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LOGO
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PROSPECTUS
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INTERNATIONAL EQUITY FUND
CLASS A AND CLASS B
August 13, 1997
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STAGECOACH FUNDS(R)
INTERNATIONAL EQUITY FUND
CLASS A AND CLASS B
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about Class A and Class B shares
offered in the INTERNATIONAL EQUITY FUND (the "Fund") of the Stagecoach Family
of Funds.
The International Equity Fund seeks to earn total return (with an emphasis on
capital appreciation) over the long term, by investing primarily in equity
securities of non-U.S. companies.
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
goals match your own. A Statement of Additional Information ("SAI"), dated
August 13, 1997, has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this Prospectus. The SAI 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.
FUND SHARES 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 ("FDIC"), THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND ADMINISTRATOR, AND IS
COMPENSATED FOR PROVIDING THE FUND WITH CERTAIN OTHER SERVICES. STEPHENS INC.
("STEPHENS"), WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE CO-
ADMINISTRATOR AND DISTRIBUTOR FOR THE FUND.
PROSPECTUS DATED AUGUST 13, 1997
PROSPECTUS
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Table of Contents
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Prospectus Summary 1
Summary of Fund Expenses 4
How the Fund Works 6
The Fund and Management 11
Investing in the Fund 13
Dividend and Capital Gain Distributions 23
How to Redeem Shares 23
Additional Shareholder Services 28
Exchange Privilege 29
Management, Distribution and Servicing Fees 30
Taxes 34
Prospectus Appendix -- Additional Investment Policies A-1
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PROSPECTUS
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Prospectus Summary
The Fund provides 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 Fund. For more information,
please refer to the identified Prospectus sections and generally to this
Prospectus and the Fund's SAI.
Q.WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
A. The INTERNATIONAL EQUITY FUND seeks to earn total return (with an emphasis
on capital appreciation) over the long term, by investing primarily in
equity securities of non-U.S. companies. The Fund pursues its objective by
investing its assets primarily in a portfolio of common stocks, preferred
stocks, warrants, convertible securities and other securities of issuers
located and operating in countries other than the United States. Other
eligible investments for the Fund include, for example, American Depositary
Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and similar
securities, as well as securities of other investment companies.
See "How the Fund Works," "Prospectus Appendix -- Additional Investment
Policies" and the SAI for further information on investments.
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. When
the value of the securities that the Fund 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 Fund. Moreover, because the Fund
invests in foreign securities, you should be prepared to accept the special
risks associated with foreign investing. These risks include, among others,
fluctuations in currency exchange rates, political risks, such as
expropriation or nationalization of assets, war and possible imposition of
foreign taxes and exchange control and currency restrictions. In addition
to these special risks, the portfolio equity and debt securities held by
the Fund also are subject to the risks commonly associated with any
investment in such securities. For example, the portfolio equity securities
of the Fund are subject to equity market risk. Equity market risk is the
risk that stock prices will fluctuate or decline over short or even
extended periods. Further, the portfolio debt instruments of the Fund are,
generally, subject to credit and interest-rate risk. Credit risk is the
risk that issuers of the debt instruments in which the Fund invests 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 Fund invests and hence the
1 PROSPECTUS
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value of your investment 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 -- Investment Objective and Policies," "How the Fund
Works -- Risk Factors" and "Prospectus Appendix -- Additional Investment
Policies" below and "Additional Permitted Investment Activities" in the
SAI for further information about the Fund's investments and related
risks.
Q.WHO MANAGES MY INVESTMENT?
A. Wells Fargo Bank, as the Fund's investment adviser, manages your
investment. Wells Fargo Bank also provides administrative, transfer and
dividend disbursing agency services to the Fund. In addition, Wells Fargo
Bank is a shareholder servicing agent and a selling agent and provides
certain of these services to the Fund. See "The Fund and Management" and
"Management, Distribution and Servicing Fees."
Q.HOW DO I INVEST?
A. You may invest by purchasing shares of the Fund at its 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
5.25%. Class B shares that are redeemed within six years of purchase are,
generally, subject to a contingent deferred sales charge. 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 Fund." For more details, contact
Stephens (the Fund's distributor), a shareholder servicing agent or a
selling agent (such as Wells Fargo Bank).
Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends of the International Equity Fund are declared and distributed
annually. Any capital gains are distributed by the Fund at least annually.
Dividend and capital gain distributions are automatically reinvested in
shares of the same class of the Fund without a sales charge unless you
elect to receive distributions 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. Investment income
available for distribution to holders of a class of shares is reduced by
the
PROSPECTUS 2
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class expenses payable on behalf of those shares. See "Dividend and
Capital Gain Distributions" and "Additional Shareholder Services."
Q.HOW MAY I REDEEM SHARES?
A. You may redeem shares by telephone, by letter or by an automatic feature
called the Systematic Withdrawal Plan on any day the Fund 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
Class A shares. In addition, the Company reserves the right to impose
charges for wiring redemption proceeds. See "How To Redeem Shares" and
"Investing in the Fund -- 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 DOES THE FUND 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 buying and selling foreign currency futures and entering into
forward foreign currency contracts, are considered derivatives. However,
Wells Fargo Bank will use such derivatives only when it deems appropriate
and only for limited purposes, such as to reduce currency risk or gain
exposure to specific markets. Some derivatives may be more sensitive than
direct securities to changes in interest rates, exchange rates or sudden
market moves. Some derivatives also may be susceptible to fluctuations in
yield, duration or value due to their structure or contract terms.
Q. WHAT STEPS DOES THE FUND TAKE TO CONTROL DERIVATIVES- RELATED RISKS?
A. Wells Fargo Bank uses a variety of internal risk management procedures to
ensure that derivatives use is consistent with the 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
the Fund also is subject to broadly applicable investment policies. For
example, the Fund 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 Fund use certain derivatives
without establishing adequate "cover" in compliance with SEC rules
limiting the use of leverage. For more information on the Fund's
investment activities, see "How the Fund Works" and "Prospectus
Appendix -- Additional Investment Policies."
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Summary of Fund Expenses
SHAREHOLDER TRANSACTION EXPENSES
CLASS A SHARES
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Maximum Sales Load Imposed on Purchases (as a percentage of offering
price).............................................................. 5.25%
Maximum Sales Load Imposed on Reinvested Dividends................... None
Maximum Deferred Sales Load.......................................... None
Exchange Fees........................................................ None
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ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
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Management Fee.......................................................... 1.00%
Rule 12b-1 Fee.......................................................... 0.10%
Other Expenses/1/....................................................... 0.65%
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TOTAL FUND OPERATING EXPENSES/2/........................................ 1.75%
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/1/Other Expenses (before waivers or reimbursements) would be 1.40%.
/2/Total Fund Operating Expenses (before waivers and reimbursements) would
be 2.50%.
EXAMPLE OF EXPENSES
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1 YEAR 3 YEARS
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You would pay the following expenses on a $1,000 investment in
Class A shares of the Fund, assuming a 5% annual return and
redemption at the end of each time period indicated.......... $69 $105
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PROSPECTUS 4
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SHAREHOLDER TRANSACTION EXPENSES
CLASS B SHARES
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Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)............................................................... None
Maximum Sales Load Imposed on Reinvested Dividends.................... None
Maximum Deferred Sales Load (as a percentage of the lesser of NAV at
time of purchase or NAV at time of redemption)....................... 5.00%
Exchange Fees......................................................... None
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ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
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Management Fee.......................................................... 1.00%
Rule 12b-1 Fee.......................................................... 0.75%
Other Expenses/1/....................................................... 0.65%
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TOTAL FUND OPERATING EXPENSES/2/........................................ 2.40%
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/1/Other Expenses (before waivers and reimbursements) would be 1.40%.
/2/Total Fund Operating Expenses (before waivers and reimbursements) would
be 3.15%.
EXAMPLE OF EXPENSES
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1 YEAR 3 YEARS
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You would pay the following expenses on a $1,000 investment in
Class B shares of the Fund, assuming a 5% annual return and
redemption at the end of each time period indicated.......... $74 $105
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................................................ $24 $ 75
</TABLE>
Explanation of Tables
The purpose of the foregoing tables is to help you understand the various
costs and expenses that a shareholder in the Fund will pay directly or
indirectly. You may purchase Fund shares directly from the Company or through
Wells Fargo Bank or other institutions that have developed various account
products through which Fund shares may be purchased, and for which customers
may be charged a fee. The tables do not reflect any charges that may be imposed
by Wells Fargo Bank or another institution directly on certain customer
accounts in connection with an investment in the 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 the Fund's
Class A shares and may be subject to a contingent deferred sales charge on the
Fund's Class B shares if you redeem such shares within a specified period. 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. There are no exchange fees. See "Investing in the Fund --
Sales Charges."
ANNUAL FUND OPERATING EXPENSES for the Fund, except as indicated above, are
based on applicable contract amounts and amounts the Fund expects to incur
during its first fiscal year. The amount shown under "Management Fee" is based
on the
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applicable contract amount. The amounts shown under "Other Expenses" and "Rule
12b-1 Fee" for the Fund are based on estimated amounts expected to be in effect
during the first 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, the Fund. Any waivers or reimbursements would
reduce the Fund's total expenses.
Long-term shareholders of 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, Inc.
("NASD"). For more complete descriptions of the various costs and expenses you
can expect to incur as a shareholder in the Fund, please see "Investing in the
Fund -- How To Buy Shares" and "Management, Distribution and Servicing Fees."
EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses associated
with a $1,000 investment over stated periods, based on the expenses in the
above tables 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 the Fund nor a representation of past or future expenses; actual expenses
and returns may be greater or less than those shown.
How the Fund Works
INVESTMENT OBJECTIVE AND POLICIES
The International Equity Fund seeks to earn total return (with an emphasis on
capital appreciation) over the long term, by investing primarily in equity
securities of non-U.S. companies. In seeking to achieve its objective, the Fund
intends to invest at least 80% of its assets in a diversified portfolio of
equity securities of companies located or operating in major non-U.S. countries
and emerging markets of the world. It is expected that securities held in the
Fund will ordinarily be traded on a stock exchange or other market (such as an
over-the-counter market) in the country in which the issuer is principally
based, but also may be traded in other countries including, in many cases, the
United States. Equity securities in the portfolio will include, among others,
common stocks, preferred stocks, warrants, convertible instruments, ADRs, GDRs
and similar securities, as well as securities of other investment companies.
As adviser to the Fund, Wells Fargo Bank intends to apply a fundamentals-
driven/value-oriented stock selection process, identifying companies with an
above-average potential for long-term growth. Several key fundamental criteria
are considered, such as a company's distinguishable franchise on a local,
regional or global basis; a history of effective management demonstrated by
expanding revenues and earnings growth; prudent financial and accounting
policies; and an ability to
PROSPECTUS 6
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capitalize on a changing business environment. Valuation factors based on
historical and forecast data also are employed to determine the relative
attractiveness of the security. It is expected that the average market
capitalization of issuers represented in the Fund's portfolio will be US$10
billion or more. The Fund may, however, invest in equity securities of issuers
with market capitalization as low as US$250 million.
The Fund intends to allocate its assets among a variety of countries, regions
and industry sectors, investing in a minimum of five countries exclusive of the
United States. In allocating among countries, regions and industry sectors,
factors such as economic growth prospects, monetary and fiscal policies,
political stability, currency trends, market liquidity and investor sentiment
are considered. The Fund may invest up to 50% of its total assets in any one
country, and up to 25% of its total assets in securities of issuers located and
operating primarily in emerging market countries. Emerging market countries
include those financial markets associated with "emerging" countries as
considered by the International Bank for Reconstruction and Development, the
International Finance Corporation, and the international financial community.
There are presently over 130 countries that may be considered "emerging." Of
this number, however, only approximately 30 countries currently are considered
viable investment areas. As countries develop, additional markets may open to
foreign investors.
The International Equity Fund may temporarily hold cash or purchase short-term
instruments to the extent appropriate to maintain adequate liquidity for
redemption requests or other cash management needs. The short-term instruments
that the Fund may purchase include U.S. Treasury bills, shares of money market
mutual funds and repurchase agreements. In addition, when, in the opinion of
Wells Fargo Bank, abnormal market or economic conditions warrant, the Fund may,
for temporary defensive purposes, hold cash, short term instruments and debt or
equity securities of U.S. and non-U.S. issuers without limitation.
Although Wells Fargo Bank generally does not intend to hedge the Fund's
foreign currency exposure, it reserves the right to hedge by purchasing or
selling foreign currency futures and forward foreign currency contracts.
Because the Fund will be investing in securities of non-U.S. issuers,
investment risk and certain fees (such as custodial, securities transaction,
and securities registration fees) may be higher than the fees incurred by funds
investing solely in U.S. securities. For a description of these and other risks
and considerations, see "Risk Factors" below.
Wells Fargo Bank anticipates that most of the Fund's investments will be long-
term in character. However, the Fund's portfolio turnover rate will be impacted
by market and other conditions and will not serve to limit the discretion of
Wells Fargo Bank if it believes portfolio changes are appropriate. It is
anticipated that the Fund's portfolio turnover rate will not exceed 100% under
normal market conditions.
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There can be no assurance that the Fund, which is a diversified portfolio,
will achieve its investment objective. The Fund's investment objective is not a
fundamental policy of the Fund and therefore may be changed by the Company's
Board of Directors without shareholder approval. A more complete description of
the Fund's investments and investment activities is contained in "Prospectus
Appendix -- Additional Investment Policies" and in the SAI.
RISK FACTORS
The International Equity Fund is intended for investors who are seeking long-
term capital appreciation and who are prepared to accept the risks associated
with investing in foreign securities markets. Foreign securities held by the
Fund, including for this purpose ADRs, GDRs and similar securities, involve
special risks and considerations not typically associated with investing in
U.S. companies. These risks include differences in accounting, auditing and
financial reporting standards; generally higher commission rates on foreign
portfolio transactions; the possibility of nationalization, expropriation or
confiscatory taxation; adverse changes in investment or exchange control
regulations (which may include suspension of the ability to transfer currency
from a country); and political, social and monetary or diplomatic developments
that could affect U.S. investments in foreign countries. There may be less
publicly available information about a foreign company than about a U.S.
company and information that is available may be less reliable. Additionally,
dispositions of foreign securities and dividends and interest payable on those
securities may be subject to foreign taxes, including withholding taxes.
Foreign securities often trade with less frequency and volume than domestic
securities and, therefore, may exhibit greater price volatility. Additional
costs associated with an investment in foreign securities may include higher
custodial fees than apply to domestic custodial arrangements and transaction
costs of foreign currency conversions. Changes in foreign exchange rates also
will affect the value of securities denominated or quoted in currencies other
than the U.S. dollar. The Fund's performance may be affected either unfavorably
or favorably by fluctuations in the relative rates of exchange between the
currencies of different nations, by exchange control regulations and by
indigenous economic and political developments. Transactions in foreign
securities may be subject to less efficient settlement practices. Moreover,
foreign securities trading practices, including those involving securities
settlement where Fund assets may be released prior to receipt of payment, may
expose a Fund to increased risk in the event of a failed trade or the
insolvency of a foreign broker-dealer. Finally, in the event of litigation
relating to a portfolio investment, the Fund may encounter substantial
difficulties in obtaining and enforcing judgments against non-U.S. resident
individuals and corporations. Investors should carefully consider the
appropriateness of foreign investing in light of their financial objectives and
goals.
Because foreign securities ordinarily are denominated in currencies other than
the U.S. dollar (as are some securities of U.S. issuers), changes in foreign
currency
PROSPECTUS 8
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exchange rates will affect the Fund's net asset value, the value of dividends
and interest earned, gains and losses realized on the sale of securities and
net investment income and capital gains, if any, to be distributed to
shareholders by the Fund. If the value of a foreign currency rises against the
U.S. dollar, the value of Fund assets denominated in that currency will
increase; correspondingly, if the value of a foreign currency declines against
the U.S. dollar, the value of Fund assets denominated in that currency will
decrease. The exchange rates between the U.S. dollar and other currencies are
determined by supply and demand in the currency exchange markets, international
balances of payments, speculation and other economic and political conditions.
In addition, some foreign currency values may be volatile and there is the
possibility of governmental controls on currency exchange or governmental
intervention in currency markets. Any of these factors could adversely affect
the Fund.
Further, there are special risks involved in investing in issuers in emerging
market countries. Most emerging market countries are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Some of these countries are also sensitive to world commodity prices
and may be subject to political and social uncertainties. The currencies of
certain emerging countries, and therefore the value of securities denominated
in such currencies, may be more volatile than currencies of developed
countries. Many investments in emerging markets can be considered speculative,
and their prices can be much more volatile than in the more developed nations
of the world. This difference reflects the greater uncertainties of investing
in less established markets and economies. In addition, the financial markets
of emerging markets countries are generally less well capitalized and thus
securities of issuers based in such countries may be less liquid. Further, such
markets may be vulnerable to high inflation and interest rates.
In addition to the risks associated with investments in foreign securities,
the Fund's portfolio equity securities are subject to the risks commonly
associated with any investment in equity securities. For example, the portfolio
equity securities of the Fund are subject to equity market risk. Equity market
risk is the risk that stock prices will fluctuate or decline over short or
extended periods. Further, because the Fund may, under certain limited
circumstances, invest in debt securities, the portion of the Fund's portfolio
so invested will, generally, be subject to credit and interest-rate risk.
Credit risk is the risk that issuers of the debt instruments in which the Fund
invests 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 Fund invests and hence the value
of your investment in the Fund. The market value of the Fund's investment in
fixed-income securities will change in response to changes in interest rates
and the relative financial strength of each issuer. During periods of falling
interest rates, the value of fixed-income securities generally rises.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. Debt securities with longer maturities, which
tend to produce higher
9 PROSPECTUS
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yields, are subject to potentially greater capital appreciation and
depreciation than obligations with shorter maturities. Changes in the financial
strength of an issuer or changes in the ratings of any particular security also
may affect the value of these investments. Fluctuations in the market value of
fixed-income securities subsequent to their acquisition will not affect cash
income from such securities but will be reflected in a Fund's net asset value.
Illiquid securities, which may include certain restricted securities, may be
difficult to sell promptly at an acceptable price. Certain restricted
securities may be subject to legal restrictions on resale. Delay or difficulty
in selling securities may result in a loss or be costly to a Fund.
Wells Fargo Bank may use certain derivative investments or techniques, such as
buying and selling foreign currency futures contracts and entering into forward
foreign currency contracts, to adjust the risk and return characteristics of
the Fund's portfolio. 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 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. If Wells Fargo Bank judges market conditions
incorrectly, the use of certain derivatives could result in a loss, regardless
of its intent in using the derivatives.
There is, of course, no assurance that the Fund will achieve its investment
objective or be successful in preventing or minimizing the risk of loss that is
inherent in investing in particular types of investment products. See
"Prospectus Appendix -- Additional Investment Policies" and the SAI for further
information about investment policies and risks.
PERFORMANCE
Fund performance may be advertised from time to time in terms of average
annual total return or cumulative total return. Performance figures are based
on historical results and are not intended to indicate future performance.
Performance figures are calculated separately for each class of shares of the
Fund.
Average annual total return is based on the overall dollar or percentage
change in value of a hypothetical investment in shares of a class and assumes
that all dividends and capital-gain distributions attributable to such class
are reinvested at NAV in shares of that class. 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 that you
have paid the maximum applicable contingent deferred sales charge on your
hypothetical investment. Cumulative total return is calculated similarly except
that the return figure is aggregated over the relevant period instead of
annualized.
PROSPECTUS 10
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In addition to presenting standardized performance figures, the Fund also may
present nonstandardized performance figures, including distribution rates. For
example, the performance figure of the shares of a class 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 Fund -- 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.
Additional information about the performance of the Fund is contained in the
SAI under "Performance Calculations" and will be in the Company's next Annual
Report, dated approximately May 1998, which may be obtained free of charge by
calling the Company at 1-800-222-8222 or by writing the Company at the address
on the inside front cover of the Prospectus.
The Fund and Management
THE FUND
The Fund is one of twenty-seven funds offered by the Stagecoach Family of
Funds. The Company was organized as a Maryland corporation on September 9,
1991. Most of the Company's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, a class subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Company's funds also are authorized to
issue other classes of shares, which are sold primarily to institutional
investors at NAV. Each class of shares represents an equal, proportionate
interest in a Fund with other shares of the same class. Shareholders of each
class bear their pro rata portion of a Fund's operating expenses except for
certain class-specific expenses that are allocated to a particular class and,
accordingly, may affect performance. Please contact Stagecoach Shareholder
Services at 1-800-222-8222 if you would like additional information about
investment options in the Stagecoach Family of Funds.
The Company's Board of Directors supervises the 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 required for purposes such as electing or removing Directors, approving
advisory contracts and distribution plans, and changing the fund's investment
objective or fundamental investment policies. All shares of the Company have
equal voting rights and are 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). All shareholders of record are entitled to one vote
for each share owned 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.
11 PROSPECTUS
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MANAGEMENT
Wells Fargo Bank is the investment adviser to the Fund. In addition, Wells
Fargo Bank serves as the Fund's administrator, 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 March 31, 1997, Wells Fargo
Bank and its affiliates provided investment advisory services for approximately
$57 billion of assets of individuals, trusts, separately-managed estates and
institutions. Wells Fargo Bank also serves as investment adviser to the other
funds 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.
