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[STAGECOAGH FUNDS/(R)/ LOGO]
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PROSPECTUS
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OVERLAND EXPRESS SWEEP FUND
December 12, 1997
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STAGECOACH FUNDS(R)
OVERLAND EXPRESS SWEEP FUND
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about the single class of shares
offered by one of the Company's Funds -- the OVERLAND EXPRESS SWEEP FUND (the
"Fund").
The OVERLAND EXPRESS SWEEP FUND seeks to provide investors with a high level
of current income, while preserving capital and liquidity. The Fund seeks to
maintain a stable net asset value of $1.00 per share. The Fund seeks to achieve
its investment objective by investing in high-quality, short-term instruments.
Shares of the Fund are offered only to customers of certain financial
institutions that have entered into Shareholder Servicing Agreements with the
Company on behalf of the Fund ("Servicing Agents"). Servicing Agents will
automatically invest, or "sweep," customer funds into shares of the Fund. As
further described below, Wells Fargo Bank, N.A. ("Wells Fargo Bank") will serve
as a Servicing Agent, and will receive certain fees pursuant to a Shareholder
Servicing Agreement. Wells Fargo Bank also has entered into a Selling Agreement
with Stephens Inc. ("Stephens") pursuant to which it will receive certain fees.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
CONSTANT $1.00 NET ASSET VALUE PER SHARE.
Please read this Prospectus 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 December 12, 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 1-800-222-8222. If you hold shares in an IRA, please
call 1-800-BEST-IRA for information or assistance. The SAI and other
information is available on the SEC's Web site (http://www.sec.gov).
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 FUND'S INVESTMENT ADVISER AND ADMINISTRATOR AND IS
COMPENSATED FOR PROVIDING THE FUND WITH CERTAIN OTHER SERVICES. STEPHENS, WHICH
IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE FUND'S SPONSOR, CO-
ADMINISTRATOR AND DISTRIBUTOR.
PROSPECTUS DATED DECEMBER 12, 1997
PROSPECTUS
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Table of Contents
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<TABLE>
<S> <C>
Prospectus Summary 1
Summary of Fund Expenses 3
Explanation of Tables 3
Financial Highlights 4
How the Fund Works 6
The Fund and Management 9
Investing in the Fund 10
Dividend and Capital Gain Distributions 12
Management, Distribution and Servicing Fees 13
Taxes 16
Prospectus Appendix -- Additional Investment Policies A-1
</TABLE>
PROSPECTUS i
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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 the
Prospectus and SAI.
Q. WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
A. The Fund seeks to provide investors with a high level of current income,
while preserving capital and liquidity. The Fund seeks to achieve its
investment objective by investing in high-quality, short-term instruments,
including obligations of the U.S. Government, its agencies, or
instrumentalities (including government-sponsored enterprises), certain short-
term debt obligations of U.S. banks and U.S. branches of foreign banks, high-
quality commercial paper, and certain repurchase agreements and floating- and
variable-rate instruments. The Fund seeks to maintain a stable net asset value
of $1.00 per share. See "Investment Objective and Policies."
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 FDIC, nor are they insured or guaranteed
against loss of principal. Therefore, you 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 invest. 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 -- Risk Factors" below 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 your
investments. Wells Fargo Bank also provides the Fund with administration,
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, Distribution and
Servicing Fees."
Q. HOW DO I INVEST?
A. Shares of the Fund may be purchased on any day the Fund is open through a
Servicing Agent that has entered into a Shareholder Servicing Agreement with
the Company. There are no sales loads for purchasing shares of the Fund. There
is no minimum initial purchase or subsequent purchase amount applicable to Fund
shares. See "Purchase and Redemption of Shares."
1 PROSPECTUS
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Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends are declared daily and are paid monthly. Any capital gains are
distributed at least annually. Investment income available for distribution to
holders of a class of shares is reduced by the 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. Shares may be redeemed on any day the Fund is open for trading upon request
to a Servicing Agent. Proceeds of redemptions are credited to the Servicing
Agent's shareholder account with the Fund. The Fund imposes no redemption fees.
See "Purchase and Redemption of Shares."
PROSPECTUS 2
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Summary of Fund Expenses
SHAREHOLDER TRANSACTION EXPENSES
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<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price)............................................................... None
Maximum Sales Charge on Reinvested Distributions...................... None
Maximum Sales Charge on Redemptions................................... None
Redemption Fees....................................................... None
Exchange Fees......................................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fee.......................................................... 0.45%
Rule 12b-1 Fee.......................................................... 0.30%
Other Expenses.......................................................... 0.49%
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TOTAL FUND OPERATING EXPENSES........................................... 1.24%
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</TABLE>
EXAMPLE OF EXPENSES
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (A) a 5% annual return and (B) redemption at the end of each time
period indicated:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C>
$13 $39 $68 $150
</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. There are no sales loads or redemption fees charged by the Fund.
The tables do not reflect any charges that may be imposed by Servicing Agents
for services related to those provided under Shareholder Servicing Agreements
in connection with an investment in the Fund.
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell Fund
shares. There are no Shareholder Transaction Expenses for the Fund. However,
the Company reserves the right to impose a charge for wiring redemption
proceeds.
ANNUAL FUND OPERATING EXPENSES are based on applicable contract amounts for
"Management Fee" and "Rule 12b-1 Fee" and estimated amounts for "Other
Expenses" expected to be in effect during the current fiscal year. On December
12, 1997, the Overland Sweep Fund of Overland Express Funds, Inc. was
reorganized as the Overland Express Sweep Fund of the Company. The Overland
Fund is sometimes
3 PROSPECTUS
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referred to herein as the "predecessor portfolio." Wells Fargo Bank and
Stephens may voluntarily waive or reimburse all or a portion of their
respective fees charged to, or expenses paid by, the Fund. Any waivers or
reimbursements would reduce the Fund's total expenses. There is no assurance
that such waivers or reimbursements would continue. Long-term shareholders of
the Fund could pay more in distribution-related 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").
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.
Additional information regarding the Fund's expenses is included under "The
Fund and Management" and "Management, Distribution and Servicing Fees" and in
the SAI.
