
31, 1995, assuming a 3.00% sales load, was 9.30%. The annual total return for
the same period, assuming no sales load, was 12.67%.
The Fund may advertise the cumulative total return of its shares.
Cumulative total return of shares is computed on a per share basis and assumes
the reinvestment of dividends and distributions. Cumulative total return of
shares generally is expressed as a percentage rate which is calculated by
combining the income and principal changes for a specified period and dividing
by the net asset value per share at the beginning of the period.
Advertisements may include the percentage rate of total return of shares or may
include the value of a hypothetical investment in
13
<PAGE> 345
shares at the end of the period which assumes the application of the percentage
rate of total return.
In addition to the above performance information, the Fund may
also advertise the cumulative total return of the Fund for one-month,
three-month, six month, and year-to-date periods. The cumulative total return
for such periods is based on the overall percentage change in value of a
hypothetical investment in the Fund, assuming all Fund dividends and capital
gain distributions are reinvested, without reflecting the effect of any sales
charge that would be paid by an investor, and is not annualized.
The cumulative total return for the Fund for the period since
inception (October 27, 1993) to December 31, 1995, assuming a 3.00% sales load,
was 8.24%. The cumulative total return for the same period, assuming no sales
load, was 11.60%.
As indicated in the Prospectus, the Fund may advertise certain
yield information. As and to the extent required by the SEC, yield will be
calculated based on a 30-day (or one month) period, computed by dividing the
net investment income share earned during the period by the maximum offering
price per share on the last day of the period, according to the following
formula: YIELD = 2[((a-b/cd)+1)6-1], where a = dividends and interest earned
during the period; b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends; and d = the maximum offering price per share on
the last day of the period. The net investment income includes actual interest
income, plus or minus amortized purchase discount (which may include original
issue discount) or premium, less accrued expenses. Realized and unrealized
gains and losses on portfolio securities are not included in the Fund's net
investment income. For purposes of sales literature, yield also may be
calculated on the basis of the net asset value per share rather than the public
offering price, provided that the yield data derived pursuant to the
calculation described above also are presented.
The yield of the Fund for the 30-day period ended December 31,
1995, assuming a 3.00% sales load, was 4.95%. The yield of such Fund for the
same period, assuming no sales load, was 5.10%.
The yield for the Fund will fluctuate from time to time, unlike
bank deposits or other investments that pay a fixed yield for a stated period
of time, and does not provide a basis for determining future yields since it is
based on historical data. Yield is a function of portfolio quality,
composition, maturity and market conditions as well as the expenses allocated
to the Fund.
In addition, investors should recognize that changes in the net
asset values of shares of the Fund will affect the yield of the Fund for any
specified period, and such changes should be considered together with the
Fund's yield in ascertaining the total return to shareholders for the period.
Yield information for the Fund may be useful in reviewing the performance of
the Fund and for providing a basis for comparison with investment alternatives.
The yield of the Fund, however, may not be comparable to the yields from
investment alternatives because of differences in the foregoing variables and
differences in the methods used to value portfolio securities, compute expenses
and calculate yield.
The Company also may disclose in sales literature, information and
statements the distribution rate on the shares of each class of the Funds.
Distribution rate, which may be annualized, is the amount determined by
dividing the dollar amount per share of the most recent dividend by the most
recent NAV or maximum offering price per share as of a date specified in
14
<PAGE> 346
the sales literature. Distribution rate will be accompanied by the standard
30-day yield as required by the SEC.
From time to time and only to the extent the comparison is
appropriate for the Fund, the Company may quote performance or price-earning
ratios for the Fund in advertising and other types of literature as compared to
the performance of the Lehman Brothers Municipal Bond Index, 1-Year Treasury
Bill Rate, S&P Index, the Dow Jones Industrial Average, the Lehman Brothers 20+
Treasury Index, the Lehman Brothers 5-7 Year Treasury Index, Donoghue's Money
Fund Averages, Real Estate Investment Averages (as reported by the National
Association of Real Estate Investment Trusts), Gold Investment Averages
(provided by the World Gold Council), Bank Averages (which is calculated from
figures supplied by the U.S. League of Savings Institutions based on effective
annual rates of interest on both passbook and certificate accounts), average
annualized certificate of deposit rates (from the Federal Reserve G-13
Statistical Releases or the Bank Rate Monitor), the Salomon One Year Treasury
Benchmark Index, the Consumer Price Index (as published by the U.S. Bureau of
Labor Statistics), Ten Year U.S. Government Bond Average, S&P's Corporate Bond
Yield Averages, Schabacter Investment Management Indices, Salomon Brothers High
Grade Bond Index, Lehman Brothers Long-Term High Quality Government/Corporate
Bond Index, other managed or unmanaged indices or performance data of bonds,
stocks or government securities (including data provided by Ibbotson
Associates), or by other services, companies, publications or persons who
monitor mutual funds on overall performance or other criteria. The S&P Index
and the Dow Jones Industrial Average are unmanaged indices of selected common
stock prices. The Fund's performance also may be compared to the performance
of other mutual funds having similar objectives. This comparative performance
could be expressed as a ranking prepared by Lipper Analytical Services, Inc.,
CDA Investment Technologies, Inc., Bloomberg Financial Markets or Morningstar,
Inc., independent services which monitor the performance of mutual funds. The
performance of the Fund will be calculated by relating net asset value per
share at the beginning of a stated period to the net asset value of the
investment, assuming reinvestment of all gains distributions and dividends
paid, at the end of the period. Any such comparisons may be useful to
investors who wish to compare the Fund's past performance with that of its
competitors. Of course, past performance cannot be a guarantee of future
results. The Company also may include, from time to time, a reference to
certain marketing approaches of the Distributor, including, for example, a
reference to a potential shareholder being contacted by a selected broker or
dealer. General mutual fund statistics provided by the Investment Company
Institute may also be used.
In addition, the Company also may use, in advertisements and other
types of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank, and
its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and
the related "Tax Freedom Day."
15
<PAGE> 347
The Company also may use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for the Fund: (i) the Consumer Price Index may be
used to assess the real rate of return from an investment in the Fund; (ii)
other government statistics, including, but not limited to, The Survey of
Current Business, may be used to illustrate investment attributes of the Fund
or the general economic, business, investment, or financial environment in
which the Fund operates; (iii) the effect of tax-deferred compounding on the
investment returns of the Fund, or on returns in general, may be illustrated by
graphs, charts, etc., where such graphs or charts would compare, at various
points in time, the return from an investment in the Fund (or returns in
general) on a tax-deferred basis (assuming reinvestment of capital gains and
dividends and assuming one or more tax rates) with the return on a taxable
basis; and (iv) the sectors or industries in which the Fund invests may be
compared to relevant indices of stocks or surveys (e.g., S&P Industry Surveys)
to evaluate the historical performance of the Fund or current or potential
value with respect to the particular industry or sector.
The Company also may include, from time to time, a reference to
certain marketing approaches of the Distributor, including, for example, a
reference to a potential shareholder being contacted by a selected broker or
dealer.
The Company also may discuss in advertising and other types of
literature that the Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to
purchase, sell or hold the Fund's shares since the rating would not comment on
the market price of the Fund's shares or the suitability of the Fund for a
particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. The Company may
compare the Fund's performance with other investments which are assigned
ratings by NRSROs. Any such comparisons may be useful to investors who wish to
compare the Fund's past performance with other rated investments.
From time to time, the Fund may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Stagecoach Funds, provides
various services to its customers that are also shareholders of the Funds.
These services may include access to Stagecoach Funds' account information
through Automated Teller Machines (ATMs), the placement of purchase and
redemption requests for shares of the Funds through ATMs and the availability
of combined Wells Fargo Bank and Stagecoach Funds account statements." The
Company may also disclose in advertising and other types of sales literature
the assets and categories of assets under management by the Company's
investment adviser. The Company may also disclose in advertising and other
types of sales literature the assets and categories of assets under management
by a fund's investment adviser or sub-adviser and the total amount of assets
under management by Wells Fargo Investment Management Group ("IMG"). As of
December 31, 1995, IMG had $30.1 billion in assets under management. The
Company may disclose in advertising, statements and other literature the amount
of assets and mutual fund assets managed by Wells Fargo Bank.
16
<PAGE> 348
As of April 1, 1996, Wells Fargo Bank provided investment advisory services for
approximately $56 billion of assets of individuals, trusts, estates and
institutions and $17 billion of mutual fund assets.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for the Fund is determined by the
Custodian of the Fund on each day the NYSE is open for trading.
Securities of the Fund for which market quotations are available
are valued at latest prices. Securities of the Fund for which the primary
market is a national securities exchange or the National Association of
Securities Dealers Automated Quotations National Market System are valued at
last sale prices. In the absence of any sale of such securities on the
valuation date and in the case of other securities, including U.S. Government
securities but excluding money market instruments maturing in 60 days or less,
the valuations are based on latest quoted bid prices. Money market
instruments maturing in 60 days or less are valued at amortized cost. Futures
contracts will be marked to market daily at their respective settlement prices
determined by the relevant exchange. These prices are not necessarily final
closing prices, but are intended to represent prices prevailing during the
final 30 seconds of the trading day. Options listed on a national exchange are
valued at the last sale price on the exchange on which they are traded at the
close of the NYSE, or, in the absence of any sale on the valuation date, at
latest quoted bid prices. Options not listed on a national exchange are valued
at latest quoted bid prices. Debt securities maturing in 60 days or less are
valued at amortized cost. In all cases, bid prices will be furnished by a
reputable independent pricing service approved by the Board of Directors.
Prices provided by an independent pricing service may be determined without
exclusive reliance on quoted prices and may take into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data. All other securities and other assets of the Fund for
which current market quotations are not readily available are valued at fair
value as determined in good faith by the Company's Directors and in accordance
with procedures adopted by the Directors.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors, Wells Fargo Bank is
responsible for the Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company to obtain the
best results taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. While Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions, the Fund will
not necessarily be paying the lowest spread or commission available.
17
<PAGE> 349
Purchases and sales of securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or
to dealers serving as market makers for the securities at a net price. The
Fund also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, money market
securities, ARMS and CMOs are traded on a net basis and do not involve
brokerage commissions. The cost of executing the Fund's portfolio securities
transactions will consist primarily of dealer spreads and underwriting
commissions. Under the 1940 Act, persons affiliated with the Company are
prohibited from dealing with the Company as a principal in the purchase and
sale of securities unless an exemptive order allowing such transactions is
obtained from the SEC or an exemption is otherwise available.
Wells Fargo Bank, as the investment adviser of the Fund, may, in
circumstances in which two or more dealers are in a position to offer
comparable results for the Fund portfolio transaction, give preference to a
dealer that has provided statistical or other research services to Wells Fargo
Bank. By allocating transactions in this manner, Wells Fargo Bank is able to
supplement its research and analysis with the views and information of
securities firms. Information so received will be in addition to, and not in
lieu of, the services required to be performed by Wells Fargo Bank under the
Advisory Contract, and the expenses of Wells Fargo Bank will not necessarily be
reduced as a result of the receipt of this supplemental research information.
Furthermore, research services furnished by dealers through which Wells Fargo
Bank places securities transactions for the Fund may be used by Wells Fargo
Bank in servicing its other accounts, and not all of these services may be used
by Wells Fargo Bank in connection with advising the Fund.
Brokerage Commissions. For the years ended December 31, 1993,
1994 and 1995 the Fund did not pay any brokerage commissions.
Securities of Regular Broker/Dealers. On December 31, 1995 the
Short Intermediate U.S. Government Income Fund owned securities of its "regular
brokers or dealers," or their parents, as defined in the 1940 Act, as follows:
<TABLE>
<CAPTION>
Fund Regular Broker/Dealer Amount
- ---- --------------------- ------
<S> <C> <C>
Short Intermediate U.S.
Government Income Fund Goldman Sachs & Co. $1,119,000
</TABLE>
Portfolio Turnover. Portfolio turnover generally involves some
expenses to the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover can generate short-term capital gain tax
consequences. The portfolio turnover rate for the Fund generally is not
expected to exceed 100%. The portfolio turnover rate is not a limiting factor
when Wells Fargo Bank deems portfolio changes appropriate.
18
<PAGE> 350
FEDERAL INCOME TAXES
The Prospectus of the Fund describes generally the tax treatment
of distributions. This section of the SAI includes additional information
concerning federal income taxes.
Qualification as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, (the "Code") requires, among other
things, that (a) at least 90% of the Fund's annual gross income be derived from
interest, payments with respect to securities loans, dividends and gains from
the sale or other disposition of securities or options thereon; (b) the Fund
derives less than 30% of its gross income from gains from the sale or other
disposition of securities or options thereon held for less than three months;
and (c) the Fund diversifies its holdings so that, at the end of each quarter
of the taxable year, (i) at least 50% of the market value of the Fund's assets
is represented by cash, government securities and other securities limited in
respect of any one issuer to an amount not greater than 5% of the Fund's assets
and 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. Government securities and the securities of other
regulated investment companies), or of two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades
or businesses or related trades or businesses. As a regulated investment
company, the Fund will not be subject to federal income tax on its net
investment income and net capital gains distributed to its shareholders,
provided that the Fund distributes to its shareholders at least 90% of its net
investment income earned in each year.
A 4% nondeductible excise tax will be imposed on the Fund to the
extent it does not meet certain minimum distribution requirements by the end of
each calendar year. The Fund will either distribute or be deemed to distribute
all of its net investment income and net capital gains by the end of each
calendar year and, thus, expects not to be subject to the excise tax.
Income and dividends received by the Fund from sources within
foreign countries may be subject to withholding and other taxes (generally at
rates from 10% to 40%) imposed by such countries. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes.
Because not more than 50% of the value of the total assets of the Fund is
expected to consist of securities of foreign issuers, the Fund will not be
eligible to elect to "pass through" foreign tax credits to shareholders.
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<PAGE> 351
Although dividends will be declared daily based on each day's
earnings, for federal income tax purposes, the Fund's earnings and profits will
be determined at the end of each taxable year and will be allocated pro rata
over the entire year. For federal income tax purposes, only amounts paid out
of earnings and profits will qualify as dividends. Thus, if during a taxable
year the Fund's declared dividends (as declared daily throughout the year)
exceed the Fund's net income (as determined at the end of the year), only that
portion of the year's distributions which equals the year's earnings and
profits will be deemed to have constituted a dividend. It is expected that the
Fund's net income, on an annual basis, will equal the dividends declared during
the year.
Gains or losses on sales of portfolio securities by the Fund will
generally be long-term capital gains or losses if the securities sold have been
held by it for more than one year. Other gains or losses on the sale of
securities will be short-term capital gains or losses. To the extent that the
Fund recognizes long-term capital gains, such gains will be distributed at
least annually and these distributions will be taxable to shareholders as
long-term capital gains, regardless of how long a shareholder has held Fund
shares. Such distributions will be designated as capital gain distributions in
a written notice mailed by the Fund to shareholders not later than 60 days
after the close of the Fund's taxable year. If a shareholder receives such a
designated capital gain distribution (to be treated by the shareholder as a
long-term capital gain) with respect to any Fund share and such Fund share is
held for six months or less, then (unless otherwise disallowed) any loss on the
sale or exchange of that Fund share will be treated as a long-term capital loss
to the extent of the designated capital gain distribution. Gains recognized on
the disposition of a debt obligation purchased by the Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation.
As of the printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.60%; (marginal rates may be higher for some
individuals due to phase out of exemptions and elimination of deductions), the
maximum individual rate applicable to net realized capital gains is 28.00% and
the maximum corporate tax rate applicable to ordinary income and net capital
realized gains is 35.00%. However, to eliminate the benefit of lower marginal
corporate income tax rates, corporations which have taxable income in excess of
$100,000 for a taxable year will be required to pay an additional amount of
income tax of up to $11,750 and corporations which have taxable income in
excess of $15,000,000 for a taxable year will be required to pay an additional
amount of income tax of up to $100,000.
20
<PAGE> 352
If a shareholder exchanges or otherwise disposes of shares of the
Fund within 90 days of having acquired such shares, and if, as a result of
having acquired those shares, the shareholder subsequently pays a reduced sales
charge for shares of the Fund, or of a different fund, the sales charge
previously incurred acquiring the Fund's shares shall not be taken into account
(to the extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares.
Also, any loss realized on a redemption or exchange of shares of
the Fund will be disallowed to the extent that substantially identical shares
are reacquired within the 61-day period beginning 30 days before and ending 30
days after the shares are disposed of.
If, in the opinion of the 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.
21
<PAGE> 353
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 Fund may involve sophisticated tax rules such as original issue
discount, mark to market and real estate mortgage investment conduit ("REMIC")
rules that would result in income or gain recognition by the Fund without
corresponding current cash receipts. Although the Fund will seek to avoid
significant noncash income, such noncash income could be recognized by the
Fund, in which case the Fund may distribute cash derived from other sources in
order to meet the minimum distribution requirements described above.
CAPITAL STOCK
The Company, an open-end, management investment company, was
incorporated in Maryland on September 9, 1991. The authorized capital stock of
the Company consists of 10,000,000,000 shares having a par value of $.001 per
share. As of the date of this SAI, the Company's Board of Directors has
authorized the issuance of thirteen series of shares, each representing an
interest in one portfolio -- the Aggressive Growth Fund, Asset Allocation Fund,
California Tax-Free Bond Fund, California Tax-Free Income Fund, California
Tax-Free Money Market Mutual Fund, Corporate Stock Fund, Diversified Income
Fund, Ginnie Mae Fund, Growth and Income Fund, Money Market Mutual Fund,
National Tax-Free Money Market Fund, Short-Intermediate U.S. Government Income
Fund and U.S. Government Allocation Fund -- and the Board of Directors may, in
the future, authorize the issuance of other series of capital stock
representing shares of additional investment portfolios.