PORTFOLIO MANAGERS
Ms. Katherine Schapiro is primarily responsible for the day-to-day management
of the Fund. She joined Wells Fargo Bank in August 1992, where she directs
international equity investment strategy. Ms. Schapiro currently manages a
number of international equity portfolios. Ms. Schapiro also manages equity and
balanced portfolios for institutions and individuals through Wells Capital
Management, a wholly-owned subsidiary of Wells Fargo Bank, and serves on the
Equity Strategy Committee. Prior to joining Wells Fargo Bank, Ms. Schapiro was
a vice president and fund manager for Newport Pacific Management, an
international investment advisory firm. Ms. Schapiro is a graduate of Stanford
University, is a Chartered Financial Analyst and is on the board of directors
of the Security Analysts of San Francisco.
Ms. Stacey Ho is a co-manager for the Fund. Ms. Ho analyzes foreign equity
securities and manages other equity portfolios for Wells Fargo Bank and Wells
Capital Management as part of its International Equity-Style Team. Prior to
joining Wells Fargo Bank this year, Ms. Ho was a portfolio manager of
international equity funds at Clemente Capital Management. Ms. Ho was employed
by Clemente Capital Management from 1995 through late 1996. From 1990 to 1995,
Ms. Ho was employed by Edison International where her responsibilities included
managing a Japan equity portfolio, a U.S. equity portfolio, and the domestic
equity managers for Edison International's pension fund. Ms. Ho has a BS in
Civil Engineering from San Diego State University and a MS in Environmental
Engineering from Stanford University. She received her MBA from UCLA. Ms. Ho is
currently working toward her Chartered Financial Analyst designation.
-----------------------
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,
PROSPECTUS 12
<PAGE>
however, that there are no controlling judicial or administrative
interpretations or decisions and that future judicial decisions, in this
regard, 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.
Investing in the Fund
OPENING AN ACCOUNT
You can buy Fund shares in one of the 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, please 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 Fund through tax-deferred retirement plans, 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 class of the Fund is its "net asset value" or
NAV. Wells Fargo Bank calculates the NAV of each class of shares of the Fund on
each day the Fund is open as of the close of regular trading on the New York
Stock Exchange ("NYSE") (referred to hereafter as "the close of the NYSE"),
which is currently 1:00 p.m. (Pacific time). The Fund is open for business on
each day the NYSE is open for trading (a "Business Day"). The NAV per share for
each class of shares is calculated by dividing
13 PROSPECTUS
<PAGE>
the value of the Fund's assets allocable to a particular class, less the
liabilities charged to that class, by the total number of outstanding shares of
the class. All expenses are accrued daily and taken into account for purposes
of calculating NAV, which is expected to fluctuate daily. Shares may be
purchased on any day the Fund is open for business. Due to timing differences,
the NAV may not be calculated using closing values on all exchanges.
The Fund's assets 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 provided
by independent pricing services.
HOW TO BUY SHARES
Fund shares 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
(as defined below) is not due from the selling agent until the settlement date,
which is normally three Business Days after the order is placed. The selling
agent is responsible for forwarding payment for shares being purchased to the
Fund promptly. Payment must accompany orders placed directly through the
transfer agent.
Payments for Fund shares are invested in full and fractional shares of the
Fund (or class) at the applicable offering price. If shares are purchased by a
check that 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 Company 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 is generally $1,000. The minimum investment
amounts, however, are $100 through the AutoSaver Plan (described below) and
$250 for any tax-deferred 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, all 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. 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 redemptions), then you may carry over the lesser amount into one of the
Funds. Plan Accounts that invest in the Fund through Wells Fargo ExpressInvest
(available to certain Wells Fargo tax-deferred retirement plans) are not
subject to the minimum initial or subsequent investment amount requirements. In
addition, the
PROSPECTUS 14
<PAGE>
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 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 or selling agent.
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. As shown below,
reductions in the rate of front-end sales charges ("Volume Discounts") are
available as you purchase additional shares (contingent-deferred sales charges
applicable to Class B shares are described below). 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.
FRONT-END SALES CHARGE SCHEDULE
CLASS A SHARES
<TABLE>
<CAPTION>
DEALER
FRONT-END FRONT-END ALLOWANCE
SALES CHARGE SALES CHARGE AS % OF
AS % OF AS % OF NET OFFERING
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED PRICE
------------------ -------------- --------------- ---------
<S> <C> <C> <C>
Less than $50,000.................... 5.25% 5.54% 4.75%
$50,000 up to $99,999................ 4.50 4.71 3.75
$100,000 up to $249,999.............. 3.50 3.63 2.75
$250,000 up to $499,999.............. 2.50 2.56 2.00
$500,000 up to $999,999.............. 2.00 2.04 1.75
$1,000,000 and over/1/............... 0.00 0.00 1.00
</TABLE>
--------------
/1/Class A shares purchased in amounts of $1,000,000 or more that are
redeemed within one year from the receipt of a purchase order for such
shares are subject to a contingent deferred sales charge of 1.00% of the
dollar amount equal to the lesser of the NAV at the time of purchase or
the NAV of such shares at the time of redemption.
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.
A selling agent or shareholder servicing agent and any other person entitled
to receive compensation for selling or servicing shares may receive different
compensation
15 PROSPECTUS
<PAGE>
for selling or servicing Class A shares as compared with Class B shares of the
same fund.
REDUCED SALES CHARGES -- CLASS A SHARES
Discounts described below pertaining to reduced sales charge for Class A
shares are based on your holdings or purchases of shares on which you have paid
or will pay a front-end sales charge. Because Class B shares do not assess a
front-end sales charge, the amount of Class B shares you hold is not considered
in determining any Volume Discount.
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
(including the Fund's Class A shares) of one or more of the Company's funds
which assess a front-end sales charge (the "Load Funds").
Right of Accumulation
The Right of Accumulation allows you to combine the amount you invest in the
Fund's Class A shares with the total NAV of shares in other 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 that you currently have invested in any other mutual fund that assesses
a front-end sales charge and is advised or sub-advised by Wells Fargo Bank and
distributed 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 another Load Fund, the front-end sales charge on the
additional $20,000 investment would be 3.50% of the offering price. To obtain
the 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 shares of a Load 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 in the Load
Funds that you already own. Each investment in shares of a Load Fund 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% of the total
PROSPECTUS 16
<PAGE>
amount you intend to purchase, as specified in the Letter. Shares of the Load
Fund you purchased equal to 5% of the total 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 are reinvested in additional
Fund shares.
Reinvestment
You may reinvest proceeds from a redemption of Class A shares in Class A
shares of the Fund or shares of another of the Company's funds registered in
your state of residence, 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
paid in connection with the Class A shares you 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 your 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.
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.
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 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 "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
17 PROSPECTUS
<PAGE>
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 Fund may be purchased without a front-end sales charge
by: directors, officers and employees (and their respective spouses, parents,
children, siblings, grandparents, grandchildren, father-in-law, mother-in-law,
brothers-in-law, sisters-in-law, aunts, uncles, nieces, and nephews; herein,
"relatives") of the Company, Stephens, its affiliates and of other
broker/dealers that have entered into agreements with Stephens to sell such
shares. Class A shares of the Fund also may be purchased without a front-end
sales charge by present and retired directors, officers and employees (and
their relatives) of Wells Fargo Bank and its affiliates if Wells Fargo Bank
and/or the respective affiliates agree. Such shares also may be purchased at
such price by employee benefit and thrift plans for such persons and by any
investment advisory, trust or other fiduciary account (other than certain
individual retirement accounts) that is maintained, managed or advised by Wells
Fargo Bank, Stephens or their affiliates. In addition, you may purchase shares
of a Fund without payment of 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.
Class A shares of the Fund may be purchased without a front-end sales charge
by the following types of investors when the trades are placed through an
omnibus account maintained with the Fund by a broker/dealer -- trust companies;
deferred compensation plans and the trusts used to fund these plans; investment
advisers and financial planners who charge a management, consulting or other
fee for their services and who place trades on their own behalf or on behalf of
their clients; and clients of such investment advisers or financial planners
who place trades on their own behalf if the clients' accounts are linked to the
master account of such investment adviser or financial planner on the books and
records of the broker/dealer.
CONTINGENT-DEFERRED SALES CHARGE -- CLASS B SHARES
Class B shares may be subject to a contingent-deferred sales charge ("CDSC").
A CDSC is an amount you pay if you redeem your shares within a specified
period. The CDSC will be equal to a percentage of the lesser of the NAV of your
shares at the time of purchase or the NAV of your shares at redemption.
Except as described below, if you purchase Class B shares and redeem such
shares within six years of the date of purchase, the Class B shares are subject
to a CDSC as follows:
PROSPECTUS 18
<PAGE>
<TABLE>
<CAPTION>
REDEMPTION WITHIN: 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS
------------------ ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CDSC: 5% 4% 3% 3% 2% 1%
</TABLE>
Contingent-deferred sales charges are not imposed on amounts representing
increases in NAV above the NAV at the time of purchase and are not 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
Fund six years after the end of the month in which such Class B shares were
acquired.
The amount of any 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 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) in light of the amount to be invested and
the time that you anticipate owning the shares. 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 Fund -- Sales Charges" for information on
reduced sales charges for Class A shares.
You may buy shares 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.
19 PROSPECTUS
<PAGE>
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 Class A
or Class B)
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: 1-415-546-0280
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.
2. Mail the Account Application and a check for $1,000 or more payable to
"Stagecoach Funds (International Equity Fund) (designate Class A or Class
B)," 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 your Fund account on a monthly basis. To participate
in the
PROSPECTUS 20
<PAGE>
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 that is designated in your Account Application and 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 generally 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. Certain restrictions may apply to shares held in a brokerage
account. The transfer agent requires a minimum of ten (10) Business Days to
implement your AutoSaver Plan purchases. If you hold shares through a brokerage
account, your AutoSaver Plan will comply with the terms of your brokerage
agreement. There are no separate fees charged to you by the Fund 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 Fund 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).
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 the 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 Fund's
transfer agent to debit your Approved Bank Account, by wire by instructing the
wiring
21 PROSPECTUS
<PAGE>
bank to transmit the specified amount as directed above for initial purchases,
or by mail with a check payable to "Stagecoach Funds (International Equity
Fund) (designate Class A or Class B)" 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 Fund through a broker/dealer
or financial institution that has entered into a selling agreement with
Stephens, as the Fund's Distributor ("Selling Agent"). If your order is placed
by the close of the NYSE, the purchase order is 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 is
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 Company. Because payment for shares of the Fund is not due until
settlement date, the Selling Agent might benefit from the temporary use of your
payment. A financial institution that 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 Fund shares may be transmitted to the transfer agent
through any entity that has entered into a shareholder servicing agreement with
the Fund ("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 is 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 Company, or a Shareholder Servicing Agent on its behalf, typically sends
you a confirmation or statement of your account after every transaction that
affects your share balance or your Fund account registration. Every January,
you will be provided a
PROSPECTUS 22
<PAGE>
statement with tax information for the previous year to assist you in tax
return preparation. At least twice a year, you will receive financial
statements.
Dividend and CapitalGain Distributions
The Fund intends to distribute annually dividends of substantially all of its
net investment income. The Fund distributes any realized net capital gains at
least annually. You have several options for receiving dividend and capital
gain distributions. They are discussed under "Additional Shareholder
Services -- Dividend and Capital Gain Distribution Options."
Dividend and capital gain distributions have the effect of reducing the NAV
per share by the amount distributed. Although distributions paid to you on
newly issued shares shortly after your purchase would represent, in substance,
a return of your capital, the distributions would ordinarily be taxable to you.
All expenses 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 Fund shares on any Business Day. Your shares are redeemed at
the NAV next calculated after the Company has received your redemption request
in proper form. The Company ordinarily remits 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
the Fund of securities owned by it is not reasonably practicable or (b) it is
not reasonably practicable for the 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 the Fund. In addition,
the Company 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. In addition, the Fund
reserves the right to impose charges for wiring redemption proceeds.
All redemptions of shares generally are made in cash, except that the
commitment to redeem shares in cash extends only to redemption requests made by
each Fund
23 PROSPECTUS
<PAGE>
shareholder during any 90-day period of up to the lesser of $250,000 or 1% of
the net asset value of the Fund at the beginning of such period. This
commitment is irrevocable without the prior approval of the SEC and is a
fundamental policy of the Fund that may not be changed without shareholder
approval. In the case of redemption requests by shareholders in excess of such
amounts, the Board of Directors reserves the right to have the Fund make
payment, in whole or in part, in securities or other assets, in case of an
emergency or any time a cash distribution would impair the liquidity of the
Fund to the detriment of the existing shareholders. In this event, the
securities would be valued in the same manner as the securities of the Fund
are valued. If the recipient were to sell such securities, he or she would
incur brokerage costs in converting such securities to cash.
Due to the high cost of maintaining Fund accounts with small balances, the
Company reserves 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 the 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 Fund --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 requires 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 taxpayer identification number ("TIN"),
which generally is your social security or employer identification number.
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.
PROSPECTUS 24
<PAGE>
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 address set forth under
"Investing in the Fund -- 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 the Fund by letter, in
which case your receipt of redemption proceeds, but not the Fund's receipt of
your redemption request, is expedited. In addition, you also may request an
expedited redemption of shares of the 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 is 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 Fund -- Initial Purchases by Wire."
Upon request, net redemption proceeds of your expedited redemptions of $5,000
or more are 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
25 PROSPECTUS
<PAGE>
request is received by the transfer agent by the close of the NYSE on a
Business Day, your redemption proceeds are 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 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 Company
reserves 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 Fund shares 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 the 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 Company
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 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
PROSPECTUS 26
<PAGE>
order is 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 is not received by the transfer agent prior to the close of
business, your order is 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 Company.
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 are credited to your
Approved Bank Account. If no such account is designated, a check for the net
redemption proceeds are mailed to your address of record or, if such address is
no longer valid, the net proceeds are 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 the 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 is 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 is
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 Company.
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 are credited to your Approved Bank Account. If no such account is
designated, a check for the net redemption proceeds is mailed to your address
of record or, if such address is no longer valid, the net redemption proceeds
are 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.
27 PROSPECTUS
<PAGE>
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, you have several dividend and distribution payment options and an
exchange privilege, which are described below. If you have questions about the
distribution options available to you, please call 1-800-222-8222.
DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
When you fill out your Account Application, you can choose from the following
distribution options listed below.
A. The Automatic Reinvestment Option provides for the reinvestment of your
dividend and capital gain distributions in additional shares of the same class
of the Fund which paid such dividends or capital gain distributions.
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 dividend and/or capital-gain
distributions from the Fund 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. 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 a fund offered by another
investment company in the Stagecoach Family of Funds, in Class A shares of the
Government Money Market Mutual, Money Market Mutual, Prime Money Market Mutual
or Treasury Money Market Mutual Funds or in shares of the California Tax-Free
Money Market Mutual or National Tax-Free Money Market Mutual Funds
(collectively, the "Money Market Mutual Funds"). 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"). Distributions paid on Class B shares
may not be invested in shares of a single class fund.
C. The Automatic Clearing House Option permits you to have dividend 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 Fund's dividend disbursing agent, the distribution is reinvested in your
Fund account at the NAV next determined after the distribution has been
returned. Your Automatic Clearing House Option is then converted automatically
to the Automatic Reinvestment Option.
D. The Check Payment Option lets you receive a check for all dividend and
capital gain distributions, which generally is mailed either to your designated
address or your
PROSPECTUS 28
<PAGE>
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 are reinvested in your Fund account at the NAV next determined
after the earlier of the date the checks have been returned to the Fund's
dividend disbursing agent or the date six months after the payment of such
distribution. Your Check Payment Option is then converted automatically to the
Automatic Reinvestment Option.
The Company forwards moneys to the dividend disbursing agent so that it may
issue you distribution checks under the Check Payment Option. The dividend
disbursing agent may benefit from the temporary use of such moneys until these
checks clear. The Company takes reasonable efforts to locate investors whose
checks are returned or uncashed after six months.
Exchange Privilege
The exchange privilege is a convenient way to buy shares in another fund of
the Stagecoach Family of Funds to respond to changes in your investment needs.
You can exchange between the various funds as follows:
<TABLE>
<CAPTION>
EXCHANGE BETWEEN YES NO
---------------- --- ---
<S> <C> <C>
Class A shares and a Money Market Mutual Fund..................... X
Class A shares and Class A shares................................. X
Class B shares and a Money Market Mutual Fund..................... X
Class B shares and Class B shares................................. X
Class A shares of a non-Money Market Mutual Fund and Class B
shares........................................................... X
</TABLE>
Important factors that you should consider:
. You will need to read the prospectus of the fund into which you want to
exchange.
. Every exchange is a redemption of shares of one fund and a purchase of
shares of another fund.
. You must exchange at least the minimum initial purchase amount of the fund
you are redeeming, unless your balance has fallen below that amount due to
market conditions or you have already met the minimum initial purchase
amount of the fund you are purchasing.
. If you exchange Class A shares, you will need to pay any difference
between a load that you have already paid and the load that you are
subject to in the new fund (less the difference between any load already
paid under the maximum 3% load schedule and the maximum 4.50% schedule).
29 PROSPECTUS
<PAGE>
. You will not pay a contingent deferred sales charge on any exchange from
Class B shares into other Class B shares or a Money Market Mutual Fund.
The new shares will continue to age while they are in the new fund and
will be charged the contingent deferred sales charge applicable to the
original shares upon redemption.
. If you exchange Class A or Class B shares for shares of a Money Market
Mutual Fund, you may not re-exchange shares of the Money Market Mutual
Fund for shares other than the original exchanged class.
. The Company may limit the number of times shares may be exchanged or may
reject any telephone exchange order. Subject to limited exceptions, the
Company will notify you 60 days before discontinuing or modifying the
exchange privilege.
You may exchange shares by writing the Transfer Agent or, if you have
telephone privileges, you may call the Transfer Agent. Exchanges are subject to
the procedures and conditions applicable to purchasing and redeeming shares.
CONVERSION
Class B shares 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 Fund and, consequently, will no longer be subject to the
higher Rule 12b-1 Fees applicable to Class B shares. Such conversion is 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. Reinvestments of dividend and capital gain distributions on
Class B shares are 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 a Money Market Mutual Fund during the six-year period,
and exchanges back into Class B shares, the holding period for shares so
exchanged is counted toward the six-year period, and any Class B shares held at
the end of six years are 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 Fund's investment adviser provides investment guidance and
policy
PROSPECTUS 30
<PAGE>
direction in connection with the management of the Fund's assets and furnishes
the Company's Board of Directors with periodic reports on the Fund's investment
strategies and performance.
For its services as investment adviser to the International Equity Fund, Wells
Fargo Bank is entitled to monthly investment advisory fees at the annual rate
of 1.00% of the Fund's average daily net assets. 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
Fund's performance. From time to time, the Fund, consistent with its investment
objective, policies and restrictions, may invest in securities of companies
with which Wells Fargo Bank has a lending relationship.
TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank serves as the Fund's transfer and dividend disbursing agent.
Wells Fargo Bank performs its transfer and dividend disbursing agency services
at 525 Market Street, San Francisco, California 94105.
CUSTODIAN
Investors Bank & Trust Company ("IBT") has been retained to act as custodian
for the Fund. IBT performs its duties as custodian as well as certain fund
accounting services at 200 Clarendon Street, Boston, Massachusetts 02116.
SHAREHOLDER SERVICING AGENT
The Fund has entered into a shareholder servicing agreement with Wells Fargo
Bank on behalf of each class, 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 administrative
services with respect to Fund shares, which include aggregating and
transmitting shareholder orders for purchases, exchanges and redemptions;
maintaining shareholder accounts and records, aggregating and placing purchase,
exchange and redemption transactions, and providing such other related services
as the Company or a shareholder may reasonably request. For these services, a
Shareholder Servicing Agent is entitled to receive a fee at an annual rate of
up to (i) 0.25% of the average daily net assets attributable to the shares of
the Class A or Class B shares. In no event will the fees paid exceed the
maximum amount payable to the Shareholder Servicing Agent under applicable
laws, regulations or rules, including the Conduct Rules of the NASD ("NASD
Rules").
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 Company, such as requiring a higher minimum initial
investment or payment of a separate fee for additional services. Each
Shareholder Servicing Agent is required to
31 PROSPECTUS
<PAGE>
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.
ADMINISTRATOR AND CO-ADMINISTRATOR
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank and Stephens as administrator and co-administrator, respectively,
provide the Fund with administration 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 to the Company's Directors and officers. Wells Fargo Bank and Stephens
also furnish office space and certain facilities to conduct the Fund's
business, and Stephens compensates the Company's Directors, officers and
employees who are affiliated with Stephens. For these administration services,
Wells Fargo Bank and Stephens are entitled to receive monthly fees at the
annual rates of 0.06% and 0.04%, respectively, of the Fund's average daily net
assets. Wells Fargo Bank and Stephens may delegate certain of their
administration duties to sub-administrators.
DISTRIBUTOR
Stephens is the Fund's co-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,
including 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.