Financial Highlights
The following information has been derived from the Financial Highlights in
the audited financial statements for the year ended December 31, 1996 and the
unaudited financial statements for the six-month period ended June 30, 1997,
for the predecessor portfolio to the Fund. This information is provided to
assist you in evaluating the Fund's historical performance. The audited
financial statements were audited by KPMG Peat Marwick LLP. The audited
financial statements and the independent auditor's report thereon for the year
ended December 31, 1996 are incorporated by reference into the SAI. In
addition, the unaudited financial statements for the six-month period ended
June 30, 1997 also are incorporated by reference into the SAI. This information
should be read in conjunction with the predecessor portfolio's audited 1996
financial statements and unaudited 1997 semi-annual financial statements and
the notes thereto. The SAI has been incorporated by reference into this
Prospectus. During the periods shown, the predecessor portfolio invested all of
its assets in a master portfolio with the same investment objective and bore a
pro rata share of the corresponding master portfolio's expenses.
PROSPECTUS 4
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OVERLAND EXPRESS SWEEP FUND
FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
(UNAUDITED)
6 MONTHS YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1997 1996 1995 1994 1993 1992 1991/1/
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<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income.. 0.02 0.04 0.05 0.03 0.02 0.03 0.01
------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income..... (0.02) (0.04) (0.05) (0.03) (0.02) (0.03) (0.01)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ====== ======
Total return (not
annualized)............ 2.15% 4.29% 4.80% 3.11% 1.97% 2.31% 0.93%
Ratios/supplemental
data:
Net assets, end of
period (000).......... $2,076,137 $2,002,725 $1,209,183 $812,559 $528,072 $253,617 $14,010
Number of shares
outstanding, end of
period (000).......... 2,076,710 2,003,292 1,209,183 812,559 528,072 253,628 14,010
Ratios to average net
assets (annualized)/2/:
Ratio of expenses to
average net assets.... 1.25% 1.24% 1.25% 1.25% 1.25% 1.24% 1.23%
Ratio of net investment
income to average net
assets................ 4.31% 4.20% 4.70% 2.92% 1.67% 2.20% 3.46%
Ratio of expenses to
average net assets
prior to waived fees
and reimbursed
expenses.............. 1.26% 1.26% 1.28% 1.33% 1.31% 1.51% 6.92%
Ratio of net investment
income to average net
assets prior to waived
fees and reimbursed
expenses.............. 4.30% 4.18% 4.67% 2.84% 1.61% 1.93% (2.23)%
</TABLE>
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/1/The Fund commenced operations on October 1, 1991, as the Overland
Sweep Fund of Overland Express Funds, Inc.
/2/These ratios include expenses charged to the Master Portfolio.
5 PROSPECTUS
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How The Fund Works
INVESTMENT OBJECTIVE AND POLICIES
Set forth below is a description of the investment objective and related
policies of the Fund. The Fund seeks to maintain a dollar-weighted average
portfolio maturity of 90 days or less. There can be no assurance that the
Fund's investment objective will be achieved or that the Fund will be able to
maintain a net asset value of $1.00 per share. A more complete description of
the Fund's investments and investment activities is contained in "Prospectus
Appendix -- Additional Investment Policies" and the SAI.
The OVERLAND EXPRESS SWEEP FUND seeks to provide investors with a high level
of current income, while preserving capital and liquidity. The Fund seeks to
achieve its investment objective by investing in U.S. dollar-denominated
securities with remaining maturities not exceeding thirteen months, as defined
under the Investment Company Act of 1940 (the "1940 Act").
The Fund may invest in U.S. Government obligations, obligations of domestic
and foreign banks, commercial paper, certain floating- and variable-rate
instruments, repurchase agreements and certain short-term, U.S. dollar-
denominated obligations of domestic branches of foreign banks.
As a matter of fundamental policy, the Fund may borrow from banks up to 10% of
the current value of its net assets only for temporary purposes in order to
meet redemptions, and these borrowings may be secured by the pledge of up to
10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowing in excess of 5% of its net
assets exists). As a matter of fundamental policy, the Fund may not invest more
than 25% of its assets (i.e., concentrate) in any particular industry,
excluding U.S. Government obligations and obligations of domestic banks.
As a matter of non-fundamental policy, the Fund may invest up to 10% of the
current value of its net assets in repurchase agreements having maturities of
more than seven days, illiquid securities, and fixed time deposits that are
subject to withdrawal penalties and that have maturities of more than seven
days.
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
PROSPECTUS 6
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investment to the high credit quality instruments in which the Fund invests.
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. As with all
mutual funds, there can be no assurance that the Fund will achieve its
investment objective.
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.
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, Fund purchases must present minimal credit risks and be of the
highest quality (i.e., be rated in the top rating category by the requisite
NRSROs or, if unrated, determined to be of comparable quality to such rated
securities by the Fund's 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. In addition, the Fund emphasizes safety of principal and high credit
quality. In particular, the internal investment policies of the Fund's
investment adviser prohibits 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
7 PROSPECTUS
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Cost of Funds Index ("COFI") floaters. The Fund may invest only in variable or
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 ("LIBOR"),
the prime rate, published commercial paper rates, federal funds rates, Public
Securities Associates ("PSA") floaters or JJ Kenney index floaters.
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 it will
always be able to do so. See "Prospectus Appendix -- Additional Investment
Policies" and the SAI for further information about investment policies and
risks.
PERFORMANCE
The performance of the Fund may be advertised from time to time in terms of
current yield, effective yield or average annual 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.
Yield refers to the income generated by an investment in the Fund's class 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.
Average annual return of a class of shares is based on the overall dollar or
percentage change of an investment in the Fund's class and assumes the
investment is at NAV and all dividends and distributions attributable to a
class are also reinvested at NAV in shares of the class.
In addition to presenting these standardized performance calculations, at
times, the Fund also may present nonstandard performance figures, such as
yields and effective yields for a 30-day period or, in sales literature,
distribution rates. Because of the differences in the fees and/or expenses
borne by shares of each class of the Fund, the performance figures on such
shares can be expected, at any given time, to vary from the performance figures
for other classes of the Fund.
Additional performance information is contained in the SAI under "Performance
Calculations" and in the Annual Report, which are available upon request
without charge by calling the Company at 1-800-222-8222 or by writing the
Company at the address shown on the front cover of the Prospectus.
PROSPECTUS 8
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The Fund And Management
THE FUND
The Fund is one of the funds in the Stagecoach Family of Funds. The Company
was organized as a Maryland corporation on September 9, 1991 and currently
offers shares of more than twenty-five other funds. For information on another
fund or a class of shares, please call Stagecoach Shareholder Services at 1-
800-222-8222 or write the Company at the address shown on the front cover of
the Prospectus.