All shares of the Company have equal voting rights and will be
voted in the aggregate, and not by series, except where voting by a series is
required by law or where the matter involved only affects one series. For
example, a change in a Fund's fundamental investment policy affects only one
series and would be voted upon only by shareholders of the Fund affected.
Additionally, approval of an advisory contract is a matter to be determined
separately by Fund. Approval by the shareholders of one Fund is effective as
to that Fund whether or not sufficient votes are received from the shareholders
of the other investment portfolios to approve the proposal as to those
investment portfolios. As used in the Prospectus of the Fund and in this SAI,
the term "majority," when referring to approvals to be obtained from
shareholders of the Fund, means the vote of the lesser of (i) 67% of the shares
of the Fund represented at a meeting if the holders of
22
<PAGE> 354
more than 50% of the outstanding shares of the Fund are present in person or by
proxy, or (ii) more than 50% of the outstanding shares of the Fund. The term
"majority," when referring to the approvals to be obtained from shareholders of
the Company as a whole, means the vote of the lesser of (i) 67% of the
Company's shares represented at a meeting if the holders of more than 50% of
the Company's outstanding shares are present in person or by proxy, or (ii)
more than 50% of the Company's outstanding shares. Shareholders are entitled
to one vote for each full share held and fractional votes for fractional shares
held.
The Company may dispense with an annual meeting of shareholders in
any year in which it is not required to elect Directors under the 1940 Act.
Each share of the Fund represents an equal proportional interest
in the Fund with each other share and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Fund as
are declared in the discretion of the Directors. In the event of the
liquidation or dissolution of the Company, shareholders of the Fund are
entitled to receive the assets attributable to the Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular investment portfolio that are available for distribution in such
manner and on such basis as the Directors in their sole discretion may
determine.
Shareholders are not entitled to any preemptive rights. All
shares, when issued for the consideration described in the Prospectus, will be
fully paid and non-assessable by the Company.
As of February 29, 1996, no shareholders were known by the Company
to own more than 5% of the outstanding shares of the Fund.
OTHER
The Registration Statement, including the Prospectus for the Fund,
the SAI and the exhibits filed therewith, may be examined at the office of the
SEC in Washington, D.C. Statements contained in the Prospectus or the SAI as
to the contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
23
<PAGE> 355
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company. KPMG Peat Marwick LLP provides audit services, tax
return preparation and assistance and consultation in connection with review of
certain SEC filings. KPMG Peat Marwick LLP's address is Three Embarcadero
Center, San Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments, financial statements and independent
auditors' report for the Fund contained in Post-Effective Amendment No. 21 to
the Company's Registration Statement, as filed on Form N-1A with the SEC on
February 29, 1996, are hereby incorporated by reference into this SAI. The
portfolio of investments, audited financial statements and independent
auditors' reports are attached to all SAIs delivered to current or prospective
shareholders.
24
<PAGE> 356
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+." Commercial paper with a strong capacity for timely payments
on issues will be rated "A-2."
A-1
<PAGE> 357
STAGECOACH FUNDS, INC.
SEC Registration Nos. 33-42927; 811-6419
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
The portfolio of investments, audited financial statements and
independent auditors' report for the year ended December 31, 1995
for the California Tax-Free Bond, California Tax-Free Income,
Corporate Stock, Diversified Income, Ginnie Mae, Growth and
Income, Money Market Mutual and Short-Intermediate U.S.
Government Income Funds are hereby incorporated by reference to
the Company's Annual Reports, as filed with the SEC on March 8,
1996.
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
1 - Amended and Restated Articles of Incorporation dated November
22, 1995, incorporated by reference to Post-Effective
Amendment No. 17 to the Registration Statement, filed
November 29, 1995.
2 - By-Laws, incorporated by reference to the Initial
Registration Statement, filed September 30, 1991.
3 - Not Applicable
4 - Not Applicable
5(a)(i)(A) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Asset Allocation Fund, incorporated by reference to Post-
Effective Amendment No. 2 to the Registration Statement,
filed April 17, 1992.
(i)(B) - Sub-Advisory Contract with BZW Barclays Global Fund Advisors
on behalf of the Asset Allocation Fund, incorporated by
reference to Post-Effective Amendment No. 21 to the
Registration Statement, filed February 29, 1996.
(ii)(A) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the U.S. Government Allocation Fund, incorporated by
reference to Post-Effective Amendment No. 2 to the
Registration Statement, filed April 17, 1992.
</TABLE>
C-1
<PAGE> 358
<TABLE>
<S> <C>
(ii)(B) - Sub-Advisory Contract with BZW Barclays Global Fund
Advisors on behalf of the U.S. Government Allocation
Fund, incorporated by reference to Post-Effective
Amendment No. 21 to the Registration Statement, filed
February 29, 1996.
(iii) - Advisory Contract with Wells Fargo Bank, N.A. on
behalf of the California Tax-Free Money Market Mutual
Fund, incorporated by reference to Post-Effective
Amendment No. 2 to the Registration Statement, filed
April 17, 1992.
(iv) - Advisory Contract with Wells Fargo Bank, N.A. on
behalf of the California Tax-Free Bond Fund,
incorporated by reference to Post-Effective Amendment
No. 2 to the Registration Statement, filed April 17,
1992.
(v) - Advisory Contract with Wells Fargo Bank, N.A. on
behalf of the Ginnie Mae Fund, incorporated by
reference to Post-Effective Amendment No. 2 to the
Registration Statement, filed April 17, 1992.
(vi) - Advisory Contract with Wells Fargo Bank, N.A. on
behalf of the Growth and Income Fund, incorporated by
reference to Post-Effective Amendment No. 2 to the
Registration Statement, filed April 17, 1992.
(vii)(A) - Advisory Contract with Wells Fargo Bank, N.A. on
behalf of the Corporate Stock Fund, incorporated by
reference to Post-Effective Amendment No. 2 to the
Registration Statement, filed April 17, 1992.
(vii)(B) - Sub-Advisory Contract with BZW Barclays Global Fund
Advisors on behalf of the Corporate Stock Fund,
incorporated by reference to Post-Effective Amendment
No. 21 to the Registration Statement, filed February
29, 1996.
(viii) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the Money Market Mutual Fund, incorporated by
reference to Post-Effective Amendment No. 3 to the
Registration Statement, filed May 1, 1992.
(ix) - Advisory Contract with Wells Fargo Bank, N.A. on
behalf of the California Tax-Free Income Fund,
incorporated by reference to Post-Effective Amendment
No. 4 to the Registration Statement, filed September
10, 1992.
(x) - Advisory Contract with Wells Fargo Bank, N.A. on
behalf of the Diversified Income Fund, incorporated by
reference to Post-Effective Amendment No. 17 to the
Registration Statement, filed November 29, 1995.
5(b)(i) - Administration Agreement with Stephens Inc. on behalf
of the Asset Allocation Fund, incorporated by
reference to Post-Effective Amendment No. 2 to the
Registration Statement, filed April 17, 1992.
(b)(ii) - Administration Agreement with Stephens Inc. on behalf
of the U.S. Government Allocation Fund, incorporated
by reference to Post-Effective Amendment No. 2 to the
Registration Statement, filed April 17, 1992.
(b)(iii) - Administration Agreement with Stephens Inc. on behalf
of the California Tax-Free Bond Fund, incorporated by
reference to Post-Effective Amendment No. 2 to the
Registration Statement, filed April 17, 1992.
</TABLE>
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<TABLE>
<S> <C>
(b)(iv) - Administration Agreement with Stephens Inc. on behalf
of the California Tax-Free Money Market Mutual Fund,
incorporated by reference to Post-Effective Amendment
No. 2 to the Registration Statement, filed April 17,
1992.
(b)(v) - Administration Agreement with Stephens Inc. on behalf
of the Ginnie Mae Fund, incorporated by reference to
Post-Effective Amendment No. 2 to the Registration
Statement, filed April 17, 1992.
(b)(vi) - Administration Agreement with Stephens Inc. on behalf
of the Growth and Income Fund, incorporated by
reference to Post-Effective Amendment No. 2 to the
Registration Statement, filed April 17, 1992.
(b)(vii) - Administration Agreement with Stephens Inc. on behalf
of the Corporate Stock Fund, incorporated by reference
to Post-Effective Amendment No. 2 to the Registration
Statement, filed April 17, 1992.
(b)(viii) - Administration Agreement with Stephens Inc. on behalf
of the Money Market Mutual Fund, incorporated by
reference to Post-Effective Amendment No. 3 to the
Registration Statement, filed May 1, 1992.
(b)(ix) - Form of Administration Agreement with Stephens Inc. on
behalf of the California Tax-Free Income Fund,
incorporated by reference to Post-Effective Amendment
No. 4 to the Registration Statement, filed September
10, 1992.
(b)(x) - Form of Administration Agreement with Stephens Inc. on
behalf of the Diversified Income Fund, incorporated by
reference to Post-Effective Amendment No. 4 to the
Registration Statement, filed September 10, 1992.
(b)(xi) - Administration Agreement with Stephens Inc. on behalf
of the Short-Intermediate U.S. Government Income Fund,
incorporated by reference to Post-Effective Amendment
No. 8 to the Registration Statement, filed February
10, 1994.
(b)(xii) - Administration Agreement with Stephens Inc. on behalf
of the National Tax-Free Money Market Mutual Fund,
incorporated by reference to Post-Effective Amendment
No. 19 to the Registration Statement, filed December
18, 1995.
(b)(xiii) - Administration Agreement with Stephens Inc. on behalf
of the Aggressive Growth Fund, incorporated by
reference to Post-Effective Amendment No. 19 to the
Registration Statement, filed December 18, 1995.
6(a) - Amended Distribution Agreement with Stephens Inc.,
incorporated by reference to Post-Effective Amendment
No. 15 to the Registration Statement, filed May 1,
1995.
(b)(i) - Selling Agreement with Marketing One Securities, Inc.
on behalf of the Funds, incorporated by reference to
Post-Effective Amendment No. 2 to the Registration
Statement, filed April 17, 1992.
(b)(ii) - Selling Agreement with Wells Fargo Bank, N.A. on
behalf of the Funds, incorporated by reference to
Post-Effective Amendment No. 2 to the Registration
Statement, filed April 17, 1992.
7 - Not Applicable
</TABLE>
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<TABLE>
<S> <C>
8(a) - Custody Agreement with Wells Fargo Institutional Trust
Company, N.A. on behalf of the Asset Allocation Fund,
incorporated by reference to Post-Effective Amendment
No. 2 to the Registration Statement, filed April 17,
1992.
(b) - Custody Agreement with Wells Fargo Institutional Trust
Company, N.A. on behalf of the U.S. Government
Allocation Fund, incorporated by reference to
Post-Effective Amendment No. 2 to the Registration
Statement, filed April 17, 1992.
(c) - Custody Agreement with Wells Fargo Institutional Trust
Company, N.A. on behalf of the Corporate Stock Fund,
incorporated by reference to Post-Effective Amendment
No. 2 to the Registration Statement, filed April 17,
1992.
(d) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the California Tax-Free Money Market Mutual
Fund, incorporated by reference to Post-Effective
Amendment No. 2 to the Registration Statement, filed
April 17, 1992.
(e) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the California Tax-Free Bond Fund,
incorporated by reference to Post-Effective Amendment
No. 2 to the Registration Statement, filed April 17,
1992.
(f) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the Growth and Income Fund, incorporated by
reference to Post-Effective Amendment No. 2 to the
Registration Statement, filed April 17, 1992.
(g) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the Ginnie Mae Fund, incorporated by
reference to Post-Effective Amendment No. 2 to the
Registration Statement, filed April 17, 1992.
(h) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the Money Market Fund, incorporated by
reference to Post-Effective Amendment No. 3 to the
Registration Statement, filed May 1, 1992.
(i) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the California Tax-Free Income Fund,
incorporated by reference to Post-Effective Amendment
No. 17 to the Registration Statement, filed November
29, 1995.
(j) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the Diversified Income Fund, incorporated by
reference to Post-Effective Amendment No. 17 to the
Registration Statement, filed November 29, 1995.
(k) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the Short-Intermediate U.S. Government
Income Fund, incorporated by reference to
Post-Effective Amendment No. 8 to the Registration
Statement, filed February 10, 1994.
(l) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the National Tax-Free Money Market Mutual
Fund, filed herewith.
(m) - Custody Agreement with Wells Fargo Bank, N.A. on
behalf of the Aggressive Growth Fund, incorporated by
reference to Post-Effective Amendment No. 20 to the
Registration Statement, filed February 28, 1996.
</TABLE>
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<TABLE>
<S> <C>
9(a)(i) - Agency Agreement with Wells Fargo Bank, N.A. on behalf
of the Funds, incorporated by reference to
Post-Effective Amendment No. 2 to the Registration
Statement, filed April 17, 1992.
9(a)(ii) - Agency Agreement with Wells Fargo Bank, N.A. on behalf
of the National Tax-Free Money Market Mutual Fund,
filed herewith.
9(a)(iii) - Form of Agency Agreement with Wells Fargo Bank, N.A.
on behalf of the Aggressive Growth Fund, incorporated
by reference to Post-Effective Amendment No. 19 to the
Registration Statement, filed December 18, 1995.
9(b)(i) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the California Tax-Free Money Market
Mutual Fund, incorporated by reference to
Post-Effective Amendment No. 2 to the Registration
Statement, filed April 17, 1992.
(b)(ii) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Corporate Stock Fund,
incorporated by reference to Post-Effective Amendment
No. 2 to the Registration Statement, filed April 17,
1992.
(b)(iii) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Money Market Mutual Fund,
incorporated by reference to Post-Effective Amendment
No. 3 to the Registration Statement, filed May 1,
1992.
(b)(iv) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the California Tax-Free Income Fund,
incorporated by reference to Post-Effective Amendment
No. 17 to the Registration Statement, filed November
29, 1995.
(b)(v) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Short- Intermediate U.S.
Government Income Fund, incorporated by reference to
Post-Effective Amendment No. 8 to the Registration
Statement, filed February 10, 1994.
(b)(vi) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the National Tax-Free Money Market
Mutual Fund, filed herewith.
(b)(vii) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Class B Shares of the Asset
Allocation Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
(b)(viii) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Class B Shares of the California
Tax-Free Bond Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
(b)(ix) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Class B Shares of the
Diversified Income Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
(b)(x) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Class B Shares of the Ginnie Mae
Fund, incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement, filed
May 1, 1995.
</TABLE>
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<TABLE>
<S> <C>
(b)(xi) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Class B Shares of the Growth and
Income Fund, incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement, filed May
1, 1995.
(b)(xii) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Class B Shares of the U.S.
Government Allocation Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
(b)(xiii) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Class B Shares of the Aggressive
Growth Fund, incorporated by reference to Post-Effective
Amendment No. 20 to the Registration Statement, filed
February 28, 1996.
(b)(xiv) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the Asset
Allocation Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
(b)(xv) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the
California Tax-Free Bond Fund, incorporated by reference
to Post- Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
(b)(xvi) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the
Diversified Income Fund, incorporated by reference to
Post- Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
(b)(xvii) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the Ginnie
Mae Fund, incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement, filed May
1, 1995.
(b)(xviii) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the Growth
and Income Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
(b)(xix) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the U.S.
Government Allocation Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
(b)(xx) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Class A Shares of the Aggressive
Growth Fund, incorporated by reference to Post-Effective
Amendment No. 20 to the Registration Statement, filed
February 28, 1996.
(c) - Cross Indemnification Agreement, incorporated by
reference to Post-Effective Amendment No. 11 to the
Registration Statement of Stagecoach Inc., filed July 27,
1994.
</TABLE>
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<TABLE>
<S> <C>
(d)(i) - Servicing Plan on behalf of the National Tax-Free
Money Market Mutual Fund, incorporated by reference to
Post-Effective Amendment No. 17 to the Registration
Statement, filed November 29, 1995.
(d)(ii) - Servicing Plan on behalf of the Class B Shares of the
Asset Allocation Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
(d)(iii) - Servicing Plan on behalf of the Class B Shares of the
California Tax-Free Bond Fund, incorporated by
reference to Post-Effective Amendment No. 15 to the
Registration Statement, filed May 1, 1995.
(d)(iv) - Servicing Plan on behalf of the Class B Shares of the
Diversified Income Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
(d)(v) - Servicing Plan on behalf of the Class B Shares of the
Ginnie Mae Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
(d)(vi) - Servicing Plan on behalf of the Class B Shares of the
Growth and Income Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
(d)(vii) - Servicing Plan on behalf of the Class B Shares of the
U.S. Government Allocation Fund, incorporated by
reference to Post-Effective Amendment No. 15 to the
Registration Statement, filed May 1, 1995.
(d)(viii) - Servicing Plan on behalf of the Class B Shares of the
Aggressive Growth Fund, incorporated by reference to
Post-Effective Amendment No. 19 to the Registration
Statement, filed December 18, 1995.
(d)(ix) - Servicing Plan on behalf of the Class A Shares of the
Aggressive Growth Fund, incorporated by reference to
Post-Effective Amendment No. 19 to the Registration
Statement, filed December 18, 1995.
10 - Opinion and Consent of Counsel, filed herewith.
11 - Consent of Auditors-KPMG Peat Marwick LLP, filed
herewith.
12 - Not Applicable
13 - Investment letter, incorporated by reference to Item
24(b) of Pre-Effective Amendment No. 1 to the
Registration Statement, filed November 29, 1991.
14 - Not Applicable
15(a)(i) - Distribution Plan on behalf of the California Tax-Free
Money Market Mutual Fund, incorporated by reference to
Post-Effective Amendment No. 2 to the Registration
Statement, filed April 17, 1992.
(a)(ii) - Distribution Plan on behalf of the Corporate Stock
Fund, incorporated by reference to Post-Effective
Amendment No. 2 to the Registration Statement, filed
April 17, 1992.