Stephens, as the principal underwriter of the Fund within the meaning of the
1940 Act, has entered into a Distribution Agreement with the Company pursuant
to which Stephens is responsible for distributing shares of the Fund. The
Company also has adopted a Distribution Plan on behalf of each class of shares
under the SEC's Rule 12b-1 ("Plans"). 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 Class A shareholders paying on an annual basis up to 0.10% of the
average daily net assets attributable to such shares. Under the Class B Plan,
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 payments, on an annual basis, of up to 0.75% of the average daily
net assets attributable to such shares. Other distribution-related services may
include, among other services, costs and expenses for advertisements, sales
literature, direct mail or any
PROSPECTUS 32
<PAGE>
other form of advertising; expenses of sales employees or agents of the
Distributor, including salary, commissions, travel and related expenses;
payments to broker/dealers and financial institutions for services in
connection with the distribution of shares, including promotional incentives
and fees calculated with reference to the average daily net asset value of
shares held by shareholders who have a brokerage or other service relationship
with the broker/dealer or other institution receiving such fees; and other
similar services as the Directors determine to be reasonably calculated to
result in the sale of a Fund's shares.
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.
The Distribution Agreement provides that Stephens shall act as agent for the
Fund for the sale of its shares, and may enter into selling agreements with
Selling Agents that wish to make available shares of the Fund to its customers.
The Fund 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 Fund 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 the 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.
Stephens has established a cash and non-cash compensation program, pursuant to
which broker/dealers or financial institutions that sell shares of the
Company's 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 or the cash value of a non-cash
compensation item.
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 Fund's performance. Except for the expenses
borne by Wells Fargo Bank and Stephens, the Fund bears all costs of its
operations, including its pro rata portion of Company expenses such as fees and
expenses of its independent auditors and legal
33 PROSPECTUS
<PAGE>
counsel, and compensation of the Company's directors who are not affiliated
with the adviser, administrator or any of their affiliates; advisory, transfer
agency, custody and administration fees; 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 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
Distributions from the Fund's net investment income and net short-term capital
gains, if any, are designated as dividend distributions and taxable to the
Fund's shareholders as ordinary income. Distributions from the Fund's net long-
term capital gains are designated as capital gain distributions and taxable to
the Fund's shareholders as long-term capital gains. In general, your
distributions will be taxable when paid, whether you take such distributions in
cash or have them automatically reinvested in additional Fund shares. However,
distributions declared in October, November, and December and distributed by
the following January will be taxable as if they were paid by December 31.
If more than 50% in value of the Fund's total assets at the close of its
taxable year consist of securities of non-U.S. corporations, the Fund will be
eligible to file an election with the Internal Revenue Service pursuant to
which shareholders of the Fund must (a) include their respective pro rata
portions of such withholding taxes in their Federal income tax returns as gross
income, (b) treat such amounts as foreign taxes paid by them, and (c) either
deduct such amounts in computing their taxable incomes or use these amounts as
foreign tax credits against their federal income taxes. The Fund expects to
meet the eligibility requirements for filing this election because of its
substantial investment in securities of non-U.S. issuers and intends to make
the election.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares
will ordinarily result in a taxable capital gain or loss, depending on the
amount you receive for your shares (or are deemed to receive in the case of
exchanges) and the cost of your shares. See "Federal Income Taxes --
Disposition of Fund Shares" in the SAI.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Federal Income Taxes -- Foreign Shareholders" in the
SAI. In certain circumstances, U.S. residents may also be subject to
withholding taxes. See "Federal Income Taxes -- Backup Withholding" in the SAI.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important federal tax
PROSPECTUS 34
<PAGE>
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
foreign, state and local taxes. Further federal tax considerations are
discussed in the SAI for the Fund.
35 PROSPECTUS
<PAGE>
PROSPECTUS APPENDIX -- ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
Set forth below is a description of certain investments and additional
investment policies for the Fund.
Temporary Investments
The Fund may hold a certain portion of its assets in cash or short-term
investments in order to maintain adequate liquidity for redemption requests or
other cash management needs or for temporary defensive purposes during periods
of unusual market volatility. The short-term investments that the Fund may
purchase include, among other things, U.S. government obligations, shares of
money market mutual funds, repurchase agreements, obligations of domestic banks
and short-term obligations of foreign banks, corporations and other entities.
See "Additional Permitted Investment Activities" in the SAI for additional
information.
U.S. Government Obligations
The Fund may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government obligations").
Payment of principal and interest on U.S. Government obligations (i) may be
backed by the full faith and credit of the United States (as with U.S. Treasury
bills and GNMA certificates) or (ii) may be backed solely by the issuing or
guaranteeing agency or instrumentality itself (as with FNMA notes). In the
latter case investors 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.
Other Investment Companies
The Fund may invest in shares of other open-end, management investment
companies. The Fund may purchase shares of exchange-listed, closed-end funds.
The Fund also may invest in investment companies that are designed to replicate
the composition and performance of a particular index. For example, World
Equity Benchmark Shares (commonly known as "WEBS") are exchange traded shares
of open-end investment companies designed to replicate the composition and
performance of publicly traded issuers in particular foreign countries.
Investments in
A-1 PROSPECTUS
<PAGE>
index baskets involve the same risks associated with a direct investment in the
types of securities included in the baskets. Other investment companies in
which the Fund invests can be expected to charge fees for operating expenses,
such as investment advisory and administration fees, that would be in addition
to those charged by the Fund.
Repurchase Agreements
The Fund may enter into repurchase transactions in which 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. A Fund may enter into repurchase agreements only with respect to
securities that could otherwise be purchased by the Fund, and all repurchase
transactions must be collateralized. The Fund may incur a loss on a repurchase
transaction if the seller defaults and the value of the underlying collateral
declines or is otherwise limited or if receipt of the security or collateral is
delayed. The Fund may participate in pooled repurchase agreement transactions
with other funds advised by Wells Fargo Bank. See "Additional Permitted
Investment Activities" in the SAI for additional information.
Foreign Obligations and Securities
The foreign securities in which the Fund may invest include common stocks,
preferred stocks, warrants, convertible securities and other securities of
issuers organized under the laws of countries other than the United States.
Such securities also include equity interests in foreign investment funds or
trusts, real estate investment trust securities and any other equity or equity-
related investment whether denominated in foreign currencies or U.S. dollars.
The Fund also may invest in foreign securities through American Depositary
Receipts ("ADRs"), Canadian Depositary Receipts ("CDRs"), European Depositary
Receipts ("EDRs"), International Depositary Receipts ("IDRs") and Global
Depositary Receipts ("GDRs") or other similar securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs (sponsored or unsponsored) are receipts typically issued by a
U.S. bank or trust company and traded on a U.S. stock exchange, and CDRs are
receipts typically issued by a Canadian bank or trust company that evidence
ownership of underlying foreign securities. Issuers of unsponsored ADRs are not
contractually obligated to disclose material information in the U.S. and,
therefore, such information may not correlate to the market value of the
unsponsored ADR. EDRs and IDRs are receipts typically issued by European banks
and trust companies, and GDRs are receipts issued by either a U.S. or non-U.S.
banking institution, that evidence ownership of the underlying foreign
securities. Generally, ADRs in registered form are designed for use in U.S.
securities markets and EDRs and IDRs in bearer form are designed primarily for
use in Europe.
PROSPECTUS A-2
<PAGE>
In addition, for temporary defensive purposes, the Fund may invest in fixed
income securities of non-U.S. governmental and private issuers. Such
investments may include bonds, notes, debentures and other similar debt
securities, including convertible securities. For a more complete discussion
of these securities, see the SAI.
Emerging Markets
The Fund may invest up to 25% of its assets in equity securities of companies
in "emerging markets." Emerging markets are those financial markets associated
with emerging market countries as considered by the International Bank for
Reconstruction and Development (more commonly referred to as the World Bank),
the International Finance Corporation, and the international financial
community. Wells Fargo Bank may invest in those emerging markets that have a
relatively low gross national product per capita, compared to the world's
major economies, and which exhibit potential for rapid economic growth. The
adviser believes that investment in equity securities of emerging market
issuers offers significant potential for long-term capital appreciation.
There are special risks involved in investing in emerging market countries.
Most are heavily dependent on international trade, and some are especially
vulnerable to recessions in other countries. Many of these countries are also
sensitive to world commodity prices. Some countries may still have obsolete
financial systems, economic problems or archaic legal systems. The currencies
of certain emerging market countries, and therefore the value of securities
denominated in such currencies, may be more volatile than currencies of
developed countries. In addition, many of these nations are experiencing
political and social uncertainties. Many investments in emerging markets can
be considered speculative, and their prices can be much more volatile than in
the more developed nations of the world. This difference reflects the greater
uncertainties of investing in less established markets and economies. The
financial markets of emerging markets countries are generally less well
capitalized and thus securities of issuers based in such countries may be less
liquid. Further, such markets may be vulnerable to high inflation and interest
rates.
Hedging and Related Strategies
The Fund may attempt to protect the U.S. dollar equivalent value of one or
more of its investments (hedge) by purchasing and selling foreign currency
futures contracts and by purchasing and selling currencies on a spot (i.e.,
cash) or forward basis. Foreign currency futures contracts are bilateral
agreements pursuant to which one party agrees to make, and the other party
agrees to accept, delivery of a specified type of currency at a specified
future time and at a specified price. Although such futures contracts by their
terms call for actual delivery or acceptance of currency, in most cases the
contracts are closed out before the settlement date without the making or
taking of delivery. A forward currency contract involves an obligation to
purchase or sell a specific currency at a specified future date, which may be
any fixed number of
A-3 PROSPECTUS
<PAGE>
days from the contract date agreed upon by the parties, at a price set at the
time the contract is entered into.
The Fund may enter into forward currency contracts for the purchase or sale of
a specified currency at a specified future date either with respect to specific
transactions or with respect to portfolio positions. For example, the Fund may
enter into a forward currency contract to sell an amount of a foreign currency
approximating the value of some or all of the Fund's securities denominated in
such currency. The Fund may use forward contracts in one currency or a basket
of currencies to hedge against fluctuations in the value of another currency
when Wells Fargo Bank anticipates there will be a correlation between the two
and may use forward currency contracts to shift the Fund's exposure to foreign
currency fluctuations from one country to another. The purpose of entering into
these contracts is to minimize the risk to the Fund from adverse changes in the
relationship between the U.S. dollar and foreign currencies.
Wells Fargo Bank might not employ any of the strategies described above, and
there can be no assurance that any strategy used will succeed. If Wells Fargo
incorrectly forecasts exchange rates, market values or other economic factors
in utilizing a strategy for the Fund, the Fund might have been in a better
position had it not might have been in a better position had it not hedged at
all. The use of these strategies involves certain special risks, including (1)
the fact that skills needed to use hedging instruments are different from those
needed to select the Fund's securities, (2) possible imperfect correlation, or
even no correlation, between price movements of hedging instruments and price
movements of the investments being hedged, (3) the fact that, while hedging
strategies can reduce the risk of loss, they can also reduce the opportunity
for gain, or even result in losses, by offsetting favorable price movements in
hedged investments and (4) the possible inability of the Fund to purchase or
sell a portfolio security at a time that otherwise would be favorable for it to
do so, or the possible need for the Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with hedging transactions and the possible
inability of a Fund to close out or to liquidate its hedged position.
New financial products and risk management techniques continue to be
developed. The Fund may use these instruments and techniques to the extent
consistent with its investment objectives and regulatory and tax
considerations.
Warrants
The 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). 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.
PROSPECTUS A-4
<PAGE>
Money Market Instruments
The Fund may invest in the following types of high quality 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; (iii) commercial paper rated at the date of purchase "Prime-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) repurchase
agreements. The Fund 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 foreign banks in the
world as determined on the basis of assets; (iii) have branches or agencies in
the United States; and (iv) 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.
Forward Commitments, When-Issued Purchases and Delay-Delivery Transactions
The Fund may purchase or sell securities on a when-issued or delayed-delivery
basis and make contracts to purchase or sell securities for a fixed price at a
future date beyond customary settlement time. Securities purchased or sold on a
when-issued, delayed-delivery or forward commitment basis involve a risk of
loss if the value of the security to be purchased declines, or the value of the
security to be sold increases, before the settlement date. Although a Fund will
generally purchase securities with the intention of acquiring them, a Fund may
dispose of securities purchased on a when-issued, delayed-delivery or a forward
commitment basis before settlement when deemed appropriate by the adviser.
Privately Issued Securities (Rule 144A)
The Fund 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. Delay or difficulty in selling such securities may
result in a loss to the Fund. Privately issued securities that are determined
by Wells Fargo Bank to be "illiquid" are subject to the Fund's policy of not
investing more than 15% of its net assets in illiquid securities.
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objective, as set forth in "How the Fund Works --
Investment Objective and Policies," is not fundamental; that is, it may be
changed without approval
A-5 PROSPECTUS
<PAGE>
by the vote of the holders of a majority of the Fund's outstanding voting
securities, as described under "Capital Stock" in the SAI for the Fund.
Fundamental Investment Policies
As matters of fundamental policy, the Fund may not: (i) 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 obligations of the United States Government, its
agencies or instrumentalities; (ii) issue senior securities, except as
permitted by applicable law; (iii) purchase securities of any issuer (except
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities, including government-sponsored enterprises, ) if, as a
result, 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 hold more than 10% of the
outstanding voting securities of such issuer, except that up to 25% of the
value of the Fund's total assets may be invested without regard to these
limitations; or (iv) borrow money, except as permitted by applicable law.
Certain Non-Fundamental Investment Policies
As a matter of nonfundamental policy, the Fund may invest up to 15% of the
current value of its 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.
Illiquid securities shall not include securities eligible for resale pursuant
to Rule 144A under the Securities Act of 1933 (the "1933 Act") that have been
determined to be liquid by the adviser, pursuant to guidelines established by
the Company's Board of Directors, or commercial paper that is sold under
Section 4(2) of the 1933 Act that (i) is not traded flat or in default as to
interest or principal, and (ii) is rated in one of the two highest categories
by at least two NRSROs and the adviser, pursuant to guidelines established by
the Company's Board of Directors, has determined the commercial paper to be
liquid or (iii) is rated in one of the two highest categories by one NRSRO and
the adviser, pursuant to guidelines established by the Company's Board of
Directors.
PROSPECTUS A-6
<PAGE>
Advised by WELLS FARGO BANK, N.A.
Distributed by Stephens Inc., Member NYSE/SIPC
NOT FDIC INSURED
SCF072 (8/97)
<PAGE>
STAGECOACH FUNDS(R)
P.O. Box 7066
San Francisco, CA 94120-7066
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
. involve investment risk, including possible loss of principal.
LOGO
Printed on Recycled Paper SCF072 (8/97)
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated August 13, 1997
INTERNATIONAL EQUITY FUND
CLASS A, CLASS B, AND INSTITUTIONAL CLASS
-------------------------------
Stagecoach Funds, Inc. is an open-end series investment company. This
Statement of Additional Information ("SAI") contains information about a fund in
the Stagecoach Family of Funds -- the INTERNATIONAL EQUITY FUND (the "Fund").
This SAI relates to Class A, Class B and Institutional Class shares offered by
the Fund. The investment objective of the Fund is described in its Prospectus
under "How the Fund Works -- Investment Objective and Policies."
This SAI is not a prospectus and should be read in conjunction with
the Fund's Prospectus dated August 13, 1997. All terms used in this SAI that are
defined in the Fund's Prospectus will have the meaning assigned in such
Prospectus. A copy of the Prospectus may be obtained without charge by writing
to Stephens Inc., the Company's co-administrator and distributor, at 111 Center
Street, Little Rock, Arkansas 72201 or by calling the Transfer Agent at the
telephone number indicated above.
----------------------------------
<PAGE>
TABLE OF CONTENTS
Page
Investment Restrictions.................................................... 1
Additional Permitted Investment
Activities............................................................... 2
Management................................................................. 11
Distribution Plans......................................................... 15
Performance Calculations................................................... 16
Determination of Net Asset Value........................................... 20
Additional Purchase and Redemption Information............................. 21
Portfolio Transactions..................................................... 22
Fund Expenses.............................................................. 24
Federal Income Taxes....................................................... 24
Capital Stock.............................................................. 29
Other...................................................................... 30
Independent Auditors....................................................... 30
Financial Information...................................................... 30
SAI Appendix............................................................... A-1
i
<PAGE>
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
be25% or more of the current value of the 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) issue senior securities, except as permitted by applicable law;
(3) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities, including
government-sponsored enterprises) if, as a result, 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 would hold more than 10% of the outstanding voting securities of such
issuer, except that up to 25% of the Fund's total assets may be invested without
regard to these limitations;
(4) borrow money, except as permitted by applicable law.
Non-Fundamental Investment Policies. The Fund is subject to the
-----------------------------------
following non-fundamental policies which may be changed by a majority vote of
the Board of Directors without shareholder approval:
The Fund may not:
(1) 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);
(2) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions) or make short sales of securities;
(3) underwrite securities of other issuers, except to the extent that
the purchase of securities 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;
(4) make investments for the purpose of exercising control or
management;
1
<PAGE>
(5) borrow money, except that the Fund may borrow from banks up to 10%
of the current value of its net assets for temporary purposes (but investments
may not be purchased while any such outstanding borrowings exceed 5%
of its net assets);
(6) make loans, except as permitted by applicable law;
(7) write, purchase or sell puts, calls, straddles, spreads or any
combination thereof, except on such conditions as may be set forth in the Fund's
Prospectus and Statement of Additional Information;
(8) purchase or sell commodities or commodities contracts, except that
the Fund may, on such conditions as may be set forth in the Fund's Prospectus
and Statement of Additional Information, purchase, sell or enter into futures
contracts, foreign currency forward contracts, options on futures contracts,
foreign currency forward contracts, foreign currency options, or any interest
rate, securities-related or foreign currency-related hedging instrument, subject
to compliance with any applicable provisions of the federal securities or
commodities laws;
(9) hold more than 15% of the Fund's net assets in securities that are
illiquid.
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.
The Fund does not invest in the following types of derivatives that
generally are considered to be potentially volatile: capped floaters, leveraged
floaters, range floaters, dual index floaters or inverse floaters. Additionally,
the Fund will not invest in securities whose interest rate reset provisions
materially lag short-term interest rates, such as Cost of Funds Index Floaters
or other derivative instruments the Fund considers to have the potential for
excessive volatility.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Unrated and Downgraded Investments. The Fund may purchase instruments
----------------------------------
that are not rated by a nationally recognized statistical rating organization
("NRSRO") 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 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 an NRSRO, such as Moody's Investor Service Inc.
("Moody's") or Standard & Poor's Corporation ("S&P"), 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.
2
<PAGE>
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.
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 120 days after the date of the commitment to
purchase. The Fund 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 Fund currently does not intend to
invest more than 5% of its assets in when-issued securities during the coming
year.
The 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.
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.
From time to time, investments in other investment companies may be
the most effective available means by which the Fund may invest in securities of
issuers in certain countries. Investment in such investment companies may
involve the payment of management expenses and, in connection with some
purchases, sales loads, and payment of substantial premiums above the value of
such companies' portfolio securities. At the same time, the Fund would continue
to pay its own management fees and other expenses. The Fund may invest in
3
<PAGE>
these investment funds and in registered investment companies subject to the
provisions of the Investment Company Act of 1940 (`1940 Act'). Such investment
funds or investment companies may be `passive foreign investment companies' (as
described in `Taxes' below) and may result in special federal income tax
consequences.
Investment income on certain foreign securities in which the Fund may
invest may be subject to foreign withholding or other taxes that could reduce
the return on these securities. Tax treaties between the United States and
foreign countries, however, may reduce or eliminate the amount of foreign taxes
to which the Fund would be subject.
Foreign Currency Transactions. The Fund's investments in foreign
-----------------------------
securities involve currency risks. The U.S. dollar value of a foreign security
tends to decrease when the value of the U.S. dollar rises against the foreign
currency in which the security is denominated, and tends to increase when the
value of the U.S. dollar falls against such currency. To attempt to minimize
risks to the Fund from adverse changes in the relationship between the U.S.
dollar and foreign currencies, the Fund may engage in foreign currency
transactions on a spot (i.e., cash) basis and may purchase or sell forward
foreign currency exchange contracts ("forward contracts"). The Fund may also
purchase and sell foreign currency futures contracts (see "Purchase and Sale of
Currency Futures Contracts"). A forward contract is an obligation to purchase or
sell a specific currency for an agreed price at a future date that is
individually negotiated and privately traded by currency traders and their
customers.
Forward contracts establish an exchange rate at a future date. These
contracts are transferable in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement, and is traded at a net price
without commission. The Fund will direct its custodian, to the extent required
by applicable regulations, to segregate high grade liquid assets in an amount at
least equal to its obligations under each forward contract. Neither spot
transactions nor forward contracts eliminate fluctuations in the prices of the
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
The Fund may enter into a forward contract, for example, when it
enters into a contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of the security (a
"transaction hedge"). In addition, when Wells Fargo Bank believes that a foreign
currency may suffer a substantial decline against the U.S. dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's securities denominated in
such foreign currency, or when Wells Fargo Bank believes that the U.S. dollar
may suffer a substantial decline against the foreign currency, it may enter into
a forward purchase contract to buy that foreign currency for a fixed dollar
amount (a "position hedge").