The Company's Board of Directors supervises the funds' activities and monitors
their contractual arrangements with various service providers. Although the
Company is not required to hold annual shareholder meetings, special meetings
may be required for purposes such as electing or removing Directors, approving
advisory contracts and distribution plans, and changing a fund's investment
objective or fundamental investment policies. All shares of the Company have
equal voting rights and will be voted in the aggregate, rather than by fund or
class, unless otherwise required by law (such as when the voting matter affects
only one fund or class). As a Fund shareholder, you are entitled to one vote
for each share you own and fractional votes for fractional shares you own. See
"Management" in the SAI for more information on the Company's Directors and
Officers. A more detailed description of the voting rights and attributes of
the shares is contained under "Capital Stock" in the SAI.
MANAGEMENT
Wells Fargo Bank serves as the Fund's investment advisor, administrator,
transfer and dividend disbursing agent and custodian. In addition, Wells Fargo
Bank serves as a Shareholder Servicing Agent and as a Selling Agent of 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
August 1, 1997, Wells Fargo Bank and its affiliates provided investment
advisory services for approximately $57 billion of assets of individuals,
trusts, estates and institutions. Wells Fargo Bank also serves as investment
adviser to other separately managed funds of the Company, and as investment
adviser or sub-adviser to separately managed funds of 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.
Wells Fargo Bank deals, trades and invests for its own account in the types of
securities in which the Fund may invest and may have deposit, loan and
commercial banking relationships with the issuers of securities purchased by
the Fund. Wells Fargo Bank has informed the Company that in making its
investment decisions it does not obtain or use material inside information in
its possession. Purchase and sale orders of the securities held by the Fund may
be combined with those of other accounts that Wells Fargo Bank manages or
advises, and for which it has brokerage placement
9 PROSPECTUS
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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 transaction costs among the participants
equitably. From time to time, the Fund, to the extent consistent with its
investment objective, policies and restrictions, may invest in securities of
companies with which Wells Fargo Bank has a lending relationship.
-----------------------
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
Shares of the Fund are offered exclusively to customers of Servicing Agents
who have entered into a Shareholder Servicing Agreement with the Company on
behalf of the Fund. The Shareholder Servicing Agreements contemplate that
customers of a Servicing Agent will have entered into agency agreements with
such Servicing Agent whereby the Servicing Agent is authorized to invest
certain amounts maintained by the customer in an account with the Servicing
Agent in shares of the Fund through a single account in the name of the
Servicing Agent on behalf of its customers.
Shares of the Fund may be purchased on any day the Fund is open for business
(a "Business Day"). The Fund is open Monday through Friday and is closed on
weekends and federal bank holidays. On any day the trading markets for both
U.S. government securities and money market instruments close early, the Fund
will close early. On these days, the NAV calculation time and the dividend,
purchase and redemption cut-off times discussed below may be earlier than 9:00
a.m. (Pacific time).
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.
PROSPECTUS 10
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SHARE VALUE
Net asset value per share for the Fund is determined by Wells Fargo Bank on
each Business Day. The Fund is open Monday through Friday and is closed
weekends and standard New York Stock Exchange holidays.
The net asset value per share of the Fund is determined by dividing the value
of the total assets of the Fund, less all of its liabilities by the total
number of outstanding shares of the Fund. The net asset value of the Fund is
determined as of 9:00 a.m. and 1:00 p.m. (Pacific time) each Business Day. It
is anticipated that the net asset value of each share of the Fund will remain
constant at $1.00, although there is no assurance that the Fund will maintain a
stable net asset value.
The Fund uses the amortized cost method to value its portfolio securities. The
amortized cost method involves valuing a security at its cost and amortizing
any discount or premium over the period until maturity, generally without
regard to the impact of fluctuating interest rates on the market value of the
security.
PURCHASE OF SHARES
Fund shares are offered continuously at the net asset value next determined
after a purchase order is received by the Servicing Agent. The Servicing Agent
is responsible for the prompt transmission of the purchase order to the Fund.
The net asset value is expected to remain constant at $1.00. No sales loads are
imposed.
Shares of the Fund may be purchased on any Business Day. There is no minimum
initial or subsequent purchase amount applicable to Fund shares. The Company
reserves the right to reject any purchase order for Fund shares. All amounts
accepted will be invested in full and fractional shares. Inquiries regarding
purchases and redemptions may be directed to the Company at 1-800-222-8222 or
at the address on the back cover of the Prospectus.
HOW TO REDEEM SHARES
Shares may be redeemed at their next determined net asset value after the
Servicing Agent has received a redemption order. The Servicing Agent is
responsible for the prompt transmission of the redemption order to the Fund.
The Company does not charge redemption fees. Proceeds of redemptions will be
credited to the Servicing Agent's shareholder account with the Fund.
The Shareholder Servicing Agent may charge you a service fee. In addition, it
may benefit from the use of your redemption proceeds until any check it issues
to you has cleared or until such proceeds have been disbursed or reinvested on
your behalf.
11 PROSPECTUS
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STATEMENTS AND REPORTS
The Company, or a Shareholder Servicing Agent on its behalf, typically sends
you a monthly statement of your Fund account after every month in which there
has been a transaction that affects your share balance or your Fund account
registration. Every January, you will be provided a statement, which is also
filed with the IRS, with tax information for the previous year to assist you in
tax return preparation. At least twice a year, the Company's financial
statements are mailed to shareholders of record.
Dividend and Capital Gain Distributions
The Net Income (as defined below) of the Fund is allocated daily to all
investors of record as of 9:00 a.m. (Pacific time) on each day that Wells Fargo
Bank is open (a "Bank Business Day").
Dividends of the Fund declared in, and attributable to, any month are paid on
the last Business Day of the month and generally are mailed early in the
following month. Shareholders of the Fund who redeem shares prior to a dividend
payment date will be entitled to all dividends declared but unpaid prior to
redemption on such shares on the next dividend payment date.
The net income of the Fund (from the time of the immediately preceding
determination thereof) consists of (i) all income accrued, less the
amortization of any premium, on the assets of the Fund, less (ii) all actual
and accrued expenses of the Fund determined in accordance with generally
accepted accounting principles. Interest income includes discount earned
(including both original issue and market discount) on discount paper accrued
ratably to the date of maturity and any net realized short-term gains or losses
on the assets of the Fund.
Dividends and any capital gain distributions paid by the Fund will be
reinvested in additional shares of the Fund at net asset value and credited to
an investor's account on the payment date.
Since the net income of the Fund is declared as a dividend each time it is
determined, the net asset value per share of the Fund is expected to remain
constant at $1.00 per share immediately after each such determination and
dividend declaration.
Net Income for a Saturday, Sunday or Holiday are declared payable to
shareholders of record as of the preceding Business Day. You have several
options for receiving dividend and capital gain distributions. They are
discussed under "Additional Shareholder Services -- Dividend and Capital Gain
Distribution Options" below.