</TABLE>
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<TABLE>
<S> <C>
(a)(iii) - Distribution Plan on behalf of the Money Market Mutual
Fund, incorporated by reference to Post-Effective
Amendment No. 3 to the Registration Statement, filed
May 1, 1992.
(a)(iv) - Distribution Plan on behalf of the California Tax-Free
Income Fund, incorporated by reference to
Post-Effective Amendment No. 4 to the Registration
Statement, filed September 10, 1992.
(a)(v) - Distribution Plan on behalf of the Short-Intermediate
U.S. Government Income Fund, incorporated by reference
to Post-Effective Amendment No. 8 to the Registration
Statement, filed February 10, 1994.
(a)(vi) - Distribution Plan on behalf of the National Tax-Free
Money Market Mutual Fund, incorporated by reference to
Post-Effective Amendment No. 17 to the Registration
Statement, filed November 29, 1995.
(b)(i) - Distribution Plan on behalf of the Class B Shares of
the Asset Allocation Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
(b)(ii) - Distribution Plan on behalf of the Class B Shares of
the California Tax-Free Bond Fund, incorporated by
reference to Post-Effective Amendment No. 15 to the
Registration Statement, filed May 1, 1995.
(b)(iii) - Distribution Plan on behalf of the Class B Shares of
the Diversified Income Fund, incorporated by reference
to Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
(b)(iv) - Distribution Plan on behalf of the Class B Shares of
the Ginnie Mae Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
(b)(v) - Distribution Plan on behalf of the Class B Shares of
the Growth and Income Fund, incorporated by reference
to Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
(b)(vi) - Distribution Plan on behalf of the Class B Shares of
the U.S. Government Allocation Fund, incorporated by
reference to Post-Effective Amendment No. 15 to the
Registration Statement, filed May 1, 1995.
(b)(vii) - Distribution Plan on behalf of the Class B Shares of
the Aggressive Growth Fund, incorporated by reference
to Post-Effective Amendment No. 19 to the Registration
Statement, filed December 18, 1995.
(c)(i) - Amended Distribution Plan on behalf of the Class A
Shares of the Asset Allocation Fund, incorporated by
reference to Post-Effective Amendment No. 15 to the
Registration Statement, filed May 1, 1995.
(c)(ii) - Amended Distribution Plan on behalf of the Class A
Shares of the California Tax-Free Bond Fund,
incorporated by reference to Post-Effective Amendment
No. 15 to the Registration Statement, filed May 1,
1995.
</TABLE>
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<TABLE>
<S> <C>
(c)(iii) - Amended Distribution Plan on behalf of the Class A
Shares of the Diversified Income Fund, incorporated by
reference to Post-Effective Amendment No. 15 to the
Registration Statement, filed May 1, 1995.
(c)(iv) - Amended Distribution Plan on behalf of the Class A
Shares of the Ginnie Mae Fund, incorporated by
reference to Post-Effective Amendment No. 15 to the
Registration Statement, filed May 1, 1995.
(c)(v) - Amended Distribution Plan on behalf of the Class A
Shares of the Growth and Income Fund, incorporated by
reference to Post-Effective Amendment No. 15 to the
Registration Statement, filed May 1, 1995.
(c)(vi) - Amended Distribution Plan on behalf of the Class A
Shares of the U.S. Government Allocation Fund,
incorporated by reference to Post-Effective Amendment
No. 15 to the Registration Statement, filed May 1,
1995.
(c)(vii) - Distribution Plan on behalf of the Class A Shares of
the Aggressive Growth Fund, incorporated by reference
to Post-Effective Amendment No. 19 to the Registration
Statement, filed December 18, 1995.
16(a) - Schedules for Computation of Performance Data,
incorporated by reference to Post-Effective Amendment
No. 2, filed April 17, 1992.
16(b) - Schedules for Computation of Performance Data,
incorporated by reference to Post-Effective Amendment
No. 15, filed May 1, 1995.
17 - Powers of Attorney, incorporated by reference to
Initial Registration Statement, filed September 30,
1991.
18(a) - Rule 18f-3 Multi-Class Plan, incorporated by reference
to Post-Effective Amendment No. 14 to the
Registration Statement, filed April 14, 1995.
18(b) - Amended Rule 18f-3 Multi-Class Plan, incorporated by
reference to Post-Effective Amendment No. 19 to the
Registration Statement, filed December 18, 1995.
27(1)(a) - Financial Data Schedule for the California Tax-Free
Bond Fund-Class A Shares, incorporated by reference to
the Form N-SAR, filed on February 29, 1996.
27(1)(b) - Financial Data Schedule for the California Tax-Free
Bond Fund - Class B Shares, incorporated by reference
to the Form N-SAR, filed on February 29, 1996.
27(2) - Financial Data Schedule for the California Tax-Free
Income Fund, incorporated by reference to the Form
N-SAR, filed on February 29, 1996.
27(3)(a) - Financial Data Schedule for the Diversified Income
Fund - Class A Shares, incorporated by reference to
the Form N-SAR, filed on February 29, 1996.
27(3)(b) - Financial Data Schedule for the Diversified Income
Fund - Class B Shares, incorporated by reference to
the Form N-SAR, filed on February 29, 1996.
27(4)(a) - Financial Data Schedule for the Ginnie Mae Fund -
Class A Shares, incorporated by reference to the Form
N-SAR, filed on February 29, 1996.
</TABLE>
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<TABLE>
<S> <C>
27(4)(b) - Financial Data Schedule for the Ginnie Mae Fund - Class B
Shares, incorporated by reference to the Form N-SAR, filed
on February 29, 1996.
27(5)(a) - Financial Data Schedule for the Growth and Income Fund -
Class A Shares, incorporated by reference to the Form N-SAR,
filed on February 29, 1996.
27(5)(b) - Financial Data Schedule for the Growth and Income Fund -
Class B Shares, incorporated by reference to the Form N-SAR,
filed on February 29, 1996.
27(6) - Financial Data Schedule for the Money Market Mutual Fund -
Class S Shares, incorporated by reference to the Form N-SAR,
filed on February 29, 1996.
27(7) - Financial Data Schedule for the Short-Intermediate U.S.
Government Income Fund, incorporated by reference to the
Form N-SAR, filed on February 29, 1996.
</TABLE>
Item 25. Persons Controlled by or under Common Control with Registrant
As of April 15, 1996, the Asset Allocation, Corporate Stock and
U.S. Government Allocation Funds each owned approximately 99% of the
outstanding beneficial interests of the Asset Allocation, Corporate Stock and
U.S. Government Allocation Master Portfolios, respectively, of Master
Investment Trust. As such, each Fund could be considered a "controlling person"
(as such term is defined in the 1940 Act) of the corresponding Master Portfolio.
Item 26. Number of Holders of Securities
As of February 29, 1996, the number of record holders of each
class of Securities of the Registrant was as follows:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
Class A* Class B
-------- -------
<S> <C> <C>
Aggressive Growth Fund 1 1
Asset Allocation Fund 69,567 2,005
California Tax-Free Bond Fund 9,384 765
California Tax-Free Income Fund 2,858 N/A
California Tax-Free Money Market Mutual Fund 30,350 N/A
Corporate Stock Fund 28,957 N/A
</TABLE>
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<TABLE>
<S> <C> <C>
Diversified Income Fund 10,673 368
Ginnie Mae Fund 13,715 468
Growth and Income Fund 22,506 537
Money Market Mutual Fund 147,972 4,542**
National Tax-Free Money Market 1 N/A
Mutual Fund
Short-Intermediate U.S. Government 5,124 N/A
Income Fund
U.S. Government Allocation Fund 14,705 178
</TABLE>
* For purposes of this chart, shares of single class Funds are included under
the designation "Class A"
** Designates the number of Class S Shares outstanding.
Item 27. Indemnification
The following paragraphs of Article VIII of the Registrant's
Articles of Incorporation provide:
(h) The Corporation shall indemnify (1) its Directors and
Officers, whether serving the Corporation or at its request any other
entity, to the full extent required or permitted by the General Laws of
the State of Maryland now or hereafter in force, including the advance of
expenses under the procedures and to the full extent permitted by law,
and (2) its other employees and agents to such extent as shall be
authorized by the Board of Directors or the Corporation's By-Laws and be
permitted by law. The foregoing rights of indemnification shall not be
exclusive of any other rights to which those seeking indemnification may
be entitled. The Board of Directors may take such action as is necessary
to carry out these indemnification provisions and is expressly empowered
to adopt, approve and amend from time to time such By-Laws, resolutions
or contracts implementing such provisions or such further indemnification
arrangements as may be permitted by law. No amendment of these Articles
of Incorporation of the Corporation shall limit or eliminate the right to
indemnification provided hereunder with respect to acts or omissions
occurring prior to such amendment or repeal. Nothing contained herein
shall be construed to authorize the Corporation to indemnify any Director
or officer of the Corporation against any liability to the Corporation or
to any holders of securities of the Corporation to which he is subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. Any
indemnification by the Corporation shall be consistent with the
requirements of law, including the 1940 Act.
(i) To the fullest extent permitted by Maryland
statutory and decisional law and the 1940 Act, as amended or interpreted,
no Director or officer of the Corporation shall be personally liable to
the Corporation or its stockholders for money damages; provided,
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<PAGE> 368
however, that nothing herein shall be construed to protect any Director
or officer of the Corporation against any liability to which such
Director or officer would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office. No amendment, modification
or repeal of this Article VIII shall adversely affect any right or
protection of a Director or officer that exists at the time of such
amendment, modification or repeal.
Item 28. Business and Other Connections of Investment Adviser.
Wells Fargo Bank, N.A. ("Wells Fargo Bank"), a wholly owned
subsidiary of Wells Fargo & Company, currently serves as investment adviser to
several of the Registrant's investment portfolios and to certain other
registered open-end management investment companies. Wells Fargo Bank's
business is that of a national banking association with respect to which it
conducts a variety of commercial banking and trust activities.
To the knowledge of Registrant, none of the directors or
executive officers of Wells Fargo Bank, except those set forth below, is or has
been at any time during the past two fiscal years engaged in any other
business, profession, vocation or employment of a substantial nature, except
that certain executive officers also hold various positions with and engage in
business for Wells Fargo & Company. Set forth below are the names and principal
businesses of the directors and executive officers of Wells Fargo Bank who are
or during the past two fiscal years have been engaged in any other business,
profession, vocation or employment of a substantial nature for their own
account or in the capacity of director, officer, employee, partner or trustee.
All the directors of Wells Fargo Bank also serve as directors of Wells Fargo &
Company.
<TABLE>
<CAPTION>
Name and Position Principal Business(es) and Address(es)
at Wells Fargo Bank During at Least the Last Two Fiscal Years
- ------------------- -----------------------------------------
<S> <C>
H. Jesse Arnelle Senior Partner of Arnelle & Hastie
Director 455 Market Street
San Francisco, CA 94105
Director of FPL Group, Inc.
700 Universe Blvd.
P.O. Box 14000
North Palm Beach, FL 33408
William R. Breuner General Partner in Breuner Associates, Breuner Properties and
Director Breuner-Pavarnick Real Estate Developers. Retired Chairman of the
Board of Directors of John Breuner Co.
2300 Clayton Road, Suite 1570
Concord, CA 94520
Vice Chairman of the California State Railroad
Museum Foundation.
111 I Street
Old Sacramento, CA 95814
</TABLE>
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<TABLE>
<S> <C>
William S. Davila President and Director of The Vons Companies, Inc.
Director 618 Michillinda Avenue
Arcadia, CA 91007
Officer of Western Association of Food Chains
825 Colorado Blvd. #203
Los Angeles, CA 90041
Rayburn S. Dezember Director of CalMat Co.
Director 3200 San Fernando Road
Los Angeles, CA 90065
Director of Tejon Ranch Co.
P.O. Box 1000
Lebec, CA 93243
Director of Turner Casting Corp.
P.O. Box 1099
Cudahy, CA 90201
Director of The Bakersfield Californian
P.O. Box 440
1707 I Street
Bakersfield, CA 93302
Director of Kern County Economic Development Corp.
P.O. Box 1229
2700 M Street, Suite 225
Bakersfield, CA 93301
Chairman of the Board of Trustees of Whittier College
13406 East Philadelphia Avenue
P.O. Box 634
Whittier, CA 90608
Paul Hazen Chairman of the Board of Directors of
Chairman of the Wells Fargo & Company
Board of Directors 420 Montgomery Street
San Francisco, CA 94105
Director of Pacific Telesis Group
130 Kearny Street
San Francisco, CA 94108
Director of Phelps Dodge Corp.
2600 North Central Avenue
Phoenix, AZ 85004
Director of Safeway Inc.
Fourth and Jackson Streets
Oakland, CA 94660
</TABLE>
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<TABLE>
<S> <C>
Robert K. Jaedicke Accounting Professor and Dean Emeritus of
Director Graduate School of Business, Stanford University
MBA Admissions Office
Stanford, CA 94305
b
Director of Homestake Mining Co.
650 California Street
San Francisco, CA 94108
Director of California Water Service Company
1720 North First Street
San Jose, CA 95112
Director of Boise Cascade Corp.
1111 West Jefferson Street
P.O. Box 50
Boise, ID 83728
Director of Enron Corp.
1400 Smith Street
Houston, TX 77002
Director of GenCorp, Inc.
175 Ghent Road
Fairlawn, OH 44333
Paul A. Miller Chairman of Executive Committee and Director of
Director Pacific Enterprises
633 West Fifth Street
Los Angeles, CA 90071
Trustee of Mutual Life Insurance Company of New York
1740 Broadway
New York, NY 10019
Director of American Conservatory Theater
30 Grant Avenue
San Francisco, CA 94108
Director of California Chamber of Commerce
1201 K Street, 12th Floor
Sacramento, CA 95814
Ellen M. Newman President of Ellen Newman Associates
Director 323 Geary Street, Suite 507
San Francisco, CA 94102
Chair of Board of Trustees of
University of California at San Francisco Foundation
250 Executive Park Blvd., Suite 2000
San Francisco, CA 94143
Director of American Conservatory Theater
30 Grant Avenue
San Francisco, CA 94108
Director of California Chamber of Commerce
1201 K Street, 12th Floor
Sacramento, CA 95814
</TABLE>
C-14
<PAGE> 371
<TABLE>
<S> <C>
Philip J. Quigley Chairman, Chief Executive Officer and
Director Director of Pacific Telesis Group
130 Kearney Street, Rm. 3700
San Francisco, CA 94108
Director of Varian Associates
3050 Hansen Way
P.O. Box 10800
Palo Alto, CA 94303
Carl E. Reichardt Chairman and Chief Executive Officer of the
Director Board of Directors of Wells Fargo & Company
420 Montgomery Street
San Francisco, CA 94105
Director of Ford Motor Company
The American Road
Dearborn, MI 48121
Director of Hospital Corporation of America,
HCA-Hospital Corp. of America
One Park Plaza
Nashville, TN 37203
Director of Pacific Gas and Electric Company
77 Beale Street
San Francisco, CA 94105
Director of Newhall Management Corporation
23823 Valencia Blvd.
Valencia, CA 91355
Donald B. Rice President, Chief Operating Officer and Director of
Director Teledyne, Inc.
2049 Century Park East
Los Angeles, CA 90067
Director of Vulcan Materials Company
One Metroplex Drive
Birmingham, AL 35209
Retired Secretary of the Air Force
</TABLE>
C-15
<PAGE> 372
<TABLE>
<S> <C>
Susan G. Swenson President and Chief Executive Officer of Cellular One
Director 651 Gateway Blvd.
San Francisco, CA 94080
Chang-Lin Tien Chancellor of University of California at Berkeley
Director UC at Berkeley
Berkeley, CA 94720
John A. Young President, Director and Chief Executive Officer of
Director Hewlett-Packard Company
3000 Hanover Street
Palo Alto, CA 94304
Director of Chevron Corporation
225 Bush Street
San Francisco, CA 94104
William F. Zuendt Director of 3Com Corp.
President 5400 Bayfront Plaza
P.O. Box 58145
Santa Clara, CA 95052
Director of MasterCard International
888 Seventh Avenue
New York, NY 10106
Trustee of Golden Gate University
536 Mission Street
San Francisco, CA 94163
</TABLE>
BZW Barclays Global Fund Advisors ("BGFA"), a wholly-owned
subsidiary of BZW Barclays Global Investors, N.A. ("BGI", formerly, Wells Fargo
Institutional Trust Company), serves as the sub-adviser to the Asset
Allocation, Corporate Stock and U.S. Government Allocation Funds of the Company
and to certain other open-end management investment companies. As of May 1,
1996, BGFA will no longer serve as sub-adviser to the Asset Allocation,
Corporate Stock and U.S. Government Allocation Funds. As of this date, BGFA
will serve as sub-adviser to the corresponding Asset Allocation, U.S.
Government Allocation and Corporate Stock Master Portfolios of Master
Investment Trust in which such funds invest substantially all of their assets.
The directors and officers of BGFA consist primarily of persons
who during the past two years have been active in the investment management
business of the former sub-adviser to the Registrant, Wells Fargo Nikko
Investment Advisors ("WFNIA") and, in some cases, the service business of BGI.
With the exception of Irving Cohen, each of the directors and executive
officers of BGFA will also have substantial responsibilities as directors
and/or officers of BGI. To the knowledge of the Registrant, except as set
forth below, none of the directors or executive officers of BGFA is or has been
at any time during the past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature.
C-16
<PAGE> 373
<TABLE>
<CAPTION>
Name and Position Principal Business(es) During at
at BGFA Least the Last Two Fiscal Years
- ----------------- --------------------------------
<S> <C>
Frederick L.A. Grauer Chairman and Director of WFNIA and WFITC+
Chairman, Director
Donald L. Luskin Chief Executive Officer of WFNIA's Defined Contribution Group+
Vice Chairman & Director
Irving Cohen Chief Financial Officer and Chief Operating Officer of Barclays Bank PLC,
Director New York Branch and Chief Operating Officer of Barclays Group, Inc. (USA)*:
previously Chief Financial Officer of Barclays de Zoete Wedd Securities Inc.