The Fund may, in the alternative, enter into a forward contract to
sell a different foreign currency for a fixed U.S. dollar amount where Wells
Fargo Bank believes that the U.S. dollar value of the currency to be sold
pursuant to the forward contract will fall whenever there is
4
<PAGE>
a decline in the U.S. dollar value of the currency in which the fund securities
are denominated (a "cross-hedge").
Foreign currency hedging transactions are an attempt to protect the
Fund against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amount and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and date it matures.
The Fund's custodian will, to the extent required by applicable
regulations, segregate cash, U.S. Government securities or other high-quality
debt securities having a value equal to the aggregate amount of the Fund's
commitments under forward contracts entered into with respect to position hedges
and cross-hedges. If the value of the segregated securities declines, additional
cash or securities will be segregated on a daily basis so that the value of the
segregated securities will equal the amount of the Fund's commitments with
respect to such contracts.
The cost to the Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because transactions in currency exchange
usually are conducted on a principal basis, no fees or commissions are involved.
Wells Fargo Bank considers on an ongoing basis the creditworthiness of the
institutions with which the Fund enters into foreign currency transactions. The
use of forward currency exchange contracts does not eliminate fluctuations in
the underlying prices of the securities, but it does establish a rate of
exchange that can be achieved in the future. If a devaluation generally is
anticipated, the Fund may not be able to contract to sell the currency at a
price above the devaluation level it anticipates.
Foreign Currency Futures Contracts.
- -----------------------------------
In General. A foreign currency futures contract is an agreement
----------
between two parties for the future delivery of a specified currency at a
specified time and at a specified price. A "sale" of a futures contract means
the contractual obligation to deliver the currency at a specified price on a
specified date, or to make the cash settlement called for by the contract.
Futures contracts have been designed by exchanges which have been designated
"contract markets" by the Commodity Futures Trading Commission ("CFTC") and must
be executed through a brokerage firm, known as a futures commission merchant,
which is a member of the relevant contract market. Futures contracts trade on
these markets, and the exchanges, through their clearing organizations,
guarantee that the contracts will be performed as between the clearing members
of the exchange.
5
<PAGE>
While futures contracts based on currencies do provide for the
delivery and acceptance of a particular currency, such deliveries and
acceptances are very seldom made. Generally, a futures contract is terminated by
entering into an offsetting transaction. A Fund will incur brokerage fees when
it purchases and sells futures contracts. At the time such a purchase or sale is
made, a Fund must provide cash or money market securities as a deposit known as
"margin." The initial deposit required will vary, but may be as low as 2% or
less of a contract's face value. Daily thereafter, the futures contract is
valued through a process known as "marking to market," and a Fund that engages
in futures transactions may receive or be required to pay "variation margin" as
the futures contract becomes more or less valuable.
Purchase and Sale of Currency Futures Contracts. In order to hedge its
-----------------------------------------------
portfolio and to protect it against possible variations in foreign exchange
rates pending the settlement of securities transactions, the Fund may buy or
sell currency futures contracts. If a fall in exchange rates for a particular
currency is anticipated, the Fund may sell a currency futures contract as a
hedge. If it is anticipated that exchange rates will rise, a Fund may purchase a
currency futures contract to protect against an increase in the price of
securities denominated in a particular currency a Fund intends to purchase.
These futures contracts will be used only as a hedge against anticipated
currency rate changes.
A currency futures contract sale creates an obligation by a Fund, as
seller, to deliver the amount of currency called for in the contract at a
specified futures time for a special price. A currency futures contract purchase
creates an obligation by a Fund, as purchaser, to take delivery of an amount of
currency at a specified future time at a specified price. Although the terms of
currency futures contracts specify actual delivery or receipt, in most instances
the contracts are closed out before the settlement date without the making or
taking of delivery of the currency. Closing out of a currency futures contract
is effected by entering into an offsetting purchase or sale transaction.
In connection with transactions in foreign currency futures, a Fund
will be required to deposit as "initial margin" an amount of cash or short-term
government securities equal to from 5% to 8% of the contract amount. Thereafter,
subsequent payments (referred to as "variation margin") are made to and from the
broker to reflect changes in the value of the futures contract.
Risk Factors Associated with Futures Transactions. The effective use
-------------------------------------------------
of futures strategies depends on, among other things, the Fund's ability to
terminate futures positions at times when Wells Fargo Bank deems it desirable to
do so. Although the Fund will not enter into a futures position unless Wells
Fargo Bank believes that a liquid secondary market exists for such future, there
is no assurance that the Fund will be able to effect closing transactions at any
particular time or at an acceptable price. The Fund generally expects that its
futures transactions will be conducted on recognized U.S. and foreign securities
and commodity exchanges.
Futures markets can be highly volatile and transactions of this type
carry a high risk of loss. Moreover, a relatively small adverse market movement
with respect to these transactions may result not only in loss of the original
investment but also in unquantifiable further loss exceeding any margin
deposited.
6
<PAGE>
The use of futures involves the risk of imperfect correlation between
movements in futures prices and movements in the price of currencies which are
the subject of the hedge. The successful use of futures strategies also depends
on the ability of Wells Fargo Bank to correctly forecast interest rate
movements, currency rate movements and general stock market price movements.
In addition to the foregoing risk factors, the following sets forth
certain information regarding the potential risks associated with the Fund's
futures transactions.
Risk of Imperfect Correlation. The Fund's ability effectively to hedge
-----------------------------
currency risk through transactions in foreign currency futures depends on the
degree to which movements in the value of the currency underlying such hedging
instrument correlate with movements in the value of the relevant securities held
by the Fund. If the values of the securities being hedged do not move in the
same amount or direction as the underlying currency, the hedging strategy for a
Fund might not be successful and the Fund could sustain losses on its hedging
transactions which would not be offset by gains on its portfolio. It is also
possible that there may be a negative correlation between the currency
underlying a futures contract and the portfolio securities being hedged, which
could result in losses both on the hedging transaction and the fund securities.
In such instances, a Fund's overall return could be less than if the hedging
transactions had not been undertaken.
Under certain extreme market conditions, it is possible that the Fund
will not be able to establish hedging positions, or that any hedging strategy
adopted will be insufficient to completely protect the Fund.
A Fund will purchase or sell futures contracts only if, in Wells Fargo
Bank's judgment, there is expected to be a sufficient degree of correlation
between movements in the value of such instruments and changes in the value of
the relevant portion of the Fund's portfolio for the hedge to be effective.
There can be no assurance that Wells Fargo Bank's judgment will be accurate.
Potential Lack of a Liquid Secondary Market. The ordinary spreads
-------------------------------------------
between prices in the cash and futures markets, due to differences in the
natures of those markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation margin
requirements. This could require a Fund to post additional cash or cash
equivalents as the value of the position fluctuates. Further, rather than
meeting additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures market may be lacking. Prior to exercise or expiration, a futures
position may be terminated only by entering into a closing purchase or sale
transaction, which requires a secondary market on the exchange on which the
position was originally established. While the Fund will establish a futures
position only if there appears to be a liquid secondary market therefor, there
can be no assurance that such a market will exist for any particular futures
contract at any specific time. In such event, it may not be possible to close
out a position held by the
7
<PAGE>
Fund, which could require the Fund to purchase or sell the instrument underlying
the position, make or receive a cash settlement, or meet ongoing variation
margin requirements. The inability to close out futures positions also could
have an adverse impact on the Fund's ability effectively to hedge its
securities, or the relevant portion thereof.
The liquidity of a secondary market in a futures contract may be
adversely affected by "daily price fluctuation limits" established by the
exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day and prohibit trading beyond such limits once they
have been reached. The trading of futures contracts also is subject to the risk
of trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of the brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Trading and Position Limits. Each contract market on which futures
---------------------------
contracts are traded has established a number of limitations governing the
maximum number of positions which may be held by a trader, whether acting alone
or in concert with others. Wells Fargo Bank does not believe that these trading
and position limits will have an adverse impact on the hedging strategies
regarding the Fund's investments.
Regulations on the Use of Futures Contracts. Regulations of the CFTC
-------------------------------------------
require that the Fund enter into transactions in futures contracts for hedging
purposes only, in order to assure that they are not deemed to be a "commodity
pool" under such regulations. In particular, CFTC regulations require that all
short futures positions be entered into for the purpose of hedging the value of
investment securities held by the Fund, and that all long futures positions
either constitute bona fide hedging transactions, as defined in such
regulations, or have a total value not in excess of an amount determined by
reference to certain cash and securities positions maintained for the Fund, and
accrued profits on such positions. In addition, the Fund may not purchase or
sell such instruments if, immediately thereafter, the sum of the amount of
initial margin deposits on its existing futures positions and premiums paid for
options on futures contracts would exceed 5% of the market value of the Fund's
total assets.
When the Fund purchases a futures contract, an amount of cash or cash
equivalents or high quality debt securities will be segregated with the Fund's
custodian so that the amount so segregated, plus the initial deposit and
variation margin held in the account of its broker, will at all times equal the
value of the futures contract, thereby insuring that the use of such futures is
unleveraged.
The Fund's ability to engage in the hedging transactions described
herein may be limited by the current federal income tax requirement that a Fund
derive less than 30% of its gross income from the sale or other disposition of
stock or securities held for less than three months. The Fund may also further
limit its ability to engage in such transactions in response to the policies and
concerns of various Federal and state regulatory agencies. Such policies may be
changed by vote of the Board of Directors.
8
<PAGE>
Wells Fargo Bank uses a variety of internal risk management procedures
to ensure that derivatives use is consistent with the Fund's investment
objective, does not expose the Fund to undue risk and is closely monitored.
These procedures include providing periodic reports to the Board of Directors
concerning the use of derivatives.
Privately Issued Securities. The Fund may invest in privately issued
---------------------------
securities, including those 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 Fund does not intend to invest more than 15% of its
net assets in privately issued securities or illiquid Rule 144A Securities
during the coming year.
Investment in Warrants. The 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). 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 it may invest directly.
As the prospectus provides, the Fund may, under certain circumstances,
engage in the following investment activities:
Foreign Fixed Income Securities. The Fund may invest in foreign fixed
-------------------------------
income securities, including:
Foreign Private Debt. The Fund may invest in fixed income securities
--------------------
of private issuers, provided that they are rated, at the time of investment,
within the top four rating categories by an NRSRO or determined to be of
equivalent quality by Wells Fargo Bank. Fixed income securities in which the
Fund may invest include, without limitation, corporate bonds, notes, debentures
and other similar corporate debt securities, including convertible securities.
In addition, such securities may or may not have warrants attached. For a
discussion of the risks associated with investing in foreign securities, see
"Risk Factors" in the Prospectus.
Foreign Sovereign Debt. The Fund may invest in debt securities or
----------------------
obligations of foreign governments and their political subdivisions or agencies
(`Sovereign Debt') provided that they are rated, at the time of investment,
within the top four rating categories by an NRSRO or
9
<PAGE>
determined to be of equivalent quality by Wells Fargo Bank. Investments in
Sovereign Debt involves special risks. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal and/or interest when due in accordance with the
terms of such debt, and the Fund may have limited legal recourse in the event of
a default.
Sovereign Debt differs from debt obligations issued by private
entities in that, generally, remedies for defaults must be pursued in the courts
of the defaulting party. Legal recourse is therefore somewhat diminished.
Political conditions, especially a sovereign entity's willingness to meet the
terms of its debt obligations, are of considerable significance. Also, there can
be no assurance that the holders of commercial bank debt issued by the same
sovereign entity may not contest payments to the holders of Sovereign Debt in
the event of default under commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal and
interest due in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal international lenders and the political constraints to which a
sovereign debtor may be subject. Increased protectionism on the part of a
country's trading partners, or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local government
or agency.
The occurrence of political, social or diplomatic changes in one or
more of the countries issuing Sovereign Debt could adversely affect the Fund's
investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their Sovereign Debt. While Wells Fargo Bank manages the Fund's portfolio in a
manner that is intended to minimize the exposure to such risks, there can be no
assurance that adverse political changes will not cause the Fund to suffer a
loss of interest or principal on any of its holdings.
Brady Bonds. The Fund may invest a portion of its assets in Brady
-----------
Bonds, which are securities created through the exchange of existing commercial
bank loans to sovereign entities for new obligations in connection with debt
restructurings. Brady Bonds may be collateralized or uncollateralized and are
issued in various currencies (primarily the U.S. dollar). Brady bonds are not
considered U.S. government securities.
U.S. dollar-denominated, collateralized Brady Bonds, which may be
fixed rate par bonds or floating rate discount bonds, are generally
collateralized in full as to principal by U.S. Treasury zero coupon bonds having
the same maturity as the Brady Bonds. Interest payments on these Brady Bonds
generally are collateralized on a one-year or longer rolling-forward basis by
cash or securities in an amount that, in the case of fixed rate bonds, is equal
to at least one year of interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's interest payments based on the
applicable interest rate at that time and is adjusted at regular
10
<PAGE>
intervals thereafter. Certain Brady Bonds are entitled to "value recovery
payments" in certain circumstances, which in effect constitute supplemental
interest payments but generally are not collateralized. Brady Bonds are often
viewed as having three or four valuation components: (i) the collateralized
repayment of principal at final maturity; (ii) the collateralized interest
payments; (iii) the uncollateralized interest payments; and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk").
Brady Bonds involve various risk factors including the history of
defaults with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds. There can be no assurance that Brady Bonds in
which the Fund may invest will not be subject to restructuring arrangements or
to requests for new credit, which may cause the Fund to suffer a loss of
interest or principal on any of its holdings.
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.
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 46 Director, Executive 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, 55 Director Associate Professor,
321 Beechcliff Court Business, Calloway
Winston-Salem, NC 27104 School of Business and
11
<PAGE>
Accountancy, Wake Forest
University, since September
1982.
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
Joseph N. Hankin, 57 Director President, Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; Adjunct Professor
of Columbia University
Teachers College since 1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 79 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor;
10 Legrae Street President of Morse
Charleston, SC 29401 Investment Corporation.
Richard H. Blank, Jr., 41 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
12
<PAGE>
COMPENSATION TABLE
Year Ended
March 31, 1997
--------------
Aggregate
Compensation Total Compensation
from from Registrant
Name and Position Registrant and Fund Complex
- ----------------- ---------- ----------------
Jack S. Euphrat $11,250 $33,750
Director
*R. Greg Feltus $-0- $-0-
Director
Thomas S. Goho $11,250 $33,750
Director
Joseph N. Hankin $8,750 $26,250
Director
*W. Rodney Hughes $9,250 $27,750
Director
Robert M. Joses $11,250 $33,750
Director
*J. Tucker Morse $9,250 $27,750
Director
Directors of the Company are compensated annually by the Company and
by all the registrants in the Fund Complex they serve as indicated above and
also are reimbursed for all out-of-pocket expenses relating to attendance at
board meetings. The Company, Overland Express Funds, Inc., Stagecoach Trust,
Life & Annuity Trust and Master Investment Trust are considered to be members of
the same fund complex as such term is defined in Form N-1A under the 1940 Act
(the "Wells Fargo Fund Complex"). MasterWorks Funds Inc., Master Investment
Portfolio, and Managed Series Investment Trust together form a separate fund
complex (the "BGFA Fund Complex"). Each of the Directors and Officers of the
Company serves in the identical capacity as directors and officers or as
trustees and/or officers of each registered open-end management investment
company in both the Wells Fargo and BGFA Fund Complexes, except for Joseph N.
Hankin, who only serves the aforementioned members of the Wells Fargo Fund
Complex. 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
13
<PAGE>
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 any Class of any Fund of the Company.
INVESTMENT ADVISER. The Fund is advised by Wells Fargo Bank pursuant
------------------
to an Advisory Contract. 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. 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, and credit conditions. For its services as investment adviser to
the Fund, Wells Fargo Bank is entitled to receive a fee equal to an annual rate
of 1.00% of the average daily net assets of the Fund.
The Advisory Contract will continue in effect for more than two years
from its effective date 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.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells
----------------------------------
Fargo Bank as Administrator and Stephens Inc. ("Stephens") as Co-Administrator
on behalf of the Fund. The Administration Agreement between Wells Fargo Bank and
the Fund, and the Co-Administration Agreement among Wells Fargo Bank, Stephens
and the Fund, state that Wells Fargo Bank and Stephens shall provide as
administration 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 auditors and legal counsel, regulatory compliance,
including the compilation of information for documents such as reports to, and
filings with, the SEC and state securities commissions; and preparation of proxy
statements and shareholder reports for the Fund; and (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. Wells
Fargo Bank and Stephens also furnish office space and certain facilities
required for conducting the business of the Fund together with ordinary clerical
and bookkeeping services. Stephens pays the compensation of the Company's
Directors, officers and employees who are affiliated with Stephens. The
Administrator and Co-Administrator are entitled to receive a monthly fee of
0.06% and 0.04%, respectively, of the average daily net assets of the Fund.
DISTRIBUTOR. As discussed in the Fund's prospectus under the heading
-----------
"Management and Servicing Fees," Stephens serves as the Fund's distributor.
14
<PAGE>
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.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank has been
--------------------------------------
retained to act as transfer and dividend disbursing agent for the Fund. For its
services as transfer and dividend disbursing agent for the Fund's Class A and B
shares, Wells Fargo Bank is entitled to receive monthly payments at the annual
rate of 0.14% of the Fund's average daily net assets for Class A and B shares.
For its services as transfer and dividend disbursing agent for the Fund's
Institutional Class shares, Wells Fargo Bank is entitled to receive monthly
payments at the annual rate of 0.06% of the Fund's average daily net assets for
Institutional Class shares. For as long as the Fund's assets remain under $20
million, the Fund will not be charged any transfer agency fees.
CUSTODIAN. Investors Bank & Trust Company ("IBT") 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, IBT receives an asset-based fee and transaction charges from the
Fund.
DISTRIBUTION PLANS
As indicated in the Fund's Prospectus, the Fund has adopted
distribution plans (a "Plan") under Section 12(b) of the 1940 Act and Rule 12b-1
thereunder (the "Rule") for the Class A and Class B shares. The Plan for the
Class A shares of the Fund, was adopted by the Company's Board of Directors on
April 29, 1997, 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"). The Plan for the Class B shares
of the Fund was adopted by the Company's Board of Directors, including a
majority of the Qualified Directors, also on April 29, 1997.
The Plan in effect for the Class A shares of the Fund allows the Fund
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 the Fund by paying on an annual basis up to 0.10%
of the Fund's average daily net assets attributable to Class A shares. The Plans
for all share classes provide for the reimbursement of actual expenses and
compensation. The Plan for the Class B shares allows the 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 0.75% of the average daily net assets attributable to the Class B shares of
the 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.
15
<PAGE>
Each Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of
the Company and the Qualified Directors. Any agreements related to the Plans
("Agreements") also must be approved by majority vote of the Directors and the
Qualified Directors. Such Agreements will terminate automatically if assigned.
The 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 the Fund affected by such Agreement. 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.
PERFORMANCE CALCULATIONS
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 in a Class of shares ("P") over a period of years ("n")
according to the following formula: P(1+T)n = ERV. In addition, the Fund, 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 Fund 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 Fund may also
advertise the cumulative total return 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
16
<PAGE>
distributions are reinvested, without reflecting the effect of any sales charge
that would be paid by an investor, and is not annualized.
Investors should recognize that changes in the net asset values of
shares of each Class of the 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 the 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 Morgan Stanley Capital
International EAFE (Europe, Australia, Far East) Index, Morgan Stanley Capital
International EMF (Emerging Markets Free) Index, Morgan Stanley Capital
International EAFE/EMF Index, Lipper International Equity Fund Index, 1-Year
Treasury Bill Rate, S&P Index, the Dow Jones Industrial Average, the Lehman
Brothers 20+ Years Treasury Index, the Lehman Brothers 5-7 Year Treasury Index,
IBC/Donoghue's Money Fund Averages, Real Estate Investment Averages (as reported
by the National Association of Real Estate Investment Trusts), Gold Investment
Averages (provided by the World Gold Council), Bank Averages (which is
calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the Federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), Ten Year U.S. Government Bond Average, S&P's
Corporate Bond Yield Averages, Schabacter Investment Management Indices, Salomon
Brothers High Grade Bond Index, Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, other managed or unmanaged indices or
performance data of bonds, stocks or government securities (including data
provided by Ibbotson Associates), or by other services, companies, publications
or persons who monitor mutual funds on overall performance or other criteria.
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stock prices. The performance of a class of shares of the Fund
also may be compared to the performance of other mutual funds having similar
objectives. This comparative performance could be expressed as a ranking
prepared by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.,
Bloomberg Financial Markets or Morningstar, Inc., independent services which
monitor the performance of mutual funds. The performance of a Class of shares of
the Fund will be calculated by relating net asset value per share at the
beginning of a stated period to the net asset value of the investment, assuming
reinvestment of all gains, distributions and dividends paid, at the end of the
period. Any such comparisons may be useful to investors who wish to compare the
past performance of a Class of shares of the Fund with that of its competitors.
Of course, past performance cannot be a guarantee of future results. The Company
also may include, from time to time, a reference to certain marketing approaches
of the Distributor, including, for example, a reference to a potential
shareholder being contacted by a
17
<PAGE>
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."