PROSPECTUS 12
<PAGE>
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 direction in connection with the management of the Fund's assets. The
adviser also furnishes the Board of Directors with periodic reports on the
Fund's investment strategies and performance. For these services, the adviser
is entitled to a monthly investment advisory fee at the annual rate of 0.45% of
the average daily net assets of the Fund. 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. For the year ended December 31, 1996, Wells Fargo Bank was paid
at the annual rate of 0.25% of the average daily net assets of the predecessor
portfolio's Master Portfolio as compensation for its services as investment
adviser.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank serves as the Fund's custodian and transfer and dividend
disbursing agent. Under the Custody Agreement with Wells Fargo Bank, the Fund
may, at times, borrow money from Wells Fargo Bank as needed to satisfy
temporary liquidity needs. Wells Fargo Bank charges interest on such overdrafts
at a rate determined pursuant to the Fund's Custody Agreement. Wells Fargo Bank
performs its custodial and transfer and dividend disbursing agency services at
525 Market Street, San Francisco, California 94105.
SHAREHOLDER SERVICING AGENT
The Company has entered into a Shareholder Servicing Agreement on behalf of
the Fund with Wells Fargo Bank, and may enter into such Agreements with one or
more other financial institutions which desire to act as Servicing Agents.
Pursuant to each such Shareholder Servicing Agreement, the Servicing Agent, as
agent for its customers, will, among other things: automatically invest cash
balances maintained in customer accounts with the Servicing Agent into the
Fund, and redeem shares out of the Fund, in the amounts specified pursuant to
agency agreements between the Servicing Agent and its customers; maintain a
single shareholder account for the benefit of its customers with the Fund;
provide sub-accounting services to monitor and account for its customers'
beneficial ownership of shares of the Fund held in the Servicing Agent's
shareholder account; answer customer inquiries regarding account status and
history, purchases and redemptions of shares of the Fund, Fund performance and
certain other matters pertaining to the Fund; assist its customers in
designating and changing account designations and addresses; process Fund
purchase and redemption transactions;
13 PROSPECTUS
<PAGE>
forward and receive funds in connection with purchases or redemptions of shares
of the Fund; provide periodic statements showing a customer's subaccount
balance; furnish (either separately or on an integrated basis with other
reports sent to a customer by the Servicing Agent) monthly statements and
confirmations of purchases and redemptions of Fund shares in the Servicing
Agent's shareholder account on behalf of the customer; forward to its customers
proxy statements, annual reports, updated prospectuses and other communications
from the Fund to shareholders as required; receive, tabulate and forward to the
Company proxies executed by or on behalf of its customers with respect to
meetings of shareholders of the Fund; and provide such other related services,
and necessary personnel and facilities to provide all of the shareholder
services contemplated by the Shareholder Servicing Agreement, in each case, as
the Company or a customer of the Servicing Agent may reasonably request. All
purchases and redemptions are effected through Stephens as the Fund's
Distributor.
For providing these services, each Servicing Agent is entitled to receive a
fee from the Fund, which may be paid periodically, of up to 0.30%, on an
annualized basis, of the average daily net assets of the Fund represented by
shares owned of record by the Servicing Agent on behalf of its customers, or an
amount which, when considered in conjunction with amounts payable pursuant to
the Fund's Distribution Agreement, equals the maximum amount payable to the
Servicing Agent under applicable laws, regulations or rules, whichever is less.
A Servicing Agent also may impose certain conditions on its customers, subject
to the terms of this Prospectus, in addition to or different from those imposed
by the Fund, such as requiring a minimum initial investment or the payment of
additional fees for additional services offered to the customer. The exercise
of voting rights and the delivery to customers of shareholder communications
will be governed by the customers' agency agreements with the Servicing Agent.
The Servicing Agent has agreed to forward to its customers who are shareholders
of the Fund appropriate prior written disclosure of any fees that it may charge
them directly and to provide written notice at least 15 days prior to
imposition of 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 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 and officers who are affiliated
with Stephens. For these administrative services, Wells Fargo Bank and
PROSPECTUS 14
<PAGE>
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.
Stephens previously provided substantially the same services as sole
administrator to the predecessor portfolio and was entitled to receive a
monthly fee from the Fund at an annual rate of 0.025% of its average daily net
assets.
SPONSOR AND DISTRIBUTOR
Stephens, 111 Center Street, Little Rock, Arkansas 72201, 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. Stephens and its
predecessor have been providing securities and investment services for more
than sixty 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.
The Company's Board of Directors has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act on behalf of the Fund. Pursuant to
the Plan, the Company may pay to Stephens as compensation for distribution-
related services provided, or reimbursement for distribution related expenses
incurred, a monthly fee at the annual rate of 0.30% of the Fund's average daily
net assets. The actual fee payable to Stephens shall, within such limit, be
determined from time to time by mutual agreement between the Company and
Stephens. Stephens may enter into selling agreements with one or more selling
agents under which such agents may receive compensation for distribution-
related services from Stephens, including, but not limited to, commissions or
other payments to such agents based on the average daily net assets of Fund
shares attributable to them. Stephens may retain any portion of the total
distribution fee payable hereunder to compensate it for distribution-related
services provided by it or to reimburse it for other distribution-related
expenses.
Distribution-related expenses include the cost of preparing and printing
prospectuses and other promotional materials and of delivering prospectuses and
those materials to prospective shareholders. Distribution-related services may
include, among other services, costs and expenses for advertisements, sales
literature, direct mail or any 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.
15 PROSPECTUS
<PAGE>
Stephens has entered into a Selling Agreement with Wells Fargo Bank, pursuant
to which Wells Fargo Bank will receive periodic payments based on the average
daily net assets of Fund shares attributable to its customers.
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 the Company expenses
such as fees and expenses of its independent auditors and legal 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, 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
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
capital gains, if any, are designated as capital gain distributions and may be
taxable to the Fund's individual, trust and estate shareholders at preferential
rates. See "Additional Information Concerning Taxes -- Capital Gain
Distributions" in the SAI. 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. Distributions declared in October,
November, and December and distributed by the following January will be taxable
as if they were paid by December 31.
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 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. Further federal tax
considerations are discussed in the SAI.