(1994)*
Andrea M. Zolberti Chief Financial Officer of WFNIA and WFITC+
Chief Financial Officer
Vincent J. Bencivenga Previously Vice President at State Street Bank & Trust Company++
Chief Fiduciary Officer
</TABLE>
* 222 Broadway, New York, New York, 10038.
+ 45 Fremont Street, San Francisco, California 94105.
++ One Financial Center, Boston, Massachusetts 02111.
Prior to January 1, 1996 Wells Fargo Nikko Investment Advisors
("WFNIA") served as the sub-adviser to the Asset Allocation, Corporate Stock
and U.S. Government Allocation Funds of the Company and as adviser or
sub-adviser to various other open-end management investment companies. For
additional information, see "The Funds and Management" in the Prospectus and
"Management" in the Statement of Additional Information of such Funds. For
information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and management committees of WFNIA,
reference is made to WFNIA's Form ADV and Schedules A and D filed under the
Investment Advisers Act of 1940, File No. 801-36479, incorporated herein by
reference.
Item 29. Principal Underwriters.
(a) Stephens Inc., distributor for the Registrant, does not
presently act as investment adviser for any other registered investment
companies, but does act as principal underwriter for Overland Express Funds,
Inc., Stagecoach Inc. and Stagecoach Trust; and is the exclusive placement
agent for Master Investment Trust, Managed Series Investment Trust, Life &
Annuity Trust and Master Investment Portfolio, which are registered open-end
management investment companies, and has acted as principal underwriter for the
Liberty Term Trust, Inc., Nations Government Income Term Trust 2003, Inc., and
Nations Government Income Term Trust 2004, Inc., and Managed Balanced Target
Maturity Fund, Inc., which are closed-end
C-17
<PAGE> 374
management investment companies and Nations Fund Trust, Nations Funds, Inc.,
Nations Fund Portfolios, Inc. and The Capitol Mutual Funds, which are open-end
management investment companies.
(b) Information with respect to each director and officer of
the principal underwriter is incorporated by reference to Form ADV and
Schedules A and D filed by Stephens Inc. with the Securities and Exchange
Commission pursuant to the Investment Advisers Act of 1940 (file No.
501-15510).
(c) Not Applicable.
Item 30. Location of Accounts and Records.
(a) The Registrant maintains accounts, books and other
documents required by Section 31(a) of the Investment Company Act of 1940 and
the rules thereunder (collectively, "Records") at the offices of Stephens Inc.,
111 Center Street, Little Rock, Arkansas 72201.
(b) Wells Fargo Bank maintains all Records relating to its
services as investment adviser and custodian and transfer and dividend
disbursing agent at 525 Market Street, San Francisco, California 94105.
(c) WFNIA and Wells Fargo Institutional Trust Company, N.A.
maintain all Records relating to their services as sub-adviser and custodian,
respectively, for the period prior to January 1, 1996, at 45 Fremont Street,
San Francisco, California 94105.
(d) BGFA and BGI maintain all Records relating to their
services as sub-adviser and custodian, respectively, for the period beginning
January 1, 1996 at 45 Fremont Street, San Francisco, California 94105.
(e) Stephens maintains all Records relating to its services as
sponsor, administrator and distributor at 111 Center Street, Little Rock,
Arkansas 72201.
Item 31. Management Services.
Other than as set forth under the captions "The Funds and
Management" and "Management, Distribution and Servicing Fees" in the
Prospectuses constituting Part A of this Registration Statement and
"Management" in the Statements of Additional Information constituting Part B of
this Registration Statement, the Registrant is not a party to any
management-related service contract.
Item 32. Undertakings.
(a) Not Applicable.
(b) Not Applicable.
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<PAGE> 375
(c) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant
to the provisions set forth above in response to Item 27,
or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in
such Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the
securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue
(d) Not Applicable.
(e) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of its most current
annual report to shareholders, upon request and without
charge.
C-19
<PAGE> 376
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to the Registration Statement on Form N-1A
to be signed on its behalf by the undersigned, thereto duly authorized in the
City of Little Rock, State of Arkansas, on the 26th day of April, 1996.
STAGECOACH FUNDS, INC.
By: /s/ Richard H. Blank, Jr.
--------------------------------
Richard H. Blank, Jr.
Secretary and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-1A has been signed below by the following
persons in the capacities and on the date indicated.
Signature Title
--------- -----
* Director, Chairman, President
- -------------------------- (Principal Executive Officer)
(R. Greg Feltus)
/s/ Richard H. Blank, Jr. Secretary and Treasurer
- -------------------------- (Principal Financial Officer)
(Richard H. Blank, Jr.)
* Director
- --------------------------
(Jack S. Euphrat)
* Director
- --------------------------
(Thomas S. Goho)
* Director
- --------------------------
(Zoe Ann Hines)
* Director
- --------------------------
(W. Rodney Hughes)
* Director
- --------------------------
(Robert M. Joses)
* Director
- --------------------------
(J. Tucker Morse)
April 26, 1996
*By: /s/ Richard H. Blank, Jr.
-----------------------------
(Richard H. Blank, Jr.)
As Attorney-in-Fact
<PAGE> 377
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to the Registration Statement on Form N-1A
to be signed on its behalf by the undersigned, thereto duly authorized in the
City of Little Rock, State of Arkansas, on the 26th day of April, 1996.
MASTER INVESTMENT TRUST
By: /s/ Richard H. Blank, Jr.
---------------------------------
Richard H. Blank, Jr.
Secretary and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-1A has been signed below by the following
persons in the capacities and on the date indicated.
Signature Title
--------- -----
* Chairman, President (Principal
- ------------------------------ Executive Officer) and Trustee
(R. Greg Feltus)
/s/ Richard H. Blank, Jr. Chief Operating Officer,
- ------------------------------ Secretary and Treasurer
(Richard H. Blank, Jr.) (Principal Financial Officer)
*
- ------------------------------ Trustee
(Jack S. Euphrat)
*
- ------------------------------ Trustee
(Thomas S. Goho)
*
- ------------------------------ Trustee
(Zoe Ann Hines)
*
- ------------------------------ Trustee
(W. Rodney Hughes)
*
- ------------------------------ Trustee
(Robert M. Joses)
*
- ------------------------------ Trustee
(J. Tucker Morse)
April 26, 1996
*By: /s/ Richard H. Blank, Jr.
------------------------------
(Richard H. Blank, Jr.)
As Attorney-in-Fact
<PAGE> 378
STAGECOACH FUNDS, INC.
FILE NOS. 33-42927; 811-6419
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
EX-99.B8(1) - Custody Agreement on behalf of the National Tax-Free Money
Market Mutual Fund
EX-99.B9(a)(ii) - Agency Agreement on behalf of the National Tax-Free Money Market
Mutual Fund
EX-99.B9(b)(vi) - Shareholder Servicing Agreement on behalf of the National Tax-
Free Money Market Mutual Fund
EX-99.B10 - Opinion and Consent of Counsel
EX-99.B11 - Consents of Independent Auditors - KPMG Peat Marwick
</TABLE>
<PAGE> 1
EX-99.B8(1)
CUSTODY AGREEMENT
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
This Agreement is made as of the 16th day of February, 1996 (the
"Agreement"), by and between STAGECOACH FUNDS, INC. (the "Company"), on behalf
of the National Tax-Free Money Market Mutual Fund (the "Fund"), and WELLS FARGO
BANK, N.A. (the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth, the
Company and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meaning:
1. "Authorized Person" shall be deemed to include the treasurer,
the controller or any other person, whether or not any such person is an
Officer or employee of the Company, duly authorized by the Board of Directors
("Directors") to give Oral Instructions and Written Instructions on behalf of
the Fund and listed in the Certificate attached hereto as Appendix A or such
other Certificate as may be received from time to time by the Custodian.
2. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its
successor(s) and its nominee(s).
3. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian, which is actually received by the Custodian and signed on behalf
of the Fund by any two Officers of the Company.
4. "Clearing Member" shall mean a registered broker-dealer that
is a member of a national securities exchange qualified to act as a custodian
for an investment company, or any broker-dealer reasonably believed by the
Custodian to be such a clearing member.
5. "Depository" shall mean The Depository Trust Company ("DTC"),
Participants Trust Company ("PTC"), and any other clearing agency registered
with the Securities and Exchange Commission under Section 17A of the Securities
Exchange Act of 1934, its successor(s) and its nominee(s), provided the
Custodian has received a certified copy of a
-1-
<PAGE> 2
resolution of the Board of Directors specifically approving deposits in DTC,
PTC or such other clearing agency. The term "Depository" shall further mean
and include any person authorized to act as a depository pursuant to Section
17, Rule 17f-4 or Rule 17f-5 thereunder, under the Investment Company Act of
1940, its successor(s) and its nominee(s), specifically identified in a
certified copy of a resolution of the Board of Directors approving deposits
therein by the Custodian.
6. "Margin Account" shall mean a segregated account in the name
of a broker, dealer, or Clearing Member, or in the name of the Company or the
Fund for the benefit of a broker, dealer, or Clearing Member, or otherwise, in
accordance with an agreement between the Company on behalf of the Fund, the
Custodian and a broker, dealer, or Clearing Member (a "Margin Account
Agreement"), separate and distinct from the custody account, in which certain
Securities and/or moneys of the Fund shall be deposited and withdrawn from time
to time in connection with such transactions as the Fund may from time to time
determine. Securities held in the Book-Entry System or the Depository shall be
deemed to have been deposited in, or withdrawn from, a Margin Account upon the
Custodian's effecting an appropriate entry on its books and records.
7. "Money Market Securities" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to principal and interest
by the government of the United States or agencies or instrumentalities
thereof, commercial paper, certificates of deposit and bankers' acceptances,
repurchase and reverse repurchase agreements with respect to the same and bank
time deposits, where the purchase and sale of such securities normally requires
settlement in federal funds on the same date as such purchase or sale.
8. "Officers" shall be deemed to include the President, Vice
President, the Secretary, the Treasurer, the Controller, any Assistant
Secretary, any Assistant Treasurer or any other person or persons duly
authorized by the Directors of the Company to execute any Certificate,
instruction, notice or other instrument on behalf of the Fund and listed in the
Certificate attached hereto as Appendix B or such other Certificate as may be
received by the Custodian from time to time.
9. "Oral Instructions" shall mean verbal instructions actually
received by the Custodian from an Authorized Person or from a person reasonably
believed by the Custodian to be an Authorized Person.
10. "Reverse Repurchase Agreement" shall mean an agreement
pursuant to which the Fund sells Securities and agrees to repurchase such
Securities at a described or specified date and price.
11. "Security" or "Securities" shall be deemed to include,
without limitation, Money Market Securities, Reverse Repurchase Agreements,
common stock and other instruments or rights having characteristics similar to
common stocks, preferred stocks, debt obligations issued by state or municipal
governments and by public authorities (including, without limitation, general
obligations bonds), bonds, debentures, notes, mortgages or other obligations,
and any certificates,
2
<PAGE> 3
receipts, warrants or other instruments representing rights to receive,
purchase, sell or subscribe for the same, or evidencing or representing any
other rights or interest therein, or any property or assets.
12. "Segregated Security Account" shall mean an account
maintained under the terms of this Agreement as a segregated account, by
recordation or otherwise, within the custody account in which certain
Securities and/or other assets of the Fund shall be deposited and withdrawn
from time to time in accordance with Certificates received by the Custodian in
connection with such transactions as the Fund may from time to time determine.
13. "Shares" shall mean the shares of common stock of the Fund,
each of which, in the case of the Fund having Series, is allocated to a
particular Series.
14. "Written Instructions" shall mean written communications
actually received by the Custodian from an Authorized Person or from a person
reasonably believed by the Custodian to be an Authorized Person by telex or any
other such system whereby the receiver of such communications is able to verify
by codes or otherwise with a reasonable degree of certainty the authenticity of
the sender of such communication.
ARTICLE II
APPOINTMENT OF A CUSTODIAN
1. The Company on behalf of the Fund hereby constitutes and
appoints the Custodian as custodian of all the Securities and moneys at any
time owned by the Fund during the term of this Agreement.
2. The Custodian hereby accepts appointment as such custodian and
agrees to perform all the duties thereof as set forth in this Agreement.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in Article V, the Fund will
deliver or cause to be delivered to the Custodian all Securities and all moneys
owned by it, including cash received for the issuance of its Shares, at any
time during the term of this Agreement. The Custodian will not be responsible
for such Securities and such moneys until actually received by it. The
Custodian will be entitled to reverse any credits made on the Fund's behalf
where such credits have been previously made and moneys are not finally
collected. The Fund shall deliver to the Custodian a certified resolution of
the Directors of the Company authorizing and instructing the Custodian on a
continuous and ongoing basis to deposit in the Book-Entry System all Securities
eligible for deposit therein and to utilize the Book- Entry System to the
extent possible in connection with its performance hereunder, including,
without limitation, in connection with settlements of purchases and sales of
Securities, loans of Securities, and deliveries and returns of Securities
collateral.
3
<PAGE> 4
Prior to a deposit of Securities of the Fund in the Depository, the Fund shall
deliver to the Custodian a certified resolution of the Directors of the Company
approving, authorizing and instructing the Custodian on a continuous and
ongoing basis until instructed to the contrary by a Certificate actually
received by the Custodian to deposit in the Depository all Securities eligible
for deposit therein and to utilize the Depository to the extent possible in
connection with its performance hereunder, including, without limitation, in
connection with settlements of purchases and sales of Securities, loans of
Securities, and deliveries and returns of Securities collateral. Securities
and moneys of the Fund deposited in either the Book-Entry System or the
Depository will be represented in accounts which include only assets held by
the Custodian for customers, including, but not limited to, accounts in which
the Custodian acts in a fiduciary or representative capacity.
2. The Custodian shall credit to a separate account in the name
of the Fund all moneys received by it for the account of the Fund, and shall
disburse the same only:
(a) In payment for Securities purchased, as provided in Article
IV hereof;
(b) In payment of dividends or distributions, as provided in
Article VIII hereof;
(c) In payment of original issue or other taxes, as provided in
Article IX hereof;
(d) In payment for Shares redeemed by it, as provided in Article
IX hereof;
(e) Pursuant to Certificate(s) setting forth the name(s) and
address(es) of the person(s) to whom the payment is to be made, and the purpose
for which payment is to be made; or
(f) In payment of the fees and in reimbursement of the expenses
and liabilities of the Custodian, as provided in Article XII hereof.
3. Promptly after the close of business on each day, the
Custodian shall furnish the Fund with confirmations and a summary of all
transfers to or from the account of the Fund during said day. Where Securities
are transferred to the account of the Fund, the Custodian shall also by
book-entry or otherwise identify as belonging to the Fund a quantity of
Securities in a fungible bulk of Securities registered in the name of the
Custodian (or its nominee) or shown on the Custodian's account on the books of
the Book-Entry System or the Depository. The Custodian shall furnish the Fund
at least monthly with a detailed statement of the Securities and moneys held
for the Fund under this Agreement.
4. Except as otherwise provided in Article V, all Securities held
for the Fund which are issued or issuable only in bearer form, except such
Securities as are held in the Book-Entry System, shall be held by the Custodian
in that form; all other Securities held for the Fund may be registered in the
name of the Fund, in the name of any duly appointed registered nominee of the
Custodian as the Custodian may from time to time determine, or in the name of
the Book-Entry System or the Depository or their successor(s) or their
nominee(s). The Company agrees to
4
<PAGE> 5
furnish to the Custodian appropriate instruments to enable the Custodian to
hold or deliver in proper form for transfer, or to register in the name of its
registered nominee or in the name of the Book-Entry System or the Depository,
any Securities which it may hold for the account of the Fund and which may from
time to time be registered in the name of the Fund. The Custodian shall hold
all such Securities which are not held in the Book-Entry System or in the
Depository in a separate account in the name of the Fund physically segregated
at all times from those of any other person or persons.
5. Except as otherwise provided in this Agreement and unless
otherwise instructed to the contrary by a Certificate, the Custodian by itself,
or through the use of the Book-Entry System or the Depository with respect to
the Securities therein deposited, shall, with respect to all Securities held
for the Fund in accordance with this Agreement:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount payable upon such
Securities which are called, but only if either (i) the Custodian receives a
written notice of such call, or (ii) notice of such call appears in one or more
of the publications listed in Appendix C annexed hereto, which may be amended
at any time by the Custodian upon five business days' prior notification to the
Fund;
(c) Present for payment and collect the amount payable upon all
Securities which mature;
(d) Surrender Securities in temporary form for definitive
Securities;
(e) Execute, as Custodian, any necessary declarations or
certificates of ownership under the federal income tax laws or the laws or
regulations of any other taxing authority now or hereafter in effect; and
(f) Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the account of the
Fund all rights and similar securities issued with respect to any Securities
held by the Custodian hereunder.