From time to time the Company may reprint, reference or otherwise use
material from magazines, newsletters, newspapers and books including, but not
limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar, Lipper Financial Data Services, or Value Line.
The Company also may disclose in sales literature, information, and
statements the distribution rate on the shares of each class of the Fund.
Distribution rate, which may be annualized, is the amount determined by dividing
the dollar amount per share of the most recent dividend by the most recent NAV
or maximum offering price per share as of a date specified in the sales
literature. Distribution rate will be accompanied by the standard 30-day yield
as required by the SEC.
The Company may 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 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 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
18
<PAGE>
industries in which the Fund invests may be compared to relevant indices of
stocks or surveys (e.g., S&P Industry Surveys) to evaluate the Fund's historical
performance or current or potential value with respect to the particular
industry or sector.
The Company also may 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 an 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 disclose, in advertising and other types of
literature, information and statements regarding performance and rankings of the
investment management services of Wells Fargo Bank. The Company may also
disclose in advertising and other types of sales literature the assets and
categories of assets under management by Wells Fargo Bank. As of March 31, 1997,
Wells Fargo Bank and its affiliates provided investment advisory services for
approximately $57 billion of assets of individuals, trusts, estates and
institutions and $20 billion of mutual fund assets.
The Company may disclose in advertising and other types of literature
that investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account.
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Advertising and other literature may also disclose the procedures employed by
Wells Fargo Bank to secure information provided by investors, including
disclosure and discussion of the tools and services for accessing Electronic
Channels. Such advertising or other literature may include discussions of the
advantages of establishing and maintaining a Sweep Account through Electronic
Channels and testimonials from Wells Fargo Bank customers or employees and may
also include descriptions of locations where product demonstrations may occur.
The Company may also disclose the ranking of Wells Fargo Bank as one of the
largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
The Fund determines net asset value per share separately for each
Class of shares as of the close of regular trading (currently 1:00 p.m., Pacific
time) on the NYSE on each Business Day, which is defined as each Monday through
Friday when the NYSE is open.
Securities that are listed on U.S. and foreign stock exchanges are
valued at the last sale price on the day the securities are valued or, lacking
any sales on such day, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are generally
valued on the exchange considered by Wells Fargo Bank as the primary market.
Securities traded in the over-the-counter ("OTC") market and listed on the
NASDAQ Stock Market (`NASDAQ') are valued at the last trade price on NASDAQ at
1:00 p.m., Pacific time; other OTC securities, and U.S. Government securities,
are valued at the last quoted bid price (other than short-term investments that
mature in 60 days or less which are valued as described further below). To the
extent that the Fund holds lower rated corporate debt securities, it should be
recognized that judgment often plays a greater role than is the case with
respect to securities for which a broader range of dealer quotations and
last-sale information is available. All investments quoted in foreign currencies
will be valued daily in U.S. dollars on the basis of the foreign currency
exchange rate prevailing at the time such valuation is determined by the Fund's
custodian. 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. 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. Securities and assets for which current
market quotations are not readily available are valued at fair value as
determined in good faith by the Company's Board of Directors and in accordance
with procedures adopted by the Directors.
Foreign currency exchange rates are generally determined prior to the
close of regular trading on the NYSE. Occasionally events affecting the value of
foreign investments and such
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exchange rates occur between the time at which they are determined and the close
of trading on the NYSE, which events would not be reflected in the computation
of the Fund's net asset value on that day. If events materially affecting the
value of such investments or currency exchange rates occur during such time
period, the investments will be valued at their fair value as determined in good
faith by or under the direction of the Fund's Board of Directors. The foreign
currency exchange transactions of the Fund conducted on a spot (i.e., cash)
basis are valued at the spot rate for purchasing or selling currency prevailing
on the foreign exchange market. This rate under normal market conditions differs
from the prevailing exchange rate in an amount generally less than one-tenth of
one percent due to the costs of converting from one currency to another.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund may be purchased on any day the Fund is open for
business. The Fund is open for business each day the NYSE is open for trading (a
"Business Day"). Currently, the NYSE is closed on New Year's Day, Martin Luther
King, Jr.'s Birthday, 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.
Payment for shares may, in the discretion of the adviser, be made in
the form of securities that are permissible investments for the Fund as
described in the Prospectuses. For further information about this form of
payment please contact Stephens. In connection with an in-kind securities
payment, the Fund will require, among other things, that the securities be
valued on the day of purchase in accordance with the pricing methods used by the
Fund and that the Fund receives satisfactory assurances that (i) it will have
good and marketable title to the securities received by it; (ii) that the
securities are in proper form for transfer to the Fund; and (iii) adequate
information will be provided concerning the basis and other matters relating to
the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit.
The Company may suspend redemption rights or postpone redemption
payments for such periods as are permitted under the 1940 Act. The Company may
also redeem shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to reimburse
the Fund for any losses sustained by reason of the failure of a shareholders to
make full payment for shares purchased or to collect any charge relating to a
transaction effected for the benefit of a
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shareholder which is applicable to shares of the Fund as provided from time to
time in the Prospectus.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors, Wells Fargo Bank is
responsible for the Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company to obtain the
best results taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. While Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions, the Fund will not
necessarily be paying the lowest spread or commission available.
Except in the case of debt securities purchased by the Fund,
purchases and sales of securities usually will be agency transactions effected
through a securities exchange and on which a commission will be paid to the
servicing broker. Portfolio securities may be purchased or sold from or to
dealers serving as market makers for the securities at a net price. The Fund
also may purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, 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
brokerage commissions, 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.
Purchases and sales of equity securities on domestic securities
exchanges 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 domestic over-the-counter markets, 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.
The Fund will not 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.
The Fund anticipates that brokerage transactions involving securities
traded in foreign markets will be conducted primarily on the principal exchanges
of such countries. Transactions on foreign exchanges are usually subject to
fixed commissions that are generally higher than negotiated commissions on U.S.
transactions, although each Fund will endeavor to achieve the best net results
in effecting its portfolio transactions. There is generally less government
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supervision and regulation of exchanges and brokers in foreign countries than in
the United States.
In assessing the best overall terms available for any transaction,
Wells Fargo Bank considers factors deemed relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
Wells Fargo Bank may cause the Fund to pay a broker/dealer which furnishes
brokerage and research services a higher commission than that which might be
charged by another broker/dealer for effecting the same transaction, provided
that Wells Fargo Bank determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker/dealer, viewed in terms of either the particular
transaction or the overall responsibilities of Wells Fargo Bank. Such brokerage
and research services might consist of reports and statistics relating to
specific companies or industries, general summaries of groups of stocks or bonds
and their comparative earnings and yields, or broad overviews of the stock,
bond, and government securities markets and the economy.
Supplementary research information so received is in addition to, and
not in lieu of, services required to be performed by Wells Fargo Bank and does
not reduce the advisory fees payable by the Fund. The Board of Directors will
periodically review the commissions paid by the Fund to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Fund. It is possible that certain of the
supplementary research or other services received will primarily benefit one or
more other investment companies or other accounts for which investment
discretion is exercised. Conversely, the Fund may be the primary beneficiary of
the research or services received as a result of portfolio transactions effected
for such other account or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an
adviser shall not be "deemed to have acted unlawfully or to have breached its
fiduciary duty" solely because under certain circumstances it has caused the
account to pay a higher commission than the lowest available. To obtain the
benefit of Section 28(e), an adviser must make a good faith determination that
the commissions paid are "reasonable in relation to the value of the brokerage
and research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Fund in any transaction may be less favorable than that
available from another broker/dealer if the difference is reasonably justified
by other aspects of the portfolio execution services offered.
Broker/dealers utilized by Wells Fargo Bank may furnish statistical,
research and other information or services which are deemed by Wells Fargo Bank
to be beneficial to the Fund's investment programs. Research services received
from brokers supplement Wells Fargo Bank's own research and may include the
following types of information: statistical and background information on
industry groups and individual companies; forecasts and
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<PAGE>
interpretations with respect to U.S. and foreign economies, securities, markets,
specific industry groups and individual companies; information on political
developments; portfolio management strategies; performance information on
securities and information concerning prices of securities; and information
supplied by specialized services to Wells Fargo Bank and to the Company's
Directors with respect to the performance, investment activities and fees and
expenses of other mutual funds. Such information may be communicated
electronically, orally or in written form. Research services may also include
the providing of equipment used to communicate research information, the
arranging of meetings with management of companies and the providing of access
to consultants who supply research information.
The outside research assistance is u seful to Wells Fargo Bank since
the brokers utilized by Wells Fargo Bank as a group tend to follow a broader
universe of securities and other matters than the staff of Wells Fargo Bank can
follow. In addition, this research provides Wells Fargo Bank with a diverse
perspective on financial markets. Research services which are provided to Wells
Fargo Bank by brokers are available for the benefit of all accounts managed or
advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank that this
material is beneficial in supplementing their research and analysis; and,
therefore, it may benefit the Fund by improving the quality of Wells Fargo
Bank's investment advice. The advisory fee paid by the Fund is not reduced
because Wells Fargo Bank receives such services.
FUND EXPENSES
Except for the expenses borne by Wells Fargo Bank and Stephens, the
Company bears all costs of its operations, including the compensation of its
Directors who are not affiliated with Stephens or Wells Fargo Bank or any of
their affiliates; advisory, shareholder servicing and administration fees;
payments pursuant to any Plan; interest charges; taxes; fees and expenses of its
independent accountants, legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming shares; expenses of preparing and printing
prospectuses (except the expense of printing and mailing prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of its
custodian, including those for keeping books and accounts and calculating the
NAV per share of the 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 the Fund are
charged against the Fund's assets. General expenses of the Company are allocated
among all of the funds of the Company, including the Fund, in a manner
proportionate to the net assets of the Fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.
FEDERAL INCOME TAXES
In General. The following information supplements and should be read
in conjunction with Prospectus sections entitled "Dividend and Capital Gain
Distributions" and
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"Taxes." The Prospectus of the Fund describes generally the tax treatment of
distributions by the Fund. This section of the SAI includes additional
information concerning federal income taxes.
The Company intends to qualify the Fund as a regulated investment
company under Subchapter M of the Code as long as such qualification is in the
best interest of the Fund's shareholders. The 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 the 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 the Fund.
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 obligations and 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. As a regulated investment company, the Fund will not be subject to
federal income tax on its net investment income and net capital gains
distributed to its shareholders, provided that it distributes to its
shareholders at least 90% of its net investment income earned in each year. The
Fund intends to pay out substantially all of its net investment income and net
realized capital gains (if any) for each year.
A 4% nondeductible excise tax will be imposed on the Fund to the
extent it does not meet certain minimum distribution requirements by the end of
each calendar year. The Fund will either actually or be deemed to distribute
substantially all of its net investment income and net capital gains by the end
of each calendar year and, thus, expects not to be subject to the excise tax.
Income and dividends received by the Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. The Fund expects to be eligible for and make an
election to "pass through" foreign tax credits to its shareholders.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.6% (marginal tax 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%; and the maximum corporate tax rate applicable to
ordinary income and net capital gains is 35% (except that to eliminate the
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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.
Capital Gain Distributions. To the extent that the Fund recognizes net
--------------------------
long-term capital gains during a taxable year, the Fund intends to distribute
such gains at least annually and these distributions will be taxable to Fund
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 the shareholders not
later than 60 days after the close of the Fund's taxable year.
Disposition of Fund Shares. 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.
If a shareholder exchanges or otherwise disposes of Fund shares within
90 days of having acquired such shares and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or of a different regulated investment company,
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 on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, 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 acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
Taxation of Fund Investments. 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. 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 Fund held the debt obligation, unless the Fund
elects to accrue market discount in its ordinary income during the term in which
it holds the debt obligations. Other gains or losses on the sale of portfolio
securities will generally be short-term capital gains or losses.
If an option written by the Fund lapses or is terminated through a
closing transaction, such as a repurchase by the Fund of the option from its
holder, the Fund will realize a short-term
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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. Some realized
capital losses may be deferred if they result from a position which is part of a
"straddle," discussed below. If securities are sold by the Fund pursuant to the
exercise of a call option written 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 written by it, the Fund will subtract the premium
received from its cost basis in the securities purchased. The requirement that
the Fund derive less than 30% of its gross income from gains from the sale of
securities held for less than three months may limit the Fund's ability to write
options.
The amount of any gain or loss realized by a Fund on closing out
certain regulated futures contracts will generally result in a realized capital
gain or loss for tax purposes. Such regulated futures contracts held at the end
of each taxable year will be required to be "marked to market" for federal
income tax purposes pursuant to Section 1256 of the Code. In this regard, such
regulated futures contracts will be deemed to have been sold at market value.
Sixty percent (60%) of any net gain or loss recognized on these deemed sales and
sixty percent (60%) of any net realized gain or loss from any actual sales,
generally will be treated as long-term capital gain or loss, and the remaining
forty percent (40%) will be treated as short-term capital gain or loss.
Transactions that qualify as designated hedges are excepted from the "marked to
market" and "60%/40%" rules. Certain currency transactions are subject to
Section 988 of the Code pursuant to which gains or losses thereon are generally
computed separately and treated as ordinary income or losses. Although the Fund
may engage in transactions subject to Section 988 of the Code, the Fund will
attempt to monitor Section 988 transactions to avoid an adverse tax impact.
Offsetting positions held by a regulated investment company involving
certain financial forward, futures or 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, and long-term capital gain may be
characterized as short-term capital gain or ordinary income.
If the Fund purchases shares in a "passive foreign investment company"
("PFIC"), the Fund may be subject to federal income tax and an interest charge
imposed by the IRS upon
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certain distributions from the PFIC or the Fund's disposition of its PFIC
shares. If the Fund invests in a PFIC, the Fund intends to make an available
election to mark-to-market its interest in PFIC shares. Under the election, the
Fund will be treated as recognizing at the end of each taxable year the excess,
if any, of the fair market value of its interest in PFIC shares over its basis
in such shares. Although such excess will be taxable to the Fund as ordinary
income notwithstanding any distributions by the PFIC, the Fund will not be
subject to federal income tax or the interest charge with respect to its
interest in the PFIC.
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.
Backup Withholding. The Company may be required to withhold, subject
------------------
to certain exemptions, at a rate of 31% ("backup withholding") on dividends,
capital gain distributions, and redemption proceeds (including proceeds from
exchanges and redemptions in kind) paid or credited to an individual Fund
shareholder, unless a shareholder certifies that the Taxpayer Identification
Number ("TIN") provided is correct and that the shareholder is not subject to
backup withholding, or the IRS notifies the Company that the shareholder's TIN
is incorrect or the shareholder is subject to backup withholding. Such tax
withheld does not constitute any additional tax imposed on the shareholder, and
may be claimed as a tax payment on the shareholder's federal income tax return.
An investor must provide a valid TIN upon opening or reopening an account.
Failure to furnish a valid TIN to the Company could subject the investor to
penalties imposed by the IRS.
Other Matters. Investors should be aware that the investments to be
-------------
made by the Fund may involve sophisticated tax rules that may 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.
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 the Fund. Each investor is
urged to consult his or her tax advisor regarding specific questions as to
federal, state or local taxes and foreign taxes.
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CAPITAL STOCK
The Fund is one of the funds of the Stagecoach Family of Funds. The
Company was organized as a Maryland corporation on September 9, 1991 and
currently offers shares of twenty-six other funds.
Most of the Company's funds are authorized to issue multiple classes
of shares, one class generally subject to a front-end sales charge and, in some
cases, a class subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Company's funds also are authorized to issue
other classes of shares, which are sold primarily to institutional investors.
Each class of shares in the Fund represents an equal, proportionate interest in
the Fund with other shares of the same class. Shareholders of each class bear
their pro rata portion of the fund's operating expenses, except for certain
class-specific expenses (e.g., any state securities registration fees,
shareholder servicing fees or distribution fees that may be paid under Rule
12b-1) that are allocated to a particular class. Please contact Stagecoach
Shareholder Services at 1-800-222-8222 if you would like additional information
about other funds or classes of shares offered.
The Fund has three classes of shares -- Class A Shares, Class B
Shares and Institutional Class Shares. With respect to matters affecting one
Class but not another, shareholders vote as a Class. Subject to the foregoing,
all shares of the 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
the 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 the Fund and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of a Class of shares of
the 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
the Fund and in this SAI, the term "majority," when referring to approvals to be
obtained from shareholders of the Fund, means the vote of the lesser of (i) 67%
of the shares of the Fund represented at a meeting if the holders of more than
50% of the outstanding shares of the Fund are present in person or by proxy, or
(ii) more than 50% of the outstanding shares of the Fund. The term "majority,"
when referring to the approvals to be obtained from shareholders of the Company
as a whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for each
full share held and fractional votes for fractional shares held.
29
<PAGE>
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 the Fund are entitled
to receive the assets attributable to the Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular investment portfolio that are available for distribution in such
manner and on such basis as the Directors in their sole discretion may
determine.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Company.
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
U.S. Securities and Exchange Commission ("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 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 STATEMENTS
At least semi-annually, the Company will furnish the shareholders of
the Fund with financial statements for the Fund.
30
<PAGE>
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>
LOGO
------------------------------
PROSPECTUS
------------------------------
NATIONAL TAX-FREE MONEY MARKET TRUST
July 1, 1997
<PAGE>
STAGECOACH FUNDS(R)
NATIONAL TAX-FREE MONEY MARKET TRUST
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about one fund of the Stagecoach
Family of Funds -- the NATIONAL TAX-FREE MONEY MARKET TRUST (the "Fund").
The NATIONAL TAX-FREE MONEY MARKET TRUST seeks to obtain a high level of
income exempt from federal income tax, while preserving capital and liquidity.
The Fund seeks to achieve this objective by investing in high-quality, U.S.
dollar-denominated money market instruments, primarily municipal obligations.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
CONSTANT $1.00 NET ASSET VALUE PER SHARE.
Please read this Prospectus before investing and retain it for future
reference. It is designed to provide you with important information and to help
you decide if the Fund's goals match your own. A Statement of Additional
Information ("SAI"), dated July 1, 1997, containing additional information
about the Fund has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this Prospectus. The SAI is
available without 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 800-260-5969.
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.
FUND SHARES 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 FUND INVOLVES CERTAIN RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND ADMINISTRATOR AND PROVIDES THE
FUND WITH CERTAIN OTHER SERVICES FOR WHICH IT IS COMPENSATED. STEPHENS INC.
("STEPHENS"), WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE FUND'S
SPONSOR, CO-ADMINISTRATOR AND DISTRIBUTOR.
PROSPECTUS DATED JULY 1, 1997
PROSPECTUS
<PAGE>
Table of Contents
-------
<TABLE>
<S> <C>
Prospectus Summary 1
Summary of Fund Expenses 3
Explanation of Tables 3
How the Fund Works 4
The Fund and Management 7
Investing in the Fund 8
Dividends and Capital Gain Distributions 10
How to Redeem Shares 11
Management and Servicing Fees 12
Taxes 14
Prospectus Appendix -- Additional Investment Policies A-1
</TABLE>
PROSPECTUS
<PAGE>
Prospectus Summary
The Fund provides investors with a convenient way to invest in a portfolio of
securities selected and supervised by professional management. The following
provides summary information about the Fund. For more information, please refer
specifically to the identified Prospectus sections and generally to the Fund's
Prospectus and SAI.
Q. WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
A. The Fund seeks to obtain a high level of income exempt from federal income
tax, while preserving capital and liquidity. The Fund seeks to achieve this
objective by investing in high-quality, U.S. dollar-denominated money market
instruments, primarily municipal obligations. Under normal market conditions,
substantially all of the Fund's assets are invested in municipal obligations
that are exempt from federal income tax. The Fund invests in securities with
remaining maturities not exceeding 397 days (13 months), as determined in
accordance with Rule 2a-7 under the Investment Company Act of 1940, as amended
(the "1940 Act"). See "How the Fund Works --Investment Objectives and Policies"
and "Prospectus Appendix -- Additional Investment Policies" for further
information on investments.
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF
INVESTMENT?
A. Investments in the Fund are not bank deposits or obligations of Wells Fargo
Bank and are not insured by the Federal Deposit Insurance Corporation ("FDIC"),
nor are they insured or guaranteed against loss of principal. Therefore,
investors should be willing to accept some risk with money invested in the
Fund. 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. The Fund may not
achieve as high a level of current income as other mutual funds that do not
limit their investment to the high credit quality instruments in which the Fund
invests. 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
"Additional Permitted Investment Activities" in the SAI for further information
about the Fund's investments and related risks.
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the Fund's investment adviser, manages the Fund's
investments. Wells Fargo Bank also provides the Fund with administrative,
transfer agency, dividend disbursing agency, and custodial services. In
addition, Wells Fargo Bank is a shareholder servicing agent and a selling agent
for the Fund. See "The Fund and Management" and "Management and Servicing Fees"
for further information.
1 PROSPECTUS
<PAGE>
Q. HOW DO I INVEST?
A. Qualified investors may invest by purchasing Fund shares at the net asset
value per share without a sales charge ("NAV"). Qualified investors include
customers ("Customers") who maintain qualified accounts with the trust division
of Wells Fargo Bank or an affiliate of Wells Fargo Bank (a "Bank"). Customers
may include individuals, trusts, partnerships and corporations. Purchases are
effected through the Customer's account with a Bank under the terms of the
Customer's account agreement with the Bank. Investors wishing to purchase Fund
shares should contact their account representatives. Shares of the Fund may not
be suitable investments for tax-exempt institutions or tax-exempt retirement
plans, since such investors generally would not benefit from the tax-exempt
status of the Fund's dividends. See "Investing in the Fund" for additional
information.
Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends are declared daily and distributed monthly, and any capital gains
are distributed at least annually. All distributions are automatically
reinvested in additional shares of the Fund at NAV. Shareholders also may elect
to receive distributions in cash. See "Dividend and Capital Gain Distributions"
for additional information.
Q. HOW MAY I REDEEM SHARES?
A. You may redeem your shares at NAV, without charge by the Company. Fund
shares held by a Bank on behalf of its Customers must be redeemed under the
terms of the Customer's account agreement with the Bank. Banks are responsible
for transmitting redemption requests to the Company and crediting their
Customers' accounts. The Company reserves the right to impose charges for
wiring redemption proceeds. See "Investing in the Fund -- Redemption of
Shares."
PROSPECTUS 2
<PAGE>
Summary of Fund Expenses
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge on Purchases (as a percentage of offering price).... None
Maximum Sales Charge on Reinvested Distributions......................... None
Maximum Sales Charge on Redemptions...................................... None
Exchange Fees............................................................ None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fee (after waivers or reimbursements)/1/.................... 0.00%
Rule 12b-1 Fee/2/...................................................... 0.00%
Other Expenses (after waivers or reimbursements)/3/.................... 0.20%
-----
TOTAL FUND OPERATING EXPENSES (after waivers or reimbursements)/4/..... 0.20%
</TABLE>
--------------
/1/Management Fee (before waivers or reimbursements) would be payable at a
maximum annual rate of 0.25%.
/2/The Fund has adopted a defensive distribution plan under Rule 12b-1 of
the 1940 Act, which does not result in any added expenses to the Fund.
/3/Other Expenses (before waivers or reimbursements) would be 0.50%.
/4/Total Fund Operating Expenses (before waivers or reimbursements) would
be 0.75%.
Note: The table does not reflect any charges that may be imposed by Wells
Fargo Bank or another Bank directly on certain customer accounts in
connection with an investment in the Fund.
EXAMPLE OF EXPENSES
You would pay the following expenses on a $1,000 investment in the Fund,
assuming a 5% annual return and redemption at the end of each time period
indicated:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
National Tax-Free Money Market Trust....... $ 2 $ 6 $11 $26
</TABLE>
Explanation of Tables
The purpose of the above tables is to help a shareholder understand the
various costs and expenses that an investor in the Fund will pay directly or
indirectly.
SHAREHOLDER TRANSACTION EXPENSES are charges incurred when an investor buys or
sells Fund shares. Fund shares are sold with no shareholder transaction
expenses imposed by the Company. However, the Company reserves the right to
impose a charge for wiring redemption proceeds.
ANNUAL FUND OPERATING EXPENSES for Fund shares are based on applicable
contract amounts restated to reflect voluntary fee waivers and expense
reimbursements
3 PROSPECTUS
<PAGE>
that are expected to continue to reduce expenses during the current year,
except that "Other Expenses" is based on estimated amounts for the current
year. Any waivers or reimbursements would reduce the Fund's total expenses.
There can be no assurance that waivers or reimbursements will continue. For
more complete descriptions of the various costs and expenses you can expect to
incur as an investor in the Fund, please see "Management and Servicing Fees."
EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses associated
with a $1,000 investment over stated periods, based on the expenses in the
above tables and an assumed annual rate of return of 5%. The rate of return
should not be considered an indication of actual or expected performance of the
Fund nor a representation of past or future expenses; actual expenses and
returns may be greater or lesser than those shown.
How the Fund Works
INVESTMENT OBJECTIVE AND POLICIES
Set forth below is a description of the investment objectives and related
policies of the Fund.
The Fund seeks to obtain a high level of income exempt from federal income tax
while preserving capital and liquidity. This investment objective is
fundamental and cannot be changed without shareholder approval. The Fund seeks
to achieve its objective by investing in high-quality, short-term U.S. dollar-
denominated money market instruments, primarily municipal obligations with
remaining maturities not exceeding thirteen (13) months.
Wells Fargo Bank, as investment adviser to the Fund, pursues the Fund's
objective by investing (under normal market conditions) substantially all of
the Fund's assets in the following types of municipal obligations that pay
interest which is exempt from federal income tax: bonds, notes and commercial
paper issued by or on behalf of states, territories, and possessions of the
United States (including the District of Columbia) and their political
subdivisions, agencies, instrumentalities (including government-sponsored
enterprises) and authorities, the interest on which, in the opinion of counsel
to the issuer or bond counsel, is exempt from federal 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").
The 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 as described in this Prospectus. The Fund may elect to
invest temporarily up to 20% of its net assets in certain permitted taxable
investments, including cash reserves, U.S. Government obligations, obligations
of domestic banks, commercial paper, taxable
PROSPECTUS 4
<PAGE>
municipal obligations and repurchase agreements. The Fund also may invest in
U.S. dollar-denominated obligations of foreign banks and foreign securities.
Such temporary investments most likely would be made when there is an
unexpected or abnormal level of investor purchases or redemptions of interests
in the Fund or because of unusual market conditions. The income from these
temporary investments and investment activities may be subject to federal
income tax. However, as stated above, Wells Fargo Bank seeks to invest
substantially all of the Fund's assets in securities exempt from such tax.
As a matter of fundamental policy which can not be changed without shareholder
approval, at least 80% of the net assets of the Fund are invested (under normal
market conditions) in municipal obligations that pay interest which is exempt
from federal income tax and is not subject to the federal alternative minimum
tax. However, as a matter of general operating policy, the Fund seeks to invest
substantially all of its assets in such municipal obligations. The Fund's
investment adviser may rely either on the opinion of counsel to the issuer of
the municipal obligations or bond counsel regarding the tax treatment of these
obligations. In addition, the Fund may invest 25% or more of its assets in
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, the Fund may own different municipal
obligations which pay interest based on the revenues of similar types of
projects.
Additional information about the Fund's investment activities is contained in
the "Prospectus Appendix -- Additional Investment Policies."
RISK FACTORS
Investments in the Fund are not bank deposits or obligations of Wells Fargo
Bank and are not insured by the FDIC, nor are they insured or guaranteed
against loss of principal. Therefore, investors should be willing to accept
some risk with money invested in the Fund. 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. The Fund may not achieve as high a level of current income as
other mutual funds that do not limit their investment to the high credit
quality instruments in which the Fund invests.
The Fund, under the 1940 Act, 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. The Fund's dollar-weighted average
portfolio maturity must not exceed 90 days. Any security that the Fund
purchases must have a remaining maturity of not more than 397 days. 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 requisite Nationally Recognized Statistical Rating Organizations
("NRSROs") or, if unrated, determined to be of comparable quality to such rated
5 PROSPECTUS
<PAGE>
securities). These determinations are made by Wells Fargo Bank, as the Fund's
investment adviser, under guidelines adopted by the Company's Board of
Directors.
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 emphasizes safety of principal and high credit
quality. In particular, the internal investment policies of the Fund's
investment adviser, Wells Fargo Bank, prohibit the purchase for the Fund of
many types of floating-rate derivative securities that are considered
potentially volatile. The following types of derivative securities 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 securities whose interest rate reset
provisions are tied to an index that materially lags short-term interest rates,
such as Cost of Funds Index floaters. The Fund may only invest in floating-rate
securities that bear interest at a rate that resets quarterly or more
frequently and that resets based on changes in standard money market rate
indices such as U.S. Treasury bills, London Interbank Offered Rate or LIBOR,
the prime rate, published commercial paper rates, federal funds rates, Public
Securities Associates floaters or JJ Kenney index floaters.
The portfolio debt instruments of the Fund are subject to credit and interest-
rate risk. Credit risk is the risk that issuers of the debt instruments in
which the Fund invests 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 Fund invests
and hence the value of your investment in the Fund. These risks should be
lessened because the Fund invests in high-quality, short-term securities.
Generally, securities in which the Fund invests will not earn as high a yield
as securities of longer maturity and/or of lesser quality that are more subject
to market volatility. The Fund attempts to maintain the value of its shares at
a constant $1.00 per share, although there can be no assurance that the Fund
will always be able to do so. See "Prospectus Appendix -- Additional Investment
Policies" and the SAI for further information about the Fund's investment
policies and risks.
PROSPECTUS 6
<PAGE>
PERFORMANCE
The performance of the Fund may be advertised from time to time in terms of
current yield, effective yield and average annual total return. In addition,
the Fund's performance may be advertised in terms of tax-equivalent yield or
effective tax-equivalent yield. Performance figures are based on historical
results and are not intended to indicate future performance.
Yield refers to the income generated by an investment in the Fund over a
specified period (usually 7 days), expressed as an annual percentage rate.
Effective yield is calculated similarly but assumes reinvestment of the income
earned from the Fund. Because of the effects of compounding, effective yields
are slightly higher than yields. The tax-equivalent and effective tax-
equivalent yields assume that a stated income tax rate has been applied to
determine the tax-equivalent figures.
Average annual total return is based on the overall dollar or percentage
change of an investment in the Fund and assumes that the investment is at NAV
and all dividends and distributions are also reinvested at NAV in shares of the
Fund.
In addition to presenting these standardized performance calculations, at
times, the Fund may also present non-standard performance figures, such as
yields and effective yields for a 30-day period or, in sales literature,
distribution rates.
Additional performance information is contained in the SAI under "Performance
Calculations" and in the Annual Report. The SAI and the Annual Report (when
available) may be obtained upon request without charge by calling the Company
at 1-800-260-5969 or by writing the Company at the address shown on the front
cover of the Prospectus.
The Fund and Management
The Fund is one fund in the Stagecoach Family of Funds. The Company was
organized as a Maryland corporation on September 9, 1991 and currently offers
shares of twenty-six other Funds. For information on another fund, please call
Stagecoach Shareholder Services at 1-800-260-5969 or write the Company at the
address shown on the front cover of the Prospectus.
The Company's Board of Directors supervises the 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 required for purposes such as electing or removing Directors, approving
advisory contracts and changing the Fund's investment objective or fundamental
investment policies. All shares of the Company have equal voting rights and are
voted in the aggregate, rather than by
7 PROSPECTUS
<PAGE>
series or class, unless otherwise required by law (such as when the voting
matter affects only one series or class). A shareholder of record of the Fund
is entitled to one vote for each share owned 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.
MANAGEMENT
Wells Fargo Bank serves as the Fund's investment adviser, administrator,
transfer and dividend disbursing agent and custodian. In addition, Wells Fargo
Bank serves as a shareholder servicing agent and as a selling agent for the
Fund. 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, 1997, Wells Fargo Bank provided investment advisory services for
approximately $57 billion of assets of individuals, trusts, estates and
institutions. Wells Fargo Bank also serves as the investment adviser or sub-
adviser to other separately managed series of the Company, and 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.
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.
Investing in the Fund
SHARE VALUE
The price of a Fund share is its "net asset value" or NAV. The NAV of shares
of the Fund is computed by adding the value of its portfolio investments plus
cash and other assets, deducting liabilities and then dividing the result by
the number of Fund shares outstanding. All expenses, including fees paid to the
investment adviser and co-administrators, are accrued daily and taken into
account for the purposes of
PROSPECTUS 8
<PAGE>
computing NAV, which is expected to fluctuate daily. As noted above, the Fund
seeks to maintain a constant $1.00 NAV share price, although there is no
assurance that it will be able to do so.
Fund shares may be purchased on any day the Fund is open (a "Business Day").
The Fund is open Monday through Friday and is closed on weekends and federal
bank holidays.
Wells Fargo Bank calculates the Fund's NAV as of 9:00 a.m. (Pacific time) each
Business Day. All transaction orders are processed at the NAV next determined
after the order is received.
The Fund's portfolio investments are valued on the basis of amortized cost.
This valuation method is based on the receipt of a steady rate of payment 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.
HOW TO BUY SHARES
Shares of the Fund are sold without a sales load on a continuous basis to
Customers who maintain qualified accounts with the trust division of a Bank.
Customers may include individuals, trusts, partnerships and corporations. All
share purchases are effected through a Customer's account at a Bank through
procedures established in connection with the requirements of the account, and
confirmations of share purchases and redemptions are sent to the Bank involved.
A Bank (or its nominee) is normally the holder of record of Fund shares acting
on behalf of its Customers and reflects its Customers' beneficial ownership of
shares in the account statements provided to its Customers. The exercise of
voting rights and the delivery to Customers of shareholder communications from
the Fund is governed by a Customer's account agreement with a Bank. Investors
wishing to purchase shares of the Fund should contact their account
representatives or call 1-800-260-5969.
Purchase orders for shares in the Fund must be received by the Fund by 9:00
a.m. (Pacific time) on a Business Day. Payment for such shares must also be
made in federal funds or other funds immediately available no later than 9:00
a.m. (Pacific time) on the same Business Day that the purchase order is
received. Orders for the purchase of shares are executed at the NAV per share
(the "public offering price") next determined after receipt of both an order
and payment in proper order. The Fund has no minimum initial or subsequent
investment requirement, although a Bank may impose certain minimum Customer
account requirements.
Each Bank is responsible for transmitting orders for purchases by Customers
and delivering required funds on a timely basis. If funds are not received
within the period described above, the order will be canceled, notice thereof
will be given, and the Bank
9 PROSPECTUS
<PAGE>
will be responsible for any loss to the Fund or its shareholders. A Bank may
charge certain account fees depending on the type of account the investor has
established. Payment for shares of the Fund may, at the discretion of the
investment adviser, be made in the form of securities that are permissible
investments for the Fund. For further information see "Additional Purchase and
Redemption Information" in the SAI.
The Company reserves the right to reject any purchase order. Payment for
orders which are not received will be returned after prompt inquiry. The
issuance of shares is recorded on the books of the Fund, and share certificates
are not issued.
Shares of a tax-free fund such as the Fund may not be suitable investments for
tax-exempt institutions or tax-deferred retirement plans, since such investors
would not benefit from the exempt status of the Funds' dividends. For
additional information on tax-deferred accounts, please contact a shareholder
servicing agent or selling agent or call 1-800-260-5969. In addition, Fund
shares are not available in all states.
STATEMENTS AND REPORTS
If a Bank is the recordholder for an investor's account, the Bank sends the
investor a monthly account statement after the end of each month in which there
has been a transaction that affects the share balance or Fund account
registration. Every January, investors will be provided a statement, which is
also filed with the IRS, with tax information for the previous year to assist
in tax return preparation. At least twice a year, investors receive financial
statements from the Fund.
Dividend and Capital Gain Distributions
Dividends from net investment income are declared daily payable to
shareholders of record as of 9:00 a.m. (Pacific time). If your purchase order
is received before 9:00 a.m. on any Business Day, you begin earning dividends
on the day your purchase order 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 a 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 receive your accrued dividends
together with your redemption proceeds. The Fund distributes any capital gains
at least annually. The Fund does not make distributions from net realized
securities gains unless capital loss carryovers, if any, have been utilized or
have expired.
PROSPECTUS 10
<PAGE>
Dividends declared in a month generally are distributed on the last Business
Day of that month. All dividend and capital gain distributions are reinvested
automatically in additional shares of the Fund at NAV or, at the option of the
investor, paid in cash. In all cases, distributions will be made in a manner
that is consistent with the provisions of the 1940 Act.
How to Redeem Shares
Redemption requests are effected at the NAV per share next determined after
receipt of a redemption request in good order by the Company. Shares held by a
Bank on behalf of its Customers must be redeemed in accordance with
instructions and limitations pertaining to the Customer's accounts at the Bank.
The Bank is responsible for transmitting redemption requests to the Company and
crediting its Customers' accounts with the redemption proceeds on a timely
basis. The redemption proceeds for Fund shares normally are wired to the
redeeming Bank the following Business Day after receipt of the request by the
Company. The Company reserves the right to delay the wiring of redemption
proceeds for up to seven days after it receives a redemption order if, in the
judgment of the investment adviser, an earlier payment could adversely affect
the Fund or 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 fairly 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 a Fund.
To be accepted by the Company, a letter requesting redemption must include:
(i) the Fund's name and account registration from which the shares are being
redeemed; (ii) the account number; (iii) the amount to be redeemed; (iv) the
signatures of all registered owners; and (v) a signature guarantee by any
eligible guarantor institution. An "eligible guarantor institution" 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.
All redemptions of Fund shares are made in cash, except that the commitment to
redeem shares in cash extends only to redemption requests made by an investor
during any 90-day period of up to the lesser of $250,000 or 1% of the NAV of
the Fund at the beginning of such period. This commitment is irrevocable
without the prior approval of the SEC. In the case of redemption requests by
investors in excess of such amounts, the Board of Directors reserves the right
to have the Fund make payment, in whole or in
11 PROSPECTUS
<PAGE>
part, in securities or other assets, in case of an emergency or any time a cash
distribution would impair the liquidity of the Fund to the detriment of the
existing shareholders. In this event, the securities would be valued in the
same manner as the Fund's securities are valued. If the recipient were to sell
such securities, the investor might incur brokerage charges.
Management and Servicing Fees
INVESTMENT ADVISER
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank, as the Fund's investment adviser, 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
Fund's investment strategies and performance. For these services, Wells Fargo
Bank is entitled to a monthly investment advisory fee at the annual rate of
0.25% of the Fund's average daily net assets, and may waive such fee 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 objective, 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 also serves as the Fund's custodian and transfer and dividend
disbursing agent. Under the Custody Agreement, 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. Wells Fargo Bank performs its
custodial and transfer and dividend disbursing agency services at 525 Market
Street, San Francisco, California 94105.
SHAREHOLDER SERVICING AGENTS
The Fund has adopted a servicing plan and entered into a related shareholder
servicing agreement with Wells Fargo Bank and may enter into similar agreements
with other Banks ("Shareholder Servicing Agents"). Under such agreements,
Shareholder Servicing Agents (including Wells Fargo Bank) agree, as agents for
their customers, to provide shareholder administrative and liaison services
with respect to Fund shares, which include, without limitation, aggregating and
transmitting shareholder orders for purchases, exchanges and redemptions;
maintaining shareholder accounts and records; and providing such other related
services as the Company or a shareholder may reasonably request. For these
services, a Shareholder Servicing Agent is entitled to receive a fee at the
annual rate of up to 0.20% of the average daily net assets
PROSPECTUS 12
<PAGE>
attributable to the shares owned of record or beneficially by investors with
whom the Shareholder Servicing Agent maintains a servicing relationship. In no
case shall payments exceed any maximum amount that may be deemed applicable
under applicable laws, regulations or rules, including the Conduct Rules of
the National Association of Securities Dealers ("NASD Rules").
A Shareholder Servicing Agent also may impose certain conditions and/or fees
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 higher minimum
initial investment or payment of a separate fee for additional services. Each
Shareholder Servicing Agent has agreed 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.
ADMINISTRATOR AND CO-ADMINISTRATOR
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank as Administrator and Stephens as Co-administrator, provide 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 to the Company's Directors and officers. Wells Fargo Bank and Stephens
also furnish office space and certain facilities to conduct the Fund's
business, and Stephens compensates the Company's Directors and officers who
are affiliated with Stephens. For these administrative services, Wells Fargo
Bank and Stephens are entitled to receive a monthly fee at the annual rate of
0.04% and 0.02%, respectively, of the Fund's average daily net assets. Wells
Fargo Bank and Stephens may delegate certain of their respective
administrative duties to sub-administrators.
SPONSOR AND DISTRIBUTOR
Stephens is the Company's sponsor and co-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 profit-sharing plans, individual
investors, foundations, insurance companies and university endowments.
Stephens, as the principal underwriter of the Fund within the meaning of the
1940 Act, has entered into a Distribution Agreement with the Company under
which Stephens acts as agent for the Fund for the sale of its shares and may
enter into selling
13 PROSPECTUS
<PAGE>
agreements with other agents ("Selling Agents") that wish to make available
shares of the Fund to their respective customers.
Stephens has established a non-cash compensation program, pursuant to which
broker/dealers or financial institutions that sell shares of the Company's
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.
Financial institutions acting as Shareholder Servicing Agents or Selling
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.
DEFENSIVE 12B-1 PLAN
The Fund has adopted a "defensive" Distribution Plan under Rule 12b-1 of the
1940 Act (the "Plan"). The Plan reflects that, to the extent any fees paid
pursuant to the Servicing Plan are deemed to be "primarily intended to result
in the sale of shares" of the Fund, such fees are approved pursuant to the
Plan. The Plan will not result in any separate payment of fees by the Fund.
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 Fund's performance. Except for the expenses
borne by Wells Fargo Bank and Stephens, each fund of the Company bears all
costs of its operations, including its pro rata portion of Company expenses
such as fees and expenses of its independent auditors and legal counsel;
compensation of the Company's directors who are not affiliated with the
adviser, administrator or any of their affiliates; advisory, transfer agency,
custody and administration fees; 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 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.