PROSPECTUS 16
<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:
(i) obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities (including government-sponsored enterprises);
(ii) negotiable certificates of deposit, fixed time deposits, bankers'
acceptances or other short-term obligations of U.S. banks (including
foreign branches) that have more than $1 billion in total assets at the
time of investment and are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are insured
by the FDIC;
(iii) commercial paper rated at the date of purchase "Prime-1" by Moody's
Investors Service, Inc. ("Moody's") or "A-1" or "A-1+" by Standard &
Poor's Ratings Group ("S&P");
(iv) commercial paper unrated at the date of purchase but secured by a
letter of credit from a U.S. bank that meets the above criteria for
investment;
(v) certain floating- and variable-rate instruments;
(vi) certain repurchase agreements; and
(vii) short-term, U.S. dollar-denominated obligations of domestic
branches of foreign banks that at the time of investment have more than
$10 billion, or the equivalent in other currencies, in total assets.
Under the 1940 Act, the Fund is classified as "diversified."
Money Market Instruments
Money market instruments consist of: (a) short-term securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities (including
government-sponsored enterprises) ("U.S. Government obligations"); (b)
negotiable certificates of deposit, bankers' acceptances and fixed time
deposits and other short-term obligations of domestic banks (including foreign
branches) that have more than $1 billion in total assets at the time of the
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; (c)
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; (d) certain repurchase agreements; and (e) short-term U.S.
dollar-
A-1 PROSPECTUS
<PAGE>
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; and (iii) have branches or agencies
in the United States.
U.S. Government Obligations
U.S. Government obligations include securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. Payment of principal and
interest on U.S. Government obligations may be backed by the full faith and
credit of the United States, as with Treasury bills, or may be backed solely by
the issuing or guaranteeing agency or instrumentality itself. 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, duration or value due to
their structure or contract terms.
Floating- and Variable-Rate Instruments
Certain of the debt instruments in which the Fund may invest may bear interest
rates that are periodically adjusted at specified intervals or whenever a
benchmark rate or index changes. These 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 pools of floating- and variable-rate
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 are permissible investments for 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.
PROSPECTUS A-2
<PAGE>
Letters of Credit
Certain of the debt obligations, certificates of participation, commercial
paper and other short-term obligations in which the Fund is permitted to invest
may be backed by an unconditional and irrevocable letter of credit of a bank,
savings and loan association or insurance company that assumes the obligation
for payment of principal and interest in the event of default by the issuer.
Letter of credit-backed investments must, in the opinion of Wells Fargo Bank,
be of investment quality comparable to other permitted high-quality investments
of the Fund.
Foreign Obligations
The Fund may invest up to 5% of its assets in high-quality, short-term
(thirteen months or less) 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 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.
Other Investment Companies
The Fund may invest in shares of other open-end, management investment
companies provided that any such investments will be limited to temporary
investments in shares of unaffiliated investment companies. A pro rata portion
of the unaffiliated investment company's expenses, in addition to the expenses
paid by the Fund, will be passed on to Fund shareholders.
Illiquid Securities
The Fund may invest in securities not registered under the Securities Act of
1933 and other securities subject to legal or other restrictions on resale.
Because such securities may be less liquid than other investments, they may be
difficult to sell promptly at an acceptable price. Delay or difficulty in
selling securities may result in a loss or be costly to the Fund.
INVESTMENT POLICIES AND RESTRICTIONS
The investment objective of the Fund may not be changed without approval of a
majority vote of the investors in the Fund. The classification of the Fund as
"diversified" may not be changed without the approval of the Fund's
shareholders.
A-3 PROSPECTUS
<PAGE>
As a matter of fundamental policy, the Fund may borrow from banks up to 10% of
the current value of its net assets only for temporary purposes in order to
meet redemptions, and these borrowings may be secured by the pledge of up to
10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowing in excess of 5% of its net
assets exists). As a matter of fundamental policy, the Fund may not invest more
than 25% of its assets (i.e., concentrate) in any particular industry,
excluding U.S. Government obligations and obligations of domestic banks.
As a matter of non-fundamental policy, the Fund may invest up to 10% of the
current value of its net assets in repurchase agreements having maturities of
more than seven days, illiquid securities, and fixed time deposits that are
subject to withdrawal penalties and that have maturities of more than seven
days.
PROSPECTUS A-4
<PAGE>
STAGECOACH FUNDS(R)
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH MONEY MARKET MUTUAL 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 either fund will meet this
goal. Yields and returns will vary with
market conditions.
RECYCLED LOGO
Printed on Recycled Paper SC 80 P (12/97)
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: (800) 222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated December 12, 1997
OVERLAND EXPRESS SWEEP FUND
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about the Overland Express Sweep Fund (the "Fund") of the
Stagecoach Family of Funds. The investment objective of the Fund is described in
the Prospectus. See "Investment Objective and Policies."
This SAI is not a prospectus and should be read in conjunction with the
Fund's Prospectus, dated December 12, 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>
Page
----
<S> <C>
General..................................................................... 1
Investment Restrictions..................................................... 1
Additional Permitted Investment Activities.................................. 3
Management.................................................................. 4
Calculation of Yield........................................................ 10
Determination of Net Asset Value............................................ 14
Additional Purchase and Redemption Information.............................. 15
Portfolio Transactions...................................................... 15
Fund Expenses............................................................... 18
Federal Income Taxes........................................................ 18
Capital Stock............................................................... 22
Other....................................................................... 23
Independent Auditors........................................................ 23
Financial Information....................................................... 23
Appendix.................................................................... A-1
</TABLE>
i
<PAGE>
GENERAL
The Company's Overland Express Sweep Fund was originally organized on
October 1 1991 as the Overland Sweep Fund (the "predecessor portfolio") of
Overland Express Funds, Inc. ("Overland"), another open-end management
investment company advised by Wells Fargo Bank. On July 23, 1997, the Boards of
the Directors of the Company and Overland approved an Agreement and Plan of
Consolidation providing for the transfer of the assets and stated liabilities of
the predecessor portfolio to the Company's Overland Express Sweep Fund. As a
result of the Consolidation, which took effect as of the date of this SAI, the
predecessor portfolio was reorganized as the Company's Overland Express Sweep
Fund. Prior to the Consolidation, the predecessor portfolio pursued its
investment objective by investing all of its assets in the Cash Investment Trust
Master Portfolio (the "Master Portfolio") of Master Investment Trust ("MIT").
The Fund invests directly in a portfolio of securities and does not invest in a
Master Portfolio.