6. Upon receipt of a Certificate and not otherwise, the
Custodian, directly or through the use of the Book-Entry System or the
Depository, shall:
(a) Execute and deliver to such persons as may be designated in
such Certificate proxies, consents, authorizations, and any other instruments
whereby the authority of the Fund as owner of any Securities may be exercised;
(b) Deliver any Securities held for the Fund in exchange for
other Securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
5
<PAGE> 6
(c) Deliver any Securities held for the Fund to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale of
assets of any corporation, and receive and hold under the terms of this
Agreement such certificates of deposit, interim receipts or other instruments
or documents as may be issued to it to evidence such delivery;
(d) Make such transfer or exchanges of the assets of the Fund and
take such other steps as shall be stated in said order to be for the purpose of
effectuating any duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund; and
(e) Present for payment and collect the amount payable upon
Securities not described in preceding paragraph 5(b) of this Article which may
be called as specified in the Certificate.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
1. Promptly after each purchase or sale (as applicable) of
Securities by the Fund, other than a purchase or sale of any Reverse Repurchase
Agreement, the Fund shall deliver to the Custodian (i) with respect to each
purchase or sale of Securities which are not Money Market Securities, a
Certificate; and (ii) with respect to each purchase or sale of Money Market
Securities, a Certificate, Oral Instructions or Written Instructions,
specifying with respect to each such purchase or sale: (a) the name of the
issuer and the title of the Securities; (b) the number of shares or the
principal amount purchased or sold and accrued interest, if any; (c) the date
of purchase or sale and settlement date; (d) the purchase or sale price per
unit; (e) the total amount payable upon such purchase or sale; (f) the name of
the person from whom or the broker through whom the purchase or sale was made,
and the name of the clearing broker, if any; (g) in the case of a purchase, the
name of the broker to which payment is to be made; and (h) in the case of a
sale, the name of the broker to whom the Securities are to be delivered. In
the case of a purchase, the Custodian shall, upon receipt of Securities
purchased by or for the Fund, pay out of the moneys held for the account of the
Fund the total amount payable to the person from whom, or the broker through
whom, the purchase was made, provided that the same conforms to the total
amount payable as set forth in such Certificate, Oral Instructions or Written
Instructions. In the case of a sale, the Custodian shall deliver the
Securities upon receipt of the total amount payable to the Fund upon such sale,
provided that the same conforms to the total amount payable as set forth in
such Certificate, Oral Instructions or Written Instructions. Subject to the
foregoing, the Custodian may accept payment in such form as shall be
satisfactory to it, and may deliver Securities and arrange for payment in
accordance with the customs prevailing among dealers in securities.
6
<PAGE> 7
ARTICLE V
SHORT SALES
1. Promptly after any short sale, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the name of the issuer and the title
of the Security; (b) the number of shares or principal amount sold, and accrued
interest or dividends, if any; (c) the dates of the sale and settlement; (d)
the sale price per unit; (e) the total amount credited to the Fund upon such
sale, if any (f) the amount of cash and/or the amount and kind of Securities,
if any, which are to be deposited in a Margin Account and the name in which
such Margin Account has been or is to be established; (g) the amount of cash
and/or the amount and kind of Securities, if any, to be deposited in a
Segregated Security Account; and (h) the name of the broker through which such
short sale was made. The Custodian shall upon its receipt of a statement from
such broker confirming such sale and that the total amount credited to the Fund
upon such sale, if any, as specified in the Certificate is held by such broker
for the account of the Custodian (or any nominee of the Custodian) as custodian
of the Fund, issue a receipt or make the deposits into the Margin Account and
the Segregated Security Account specified in the Certificate.
2. In connection with the closing-out of any short sale, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect
to each such closing-out: (a) the name of the issuer and the title of the
Security; (b) the number of shares or the principal amount, and accrued
interest or dividends, if any, required to effect such closing-out to be
delivered to the broker; (c) the dates of the closing-out and settlement; (d)
the purchase price per unit; (e) the net total amount payable to the Fund upon
such closing-out; (f) the net total amount payable to the broker upon such
closing-out; (g) the amount of cash and the amount and kind of Securities, if
any, to be withdrawn, from the Margin Account; (h) the amount of cash and/or
the amount and kind of Securities, if any, to be withdrawn from the Segregated
Security Account; and (i) the name of the broker through which the Fund is
effecting such closing-out. The Custodian shall, upon receipt of the net total
amount payable to the Fund upon such closing-out and the return and/or
cancellation of the receipts, if any, issued by the Custodian with respect to
the short sale being closed-out, pay out the moneys held for the account of the
Fund to the broker the net total amount payable to the broker, and make the
withdrawals from the Margin Account and the Segregated Security Account, as the
same are specified in the Certificate.
ARTICLE VI
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters into a Reverse Repurchase
Agreement with respect to Securities and money held by the Custodian hereunder,
the Fund shall deliver to the Custodian a Certificate, or in the event such
Reverse Repurchase Agreement is a Money Market Security, a Certificate, Oral
Instructions or Written Instructions specifying: (a) the total amount payable
to the Fund in connection with such Reverse Repurchase Agreement; (b) the
broker or dealer through or with which the Reverse Repurchase Agreement is
entered; (c) the amount and kind of Securities to be delivered by the Fund to
such broker or dealer; (d) the date of such Reverse Repurchase Agreement; and
(e) the amount of cash and/or the amount and kind of Securities, if
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<PAGE> 8
any, to be deposited in a Segregated Security Account in connection with such
Reverse Repurchase Agreement. The Custodian shall, upon receipt of the total
amount payable to the Fund specified in the Certificate, Oral Instructions or
Written Instructions make the delivery to the broker or dealer, and the
deposits, if any, to the Segregated Security Account, specified in such
Certificate, Oral Instructions or Written Instructions.
2. Upon the termination of a Reverse Repurchase Agreement
described in paragraph 1 of this Article VI, the Fund shall promptly deliver a
Certificate or, in the event such Reverse Repurchase Agreement is a Money
Market Security, a Certificate, Oral Instructions or Written Instructions to
the Custodian specifying: (a) the Reverse Repurchase Agreement being
terminated; (b) the total amount payable by the Fund in connection with such
termination; (c) the amount and kind of Securities to be received by the Fund
in connection with such termination; (d) the date of termination; (e) the name
of the broker or dealer with or through which the Reverse Repurchase Agreement
is to be terminated; and (f) the amount of cash and/or the amount and kind of
Securities to be withdrawn from the Segregated Security Account. The Custodian
shall, upon receipt of the amount and kind of Securities to be received by the
Fund specified in the Certificate, Oral Instructions or Written Instructions,
make the payment to the broker or dealer, and the withdrawals, if any, from the
Segregated Security Account, specified in such Certificate, Oral Instructions
or Written Instructions.
ARTICLE VII
MARGIN ACCOUNTS, SEGREGATED SECURITY
ACCOUNTS AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to,
or withdrawals from, a Segregated Security Account as specified in a
Certificate received by the Custodian. Such Certificate shall specify the
amount of cash and/or the amount and kind of Securities to be deposited in, or
withdrawn from, the Segregated Security Account. In the event that the Fund
fails to specify in a Certificate the name of the issuer, the title and the
number of shares or the principal amount of any particular Securities to be
deposited by the Custodian into, or withdrawn from, a Segregated Securities
Account, the Custodian shall be under no obligation to make any such deposit or
withdrawal and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from a Margin
Account to the broker, dealer or Clearing Member in whose name, or for whose
benefit, the account was established as specified in the Margin Account
Agreement.
3. Amounts received by the Custodian as payments or distributions
with respect to Securities deposited in any Margin Account shall be dealt with
in accordance with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security
interest in and to any property at any time held by the Custodian in any
Collateral Account described herein.
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<PAGE> 9
5. On each business day, the Custodian shall furnish the Fund
with a statement with respect to the Fund's Margin Account in which money or
Securities are held specifying as of the close of business on the previous
business day: (a) the name of the Margin Account; (b) the amount and kind of
Securities held therein; and (c) the amount of money held therein. The
Custodian shall make available upon request to any broker or dealer specified
in the name of a Margin Account a copy of the statement furnished the Fund with
respect to such Margin Account.
6. Promptly after the close of business on each business day in
which cash and/or Securities are maintained in a Collateral Account, the
Custodian shall furnish the Fund with a statement with respect to the Fund's
Collateral Account specifying the amount of cash and/or the amount and kind of
Securities held therein. No later than the close of business next succeeding
the delivery to the Fund of such statement, the Fund shall furnish the
Custodian with a Certificate or Written Instructions specifying the then market
value of the Securities described in such statement.
ARTICLE VIII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish the Custodian with a copy of the
resolution of the Directors, certified by the Secretary or any Assistant
Secretary, either (i) setting forth the date of the declaration of a dividend
or distribution, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount payable per
share to the shareholders of record as of that date and the total amount
payable to the Dividend Agent of the Fund on the payment date, or (ii)
authorizing the declaration of dividends and distributions on a daily basis or
some other periodic basis and authorizing the Custodian to rely on Oral
Instructions, Written Instructions or a Certificate setting forth the date of
the declaration of such dividend or distribution, the date of payment thereof,
the record date as of which shareholders entitled to payment shall be
determined, the amount payable per share to the shareholders of record as of
that date and the total amount payable to the Dividend Agent on the payment
date.
2. Upon the payment date specified in such resolution, Oral
Instructions, Written Instructions or Certificate, the Custodian shall pay out
the moneys held for the account of the Fund the total amount payable to the
Dividend Agent of the Fund.
ARTICLE IX
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any of its Shares, it shall
deliver to the Custodian a Certificate duly specifying the number of Shares
sold, trade date, price and the amount of money to be received by the Custodian
for the sale of such Shares.
2. Upon receipt of such money from the Transfer Agent or a
co-transfer agent, the Custodian shall credit such money to the account of the
Fund.
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<PAGE> 10
3. Upon issuance of any of the Fund's Shares in accordance with
the foregoing provisions of this Article IX, the Custodian shall pay, out of
the money held for the account of the Fund, all original issue or other taxes
required to be paid by the Fund in connection with such issuance upon the
receipt of a Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund shall redeem
any of its Shares, it shall furnish the Custodian with a Certificate specifying
the number of Shares redeemed and the amount to be paid for the Shares
redeemed.
5. Upon receipt from the Transfer Agent or co-transfer agent of
an advice setting forth the number of Shares received by the Transfer Agent or
co-transfer agent for redemption, and that such Shares are valid and in good
form for redemption, the Custodian shall make payment to the Transfer Agent or
co-transfer agent, as the case may be, out of the moneys held for the account
of the Fund of the total amount specified in the Certificate issued pursuant to
paragraph 4 of this Article IX.
6. Notwithstanding the above provisions regarding the redemption
of any of the Fund's Shares, whenever its Shares are redeemed pursuant to any
check redemption privilege which may from time to time be offered by the Fund,
the Custodian, unless otherwise instructed by a Certificate, shall, upon
receipt of an advice from the Fund or its agent setting forth that the
redemption is in good form for redemption in accordance with the check
redemption procedure, honor the check presented as part of such check
redemption privilege out of the money held in the account of the Fund for such
purposes.
ARTICLE X
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian should in its sole discretion advance funds
on behalf of the Fund which results in an overdraft because the moneys held by
the Custodian for the account of the Fund shall be insufficient to pay the
total amount payable upon a purchase of Securities as set forth in a
Certificate or Oral Instructions issued pursuant to Article IV, or which
results in an overdraft for some other reason, or if the Fund is, for any other
reason, indebted to the Custodian (except a borrowing for investment or for
temporary or emergency purposes using Securities as collateral pursuant to a
separate agreement and subject to the provisions of paragraph 2 of this Article
X), such overdraft or indebtedness shall be deemed to be a loan made by the
Custodian to the Fund payable on demand and shall bear interest from the date
incurred at a rate per annum (based on a 360-day year for the actual number of
days involved) equal to 1/2% over the Custodian's prime commercial lending rate
in effect from time to time, such rate to be adjusted on the effective date of
any change in such prime commercial lending rate but in no event to be less
than 6% per annum. Any such overdraft or indebtedness shall be reduced by an
amount equal to the total of all amounts due the Fund which have not been
collected by the Custodian on behalf of the Fund when due because of the
failure of the Custodian to make timely demand or presentment for payment. In
addition, the Company on behalf of the Fund hereby agrees that the Custodian
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<PAGE> 11
shall have a continuing lien and security interest in and to any property at
any time held by it for the benefit of the Fund or in which the Fund may have
an interest which is then in the Custodian's possession or control or in
possession or control of any third party acting on the Custodian's behalf. The
Company authorizes the Custodian, in its sole discretion, at any time to charge
any such overdraft or indebtedness together with interest due thereon against
any balance of account standing to the Fund's credit on the Custodian's books.
2. The Fund will cause to be delivered to the Custodian by any
bank (including, if the borrowing is pursuant to a separate agreement, the
Custodian) from which it borrows money for investment or for temporary or
emergency purposes using Securities as collateral for such borrowings, a notice
or undertaking in the form currently employed by any such bank setting forth
the amount which such bank will loan to the Fund against delivery of a stated
amount of collateral. The Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to each such borrowing: (a) the name of
the bank; (b) the amount and terms of the borrowing, which may be set forth by
incorporating by reference an attached promissory note, duly endorsed by the
Fund, or other loan agreement; (c) the time and date, if known, on which the
loan is to be entered into; (d) the date on which the loan becomes due and
payable; (e) the total amount payable to the Fund on the borrowing date; (f)
the market value of Securities to be delivered as collateral for such loan,
including the name of the issuer, the title and the number of shares or the
principal of any particular Securities; and (g) a statement specifying whether
such loan is for investment purposes or for temporary or emergency purposes and
that such loan is in conformance with the Investment Company Act of 1940 and
the Fund's prospectus. The Custodian shall deliver on the borrowing date
specified in a Certificate the specified collateral and the executed promissory
note, if any, against delivery by the lending bank of the total amount of the
loan payable, provided that the same conforms to the total amounts payable as
set forth in the Certificate. The Custodian may, at the option of the lending
bank, keep such collateral in its possession, but such collateral shall be
subject to all rights therein given the lending bank by virtue of any
promissory note or loan agreement. The Custodian shall deliver such Securities
as additional collateral as may be specified in a Certificate to collateralize
further any transaction described in this paragraph. The Fund shall cause all
Securities released from collateral status to be returned directly to the
Custodian, and the Custodian shall receive from time to time such return of
collateral as may be tendered to it. In the event that the Fund fails to
specify in a Certificate the name of the issuer, the title and number of shares
or the principal amount of any particular Securities to be delivered as
collateral by the Custodian, the Custodian shall not be under any obligation to
deliver any Securities.
ARTICLE XI
LOANS OF PORTFOLIO SECURITIES OF THE FUND
1. If the Fund is permitted by the terms of the Company's
Articles of Incorporation and as disclosed in the Fund's most recent and
currently effective prospectus to lend its portfolio Securities, within
twenty-four (24) hours after each loan of portfolio Securities the Fund shall
deliver or cause to be delivered to the Custodian a Certificate specifying with
respect to each such loan; (a) the name of the issuer and the title of the
Securities; (b) the number of shares or the
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<PAGE> 12
principal amount loaned; (c) the date of loan and delivery; (d) the total
amount to be delivered to the Custodian against the loan of the Securities,
including the amount of cash collateral and the premium, if any, separately
identified; and (e) the name of the broker, dealer or financial institution to
which the loan was made. The Custodian shall deliver the Securities thus
designated to the broker, dealer or financial institution to which the loan was
made upon receipt of the total amount designated as to be delivered against the
loan of Securities. The Custodian may accept payment in connection with a
delivery otherwise than through the Book-Entry System or Depository only in the
form of a certified or bank cashier's check payable to the order of the Fund or
the Custodian drawn on New York Clearing House funds and may deliver Securities
in accordance with the customs prevailing among dealers in securities.
2. Promptly after each termination of the loan of Securities by
the Fund, it shall deliver or cause to be delivered to the Custodian a
Certificate specifying with respect to each such loan termination and return of
Securities: (a) the name of the issuer and the title of the Securities to be
returned; (b) the number of shares or the principal amount to be returned; (c)
the date of termination; (d) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus any offsetting credits
as described in said Certificate); and (e) the name of the broker, dealer or
financial institution from which the Securities will be returned. The
Custodian shall receive all Securities returned from the broker, dealer, or
financial institution to which such Securities were loaned and upon receipt
thereof shall pay, out of the moneys held for the account of the Fund, the
total amount payable upon such return of Securities as set forth in the
Certificate.
ARTICLE XII
THE CUSTODIAN
1. Except as hereinafter provided, neither the Custodian nor its
nominee shall be liable for any loss or damage, including attorney's fees,
resulting from its action or omission to act or otherwise, either hereunder or
under any Margin Account Agreement, except for any such loss or damage arising
out of its own negligence or willful misconduct. The Custodian may, with
respect to questions of law arising hereunder or under any Margin Account
Agreement, apply for and obtain the advice and opinion of counsel to the Fund
or of its own counsel, at the expense of the Fund, and shall be fully protected
with respect to anything done or omitted by it in good faith in conformity with
such advice or opinion. The Custodian shall be liable to the Fund for any loss
or damage resulting from the use of the Book-Entry System or any Depository
arising by reason of any negligence, misfeasance or willful misconduct on the
part of the Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing, the
Custodian shall be under no obligation to inquire into, and shall not be liable
for:
(a) The validity of the issue of any Securities purchased, sold
or written by or for the Fund, the legality of the purchase, sale or writing
thereof, or the propriety of the amount paid or received thereof;
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(b) The legality of the issue or sale of any of the Fund's
Shares, or the sufficiency of the amount to be received therefor;
(c) The legality of the redemption of any of the Fund's Shares,
or the propriety of the amount to be paid therefor;
(d) The legality of the declaration or payment of any dividend by
the Fund;
(e) The legality of any borrowing by the Fund using Securities as
collateral;
(f) The legality of any loan of portfolio Securities pursuant to
Article XI of this Agreement, nor shall the Custodian be under any duty or
obligation to see to it that any cash collateral delivered to it by a broker,
dealer or financial institution or held by it at any time as a result of such
loan of portfolio Securities of the Fund is adequate collateral for the Fund
against any loss it might sustain as a result of such loan. The Custodian
specifically, but not by way of limitation, shall not be under any duty or
obligation periodically to check or notify the Fund that the amount of such
cash collateral held by it for the Fund is sufficient collateral for the Fund,
but such duty or obligation shall be the sole responsibility of the Fund. In
addition, the Custodian shall be under no duty or obligation to see that any
broker, dealer or financial institution to which portfolio Securities of the
Fund are lent pursuant to Article XI of this Agreement makes payment to it of
any dividends or interest which are payable to or for the account of the Fund
during the period of such loan or at the termination of such loan, provided,
however, that the Custodian shall promptly notify the Fund in the event that
such dividends or interest are not paid and received when due; or
(g) The sufficiency or value of any amounts of money and/or
Securities held in any Margin Account, Segregated Security Account or
Collateral Account in connection with transactions by the Fund. In addition,
the Custodian shall be under no duty or obligation to see that any broker,
dealer, or Clearing Member makes payment to the Fund of any variation margin
payment or similar payment which the Fund may be entitled to receive from such
broker, dealer, or Clearing Member, to see that any payment received by the
Custodian from any broker, dealer, or Clearing Member is the amount the Fund is
entitled to receive, or to notify the Fund of the Custodian's receipt or
non-receipt of any such payment; provided however that the Custodian, upon the
Fund's written request, shall as Custodian, demand from any broker, dealer, or
Clearing Member identified by the Fund the payment of any variation margin
payment or similar payment that the Fund asserts it is entitled to receive
pursuant to the terms of a Margin Account Agreement or otherwise from such
broker, dealer, or Clearing Member.