Taxes
Dividends distributed from the Fund's net interest income from tax-exempt
securities will not be subject to federal income taxes. Dividends attributable
to the Fund's interest income from taxable securities and net short-term
capital gains, if any, and capital gain
PROSPECTUS 14
<PAGE>
distributions will be taxable when paid, whether you takes such distributions
in cash or have them automatically reinvested in additional Fund shares.
However, such distributions declared in October, November, and December and
distributed by the following January will be taxable as if they were paid by
December 31.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares
will ordinarily result in a taxable capital gain or loss, depending on the
amount you receive for your shares (or are deemed to receive in the case of
exchanges) and the cost of your shares. See "Federal Income Taxes --
Disposition of Fund Shares" in the SAI.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Federal Income Taxes -- Foreign Shareholders" in the
SAIs. In certain circumstances, U.S. residents may also be subject to
withholding taxes. See "Federal Income Taxes -- Backup Withholding" in the SAI.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important federal tax considerations generally affecting the Fund and its
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 foreign, state and local taxes. Additional tax
considerations, including the federal alternative minimum tax, are discussed in
the SAI.
15 PROSPECTUS
<PAGE>
PROSPECTUS APPENDIX -- ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
Set forth below is a description of certain permissible investments and
investment policies of the Fund. Additional information about the Fund's
investments is contained in the Fund's SAI.
The Fund may invest in the following:
(i) certain municipal obligations;
(ii) certain U.S. Government obligations;
(iii) negotiable certificates of deposit, fixed time deposits, bankers'
acceptances or other 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
FDIC;
(iv) commercial paper rated at the date of purchase P-1 by Moody's or
"A-1+" or "A-1" by S&P;
(v) certain floating- and variable-rate instruments;
(vi) certain repurchase agreements;
(vii) foreign bank obligations; and
(viii) certain securities issued by other investment companies.
Municipal Obligations
The Fund may invest in various types of 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. From time to time, the 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 Fund's fundamental policy of
investing, under normal circumstances, at least 80% of its net assets in
municipal obligations that are exempt from federal income tax and not subject
to the federal alternative minimum tax.
A-1 PROSPECTUS
<PAGE>
The Fund will invest in the following municipal obligations with remaining
maturities not exceeding 13 months:
(i) long-term municipal bonds rated at the date of purchase "Aa" or
better by Moody's or "AA" or better by S&P;
(ii) municipal notes rated at the date of purchase "MIG 1" or "MIG 2" (or
"VMIG 1" or "VMIG 2" in the case of an issue having a variable rate with a
demand feature) by Moody's or "SP-1+" "SP-1" or "SP-2" by S&P; and
(iii) short-term municipal commercial paper rated at the date of purchase
"P-1" by Moody's or "A-1+", or "A-1" or "A-2" by S&P.
U.S. Government Obligations
The Fund may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Payment of principal and interest on U.S. Government Obligations (i) may be
backed by the full faith and credit of the United States (as with U.S. Treasury
bills and GNMA certificates) or (ii) may be backed solely by the issuing or
guaranteeing agency or instrumentality itself (as with FNMA notes). In the
latter case investors 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.
Other Investment Companies
Subject to the limitations set forth below and in the 1940 Act, the Fund may
invest in securities of other investment companies. For temporary investments,
the Fund may invest in shares of other open-end investment companies that
invest exclusively in high-quality short-term securities subject to the limits
set forth under Section 12 of the 1940 Act, provided however, that any such
company has a policy of investing, under normal market conditions, at least 80%
of its net assets in obligations that are exempt from federal income tax 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 Fund.
Floating- and Variable-Rate Instruments
The Fund may purchase debt instruments with interest rates that are
periodically adjusted at specified intervals or whenever a benchmark rate or
index changes. These
PROSPECTUS A-2
<PAGE>
adjustments generally limit the increase or decrease in the amount of interest
received on the debt instruments. The floating- and variable-rate instruments
that the Fund may purchase include certificates of participation in such
instruments. Floating- and variable-rate instruments are subject to interest-
rate risk and credit risk.
Repurchase Agreements
The Fund may enter into repurchase transactions in which 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
securities that could otherwise be purchased by the Fund, and all repurchase
transactions must be collaterallized. The Fund may incur a loss on a repurchase
transaction if the seller defaults and the value of the underlying collateral
declines or is otherwise limited or if receipt of the security or collateral is
delayed. 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 which 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 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.
A-3 PROSPECTUS
<PAGE>
Taxable Investments
Pending the investment of proceeds from the sale of shares of the Fund 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,
the Fund may elect to invest temporarily up to 20% of the current value of its
net assets in cash reserves, including the following taxable 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; (iv) certain
repurchase agreements; and (v) high-quality municipal obligations, the income
from which may or may not be exempt from federal income taxes.
Moreover, the Fund may invest temporarily more than 20% of its total assets in
such securities and in high-quality, short-term municipal obligations the
interest on which is not exempt from federal income taxes to maintain a
temporary defensive posture or in an effort to improve after-tax yield to the
Fund's shareholders when, in the opinion of Wells Fargo Bank, as investment
adviser, it is advisable to do so because of unusual market conditions.
Illiquid Securities
Certain securities may be sold only pursuant to certain legal restrictions,
and may be difficult to sell. The Fund may not hold 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 the 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.
PROSPECTUS A-4
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objective, as set forth in the "How the Funds Work --
Investment Objective and Policies" section, is fundamental. Accordingly, such
investment objective and policies 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 SAI. In addition, any fundamental
investment policy may not be changed without such shareholder approval. If the
Company's Board of Directors determines, however, that the 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 a change
without shareholder approval and will disclose any such material changes in the
then-current prospectus. Additional information about the Fund's investment
policies and restrictions is contained in the SAI under "Investment
Restrictions."
As matters of fundamental policy, 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 (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), (ii) obligations of
the United States Government, its agencies or instrumentalities, and (iii) the
obligations of domestic banks (for the purpose of this restriction, domestic
bank obligations do not include obligations of U.S. branches of foreign banks
or obligations of foreign branches of U.S. banks); (2) issue senior securities,
except as permitted by applicable law; or (3) purchase securities of any issuer
(except securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities, including government-sponsored enterprises) if, as a
result, with respect to 75% of its total assets, more than 5% of the value of
the Fund's 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.
As matters of non-fundamental policy the Fund may not: (1) purchase securities
on margin (except for short-term credits necessary for the clearance of
transactions) or make short sales of securities; (2) 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; (3) make investments for the purpose of exercising control or
management; (4) borrow money, 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
A-5 PROSPECTUS
<PAGE>
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);
(5) make loans, except to the extent permitted by applicable law; or (6) write,
purchase or sell puts, calls, options, warrants or any combination thereof,
except that the Fund may purchase securities with put rights in order to
maintain liquidity.
As a matter of general operating 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 1940 Act, provided that any such purchases will be
limited to temporary investments in shares of unaffiliated investment
companies. These unaffiliated investment companies must have a fundamental
investment policy of investing at least 80% of their net assets in obligations
that are exempt from federal income taxes and are not subject to the federal
alternative minimum tax. In addition, the Fund reserves the right to invest up
to 10% of the current value of its net assets in fixed time deposits that are
subject to withdrawal penalties and that have maturities of more than seven
days, repurchase agreements maturing in more than seven days, illiquid
securities and restricted securities.
PROSPECTUS A-6
<PAGE>
STAGECOACH FUNDS(R)
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH MONEY MARKET FUNDS:
--------------------------------------------------------------------------
.are NOT FDIC insured
.are NOT deposits or obligations of Wells Fargo Bank
.are NOT guaranteed by Wells Fargo Bank
.involve investment risk, including possible loss of principal
. seek to maintain a stable net asset value of
$1.00 per share, however, there can be no
assurance that a fund will meet this goal.
Yields will vary with market conditions.
LOGO
Printed on Recycled Paper SCF071 (7/97)
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated July 1, 1997
NATIONAL TAX-FREE MONEY MARKET TRUST
__________________________________
Stagecoach Funds, Inc. (the "Company") is an open-end, series investment
company. This Statement of Additional Information ("SAI") contains information
about one fund in the Stagecoach Family of funds -- the NATIONAL TAX-FREE MONEY
MARKET TRUST (the "Fund"). The Fund offers a single class of shares. The
investment objective of the Fund is described in its prospectus under "How the
Fund Works -- Investment Objective and Policies."
This SAI is not a prospectus and should be read in conjunction with the
Fund's Prospectus dated July 1, 1997. 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, co-administrator and distributor, at 111
Center Street, Little Rock, Arkansas 72201 or calling the Transfer Agent at the
telephone number indicated above.
__________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Investment Restrictions......................... 3
Additional Permitted Investment Activities...... 5
Management...................................... 8
Servicing Plan.................................. 11
Performance Calculations........................ 12
Determination of Net Asset Value................ 15
Additional Purchase and Redemption Information.. 16
Portfolio Transactions.......................... 17
Fund Expenses................................... 20
Federal Income Taxes............................ 20
Capital Stock................................... 23
Other........................................... 25
Independent Auditors............................ 25
Financial Information........................... 25
Appendix........................................ A-1
Financial Statements............................ F-1
</TABLE>
2
<PAGE>
INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Fund is subject to the following
-------------------------------
investment restrictions, all of which are fundamental policies.
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 (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), (ii)
obligations of the United States Government, its agencies or instrumentalities,
and (iii) the obligations of domestic banks (for the purpose of this
restriction, domestic bank obligations do not include obligations of U.S.
branches of foreign banks or obligations of foreign branches of U.S. banks);
(2) issue senior securities, except as permitted by applicable law; or
(3) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities, including
government-sponsored enterprises) if, as a result, with respect to 75% of its
total assets, more than 5% of the value of the Fund's 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;
With regard to fundamental investment restriction number (1) above, the
Fund intends to reserve freedom of action to have in excess of 25% of the value
of the respective total assets invested in obligations of the banking industry.
Regarding this fundamental concentration policy, the Fund may hold in excess of
25% of the value of the assets in obligations of the banking industry to the
extent that the Fund holds obligations with such credit enhancements as letters
of credit issued by domestic bank issuers, which will be considered to be
obligations of domestic banks. The SEC staff's position is that the exclusion
with respect to banks may only be applied to domestic banks. For this purpose,
the staff also takes the position that U.S. branches of foreign banks and
foreign branches of domestic banks may, if certain conditions are met, be
treated as "domestic banks". The Company currently intends to consider only
obligations of "domestic banks" to be within the exclusion with respect to bank
obligations.
Fundamental investment restriction number (3), above, is less restrictive
than Rule 2a-7 of the 1940 Act. Nonetheless, it is an operating policy of the
Fund to comply with Rule
2a-7.
3
<PAGE>
Non-Fundamental Investment Policies. The Fund is subject to the
-----------------------------------
following non-fundamental policies:
The Fund may not:
(1) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions) or make short sales of securities;
(2) 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;
(3) make investments for the purpose of exercising control or
management;
(4) borrow money, 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);
(5) make loans, except to the extent permitted by applicable law;
(6) write, purchase or sell puts, calls, options, warrants or any
combination thereof, except that the Fund may purchase securities with put
rights in order to maintain liquidity;
As a matter of general operating 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 1940 Act, provided that any such purchases will be
limited to temporary investments in shares of unaffiliated investment companies.
These unaffiliated investment companies must have a fundamental investment
policy of investing at least 80% of their net assets in obligations that are
exempt from federal income taxes and are not subject to the federal alternative
minimum tax.
As a matter of general operating policy, the Fund reserves the right to
invest up to 10% of the current value of its net assets in fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, repurchase agreements maturing in more than seven days, illiquid
securities and restricted securities.
4
<PAGE>
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Unrated and Downgraded 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. The Fund may purchase unrated instruments only if they
are purchased in accordance with the procedures of the Fund adopted by the
Company's Board of Directors in accordance with Rule 2a-7 under the 1940 Act.
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, provided that when a security
ceases to be rated, the Company's Board of Directors determines that such
security presents minimal credit risks and, provided further that, when a
security rating is downgraded below the eligible quality for investment or no
longer presents minimal credit risks, the Board finds that the sale of such
security would not be in the Fund's best interest. To the extent the ratings
given by Moody's or S&P may change as a result of changes in such organizations
or their rating systems, 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, provided that the Company's
Board approves or ratifies such investments.
Loans of Portfolio Securities. The Fund may lend securities from its
-----------------------------
portfolio to brokers, dealers and financial institutions (but not individuals)
if cash, U.S. Government obligations or other high-quality debt obligations
equal to at least 100% of the current market value of the securities loaned
(including accrued interest thereon) plus the interest payable to the Fund with
respect to the loan is maintained with the Fund. In determining whether or not
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 size, creditworthiness and reputation of the broker, dealer, or
financial institution. Any loans of portfolio securities are fully
collateralized based on values that are marked to market daily. The Fund will
not enter into any portfolio security lending arrangement having a duration
longer than one year. Any securities that the Fund receives as collateral do
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.
5
<PAGE>
The Fund will not lend securities having a value that exceeds one-third of the
current value of its total 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 are not permitted to be affiliated, directly or indirectly, with the
Company, the investment adviser or the distributor.
Foreign Obligations. Investments in foreign obligations involve certain
-------------------
considerations that are not typically associated with investing in domestic
obligations. There may be less publicly available information about a foreign
issuer than about a domestic issuer. Foreign issuers also are not generally
subject to uniform accounting, auditing and financial reporting standards or
governmental supervision comparable to those applicable to domestic issuers. In
addition, with respect to certain foreign countries, taxes may be withheld at
the source under foreign income tax laws, and there is a possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect investments in, the
liquidity of, and the ability to enforce contractual obligations with respect
to, securities of issuers located in those countries. The Fund may invest up to
25% of its assets in foreign obligations.
Obligations of foreign banks and foreign branches of U.S. banks involve
somewhat different investment risks from those affecting obligations of U.S.
banks, including the possibilities that liquidity could be impaired because of
future political and economic developments, that the obligations may be less
marketable than comparable obligations of U.S. banks, that a foreign
jurisdiction might impose withholding taxes on interest income payable on those
obligations, that foreign deposits may be seized or nationalized, that foreign
governmental restrictions (such as foreign exchange controls) may be adopted
which might adversely affect the payment of principal and interest on those
obligations and that the selection of those obligations may be more difficult
because there may be less publicly available information concerning foreign
banks or the accounting, auditing and financial reporting standards, practices
and requirements applicable to foreign banks may differ from those applicable to
U.S. banks. In that connection, foreign banks are not subject to examination by
any U.S. Government agency or instrumentality.
Municipal Bonds. The Fund may invest in municipal bonds. As discussed
---------------
in the Fund's Prospectus, the two principal classifications of municipal bonds
are "general obligation" and "revenue" bonds. Municipal bonds are debt
obligations issued to obtain Fund 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 Fund 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 Fund to provide
privately-operated housing facilities, sports facilities, convention or trade
show facilities, airport, mass
6
<PAGE>
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.
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.
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 the Fund's portfolio, will
decline and (if purchased at par value) sell at a discount. If interests rates
fall, the values of outstanding securities will generally increase and (if
purchased at par value) sell at a premium. Changes in the value of municipal
securities held in the Fund's portfolio arising from these or other factors will
cause changes in the net asset value per share of the Fund.
7
<PAGE>
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 OCCUPATION
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- --------------------------- ----------------------- -------------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor
415 Walsh Road
Atherton, CA 94207
*R. Greg Feltus, 46 Director, Chairman Senior Vice President of Stephens;
and President Manager 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, 55 Director T.B. Rose Faculty Fellow Business,
321 Beechcliff Court Wake Forest University Calloway
Winston-Salem, NC 27104 School of Business and Accountancy;
Associate Professor of Finance of the
School of Business and Accounting at
Wake Forest University since 1983.
Joseph N. Hankin, 56 Director President Westchester Community
75 Grasslands Road College since 1971; President of Hartford
Community College since Junior College from 1967 to 1971;
Adjunct Professor of Columbia
Columbia University Teachers College since 1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 79 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman of Renaissance
Charleston, SC 29401 Properties Ltd.; President of Morse
Investment Corporation; and
Co-Managing Partner of Main Street
Ventures.
Richard H. Blank, Jr., 40 Chief Operating Associate of Financial Services Group of
Officer, Secretary Stephens; DirectorStephens Sports
and Treasurer Management Inc.; and Director of Capo Inc.
</TABLE>
8
<PAGE>
COMPENSATION TABLE
For the Fiscal Year Ended March 31, 1997
----------------------------------------
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from
Name and Position from Registrant Registrant and Fund Complex
- ------------------------------ ---------------------- ---------------------------
<S> <C> <C>
Jack S. Euphrat $11,250 $33,750
Director
*R. Greg Feltus 0 0
Director
Thomas S. Goho $11,250 $33,750
Director
*Zoe Ann Hines 0 0
Director
(resigned September 6,
1996)
Joseph N. Hankin 8,750 26,250
Director
*W. Rodney Hughes 9,250 27,750
Director
Robert M. Joses $11,250 $33,750
Director
*J. Tucker Morse 9,250 27,750
Director
</TABLE>
Directors of the Company are compensated annually by the Company and by
all the registrants in each fund complex they serve as indicated above and also
are reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company, Overland Express Funds, Inc., Stagecoach Trust, Life &
Annuity Trust and Master Investment Trust are considered to be members of the
same fund complex as such term is defined in Form N-1A under the 1940 Act (the
"Wells Fargo Fund Complex"). MasterWorks Funds Inc., Master Investment
Portfolio, and Managed Series Investment Trust together form a separate fund
complex (the "BGFA Fund Complex"). Each of the Directors and Officers of the
Company serves in the identical capacity as directors and officers or as
trustees and/or officers of each registered open-end management investment
company in both the Wells Fargo and BGFA Fund Complexes, except for Joseph N.
Hankin, who only serves the aforementioned members of the Wells Fargo Fund
Complex, and Zoe Ann Hines who, after September 6, 1996, only serves the
aforementioned members of the BGFA Fund Complex. The Directors are compensated
by other companies and trusts within a 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 each fund complex.
9
<PAGE>
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. 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 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 with, among other things, money
market security and fixed-income research, analysis and statistical and economic
data and information concerning interest rate and security market trends,
portfolio composition, credit conditions and average maturities of the Fund's
portfolio. Wells Fargo Bank is entitled to receive a monthly fee at the annual
rate of 0.25% of the Fund's average daily net assets for providing investment
advisory services.
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.
ADMINISTRATOR AND CO-ADMINISTRATOR . The Company has retained Wells
-----------------------------------
Fargo Bank as Administrator and Stephens as Co-Administrator on behalf of the
Fund. The Administration Agreement between Wells Fargo and the Fund, and the
Co-Administration Agreement among Wells Fargo, Stephens and the Fund, state that
Wells Fargo Bank and 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. Wells Fargo Bank and Stephens
also furnish office space and certain facilities required for conducting the
business of the Fund together with ordinary clerical and bookkeeping services.
Stephens pays the compensation of the Company's Directors, officers and
employees who are affiliated with Stephens. The Administrator and Co-
Administrator are entitled to receive a monthly fee of 0.04% and 0.02%,
respectively, of the average daily net assets of the Fund.
SPONSOR AND DISTRIBUTOR. As discussed in the Fund's prospectus under
-----------------------
the heading "Management and Servicing Fees," Stephens serves as the Fund's
sponsor and distributor.
10
<PAGE>
SHAREHOLDER SERVICING AGENT. As discussed in the Fund's prospectus
---------------------------
under the heading "Shareholder Servicing Agent," the Fund has entered into
shareholder servicing agreements with Wells Fargo Bank. See "Servicing Plan" in
this SAI.
CUSTODIAN. Wells Fargo Bank has been retained to act as custodian for
---------
the Fund, pursuant to a Custody Agreement with the Company on behalf of the
Fund. The custodian, among other things, maintains a custody account or
accounts in the name of the Fund, receives and delivers all assets for the Fund
upon purchase and upon sale or maturity, collects and receives all income and
other payments and distributions on account of the assets of the Fund and pays
all expenses of the Fund. For its services as custodian, Wells Fargo Bank is
entitled to receive fees as follows: a net asset charge at the annual rate of
0.0167%, payable monthly, plus specified transaction charges. Wells Fargo Bank
also will provide portfolio accounting services under the Custody Agreement for
a fee calculated as follows: a monthly base fee of $2,000 plus a net asset fee
at the annual rate of 0.070% of the first $50,000,000 of a Fund's average daily
net assets, 0.045% of the next $50,000,000, and 0.020% of the average daily net
assets in excess of $100,000,000.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank has been
--------------------------------------
retained to act as transfer and dividend disbursing agent for the Fund, pursuant
to an Agency Agreement with the Company on behalf of the Fund. For its services
as transfer and dividend disbursing agent for the Fund, Wells Fargo Bank is
entitled to receive monthly payments at the annual rate of 0.02% of the Fund's
average daily net assets.
UNDERWRITING COMMISSIONS. The Fund does not charge any front-end sales
------------------------
loads or contingent deferred sales charges in connection with the purchase and
redemption of its shares, and therefore pays no underwriting commissions to the
Distributor.
DEFENSIVE 12B-1 PLAN. The Fund has entered into a "defensive"
---------------------
Distribution Plan under Rule 12b-1 of the 1940 Act (the "Plan"). The Plan
reflects that, to the extent any fees paid pursuant to the servicing plan are
deemed to be "primarily intended to result in the sale of shares" of the Fund,
such fees are approved pursuant to the Plan. The Plan will not result in any
separate payment of fees by the Fund.