INVESTMENT RESTRICTIONS
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 a
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 exceed 25%
of the current value of its respective total assets, provided that there is no
limitation with respect to investments in (i) obligations of the United States
Government, its agencies or instrumentalities, and (ii) 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) purchase or sell real estate or real estate limited partnership
interests (other than money market securities secured by real estate or
interests therein or securities issued by companies that invest in real estate
or interests therein), commodities or commodity contracts;
(3) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting;
1
<PAGE>
(5) make investments for the purpose of exercising control or management;
(6) issue senior securities, except that the Fund may borrow from banks up
to 10% of the current value of their respective 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 their respective net assets
(but investments may not be purchased while any such borrowing in excess of 5%
of their respective net assets exists);
(7) write, purchase or sell puts, calls, warrants or options or any
combination thereof, except that the Fund may purchase securities with put
rights in order to maintain liquidity; or
(8) make loans of portfolio securities or other assets, except that loans
for purposes of this restriction will not include the purchase of fixed time
deposits, repurchase agreements, commercial paper and other short-term
obligations, and other types of debt instruments commonly sold in a public or
private offering.
Non-Fundamental Investment Policies. The Fund is are subject to the
following non-fundamental policies:
The Fund may not:
(1) purchase or retain securities of any issuer if the officers or
directors of the Company or the Investment Adviser owning beneficially more than
one-half of one percent (0.5%) of the securities of the issuer together owned
beneficially more than 5% of such securities;
(2) purchase interests, leases, or limited partnership interests in oil,
gas, or other mineral exploration or development programs;
(3) invest in securities of issuers who, with their predecessors, have been
in existence less than three years, unless the securities are fully guaranteed
or insured by the U.S. Government, a state, commonwealth, possession, territory,
the District of Columbia or by an entity in existence at least three years, or
the securities are backed by the assets and revenues of any of the foregoing if,
by reason thereof, the value of its aggregate investments in such securities
will exceed 5% of its total assets; or
(4) invest or hold more than 10% of the current value of its net assets in
repurchase agreements maturing in more than seven days, fixed time deposits that
are subject to withdrawal penalties and that have maturities of more than seven
days, restricted securities (which are securities that must be registered under
the Securities Act of 1933 before they may be offered or sold to the public),
and illiquid securities.
2
<PAGE>
As provided in Rule 2a-7 under the Act, the Fund may only purchase
"Eligible Securities" (as defined in Rule 2a-7) and only if, immediately after
such purchase, the Fund would have no more than 5% of its total assets in "First
Tier Securities" (as defined in Rule 2a-7) of any one issuer, excluding
government securities and except as otherwise permitted for temporary purposes
and for certain guarantees and unconditional puts; the Fund would own no more
than 10% of the voting securities of any one issuer; the Fund would have no more
than 5% of its total assets in "Second Tier Securities" (as defined in Rule
2a-7); and the Fund would have no more than the greater of $1 million or 1% of
its total assets in Second Tier Securities of any one issuer.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Foreign Obligations. The Fund may invest a portion of its assets (no more
than 5%) in 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 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.
Unrated Investments. The Fund may purchase instruments that are not rated
if, in the opinion of Wells Fargo Bank as investment adviser, such obligations
are of comparable quality to other high-quality 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 requires an immediate sale of such security by the
Fund. To the extent the ratings given by Moody's Investors Service ("Moody's")
or Standard and Poor's Rating Group ("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 Prospectus and in this SAI. The ratings of
Moody's and S&P are more fully described in the Appendix to this SAI.
Repurchase Agreements. The Fund may enter into repurchase agreements
wherein the seller of a security to the Fund agrees to repurchase that security
from the Fund at a mutually agreed-upon time and price. The period of maturity
is usually quite short, often overnight or a few days, although it may extend
over a number of months. The Fund may enter into repurchase agreements only with
respect to U.S. Government obligations and other securities that are permissible
investments for the Fund. All repurchase agreements will be fully
collateralized at 102% based on values that are marked to market daily. The
maturities of the underlying securities in a repurchase agreement transaction
may be greater
3
<PAGE>
than twelve months. However, the term of any repurchase agreement on behalf of
the Fund will always be less than twelve months. If the seller defaults and the
value of the underlying securities has declined, the Fund may incur a loss. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the security, the Fund's disposition of the security may be delayed or limited.
The Fund may not enter into a repurchase agreement with a maturity of more
than seven days if, as a result, more than 10% of the market value of it's total
net assets would be invested in repurchase agreements with maturities of more
than seven days, restricted securities and/or illiquid securities. The Fund
will enter into repurchase agreements only with primary broker/dealers and
commercial banks that meet guidelines established by the Board of Directors of
the Company and that are not affiliated with Wells Fargo Bank. The Fund,
subject to the conditions described above, may participate in pooled repurchase
agreement transactions with other funds advised by Wells Fargo Bank.
MANAGEMENT
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Management of the Fund." The
principal occupations during the past five years of the Directors and principal
executive Officer of the Company are listed below. The address of each, unless
otherwise indicated, is 111 Center Street, Little Rock, Arkansas 72201.
Directors deemed to be "interested persons" of the Company for purposes of the
1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 46 Director, Executive Vice President of Stephens;
Chairman and Manager of Financial Services Group;
President 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 of Finance of the School
321 Beechcliff Court of Business and Accounting at Wake Forest
Winston-Salem, NC 27104 University since 1982.
Joseph N. Hankin, 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, N.Y. 10595 University Teachers College since 1976.
(appointed as of September 6, 1996)
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C>
Robert M. Joses, 79 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
</TABLE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer;
Charleston, SC 29401 Chairman of Renaissance Properties Ltd.;
President of Morse Investment Corporation;
and Co-Managing Partner of Main Street
Ventures.
Richard H. Blank, Jr., 41 Chief Operating Associate of Financial Services Group of
Officer, Stephens; Director of Stephens Sports
Secretary and Management Inc.; and Director of Capo Inc.
Treasurer
</TABLE>
Compensation Table
Year Ended March 31, 1997
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from 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
Joseph N. Hankin $-0- $-0-
Director
(appointed as of 9/6/96)
Zoe Ann Hines $-0- $-0-
Director
(resigned as of 9/6/96)
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>
5
<PAGE>
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. Prior to December 15, 1997, the Company, Overland, 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"). After the Consolidation and the winding down
of the affairs of Overland and MIT, the Company, Stagecoach Trust and Life &
Annuity Trust will be considered the only members of 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.
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. Wells Fargo
Bank furnishes the Fund with investment guidance and policy direction in
connection with daily portfolio management. Wells Fargo Bank furnishes to the
Board of Directors of the Company periodic reports on the investment strategy
and performance of the Fund. Wells Fargo Bank has agreed to provide to the Fund,
among other things, money market security and fixed-income research, analysis
and statistical and economic data and information concerning interest rate and
security market trends, portfolio composition, credit conditions and average
maturities of the investments of the Fund. For its services as investment
adviser to the Fund, Wells Fargo Bank is entitled to receive a monthly fee at
the annual rate of 0.45% of the Fund's average daily net assets.