3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money, whether or not represented by any check, draft or
other instrument for the payment of money, received by it on behalf of the Fund
until the Custodian actually receives and collects such money directly or by
the final crediting of the account representing the Fund's interest at the
Book-Entry System or the Depository.
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4. The Custodian shall have no responsibility and shall not be
liable for ascertaining or acting upon any calls, conversions, exchanges,
offers, tenders, interest rate changes or similar matters relating to
Securities held in the Depository unless the Custodian shall have actually
received timely notice from the Depository. In no event shall the Custodian
have any responsibility or liability for the failure of the Depository to
collect, or for the late collection or late crediting by the Depository of any
amount payable upon Securities deposited in the Depository which may mature or
be redeemed, retired, called or otherwise become payable. However, upon
receipt of a Certificate from the Fund of an overdue amount on Securities held
in the Depository, the Custodian shall make a claim against the Depository on
behalf of the Fund, except that the Custodian shall not be under any obligation
to appear in, prosecute or defend any action, suit or proceeding in respect to
any Securities held by the Depository which in its opinion may involve it in
expense or liability, unless indemnity satisfactory to it against all expense
and liability be furnished as often as may be required.
5. The Custodian shall not be under any duty or obligation to
take action to effect collection of any amount due to the Fund from the
Transfer Agent of the Fund nor to take any action to effect payment or
distribution by the Transfer Agent of the Fund of any amount paid by the
Custodian to the Transfer Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to
take action to effect collection of any amount, if the Securities upon which
such amount is payable are in default, or if payment is refused after due
demand or presentation, unless and until (i) it shall be directed to take such
action by a Certificate and (ii) it shall be assured to its satisfaction of
reimbursement of its costs and expenses in connection with any such action.
7. The Custodian may appoint one or more banking institutions as
Depository or Depositories or as sub- custodian(s), including, but not limited
to, banking institutions located in foreign countries, of Securities and moneys
at any time owned by the Fund, upon terms and conditions approved in a
Certificate, which shall, if requested by the Custodian, be accompanied by an
approving resolution of the Company's Board of Directors adopted in accordance
with Rule 17f-5 under the Investment Company Act of 1940, as amended.
8. The Custodian shall not be under any duty or obligation to
ascertain whether any Securities at any time delivered to or held by it for the
account of the Fund are such as properly may be held by the Fund under the
provisions of its Articles of Incorporation.
9. The Custodian shall not be entitled to compensation for
providing custody services to the Fund so long as the Custodian receives fees
for providing agency services to the Fund. If it no longer receives
compensation for providing such services, the Custodian shall be entitled to
such reasonable fees as it may from time to time negotiate with the Fund.
10. The Custodian shall be entitled to rely upon any Certificate,
notice or other instrument in writing received by the Custodian and reasonably
believed by the Custodian to be a Certificate. The Custodian shall be entitled
to rely upon any Oral Instructions and any Written Instructions actually
received by the Custodian pursuant to Article IV or VII hereof. The Fund
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<PAGE> 15
agrees to forward to the Custodian a Certificate or facsimile thereof,
confirming such Oral Instructions or Written Instructions in such manner so
that such Certificate or facsimile thereof is received by the Custodian,
whether by hand delivery, telex or otherwise, by the close of business of the
same day that such Oral Instructions or Written Instructions are given to the
Custodian. The Fund agrees that the fact that such confirming instructions are
not received by the Custodian shall in no way affect the validity of the
transactions hereby authorized by the Fund. The Fund agrees that the Custodian
shall incur no liability to the Fund in acting upon Oral Instructions given to
the Custodian hereunder concerning such transactions, provided such
instructions reasonably appear to have been received from an Authorized Person.
11. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing, the
Custodian shall be under no duty to inquire into, and shall not be liable for,
the accuracy of any statements or representations contained in any such
instrument or other notice including, without limitation, any specification of
any amount to be paid to a broker, dealer, or Clearing Member.
12. The books and records pertaining to the Fund which are in the
possession of the Custodian shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the Investment Company
Act of 1940, as amended, and other applicable securities laws, rules and
regulations. The Fund, or the Fund's authorized representative(s), shall have
access to such books and records during the Custodian's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's authorized
representative(s) at the Fund's expense.
13. The Custodian shall provide the Company with any report
obtained by the Custodian on the system of internal accounting control of the
Book-Entry System or the Depository and with such reports on its own systems of
internal accounting control as the Company may reasonably request from time to
time.
14. The Fund agrees to indemnify the Custodian against and save
the Custodian harmless from all liability, claims, losses and demands
whatsoever, including attorney's fees, howsoever arising or incurred because of
or in connection with the Custodian's payment or non-payment of checks pursuant
to paragraph 6 of Article IX as part of any check redemption privilege program
of the Fund, except for any such liability, claim, loss and demand arising out
of the Custodian's own negligence or willful misconduct.
15. Subject to the foregoing provisions of this Agreement, the
Custodian may deliver and receive Securities, and receipts with respect to such
Securities, and arrange for payments to be made and received by the Custodian
in accordance with the customs prevailing from time to time among brokers or
dealers in such Securities.
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16. The Custodian shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set
forth in this Agreement or Appendix D attached hereto, and no covenant or
obligation shall be implied in this Agreement against the Custodian.
ARTICLE XIII
TERMINATION
1. This Agreement shall continue until December ____, 1996, and
thereafter shall continue automatically for successive annual periods ending on
the last day of December of each year, provided such continuance is
specifically approved at least annually by (i) the Company's Directors or (ii)
vote of a majority (as defined in the Investment Company Act of 1940) of the
Fund's outstanding voting securities, provided that in either event its
continuance also is approved by a majority of the Company's Directors who are
not "interested persons" (as defined in said Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable without penalty, on sixty (60)
days' notice, by the Company's Directors or, by vote of holders of a majority
of the Fund's Shares or, upon not less than ninety (90) days' notice, by the
Custodian. In the event such notice is given by the Fund, it shall be
accompanied by a copy of a resolution of the Directors of the Company on behalf
of the Fund, certified by the Secretary or any Assistant Secretary, electing to
terminate this Agreement and designating a successor custodian or custodians,
each of which shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. In the event such notice is
given by the Custodian, the Fund shall, on or before the termination date,
deliver to the Custodian a copy of a resolution of the Directors, certified by
the Secretary or any Assistant Secretary, designating a successor custodian or
custodians. In the absence of such designation by the Fund, the Custodian may
designate a successor custodian which shall be a bank or trust company having
not less than $2,000,000 aggregate capital, surplus and undivided profits.
Upon the date set forth in such notice, this Agreement shall terminate and the
Custodian shall, upon receipt of a notice of acceptance by the successor
custodian, on that date deliver directly to the successor custodian all
Securities and moneys then owned by the Fund and held by it as Custodian, after
deducting all fees, expenses, and other amounts for the payment of
reimbursement of which shall then be entitled.
2. If a successor custodian is not designated by the Company on
behalf of the Fund or the Custodian in accordance with the preceding paragraph,
the Fund shall, upon the date specified in the notice of termination of this
Agreement and upon the delivery by the Custodian of all Securities (other than
Securities held in the Book-Entry System which cannot be delivered to the Fund)
and moneys then owned by the Fund, be deemed to be its own custodian, and the
Custodian shall thereby be relieved of all duties and responsibilities pursuant
to this Agreement, other than the duty with respect to Securities held in the
Book-Entry System, in any Depository or by a Clearing Member which cannot be
delivered to the Fund, to hold such Securities hereunder in accordance with
this Agreement.
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ARTICLE XIV
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of
the present Officers of the Company under its seal, setting forth the names and
the signatures of the present Authorized Persons. The Company agrees to
furnish to the Custodian a new Certificate in similar form in the event that
any such present Authorized Person ceases to be an Authorized Person or in the
event that other or additional Authorized Persons are elected or appointed.
Until such new Certificate shall be received, the Custodian shall be fully
protected in acting under the provisions of this Agreement upon Oral
Instructions or signatures of the present Authorized Persons as set forth in
the last delivered Certificate.
2. Annexed hereto as Appendix B is a Certificate signed by two of
the present Officers of the Company under its seal, setting forth the names and
the signatures of the present Officers of the Company. The Fund agrees to
furnish to the Custodian a new Certificate in similar form in the event any
such present Officer ceases to be an Officer of the Company, or in the event
that other or additional Officers are elected or appointed. Until such new
Certificate shall be received, the Custodian shall be fully be protected in
acting under the provisions of this Agreement upon the signatures of the
Officers as set forth in the last delivered Certificate.
3. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Custodian, shall be deemed
sufficiently given if addressed to the Custodian and mailed or delivered to it
at its offices at 420 Montgomery Street, San Francisco, California, 94105, or
at such other place as the Custodian may from time to time designate in
writing.
4. Any notice or other instrument in writing, authorized or
required by this Agreement to be given by or on behalf of the Fund, shall be
deemed sufficiently given if addressed to the Fund and mailed or delivered to
it at its office at 111 Center Street, Little Rock, Arkansas, 72201, or at such
other place as the Fund may from time to time designate in writing.
5. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties to this Agreement and
approved by a resolution of the Directors of the Company.
6. This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successor(s) and assign(s); provided,
however, that this Agreement shall not be assignable by the Company without the
written consent of the Custodian, or by the Custodian without the written
consent of the Company, authorized or approved by a resolution of its
Directors.
7. This Agreement shall be construed in accordance with the laws
of the State of California.
8. This Agreement may be executed in any number of counterparts,
each which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
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<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective Officers, thereunto duly authorized, as of
the day and year first above written.
<TABLE>
<S> <C>
STAGECOACH FUNDS, INC. WELLS FARGO BANK, N.A.
By: /s/ Richard H. Blank, Jr. By: /s/ Vito P. Limitone
------------------------------- ------------------------------
Name: Richard H. Blank, Jr. Name: Vito P. Limitone
----------------------------- ----------------------------
Title: Chief Operating Officer Title: Senior Vice President
---------------------------- ---------------------------
</TABLE>
18
<PAGE> 19
APPENDIX A
AUTHORIZED PERSONS
Pursuant to Article I, Para. 1, and Article XIV, Para. 1,
of the Custody Agreement, the following persons have been authorized by the
Board of Directors to give Oral Instructions and Written Instructions on behalf
of the Fund.
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
By: ________________________ By: ________________________
Name: ______________________ Name: ______________________
Title: _____________________ Title: _____________________
A
<PAGE> 20
APPENDIX B
OFFICERS
Pursuant to Article I, Para. 8, and Article XIV, Para.
2, of the Custody Agreement, the term "Officers" does not include any persons
other than the President, Vice President, Secretary, Treasurer, Controller,
Assistant Secretary and Assistant Treasurer; and the following persons are
Officers of the Company authorized by the Board of Directors to execute any
Certificate, instruction, notice or other instrument on behalf of the Fund.
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
Signature: ____________________________
Name: _________________________________
By: ________________________ By: ________________________
Name: ______________________ Name: ______________________
Title: _____________________ Title: _____________________
-B-
<PAGE> 21
APPENDIX C
DESIGNATED PUBLICATIONS LIST FOR CALLED INSTRUMENTS
The following publications are designated publications for the
purposes of Article III, Para. 5(b):
A. The Bond Buyer
B. The Depository Trust Company Notices
C. Financial Daily Card Services
D. The New York Times
E. Standard & Poor's Called Bond Record
F. The Wall Street Journal
-C-
<PAGE> 22
APPENDIX D
COMPANY AND FUND ACCOUNTING SERVICES:
SCHEDULE OF SERVICES
A. Maintain Fund general ledger and journal.
B. Prepare and record disbursements for direct Fund expenses.
C. Prepare daily money transfers.
D. Reconcile all Fund bank and custodian accounts.
E. Assist Fund independent auditors as appropriate.
F. Prepare daily projection of available cash balances.
G. Record trading activity for purposes of determining net asset values and
daily dividend.
H. Prepare daily portfolio evaluation report to value portfolio Securities
and determine daily accrued income.
I. Determine the daily net asset value per share.
J. Determine the daily dividend per share.
K. Prepare monthly, quarterly, semi-annual and annual financial statements.
L. Provide financial information for reports to the Securities and Exchange
Commission in compliance with the provisions of the Investment Company
Act of 1940 and the Securities Act of 1933, the Internal Revenue Service
and any other regulatory or governmental agencies as required.
M. Provide financial, yield, net asset value, etc., information to National
Association of Securities Dealers, Inc., and other survey and statistical
agencies as instructed from time to time by the Fund.
-D-
<PAGE> 1
EX-99.B9(a)(ii)
AGENCY AGREEMENT
This agreement is made and entered into as of this 16th day of February, 1996
(the "Agreement"), by and between Stagecoach Funds, Inc., a registered
diversified management investment company incorporated in the State of Maryland
(the "Company"), and Wells Fargo Bank, N.A., national association ("Agent"),
for transfer agency and dividend disbursing services as follows:
I. SERVICES.
A. Appointment of Agent. The Company hereby appoints Agent as
its transfer and dividend disbursing agent for the National Tax-Free Money
Market Mutual Fund (the "Fund") and Agent accepts such appointment.
B. Description of Services. As consideration for the
compensation hereinafter described in Section I (C), Agent agrees to provide
the Fund with the facilities and services described and set forth on Schedule A
attached hereto and incorporated herein by reference.
C. Compensation. As consideration for the services described
in Section I (B), above, the Company shall pay to Agent a fee of 0.10% of the
average daily net assets of the Fund.
II. EXPENSES. The Company, on behalf of the Fund, shall promptly
reimburse Agent for all reasonable out-of- pocket expenses incurred by Agent in
connection with the performance of services under this Agreement, including,
without limitation, the following:
A. Postage, including first class mail insurance in connection
with mailing share certificates, express delivery, etc.;
B. Envelopes, check forms, continuous forms, forms for reports
and statements, stationary and other similar supplies;
C. Fees and costs of outside legal counsel employed by Agent;
D. Banking services, fees, and costs for wire transfers,
deposit accounts, etc.
E. Expenses of fidelity and liability insurance and bonding;
F. Fees and costs relating to the use, licensing, development
or implementation of data processing software used by or for the Fund;
G. Data transmission expenses;
H. Costs and microfilm/microfiche; and
I. Costs for telephone lines and equipment.
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<PAGE> 2
III. TERM. This Agreement shall become effective as of the date first
above written and shall continue until terminated pursuant to its provisions.
IV. INSURANCE. Agent agrees to procure and maintain such fidelity
bond coverage as may be required by the Investment Company Act of 1940 (the
"1940 Act"), in the amounts and with such deductibles as are required by or
permitted under the 1940 Act, as it may be amended from time to time.
V. REGISTRATION AND COMPLIANCE.
A. Agent represents that it is registered as a transfer agent
with the Securities and Exchange Commission ("SEC") pursuant to Section 17A of
the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations promulgated thereunder, and Agent agrees to maintain said
registration current and comply with all of the requirements of the Exchange
Act, rules and regulations during the term of this Agreement.
B. The Company represents that it is a diversified management
investment company registered with the SEC in accordance with the 1940 Act and
the rules and regulations promulgated thereunder. The Company is authorized to
offer and sell Fund shares pursuant to the 1940 Act, the Securities Act of
1933, as amended ("1933 Act") and the rules and regulations promulgated
thereunder. The Company will furnish Agent with a list of those jurisdictions
in the United States and elsewhere in which it is authorized to offer and sell
its shares to the general public and will maintain the currency of such list by
amendment. The Company agrees promptly to advise Agent of any change in or
limitation upon its authority to carry on business as an investment company
pursuant to the 1940 Act, the Exchange Act and the 1933 Act and the statutes,
rules and regulations of each and every jurisdiction to which it is subject.
VI. DOCUMENTATION. The Company and Agent shall each supply to the
other upon request such documentation as is required by them to carry out their
respective obligations under this Agreement including, but not limited to,
articles of incorporation, bylaws, codes of ethics, registration statements,
permits, financial reports, third party audits, certificates of authority,
computer tapes and related items.
VII. PROPRIETARY INFORMATION. It is agreed that all records and
documents, excepting computer data processing programs and any related
documentation used or prepared by, or on behalf of Agent for the performance of
its services hereunder, are the property of the Company and shall be open to
audit or inspection by the Company or its agents during the normal business
hours of Agent, shall be maintained in a manner designed to preserve the
confidentiality thereof and to comply with applicable federal and state laws
and regulations, and shall, in whole or any specified part, be surrendered to
the Company or its duly authorized agents upon receipt by Agent of reasonable
notice of and request therefor.