SERVICING PLAN
As indicated in the prospectus, the Company's Board of Directors, adopted
a Servicing Plan ("Servicing Plan") and related form of Shareholder Servicing
Agreement on April 28, 1997, with respect to the Fund. 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 shareholder servicing
agreements, the Fund may pay one or more servicing agents, as compensation for
performing certain services, a fee
11
<PAGE>
at an annual rate of up to 0.20% of the average daily net assets of the Fund's
shares attributable to the servicing agent's customers. The actual fee payable
to servicing agents is determined, within such limits, from time to time by
mutual agreement between the Company and each servicing agent and will not
exceed the maximum service fees payable by mutual funds sold by members of the
NASD under the NASD Rules.
The Servicing Plan continues in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Servicing Plan Non-Interested Directors. Any form of servicing
agreement related to the Servicing Plan also must be approved by such vote of
the Directors and the Servicing Plan Non-Interested Directors. Servicing
agreements may be terminated at any time, without payment of any penalty, by
vote of a majority of the Servicing Plan Non-Interested Directors. No material
amendment to the Servicing Plans may be made except by a majority of both the
Directors of the Company and the Servicing Plan Non-Interested Directors.
The Servicing Plan requires that the administrator shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Servicing Plan.
PERFORMANCE CALCULATIONS
The following information supplements and should be read in conjunction
with the sections in the Prospectus entitled "Determination of Net Asset Value"
and "Performance Data."
The Fund may, from time to time, include its yield or effective yield in
advertisements or reports to shareholders or prospective investors.
YIELD. Yield for the Fund is calculated based on the net changes,
-----
exclusive of capital changes, over a seven-day period, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7) with the resulting yield figure
carried to at least the nearest hundredth of one percent. Tax-equivalent yield
for the Fund is computed by dividing that portion of the yield of the Fund which
is tax-exempt by one minus a stated income tax rate and adding the product to
that portion, if any, of the yield of the Fund that is not tax-exempt.
Effective yield and effective tax-equivalent yield for the Fund are
calculated by determining the net change, or tax-equivalent assumed net change,
exclusive of capital changes, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding one, raising the sum to a power
equal to 365 divided by seven, and subtracting one from the result.
12
<PAGE>
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.
Yield information for the Fund may be useful in reviewing the performance
of Fund shares and for providing a basis for comparison with investment
alternatives. The Fund's yield, however, may not be comparable to the yields
from investment alternatives because of differences in the foregoing variables
and differences in the methods used to value portfolio securities, compute
expenses and calculate yield.
PERFORMANCE COMPARISONS. From time to time and only to the extent the
-----------------------
comparison is appropriate, 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 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 Fund 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 that of other mutual Fund 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 Fund. The Fund's performance will be
calculated by relating net asset value per share at the beginning of a stated
period to the net asset value of the investment, assuming reinvestment of all
gains distributions and dividends paid, at the end of the period. The Fund's
comparative performance will be based on a comparison of yields, as described
above, or total return, as reported by Lipper, Survey Publications, Donoghue or
Morningstar, Inc.
Any such comparisons may be useful to investors who wish to compare past
performance of the Fund with that of competitors. Of course, past performance
cannot be a guarantee of future results. The Company also may include, from
time to time, a reference to certain marketing approaches of the Distributor,
including, for example, a reference to a potential shareholder being contacted
by a selected broker or dealer. General mutual fund statistics provided by the
Investment Company Institute may also be used.
13
<PAGE>
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 a Fund (or returns in general) on a tax-deferred basis (assuming
reinvestment of capital gains and dividends and assuming one or more tax rates)
with the return on a taxable basis; and (iv) the sectors or industries in which
a Fund invests may be compared to relevant indices of stocks or surveys (e.g.,
----
S&P Industry Surveys) to evaluate a Fund's historical performance or current or
potential value with respect to the particular industry or sector.
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 advertising and other types of literature
that a Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as Standard & Poor's Corporation. Such
rating would assess the creditworthiness of the investments held by the Fund.
The assigned rating would not be a recommendation to purchase, sell or hold the
Fund's shares since the rating would not comment on the market price of the
Fund's shares or the suitability of the Fund for a particular investor. In
addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or unavailability of, information relating
to the Fund or its investments. The Company may compare the Fund's performance
with other investments which are assigned ratings by NRSROs. Any such
comparisons may be useful to investors who wish to compare the Fund's past
performance with other rated investments.
From time to time, the 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 Fund, provides
various services to its customers that are also shareholders of the Fund. These
services may include access to Stagecoach Fund's account information through
Automated Teller Machines (ATMs), the placement of purchase and redemption
requests for shares of the Fund through ATMs and the availability of combined
Wells Fargo Bank and Stagecoach Fund account statements."
14
<PAGE>
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Capital Management, Inc.
("WCM" formerly, Wells Fargo Investment Management) a subsidiary of Wells Fargo
Bank, is listed in the top 100 by Institutional Investor magazine in its July
1996 survey "America's Top 300 Money Managers." This survey ranks money
managers in several asset categories. The Company also may 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 and mutual fund assets managed by Wells Fargo Bank. As
of April 1, 1997, Wells Fargo Bank and its affiliates provided investment
Advisory services for approximately $57 billion of assets of individuals,
trusts, estates and institutions and $20 billion of mutual fund assets.
The Company may disclose in advertising and other types of literature
that investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the Prospectus section under "Purchase of Shares."
Expenses and fees, including advisory fees, are accrued daily and are
taken into account for the purpose of determining the net asset value of a
Fund's shares.
Net asset value per Fund share is determined by the Custodian on each
Business Day, as described in the Prospectus for the Fund.
As indicated under "Investing In The Fund -- Share Price" in the
Prospectus, the Fund uses the amortized cost method to determine the value of
its portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The
amortized cost method involves valuing a security at its cost and
15
<PAGE>
amortizing any discount or premium over the period until maturity, regardless of
the impact of fluctuating interest rates on the market value of the security.
While this method provides certainty in valuation, it may result in periods
during which the value, as determined by amortized cost, is higher or lower than
the price that the Fund would receive if the security were sold. During these
periods the yield to a shareholder may differ somewhat from that which could be
obtained from a similar fund that uses a method of valuation based upon market
prices. Thus, during periods of declining interest rates, if the use of the
amortized cost method resulted in a lower value of the Fund's portfolio on a
particular day, a prospective investor in the Fund would be able to obtain a
somewhat higher yield than would result from investment in a fund using solely
market values, and existing Fund shareholders would receive correspondingly less
income. The converse would apply during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, the Fund must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase securities having remaining
maturities (as defined in Rule 2a-7) of thirteen months or less and invest only
in those high-quality securities that are determined by the Board of Directors
to present minimal credit risks. The maturity of an instrument is generally
deemed to be the period remaining until the date when the principal amount
thereof is due or the date on which the instrument is to be redeemed. However,
Rule 2a-7 provides that the maturity of an instrument may be deemed shorter in
the case of certain instruments, including certain variable and floating rate
instruments subject to demand features. Pursuant to the Rule, the Board has
established procedures designed to stabilize, to the extent reasonably possible,
the Fund's price per share as computed for the purpose of sales and redemptions
at $1.00. Such procedures include review of the Fund's portfolio holdings by
the Board of Directors, at such intervals as it may deem appropriate, to
determine whether the Fund's net asset value calculated by using available
market quotations deviates from $1.00 per share based on amortized cost. The
extent of any deviation will be examined by the Board of Directors. If such
deviation exceeds 1/2 of 1%, the Board will promptly consider what action, if
any, will be initiated. In the event the Board determines that a deviation
exists that may result in material dilution or other unfair results to investors
or existing shareholders, the Board will take such corrective action as it
regards as necessary and appropriate, including the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity, withholding dividends or establishing a net asset
value per share by using available market quotations.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund may be purchased on any day the Fund is open for
business, provided Wells Fargo Bank also is open for business (a "Business
Day"). Currently, Wells Fargo Bank is closed on New Year's Day, President's Day,
Martin Luther King Day, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any
Holiday falls on a weekend, the Fund typically is closed on the weekday
immediately before or after such Holiday.
16
<PAGE>
Payment for shares may, in the discretion of the adviser, be made in the
form of securities that are permissible investments for the Fund as described in
the Prospectuses. For further information about this form of payment please
contact Stephens. In connection with an in-kind securities payment, the Fund
will require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by the Fund and that the
Fund receives satisfactory assurances that (i) it will have good and marketable
title to the securities received by it; (ii) that the securities are in proper
form for transfer to the Fund; and (iii) adequate information will be provided
concerning the basis and other matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit.
The Company may suspend redemption rights or postpone redemption payments
for such periods as are permitted under the 1940 Act. The Company may also
redeem shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to reimburse the
Fund for any losses sustained by reason of the failure of a shareholder to make
full payment for shares purchased or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
shares of the Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
Purchases and sales of debt securities generally are principal
transactions. Debt securities normally are purchased or sold from or to dealers
serving as market makers for the securities at a net price. Debt securities may
also be purchased in underwritten offerings or 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
transactions in debt securities consists primarily of dealer spreads and
underwriting commissions. Under the 1940 Act, persons affiliated with the Fund
are prohibited from dealing with the Fund 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 Company's Board of Directors.
Purchase and sale orders of the securities held by the Fund
17
<PAGE>
may be combined with those of other accounts that Wells Fargo Bank manages, and
for which it has brokerage placement authority, in the interest of seeking the
most favorable overall net results. When Wells Fargo Bank determines that a
particular security should be bought or sold for the Fund and other accounts
managed by Wells Fargo Bank, Wells Fargo Bank undertakes to allocate those
transactions among the participants equitably.
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 investment decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Company to obtain the best overall
terms taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions.
In assessing the best overall terms available for any transaction, Wells
Fargo Bank considers factors deemed relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
Wells Fargo Bank may cause the Fund to pay a broker/dealer which furnishes
brokerage and research services a higher commission than that which might be
charged by another broker/dealer for effecting the same transaction, provided
that Wells Fargo Bank determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker/dealer, viewed in terms of either the particular
transaction or the overall responsibilities of Wells Fargo Bank. Such brokerage
and research services might consist of reports and statistics relating to
specific companies or industries, general summaries of groups of stocks or bonds
and their comparative earnings and yields, or broad overviews of the stock,
bond, and government securities markets and the economy.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by Wells Fargo Bank and does not
reduce the advisory fees payable by the Fund. The Company's Board of Directors
will periodically review the commissions paid by the Fund to consider whether
the commissions paid over representative periods of time appear to be reasonable
in relation to the benefits inuring to the Fund. It is possible that certain of
the supplementary research or other services received will primarily benefit one
or more other investment companies or other accounts for which Wells Fargo Bank
exercises investment discretion. Conversely, the Fund may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other account or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage
18
<PAGE>
and research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Fund in any transaction may be less favorable than that
available from another broker/dealer if the difference is reasonably justified
by other aspects of the portfolio execution services offered.
Broker/dealers utilized by Wells Fargo Bank may furnish statistical,
research and other information or services which are deemed by Wells Fargo Bank
to be beneficial to the Fund's investment programs. Research services received
from brokers supplement Wells Fargo Bank's own research and may include the
following types of information: statistical and background information on
industry groups and individual companies; forecasts and interpretations with
respect to U.S. and foreign economies, securities, markets, specific industry
groups and individual companies; information on political developments;
portfolio management strategies; performance information on securities and
information concerning prices of securities; and information supplied by
specialized services to Wells Fargo Bank and to the Company's Directors with
respect to the performance, investment activities and fees and expenses of other
mutual funds. Such information may be communicated electronically, orally or in
written form. Research services may also include the providing of equipment
used to communicate research information, the arranging of meetings with
management of companies and the providing of access to consultants who supply
research information.
The outside research assistance is useful to Wells Fargo Bank since the
brokers utilized by Wells Fargo Bank as a group tend to follow a broader
universe of securities and other matters than the staff of Wells Fargo Bank can
follow. In addition, this research provides Wells Fargo Bank with a diverse
perspective on financial markets. Research services which are provided to Wells
Fargo Bank by brokers are available for the benefit of all accounts managed or
advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank that this
material is beneficial in supplementing their research and analysis; and,
therefore, it may benefit the Fund by improving the quality of Wells Fargo
Bank's investment advice.
SECURITIES OF REGULAR BROKER/DEALERS. As of the date of this SAI, the
------------------------------------
Fund owned no securities of its "regular brokers or dealers" or their parents,
as defined in the Act.
PORTFOLIO TURNOVER. Because the Fund's portfolio consists of securities
------------------
with relatively short-term maturities, the Fund can expect to experience high
portfolio turnovers. A high portfolio turnover rate should not adversely affect
the Fund, however, because portfolio transactions ordinarily will be made
directly with principals on a net basis and, consequently, the Fund usually will
not incur brokerage expenses.
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<PAGE>
FUND EXPENSES
Except for the expenses borne by Wells Fargo Bank and Stephens, the
Company bears all costs of its operations, including the compensation of its
Directors who are not affiliated with Stephens or Wells Fargo Bank or any of
their affiliates; advisory, shareholder servicing and administration fees;
payments pursuant to any Plan; interest charges; taxes; fees and expenses of its
independent accountants, legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming shares; expenses of preparing and printing
prospectuses (except the expense of printing and mailing prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of its
custodian, including those for keeping books and accounts and calculating the
NAV per share of the Fund; expenses of shareholders' meetings; expenses relating
to the issuance, registration and qualification of the Fund's shares; pricing
services, and any extraordinary expenses. Expenses attributable to the Fund are
charged against Fund assets. General expenses of the Company are allocated
among all of the funds of the Company, including the Fund, in a manner
proportionate to the net assets of the Fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.
FEDERAL INCOME TAXES
In General. The following information supplements and should be read in
----------
conjunction with the Prospectus sections entitled "Dividend and Capital Gain
Distributions" and "Taxes." The Prospectus of the Fund describes generally the
tax treatment of distributions by the Fund. This section of the SAI includes
additional information concerning federal income taxes.
The Company intends to qualify the Fund as a regulated investment company
under Subchapter M of the Code as long as such qualification is in the best
interest of the Fund's shareholders. The 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 the 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 the Fund.
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
20
<PAGE>
U.S. Government securities and 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. As a
regulated investment company, the Fund will not be subject to federal income tax
on its net investment income and net capital gains distributed to its
shareholders, provided that it distributes to its shareholders at least 90% of
its net investment income, including net tax-exempt income, earned in each year.
The Fund intends to pay out substantially all of its net investment income and
net realized capital gains (if any) for each year.
A 4% nondeductible excise tax will be imposed on the Fund (other than to
the extent of the Fund's tax-exempt income) to the extent it does not meet
certain minimum distribution requirements by the end of each calendar year. The
Fund will either 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.
Federal Income Tax Rates. 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 marginal tax rate applicable to net capital
gains is 28.00%; the maximum 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.
Capital Gain Distributions. 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 the shareholders not later than 60 days after the close of the
Fund's taxable year.
Other Distributions. Although dividends will be declared daily 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.
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Disposition of Fund Shares. 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 is disallowed to the extent of any exempt-interest dividends
received thereon by the shareholder. These rules shall not apply, however, to
losses incurred under a periodic redemption plan.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or of a different regulated investment company,
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 on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, 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.
Taxation of Fund Investments. 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. 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 Fund held the debt obligation. Other gains or
losses on the sale of portfolio securities will be short-term capital gains or
losses.
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.
Backup Withholding. The Company may be required to withhold, subject to
------------------
certain exemptions, at a rate of 31% ("backup withholding") on dividends,
capital gain distributions, and redemption proceeds (including proceeds from
exchanges) paid or credited to an individual Fund
22
<PAGE>
shareholder, unless a shareholder certifies that the Taxpayer Identification
Number ("TIN") provided is correct and that the shareholder is not subject to
backup withholding, or the IRS notifies the Company that the shareholder's TIN
is incorrect or the shareholder is subject to backup withholding. Such tax
withheld does not constitute any additional tax imposed on the shareholder, and
may be claimed as a tax payment on the shareholder's federal income tax return.
An investor must provide a valid TIN upon opening or reopening an account.
Failure to furnish a valid TIN to the Company could subject the investor to
penalties imposed by the IRS.
Other Matters. Investors should be aware that the investments to be made
-------------
by the Fund may involve sophisticated tax rules that may 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.
The foregoing discussion and the discussions in the Prospectus address
only some of the federal tax considerations generally affecting investments in
the Fund. Each investor is urged to consult his or her tax advisor regarding
specific questions as to federal, state or local taxes and foreign taxes.
CAPITAL STOCK
The Fund is one of the Stagecoach Family of funds. The Company was
organized as a Maryland corporation on September 9, 1991 and currently offers
shares of twenty-six other funds.
The Fund offers one class of shares. Most of the Company's funds are
authorized to issue multiple classes of shares, one class generally subject to a
front-end sales charge and, in some cases, a class subject to a contingent-
deferred sales charge, that are offered to retail investors. Certain of the
Company's funds also are authorized to issue other classes of shares, which are
sold primarily to institutional investors. Each class of shares in a fund
represents an equal, proportionate interest in a fund with other shares of the
same class. Shareholders of each class bear their pro rata portion of the
fund's operating expenses, except for certain class-specific expenses (e.g., any
state securities registration fees, shareholder servicing fees or distribution
fees that may be paid under Rule 12b-1) that are allocated to a particular
class. Please contact Stagecoach Shareholder Services at 1-800-260-5969 if you
would like additional information about other funds or classes of shares
offered.
In situations where voting by series is required by law or where the
matter involved only affects one series, shares of the Fund will be voted by
series. For example, a change in a Fund's fundamental investment policy would
be voted upon only by shareholders of the Fund involved. Additionally, approval
of an advisory contract is a matter to be determined separately by Fund.
Approval by the shareholders of one Fund is effective as to that Fund whether or
not sufficient votes are received from the shareholders of the other investment
portfolios to approve the proposal as to those investment portfolios. As used
in the Prospectus and this SAI, the term "majority," when referring to approvals
to be obtained from shareholders of the Fund, means the
23
<PAGE>
vote of the lesser of (i) 67% of the shares of the Fund represented at a meeting
if the holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. The term "majority," when referring to the approvals to be obtained
from shareholders of the Company as a whole, means the vote of the lesser of (i)
67% of the Company's shares represented at a meeting if the holders of more than
50% of the Company's outstanding shares are present in person or by proxy, or
(ii) more than 50% of the Company's outstanding shares. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held.
The Company may dispense with an annual meeting of shareholders in any
year in which it is not required to elect Directors under the 1940 Act.
However, the Company has undertaken to hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a Director
or Directors if requested in writing by the holders of at least 10% of the
Company's outstanding voting securities, and to assist in communicating with
other shareholders as required by Section 16(c) of the 1940 Act.
Each Fund share represents an equal proportional interest in the Fund
with each other share and is entitled to such dividends and distributions out of
the income earned on the assets belonging to the Fund as are declared in the
discretion of the Directors. In the event of the liquidation or dissolution of
the Company, shareholders of 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 May 1, 1997, 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.
24
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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 of the Fund
as to the contents of any contract or other document are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditor for
the Company. KPMG Peat Marwick LLP provides audit services, tax return
preparation and assistance and consultation in connection with review of certain
SEC filings. KPMG Peat Marwick LLP's address is Three Embarcadero Center, San
Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and
independent auditors' reports for the Company's other funds for the fiscal
period ended September 30, 1996 are hereby incorporated by reference to the
Company's Annual Report as filed with the SEC on or about November 9, 1996. The
Company's Annual Report may be obtained by calling 1-800-260-5969.
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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
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"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 lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Moody's also applies numerical modifiers in its rating
system: 1, 2 and 3 in each rating category from "Aa" through "Baa" in its
rating system. The modifier 1 indicates that the security ranks in the higher
end of its category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are
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"AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the "highest rating"
assigned by S&P and has "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 obligations 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 "adequate protection
parameters" 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 and Municipal Notes
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Moody's: The highest ratings for state and municipal short-term
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obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG 2"
or "VMIG 2" are of "high quality," with margins of protections "ample although
not as large as in the preceding group." Notes rated "MIG 3" or "VMIG 3" are of
"favorable quality," with all security elements accounted for, but lacking the
strength of the preceding grades.
A-1
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S&P: The two highest ratings for corporate and municipal notes are "SP-
---
1" and "SP-2." The "SP-1" rating reflects a "very strong or strong capacity to
pay principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
Corporate and Municipal Commercial Paper
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Moody's: The highest rating for corporate and municipal commercial paper
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is "P-1" (Prime-1). Issuers rated "P-1" have a "superior ability for repayment
of senior short-term debt obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of senior short-term debt obligations," but
earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate and municipal commercial paper is
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rated "in the highest category" by S&P and "the obligor's capacity to meet its
financial commitment on the obligation is strong." The "A-1+" rating indicates
that said capacity is "extremely strong." The A-2 rating indicates that said
capacity is "satisfactory," but that corporate and municipal commercial paper
rated "A-2" is "more susceptible" to the adverse effects of changes in economic
conditions or other circumstances than commercial paper rated in higher rating
categories.
A-2