Prior to the Consolidation, the predecessor portfolio invested all of its
assets in the Master Portfolio of MIT and did not retain an investment adviser.
Wells Fargo Bank served as investment adviser to the Master Portfolio in which
the predecessor portfolio invested and was entitled to receive a monthly fee at
the annual rate of 0.25% of the Master Portfolio's average daily net assets.
For the years ended December 31, 1994, 1995 and 1996, the Master Portfolio paid
to Wells Fargo Bank the following advisory fees and Wells Fargo Bank waived the
indicated amounts:
6
<PAGE>
<TABLE>
<CAPTION>
1994 1995 1996
Paid Waived Paid Waived Paid Waived
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
$1,426,685 $0 $1,902,572 $255,082 $3,310,083 $0
</TABLE>
The Fund's 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 Board of
Directors of the Company and (ii) by a majority of the Company's Directors 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.
Under the Administration and Co- Administration Agreements, Wells Fargo Bank and
Stephens provide as administration services, among other things: (i) general
supervision of the Fund's operations, including coordination of the services
performed by the 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
Directors. Wells Fargo Bank and Stephens also furnish office space and certain
facilities required for conducting the Fund's business 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 from the Fund a
monthly fee of 0.04% and 0.02%, respectively, of the average daily net assets of
the Fund.
Prior to the Consolidation, Wells Fargo Bank and Stephens served as
Administrator and Co-Administrator, respectively, to the predecessor portfolio
under substantially similar terms. Prior to February 1, 1997, Stephens served
as sole administrator to the Fund and provided the predecessor portfolio with
essentially the same services described above. Stephens was entitled to receive
a monthly fee at the annual rate of 0.05% of the Fund's average daily net
assets. For the years ended December 31, 1994, 1995 and 1996, the Predecessor
Fund paid administration fees to Stephens as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C>
$142,613 $215,624 $317,668
</TABLE>
Sponsor and Distributor. As discussed in the Fund's Prospectus under the
heading "Management of the Fund," Stephens serves as the Fund's sponsor and
distributor.
Distribution Plan. As indicated in the Prospectus, the Fund has adopted a
Plan under Section 12(b) of the Act and Rule 12b-1 thereunder.
7
<PAGE>
Pursuant to the Plan the Company may pay to Stephens Inc., as compensation
for distribution-related services provided, or distribution-related expenses
incurred, a monthly fee at the annual rate of 0.30% of the Fund's average daily
net assets. The actual fee payable to Stephens shall, within such limit, be
determined from time to time by mutual agreement between the Company and
Stephens. Stephens may enter into selling agreements with one or more selling
agents under which such agents may receive compensation for distribution-related
services from Stephens, including, but not limited to, commissions or other
payments to such agents based on the average daily net assets of Fund shares
attributable to them. Stephens may retain any portion of the total distribution
fee payable hereunder to compensate it for distribution-related services
provided by it or to reimburse it for other distribution-related expenses.
The Plan will continue in effect from year to year if such continuance is
approved by a majority vote of both the Directors of the Company and the
Qualified Directors. Agreements related to the Plan must also be approved by
such vote of the Directors and the Qualified Directors. Such agreements will
terminate automatically if assigned, and may be terminated at any time, without
payment of any penalty, by a vote of a majority of the outstanding voting
securities of the Fund. The Plan may not be amended to increase materially the
amounts payable thereunder without the approval of a majority of the outstanding
voting securities of the Fund, and no material amendment to the Plan may be made
except by a majority of both the Directors of the Company and the Qualified
Directors.
The Plan requires that the Treasurer of the Fund 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.
Prior to the Consolidation, the predecessor portfolio had adopted a
Rule 12b-1 Distribution Plan on behalf of its shares providing for payment to
the distributor of up to 0.55% of the predecessor portfolio's average daily net
assets. For the year ended December 31, 1996, the predecessor portfolio's
distributor received the following amount of 12b-1 fees for the specified
purposes set forth below under the predecessor portfolio's Rule 12b-1 Plan.
<TABLE>
<CAPTION>
Printing & Marketing Compensation
Total Mailing Prospectus Brochures to Underwriters
----- ------------------ --------- ---------------
<S> <C> <C> <C>
$7,290,299 N/A N/A $7,290,299
</TABLE>
For the year ended December 31, 1996, WFSI and its registered
representatives did not receive any compensation under the Plan.
Shareholder Servicing Agent. The Fund has entered into a shareholder
servicing agreement with Wells Fargo Bank. Prior to the Consolidation, the
predecessor portfolio,
8
<PAGE>
had entered into a similar shareholder servicing agreement with Wells Fargo
Bank. For the year ended December 31, 1996, the predecessor portfolio did not
pay any shareholder servicing fees to Wells Fargo Bank.
Shareholder Servicing Plan. As indicated in the Prospectus, the Fund has
adopted a Shareholder Servicing Plan ("Servicing Plan") on behalf of its shares.
Under the Servicing Plan and pursuant to the Servicing Agreements, the Fund may
pay one or more servicing agents, as compensation for performing certain
services, a fee at an annual rate of up to 0.30% of the average daily net assets
of the Fund attributable to the servicing agents customers. Servicing agents
may include broker/dealers, banks and other financial institutions, including
Wells Fargo Bank and its affiliates. The actual fee payable to servicing agents
is determined, within such limit, 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 Conduct Rules
of the NASD.
The Servicing Plan will continue in effect from year to year if such
continuance is approved by a majority vote of the Directors of the Company. Any
form of Servicing Agreement related to the Plan also must be approved by such
vote of the Directors. Servicing Agreements will terminate automatically if
assigned, and may be terminated at any time, without payment of any penalty, by
a vote of a majority of the outstanding shares of the Fund. The Servicing Plan
may not be amended to increase materially the amount payable thereunder without
the approval of a majority of the outstanding shares of the Fund, and no
material amendment to the Plan may be made except by a majority of the
Directors.
The Servicing Plan requires that the Company's Directors shall review, at
least quarterly, a written report of the amounts expended (and purposes
therefor) under the Plan.