VIII. INDEMNITY. The Company, on behalf of the Fund, shall indemnify and
hold Agent harmless against any losses, claims, damages, liabilities or
expenses (including reasonable
2
<PAGE> 3
attorney's fees and expenses) resulting from any claim, demand, action or suit
brought by any person other than the Company (including a shareholder naming
the Company as a party) and not resulting from Agent's bad faith, willful
misfeasance, reckless disregard of its obligations and duties, gross negligence
or breach of this Agreement, and arising out of, or in connection with:
A. Agent's performance hereunder;
B. Any error or omission in any record (including but not
limited to magnetic tapes, computer printouts, hard copies and microfilm or
microfiche copies) delivered, or caused to be delivered, by the Company to
Agent in connection with this Agreement;
C. Bad faith, willful misfeasance, reckless disregard of its
obligations and duties or negligence of the Company, or Agent's acting upon any
instructions reasonably believed by it to have been properly executed or
communicated by any person duly authorized by the Company;
D. Agent's acting in reliance upon advice given by counsel for
Agent or upon advice reasonably believed by it to have been given by counsel
for the Company; or
E. Agent's acting in reliance upon any instrument reasonably
believed by it to have been genuine and signed, countersigned or executed by
the proper person(s) in accordance with the currently effective certificate(s)
of authority delivered to Agent by the Company.
In the event that Agent requests the Company to indemnify
or hold it harmless hereunder, agent shall use its best efforts to inform the
Company of the relevant facts concerning the matter in question. Agent shall
use reasonable care to identify and promptly notify the Company concerning any
matter which presents, or appears likely to present, a claim for
indemnification against the Company or the Fund.
The Company shall have the election of defending Agent
against any claim which may be the subject of indemnification hereunder. In
the event the Company so elects, it will so notify Agent and thereupon the
Company shall take over defense of the claim, and (if so requested by the
Company) Agent shall incur no further legal limit or other expenses related
thereto for which it would be entitled to indemnity hereunder; provided,
however, that nothing herein contained shall prevent Agent from retaining, at
its own expense, counsel to defend any claim. Except with the Company's prior
consent, Agent shall in no event confess any claim or make any compromise in
any matter in which the Company will be asked to indemnify or hold harmless
hereunder.
IX. LIABILITY
A. Damages. Agent shall not be liable to the Company, or any
third party, for punitive, exemplary, indirect, special or consequential
damages (even if Agent has been advised of the possibility of such damages)
arising from its obligations and the services provided under this
3
<PAGE> 4
Agreement, including but not limited to loss of profits, loss of use of the
shareholder accounting system, cost of capital and expenses of substitute
facilities, programs or services.
B. Force Majeure. Anything in this Agreement to the contrary
notwithstanding, Agent shall not be liable for delays or errors occurring by
reason of circumstances beyond its control, including but not limited to acts
or civil or military authority, national emergencies, work stoppage, fire,
flood, catastrophe, earthquake, acts of God, insurrection, war, riot, data
processing and communications downtime (where such downtime occurs for reasons
other than Agent's gross negligence or willful misconduct) or interruption of
power supply.
X. AMENDMENT. This Agreement and the Schedule attached hereto and
made a part hereof may be amended at any time, with or without shareholder
approval (except as otherwise required by law), in writing signed by each of
the parties hereto. Any change in the Company's registration statement or
other documents of compliance or in the forms relating to any plan, program or
service offered by its current prospectus which would require a change in
Agent's obligations hereunder shall be subject to Agent's approval, which
approval shall not be unreasonably withheld.
XI. TERMINATION. This Agreement may be terminated by either party
without cause upon one hundred twenty (120) days prior written notice to the
other, and at any time for cause in the event that such cause remains
unremedied for more than thirty (30) days after receipt by the other party of
written specification of such cause.
In the event the Company designates a successor to any of Agent's
obligations hereunder, Agent shall, at the expense and pursuant to the
direction of the Company, transfer promptly to such successor all relevant
books, records and other data of the Company in the possession or under the
control of Agent.
XII. SEVERABILITY. If any clause or provision of this Agreement is
determined to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, then such clause or provision shall be
considered severed herefrom and the remainder of this Agreement shall continue
in full force and effect.
XIII. APPLICABLE LAW. This Agreement shall be subject to and construed
in accordance with the laws of the State of California.
XIV. ENTIRE AGREEMENT. Except as otherwise provided herein, this
Agreement constitutes the entire and complete agreement of the parties hereto
relating to the subject matter hereof and supersedes and merges all prior
contracts and discussions between the parties.
4
<PAGE> 5
XIV. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same Agreement and
each of which shall be deemed an original.
<TABLE>
<S> <C>
STAGECOACH FUNDS, INC. WELLS FARGO BANK, N.A.
By: /s/ Richard H. Blank, Jr. By: /s/ James Nolan
------------------------------ ------------------------------
Name: Richard H. Blank, Jr. Name: James Nolan
---------------------------- ----------------------------
Title: Chief Operating Officer Title: Vice President
--------------------------- ---------------------------
</TABLE>
5
<PAGE> 6
SCHEDULE A
SCHEDULE OF SERVICES
1. Share Transfer and Dividend Disbursing Services
A. Maintaining shareholder accounts, including processing of new
accounts.
B. Posting address changes and other file maintenance for
shareholder accounts.
C. Posting all transactions to the shareholder file, including:
- Direct purchase
- Wire order purchases
- Direct redemptions
- Telephone redemption
- Wire order redemption
- Direct exchanges
- Dividend payments
- Dividend reinvestments
- Telephone exchanges
- Transfers
D. Preparing daily reconciliations of shareholder processing to
money movement instructions.
E. Issuing all checks and stopping and replacing checks.
F. Mailing confirmations and checks.
G. Performing certain of the Fund's other mailings, including:
- Dividend and capital gain distributions
- 1099/year-end shareholder reporting
- Daily confirmations
- Furnish certified list of shareholders (hard copy
of microfilm)
H. Maintaining and retrieving all required past history for
shareholders and provide research capabilities as follows:
- Daily monitoring of all processing activity to
verify back-up documentation
- Providing exception reports
- Microfilming
- Storing, retrieving and archiving records in
accordance with Rules 31a-1, 31a-2, and 31a-3
under the 1940 Act.
I. Reporting and remitting as necessary for state escheat
requirements.
<PAGE> 1
EX-99.B9(b)(vi)
SHAREHOLDER SERVICING AGREEMENT
THIS SHAREHOLDER SERVICING AGREEMENT ("Agreement"), dated as of
February 16, 1996, is made by and between Stagecoach Funds, Inc. ("Company"), a
Maryland corporation having its principal place of business at 111 Center
Street, Little Rock, Arkansas 72201, on behalf of the National Tax-Free Money
Market Mutual Fund ("Fund"), and Wells Fargo Bank, N.A., 525 Market Street,
Suite 1900, San Francisco, California 94163, as shareholder servicing agent
hereunder ("Shareholder Servicing Agent");
W I T N E S S E T H:
WHEREAS, shares of common stock (.001 par value) of the Fund
(hereinafter "Fund Shares") may be purchased or redeemed through a
broker/dealer or financial institution which has entered into a shareholder
servicing agreement with the Company on behalf of the Fund; and
WHEREAS, the Shareholder Servicing Agent wishes to facilitate
purchases and redemptions of Fund Shares by its customers (the "Customers") and
wishes to act as the Customers' agent in performing certain administrative
functions in connection with transactions in Fund Shares from time to time for
the account of the Customers and to provide related services to the Customers
in connection with their investments in the Fund; and
WHEREAS, it is in the best interest of the Fund to make the
services of the Shareholder Servicing Agent available to the Customers who,
from time to time, become shareholders of the Fund;
NOW THEREFORE, the Company, on behalf of the Fund, and the
Shareholder Servicing Agent hereby agree as follows:
1. Appointment. The Shareholder Servicing Agent hereby agrees
to perform certain services for Customers as hereinafter set forth. The
Shareholder Servicing Agent's appointment hereunder is not exclusive, and the
Shareholder Servicing Agent shall not be entitled to notice of or a right to
consent to the execution of a shareholder servicing agreement with any other
person.
2. Services to Be Performed.
2.1 Types of Services. The Shareholder Servicing Agent
shall be responsible for performing shareholder account administrative and
servicing functions, which shall include, without limitation:
(a) answering Customer inquiries regarding
account status and history, the manner in which purchases, exchanges and
redemptions of Fund Shares may be effected;
1
<PAGE> 2
(b) assisting Customers in designating and
changing dividend options, account designations and addresses;
(c) providing necessary personnel and facilities
to establish and maintain Customer accounts and records;
(d) assisting in processing purchase, redemption
and exchange transactions;
(e) arranging for the wiring of money;
(f) transferring money in connection with
Customer orders to purchase or redeem shares;
(g) verifying and guaranteeing Customer
signatures in connection with redemption and exchange orders and transfers and
changes in Customer accounts with banks which are designated in a Fund Account
Application and which are approved by the Fund's Transfer Agent;
(h) furnishing (either separately or on an
integrated basis with other reports sent to a Customer by the Shareholder
Servicing Agent) monthly and year-end statements and confirmations of
purchases, redemptions and exchanges;
(i) furnishing, on behalf of the Fund, proxy
statements, annual reports, updated prospectuses and other communications to
Customers;
(j) receiving, tabulating and sending to the Fund
proxies executed by Customers; and
(k) providing such other related services, and
necessary personnel and facilities to provide all of the shareholder services
contemplated hereby, in each case, as the Company or a Customer may reasonably
request.
2.2 Standard of Services. All services to be rendered
by the Shareholder Servicing Agent hereunder shall be performed in a
professional, competent and timely manner. Any detailed operating standards
and procedures to be followed by the Shareholder Servicing Agent in performing
the services described above shall be determined from time to time by agreement
between the Shareholder Servicing Agent and the Company. The Company
acknowledges that the Shareholder Servicing Agent's ability to perform on a
timely basis certain of its obligations under this Agreement depends upon the
Fund's timely delivery of certain materials and/or information to the
Shareholder Servicing Agent. The Company agrees to use its best efforts to
provide, or cause to be provided, such materials to the Shareholder Servicing
Agent in a timely manner.
2
<PAGE> 3
2.3 Investments through Distributor. The Company and
the Shareholder Servicing Agent hereby agree that all purchases of Fund Shares
effected by the Shareholder Servicing Agent on behalf of its Customers shall be
effected by it through Stephens Inc. ("Distributor") in its capacity as the
Fund's principal underwriter.
3. Fees.
3.1 Fees from the Fund. In consideration of the
services described in Section 2 hereof and the incurring of expenses in
connection therewith, the Shareholder Servicing Agent shall receive a fee to be
paid in arrears periodically or on a periodic basis to be agreed upon by the
Company and the Shareholder Servicing Agent from time to time (but in no event
less frequently than semi-annually) determined by a formula based upon the
number of accounts serviced by the Shareholder Servicing Agent during the
period for which payment is being made, the level of assets or activity in such
accounts during such period, and/or the expenses incurred by the Shareholder
Servicing Agent. In no event will such fees exceed 0.25%, on an annualized
basis, of the average daily net assets of the Fund represented by Fund Shares
owned of record by the Shareholder Servicing Agent on behalf of the Customers
during the period for which payment is being made. For purposes of determining
the fees payable to the Shareholder Servicing Agent hereunder, the per share
value of the Fund's net assets shall be computed in the manner specified in the
Fund's then-current prospectus. Notwithstanding the foregoing, if applicable
laws, regulations or rules impose a maximum fee amount (a "cap") on the Fund
with respect to shareholder servicing fees and/or fees for distribution-related
services, the amount payable hereunder shall be reduced to an amount which,
when considered in conjunction with the fees payable by the Fund for the Fund's
distribution-related activities, is the maximum amount payable to the
Shareholder Servicing Agent under applicable laws, regulations or rules. The
above fee constitutes all fees to be paid to the Shareholder Servicing Agent by
the Fund or the Company with respect to the shareholder services contemplated
hereby.
3.2 Fees from Customers. It is agreed that the
Shareholder Servicing Agent may impose certain conditions on Customers, subject
to the terms of the Fund's then-current prospectus, in addition to or different
from those imposed by the Fund, such as requiring a minimum initial investment
or the payment of additional fees directly by the Customer for additional
services offered by the Shareholder Servicing Agent to the Customer; provided,
however, that the Shareholder Servicing Agent may not charge customers any
direct fee which would constitute a "sales load" within the meaning of Section
2(a)(35) of the Investment Company Act of 1940, as amended (the "1940 Act").
The Shareholder Servicing Agent shall bill Customers directly for any such
additional fees. In the event the Shareholder Servicing Agent charges
Customers such additional fees, it shall notify the Company in advance and make
appropriate prior written disclosure (such disclosure to be in accordance with
all applicable laws) to Customers of any such additional fees charged directly
to the Customer. To the extent required by applicable rules and regulations of
the Securities and Exchange Commission, the Company shall make written
disclosure of the fees paid or to be paid by the Fund to the Shareholder
Servicing Agent pursuant to Section 3.1 of this Agreement. In no event shall
the Shareholder Servicing Agent have recourse or access, as Shareholder
Servicing Agent or otherwise, to the assets in the Customer's account, except
to the extent expressly authorized by
3
<PAGE> 4
law or by such Customer, or to any assets of the Fund or the Company, for
payment of any additional direct fees referred to in this Section 3.2
4. Information Pertaining to the Shares. The Shareholder
Servicing Agent and its officers, employees and agents are not authorized to
make any representations concerning the Company, the Fund or the Fund Shares to
Customers or prospective Customers, excepting only accurate communication of
any information provided by or on behalf of any administrator of the Company or
the Fund or any distributor of Fund Shares or information contained in the
Fund's then-current prospectus. In furnishing such information regarding the
Company, the Fund or Fund Shares, the Shareholder Servicing Agent shall act as
agent for the Customer only and shall have no authority to act as agent for the
Company or the Fund. Advance copies or proofs of all materials which are
proposed to be circulated or disseminated by the Shareholder Servicing Agent to
Customers or prospective Customers and which identify or describe the Company,
the Fund or Fund Shares shall be provided to the Company at least 10 days prior
to such circulation or dissemination (unless the Company consents in writing to
a shorter period), and such materials shall not be circulated or disseminated
or further circulated or disseminated at any time after the Company shall have
given written notice to the Shareholder Servicing Agent of any objection
thereto.
Nothing in this Section 4 shall be construed to make the Company
liable for the use (as opposed to the accuracy) of any information about the
Company or the Fund which is disseminated by the Shareholder Servicing Agent.
5. Use of the Shareholder Servicing Agent's Name. The Company
shall not use the name of the Shareholder Servicing Agent, or any of its
affiliates or subsidiaries, in any prospectus, sales literature or other
materials relating to the Company or the Fund in a manner not approved by the
Shareholder Servicing Agent prior thereto in writing; provided, however, that
the approval of the Shareholder Servicing Agent shall not be required for any
use of its name which merely refers in accurate and factual terms to its
appointment hereunder or which is required by the Securities and Exchange
Commission or any state securities authority or any other appropriate
regulatory, governmental or judicial authority; provided, further, that in no
event shall such approval be unreasonably withheld or delayed.
6. Use of the Name of the Fund or the Company. The
Shareholder Servicing Agent shall not use the name of the Fund or the Company
on any checks, bank drafts, bank statements or forms for other than internal
use in a manner not approved by the Company prior thereto in writing; provided,
however, that the approval of the Company shall not be required for the use of
the Company's name or the Fund's name in connection with communications
permitted by Section 4 hereof or (subject to Section 4, to the extent the same
may be applicable) for any use of the Company's name or the Fund's name which
merely identifies the Company or the Fund, as the case may be in connection
with the Shareholder Servicing Agent's role hereunder or which is required by
the Securities and Exchange Commission or any state securities authority or any
other appropriate regulatory, governmental or judicial authority; provided,
further, that in no event shall such approval be unreasonably withheld or
delayed.
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<PAGE> 5
7. Security. The Shareholder Servicing Agent represents and
warrants that to the best of its knowledge, the various procedures and systems
which it has implemented (including provision for twenty-four hours a day
restricted access) with regard to safeguarding from loss or damage attributable
to fire, theft or any other cause the Company's records and other data within
its possession or control and the Shareholder Servicing Agent's records, data,
equipment, facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as in its judgment are required for the secure performance of
its obligations hereunder. The parties shall review such systems and
procedures on a periodic basis, and the Company shall from time to time specify
the types of records and other data of the Company to be safeguarded in
accordance with this Section 7.
8. Compliance with Laws. The Shareholder Servicing Agent
shall comply with all applicable federal and state laws and regulations,
including securities laws. The Shareholder Servicing Agent represents and
warrants to the Company that the performance of all its obligations hereunder
will comply with all applicable laws and regulations, the provisions of its
charter documents and by-laws and all material contractual obligations binding
upon the Shareholder Servicing Agent. The Shareholder Servicing Agent
furthermore undertakes that it will promptly, after the Shareholder Servicing
Agent becomes so aware, inform the Company of any change in applicable laws or
regulations (or interpretations thereof) or in its charter or by-laws or
material contracts which would prevent or impair full performance of any of its
obligations hereunder.
9. Reports. To the extent requested by the Company from time
to time, but at least quarterly, the Shareholder Servicing Agent will provide
the Treasurer of the Company with a written report of the amounts expended by
the Shareholder Servicing Agent pursuant to this Agreement and the purposes for
which such expenditures were made. Such written reports shall be in a form
satisfactory to the Company and shall supply all information necessary for the
Company to discharge its responsibilities under applicable laws and
regulations. In addition, the Shareholder Servicing Agent shall have a duty to
furnish to the Company's Board of Directors such information as may reasonably
be necessary to an informed determination of whether this Agreement should be
implemented or continued pursuant to Section 16.
10. Record Keeping.
10.1 Section 31(a). The Shareholder Servicing Agent
shall maintain records in a form acceptable to the Company and in compliance
with applicable laws and the rules and regulations of the Securities and
Exchange Commission, including but not limited to the record-keeping
requirements of Section 31(a) of the 1940 Act and the rules thereunder, with
respect to the services contemplated by this Agreement. Such records shall be
deemed to be the property of the Company and will be made available, at the
Company's request, for inspection and use by the Company, representatives of
the Company and governmental authorities. The Shareholder Servicing Agent
agrees that, for so long as it retains any records hereunder, it will meet all
reporting requirements pursuant to the 1940 Act and applicable to the
Shareholder Servicing Agent with respect to such records.
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10.2 Rules 17a-3 and 17a-4. The Shareholder Servicing
Agent shall maintain accurate and complete records with respect to services
performed by the Shareholder Servicing Agent in connection with the purchase
and redemption of Fund Shares through the Distributor. Such records shall be
maintained in a form reasonably acceptable to the Company and in compliance
with the requirements of Rules 17a-3 and 17a-4 under the Securities Exchange
Act of 1934, as amended, pursuant to which any dealer of Fund Shares must
maintain certain records. All such records maintained by the Shareholder
Servicing Agent shall be the property of the Distributor and will be made
available for inspection and use by the Company or the Distributor upon the
request of either. The Shareholder Servicing Agent shall file with the
Securities and Exchange Commission and other appropriate governmental
authorities, and furnish to the Company and the Distributor copies of, all
reports and undertakings as may be reasonably requested by the Company or the
Distributor in order to comply with such rules. If so requested by the
Distributor, the Shareholder Servicing Agent shall confirm to the Distributor
its obligations under this Section 10.2 by a writing reasonably satisfactory to
the Distributor.
10.3 Identification, Etc. of Records. The Company shall
from time to time instruct the Shareholder Servicing Agent in writing as to,
and the Company and the Shareholder Servicing Agent shall periodically review,
the records to be maintained and the procedures to be followed by the
Shareholder Servicing Agent in complying with the foregoing Sections 10.1 and
10.2 and Section 8 to the extent it relates to record-keeping required under
federal securities laws and regulations. Notwithstanding the provisions of
Section 8, the Shareholder Servicing Agent shall be entitled to rely on such
instructions.
10.4 Transfer of Customer Data. In the event this
Agreement is terminated or a successor to the Shareholder Servicing Agent is
appointed, the Shareholder Servicing Agent shall, at the expense of the
Company, transfer to such successor as the Company may designate a certified
list of the beneficial owners of Fund Shares serviced by the Shareholder
Servicing Agent (with name, address and tax identification or Social Security
number), a complete record of the account of each such shareholder and the
status thereof, and all other relevant books, records, correspondence, and
other data established or maintained by the Shareholder Servicing Agent under
this Agreement. In the event this Agreement is terminated, the Shareholder
Servicing Agent will use its best efforts to cooperate in the orderly transfer
of such duties and responsibilities to the successor, including assistance in
the establishment of books, records and other data by the successor.
10.5 Survival of Record-Keeping Obligations. The
record-keeping obligations imposed in this Section 10 shall survive the
termination of this Agreement for the shorter of a period of six years or that
minimum period required by applicable rules or regulations of the Securities
and Exchange Commission.
10.6 Obligations Pursuant to Agreement Only. Nothing in
this Section 10 shall be construed to mean that the Shareholder Servicing Agent
would, by virtue of its role hereunder, be required under applicable law to
maintain the records required to be maintained by it under this Section 10, but
it is understood that the Shareholder Servicing Agent has agreed to
6
<PAGE> 7
do so in order to enable the Company and the Distributor to comply with laws
and regulations applicable to them.
10.7 Shareholder Servicing Agent's Rights to Copy
Records. Anything in this Section 10 to the contrary notwithstanding, except
to the extent otherwise prohibited by law, the Shareholder Servicing Agent
shall have the right to copy, maintain and use any records maintained by the
Shareholder Servicing Agent pursuant to this Section 10, except as otherwise
prohibited by Sections 4 and 6 hereof.
11. Force Majeure. The Shareholder Servicing Agent shall not
be liable or responsible for delays or errors by reason of circumstances beyond
its reasonable control, including, but not limited to, acts of civil or
military authority, national emergencies, labor difficulties, fire, mechanical
breakdown, flood or catastrophe, acts of God, insurrection, war, riots or
failure of communication systems or power supply.
12. Indemnification.
12.1 Indemnification of the Shareholder Servicing Agent.
The Company will indemnify and hold the Shareholder Servicing Agent harmless
from all losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) from any claim, demand, action or suit
(collectively, "Claims") (a) arising in connection with misstatements or
omissions in the Fund's prospectus, actions or inactions by the Company or any
of its agents or contractors or the performance of the Shareholder Servicing
Agent's obligations hereunder and (b) not resulting from (i) the bad faith or
negligence of the Shareholder Servicing Agent, its officers, employees or
agents, or (ii) any breach of applicable law by the Shareholder Servicing
Agent, its officers, employees or agents, or (iii) any action of the
Shareholder Servicing Agent, its officers, employees or agents which exceeds
the legal authority of the Shareholder Servicing Agent or its authority
hereunder, or (iv) any error or omission of the Shareholder Servicing Agent,
its officers, employees or agents with respect to the purchase, redemption and
transfer of Customers' Fund Shares or the Shareholder Servicing Agent's
verification or guarantee of any Customer signature. Notwithstanding anything
herein to the contrary, the Company will indemnify and hold the Shareholder
Servicing Agent harmless from any and all losses, claims, damages, liabilities
or expenses (including reasonable counsel fees and expenses) resulting from any
Claim as a result of its acting in accordance with any written instructions
reasonably believed by the Shareholder Servicing Agent to have been executed by
any person duly authorized by the Company, or as a result of acting in reliance
upon any instrument or stock certificate reasonably believed by the Shareholder
Servicing Agent to have been genuine and signed, countersigned or executed by a
person duly authorized by the Company, excepting only the gross negligence or
bad faith of the Shareholder Servicing Agent.
In any case in which the Company may be asked to indemnify or hold
the Shareholder Servicing Agent harmless, the Company shall be advised of all
pertinent facts concerning the situation in question and the Shareholder
Servicing Agent shall use reasonable care to identify and notify the Company
promptly concerning any situation which presents or appears likely to present a
claim for indemnification against the Company. The Company shall have the
option to defend
7
<PAGE> 8
the Shareholder Servicing Agent against any Claim which may be the subject of
indemnification hereunder. In the event that the Company elects to defend
against such Claim, the defense shall be conducted by counsel chosen by the
Company and reasonably satisfactory to the Shareholder Servicing Agent. The
Shareholder Servicing Agent may retain additional counsel at its expense.
Except with the prior written consent of the Company, the Shareholder Servicing
Agent shall not confess any Claim or make any compromise in any case in which
the Company will be asked to indemnify the Shareholder Servicing Agent.
12.2 Indemnification of the Company. Without limiting
the rights of the Company under applicable law, the Shareholder Servicing Agent
will indemnify and hold the Company harmless from all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses) from
any Claim (a) resulting from (i) the bad faith or negligence of the Shareholder
Servicing Agent, its officers, employees or agents, or (ii) any breach of
applicable law by the Shareholder Servicing Agent, its officers, employees or
agents, or (iii) any action of the Shareholder Servicing Agent, its officers,
employees or agents which exceeds the legal authority of the Shareholder
Servicing Agent or its authority hereunder, or (iv) any error or omission of
the Shareholder Servicing Agent, its officers, employees or agents with respect
to the purchase, redemption and transfer of Customers' Fund Shares or the
Shareholder Servicing Agent's verification or guarantee of any Customer
signature, and (b) not resulting from the Shareholder Servicing Agent's actions
in accordance with written instructions reasonably believed by the Shareholder
Servicing Agent to have been executed by any person duly authorized by the
Company, or in reliance upon any instrument or stock certificate reasonably
believed by the Shareholder Servicing Agent to have been genuine and signed,
countersigned or executed by a person duly authorized by the Company.
In any case in which the Shareholder Servicing Agent may be asked
to indemnify or hold the Company harmless, the Shareholder Servicing Agent
shall be advised of all pertinent facts concerning the situation in question
and the Company shall use reasonable care to identify and notify the
Shareholder Servicing Agent promptly concerning any situation which presents or
appears likely to present a claim for indemnification against the Shareholder
Servicing Agent. The Shareholder Servicing Agent shall have the option to
defend the Company against any Claim which may be the subject of
indemnification hereunder. In the event that the Shareholder Servicing Agent
elects to defend against such Claim, the defense shall be conducted by counsel
chosen by the Shareholder Servicing Agent and satisfactory to the Company. The
Company may retain additional counsel at its expense. Except with the prior
written consent of the Shareholder Servicing Agent, the Company shall not
confess any Claim or make any compromise in any case in which the Shareholder
Servicing Agent will be asked to indemnify the Company.
12.3 Survival of Indemnities. The indemnities granted
by the parties in this Section 12 shall survive the termination of this
Agreement.
13. Insurance. The Shareholder Servicing Agent shall maintain
reasonable insurance coverage against any and all liabilities which may arise
in connection with the performance of its duties hereunder.
8
<PAGE> 9
14. Notices. All notices or other communications hereunder to
either party shall be in writing and shall be deemed sufficient if mailed to
such party at the address of such party set forth in the preamble of this
Agreement or at such other address as such party may have designated by written
notice to the other.
15. Further Assurances. Each party agrees to perform such
further acts and execute such further documents as are necessary to effectuate
the purposes hereof.
16. Implementation and Duration of Agreement. This Agreement
is effective upon a "vote of a majority of the outstanding voting securities"
(as defined in the 1940 Act) and approval by the Company's Board of Directors,
and of the Directors who are not "interested persons" of the Company (as
defined in the 1940 Act) and have no direct or indirect financial interest in
the operation of the Fund's Distribution Plan (the "Plan"), this Agreement, or
any other agreement related to such Plan, including the Fund's Amended
Distribution Agreement, cast in person at a meeting called for the purpose of
voting on this Agreement. Subject to Section 17, this Agreement shall continue
in effect for a period of more than one year from the date hereof so long as
such continuance is specifically approved at least annually by a vote of
Company's Board of Directors, in the manner described above.
17. Termination. This Agreement may be terminated by the
Company, without the payment of any penalty, at any time upon not more than 60
days' nor less than 30 days' notice, by a vote of a majority of the Board of
Directors of the Company who are not "interested persons" of the Company (as
defined in the 1940 Act) and have no direct or indirect financial interest in
the operation of the Plan, this Agreement or any other agreement related to
such Plan, including the Amended Distribution Agreement, or by "a vote of a
majority of the outstanding voting securities" (as defined in the 1940 Act) of
the Fund. The Shareholder Servicing Agent may terminate this Agreement upon
not more than 60 days' nor less than 30 days' notice to the Company.
Notwithstanding anything herein to the contrary, but except as provided in
Section 20 of this Agreement, this Agreement may not be assigned and shall
terminate automatically without notice to either party upon any assignment.
Upon termination hereof, the Fund shall pay such compensation as may be due the
Shareholder Servicing Agent as of the date of such termination.
18. Changes; Amendments. This Agreement may be supplemented or
amended only by written instrument signed by both parties, but may not be
amended to increase materially the maximum amount payable without approval of
"a vote of a majority of the outstanding voting securities" (as defined in the
1940 Act) of the Fund, and all material amendments must be approved in the
manner described in Section 16.
19. Limitation of Liability. The Shareholder Servicing Agent
hereby agrees that obligations assumed by the Company pursuant to this
Agreement shall be limited in all cases to the Fund and its assets and that the
Shareholder Servicing Agent shall not seek satisfaction of any such obligations
from the Board of Directors or any individual Director of the Company or from
the assets of any other portfolio or series of the Company.
9
<PAGE> 10
20. Subcontracting by Shareholder Servicing Agent. The
Shareholder Servicing Agent may, with the written approval of the Company (such
approval not to be unreasonably withheld or delayed), subcontract for the
performance of the Shareholder Servicing Agent's obligations hereunder with any
one or more persons, including but not limited to any one or more persons which
is an affiliate of the Shareholder Servicing Agent; provided, however, that the
Shareholder Servicing Agent shall be as fully responsible to the Company for
the acts and omissions of any subcontractor as it would be for its own acts or
omissions.
21. Authority to Vote. The Company hereby confirms that,
nothing contained in the Articles of Incorporation of the Company would
preclude the Shareholder Servicing Agent, at any meeting of shareholders of the
Company or of the Fund, from voting any Fund Shares held in accounts serviced
by the Shareholder Servicing Agent and which are otherwise not represented in
person or by proxy at the meeting, proportionately in accordance with the votes
cast by holders of all Fund Shares otherwise represented at the meeting in
person or by proxy and held in accounts serviced by the Shareholder Servicing
Agent.
22. Compliance with Laws and Policies; Cooperation. The
Company hereby agrees that it will comply with all laws and regulations
applicable to the Fund's operations and the Shareholder Servicing Agent agrees
that it will comply with all laws and regulations applicable to providing the
services contemplated hereby.
10
<PAGE> 11
22.1 Miscellaneous. This Agreement shall be construed
and enforced in accordance with and governed by the laws of the State of
California. The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
STAGECOACH FUNDS, INC. on behalf of the
National Tax-Free Money Market Mutual Fund
By: /s/ Richard H. Blank, Jr.
------------------------------
Name: Richard H. Blank, Jr.
----------------------------
Title: Chief Operating Officer
---------------------------
WELLS FARGO BANK, N.A.
By: /s/ Elizabeth Gottfried
------------------------------
Name: Elizabeth Gottfried
----------------------------
Title: Vice President
---------------------------
By: /s/ James Nolan
------------------------------
Name: James Nolan
----------------------------
Title: Vice President
---------------------------
11
<PAGE> 1
EX-99.B10
April 29, 1996 (202) 887-1500
Stagecoach Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
Re: Shares of Common Stock of
Stagecoach Funds, Inc.
Ladies/Gentlemen:
We refer to Post-Effective Amendment No. 24 and Amendment No. 25
to the Registration Statement on Form N-1A (SEC File Nos. 33-42927 and
811-6419) (the "Registration Statement") of Stagecoach Funds, Inc. (the
"Company") relating to the registration of an indefinite number of shares of
common stock of the Aggressive Growth, California Tax-Free Bond, Corporate
Stock, Diversified Income, Ginnie Mae, Growth and Income, Money Market Mutual
(Class S) and Short-Intermediate U.S. Government Income Funds of the Company,
collectively, the "Shares").
We have been requested by the Company to furnish this opinion as
Exhibit 10 to the Registration Statement.
We have examined documents relating to the organization of the
Company and its series and the authorization and issuance of shares of its
series. We have also verified with the Company's transfer agent the maximum
number of shares issued by the Company during fiscal year 1995.
Based upon and subject to the foregoing, we are of the opinion
that:
The issuance of the Shares by the Company has been duly and
validly authorized by all appropriate corporate action and, assuming delivery
by sale or in accord with the Fund's dividend reinvestment plan in accordance
with the description set forth in
<PAGE> 2
the Funds' current prospectuses the Shares will be legally issued, fully paid
and nonassessable by the Company.
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
In addition, we hereby consent to the use of our name and to the
reference to our firm under the caption "Legal Counsel" and the description of
advice rendered by our firm under the heading "The Funds, Management and
Servicing Fees" in the Prospectus, which is included as part of the
Registration Statement.
Very truly yours,
/S/ MORRISON & FOERSTER LLP
MORRISON & FOERSTER LLP
<PAGE> 1
EX-99.B11
Independent Auditors' Consent
The Board of Directors and Shareholders
Stagecoach Funds, Inc.:
We consent to incorporation by reference in the Stagecoach Funds, Inc.
Post-Effective Amendment No. 24 to the Registration Statement Number 33-42927
on Form N-1A under the Securities Act of 1933 and Amendment No. 25 to the
Registration Statement Number 811-6419 on Form N-1A under the Investment
Company Act of 1940 of our report dated February 14, 1996, on the statement of
assets and liabilities, including the portfolio of investments, of the Asset
Allocation Fund, California Tax-Free Bond Fund, California Tax-Free Income
Fund, Corporate Stock Fund, Diversified Income Fund, Ginnie Mae Fund, Growth
and Income Fund, Short-Intermediate U.S. Government Income Fund, and U.S.
Government Allocation Fund (nine of the funds comprising Stagecoach Funds,
Inc.) as of December 31, 1995, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and financial highlights for the periods
indicated therein, which report has been incorporated by reference into the
statements of additional information.
We also consent to the reference to our firm under the heading
"Financial Highlights" in each prospectus and "Independent Auditors" in each
statement of additional information.
/s/ KPMG PEAT MARWICK LLP
San Francisco, California
April 26, 1996
<PAGE> 2
EX-99.B11
Independent Auditors' Consent
The Board of Directors and Shareholders
Stagecoach Funds, Inc.:
We consent to incorporation by reference in the Stagecoach Funds, Inc.
Post-Effective Amendment No. 24 to the Registration Statement Number 33-42927
on Form N-1A under the Securities Act of 1933 and Amendment No. 25 to the
Registration Statement Number 811-6419 on Form N-1A under the Investment
Company Act of 1940 of our report dated February 14, 1996, on the statement of
assets and liabilities, including the portfolio of investments, of the
California Tax-Free Money Market Mutual Fund and the Money Market Mutual Fund
(two of the funds comprising Stagecoach Funds, Inc.) as of December 31, 1995,
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended,
and the financial highlights for the periods indicated therein, which report
has been incorporated by reference into the statement of additional
information.
We also consent to the reference to our firm under the heading
"Financial Highlights" in each prospectus and "Independent Auditors" in the
statement of additional information.
/s/ KPMG PEAT MARWICK LLP
San Francisco, California
April 26, 1996