Custodian. Wells Fargo Bank has been retained to act as custodian for the
Fund. The custodian, among other things, maintains a custody account or
accounts in the name of the Fund; receives and delivers all assets for the Fund
upon purchase and upon sale or maturity; collects and receives all income and
other payments and distributions on account of the assets of the Fund; and pays
all expenses of the Fund. For its services as Custodian, Wells Fargo Bank is
entitled to receive fees as follows: a net asset charge at the annual rate of
0.0167%, payable monthly, plus specified transaction charges. Wells Fargo Bank
also will provide portfolio accounting services under the Custody Agreement as
follows: a monthly base fee of $2,000 plus a net asset fee at the annual rate of
0.070% of the first $50,000,000 of the Fund's average daily net assets, 0.045%
of the next $50,000,000, and 0.020% of the average daily net assets in excess of
$100,000,000. Prior to the Consolidation, Wells Fargo Bank served as Custodian
to the predecessor portfolio. For the year ended December 31, 1996, the
predecessor portfolio did not pay any custody fees.
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
9
<PAGE>
and dividend disbursing agent for the Fund, Wells Fargo Bank is entitled to
receive monthly payments at the annual rate of 0.10% of the Fund's average daily
net assets. Under a prior transfer agency agreement with the predecessor
portfolio, Wells Fargo Bank was entitled to receive a base fee and per-account
fees. For the year ended December 31, 1996, the predecessor portfolio paid
$4,637,643 to Wells Fargo Bank for transfer and dividend disbursing agency
services.
Underwriting Commissions. For the year ended December 31, 1994, the
aggregate dollar amount of underwriting commissions (front-end sales loads and
CDSCs, if any) paid to Stephens on sales/redemptions of the Company's shares was
$5,415,227. Wells Fargo Securities Inc. ("WFSI"), an affiliated broker-dealer
of the Company, and its registered representatives received $904,274 of such
commissions.
For the year ended December 31, 1995, the aggregate dollar amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
shares was $1,584,545. Stephens retained $1,251,311 of such commissions. WFSI
and its registered representatives retained $333,234 of such commissions.
For the fiscal period ended September 30, 1996, the aggregate dollar amount
of underwriting commissions paid to Stephens on sales/redemptions of the
Company's shares was $2,917,738. Stephens retained $198,664 of such commissions.
WFSI and its registered representatives retained $2,583,027 and $136,047,
respectively, of such commissions.
For the six months ended March 31, 1997, the aggregate dollar amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
shares was $2,296,243. Stephens retained $241,806 of such commissions. WFSI
and its registered representatives retained $1,719,000 and $335,437,
respectively, of such commissions.
CALCULATION OF YIELD
Yield. As indicated in the Prospectus, the Fund may advertise certain yield
information. Current 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. The yield for the
predecessor portfolio for the seven-day period ended December 31, 1996 was
4.22%.
Effective yield for the Fund is calculated by determining the 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
10
<PAGE>
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. The
effective yield for the predecessor portfolio for the seven-day period ended
December 31, 1996 was 4.31%.
The Fund's yield 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 incurred by or allocated
to the Fund.
Yield information for the Fund may be useful in reviewing the performance
of the Fund and for providing a basis for comparison with investment
alternatives. The 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.
In addition to the above performance information, the Fund may advertise
average annual total return information. Average annual total return refers to
the average annual compounded rates of return over one-, five-, and ten-year
periods (or the life of the Fund, which periods are stated in the
advertisement), and is measured by comparing the value of an investment in the
Fund at the beginning of the relevant period to the redemption value at the end
of the period and annualizing the result, assuming that all Fund dividends and
capital gains distributions are reinvested.
Other. From time to time and only to the extent the comparison is
appropriate for the Fund, the Company may quote the Fund's performance or price-
earning ratio in advertising and other types of literature as compared to the
performance of the Lehman Brothers Municipal Bond Index, 1-Year Treasury Bill
Rate, the S&P Index, the Dow Jones Industrial Average, the Lehman Brothers 20+
Treasury Index, the Lehman Brothers 5-7 Year Treasury Index, Donoghue's Money
Fund Averages, Real Estate Investment Averages (as reported by the National
Association of Real Estate Investment Trusts), Gold Investment Averages
(provided by the World Gold Council), Bank Averages (which is calculated from
figures supplied by the U.S. League of Savings Institutions based on effective
annual rates of interest on both passbook and certificate accounts), average
annualized certificate of deposit rates (from the Federal Reserve G-13
Statistical Releases or the Bank Rate Monitor), the Salomon One Year Treasury
Benchmark Index, the Consumer Price Index (as published by the U.S. Bureau of
Labor Statistics), Ten Year U.S. Government Bond Average, S&P's Corporate Bond
Yield Averages, Schabacter Investment Management Indices, Salomon Brothers High
Grade Bond Index, Lehman Brothers Long-Term High Quality Government/Corporate
Bond Index, other managed or unmanaged indices or performance data of bonds,
stocks or government securities (including data provided by Ibbotson
Associates), or by other services, companies, publications or persons who
monitor mutual funds on overall performance or other criteria.
11
<PAGE>
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stock prices.
The Fund's performance also may be compared to those of other mutual funds
having similar objectives. This comparative performance could be expressed as a
ranking prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the performance of mutual funds. The 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. Any such comparisons may be useful to investors who wish to compare the
Fund's past performance with that of its competitors. Of course, past
performance cannot be a guarantee of future results. The Company also may
include, from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
In addition, the Company also may use, in advertisements and other types of
literature, information and statements: (1) showing that bank savings accounts
offer a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth; and (2) describing Wells Fargo Bank, and its
affiliates and predecessors, as one of the first investment managers to advise
investment accounts using asset allocation and index strategies. The Company
also may include in advertising and other types of literature information and
other data from reports and studies prepared by the Tax Foundation, including
information regarding federal and state tax levels and the related "Tax Freedom
Day."
From time to time the Company may reprint, reference or otherwise use
material from magazines, newsletters, newspapers and books including, but not
limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
the Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in the Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of the Fund or the general economic, business,
investment, or financial environment in which the Fund operates; (iii) the
effect of tax-deferred compounding on the investment returns of the Fund, or on
returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in the Fund (or returns in general) on a tax-deferred basis (assuming
reinvestment of capital gains and dividends and
12
<PAGE>
assuming one or more tax rates) with the return on a taxable basis; and (iv) the
sectors or industries in which the Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate the Fund's
historical performance or current or potential value with respect to the
particular industry or sector.
The Company also may discuss in advertising and other types of literature
that the Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as S&P or Moody's. Such rating would assess
the creditworthiness of the investments held by the Fund. The assigned rating
would not be a recommendation to purchase, sell or hold the Fund's shares since
the rating would not comment on the market price of the Fund's shares or the
suitability of the Fund for a particular investor. In addition, the assigned
rating would be subject to change, suspension or withdrawal as a result of
changes in, or unavailability of, information relating to the Fund or its
investments. The Company may compare the Fund's performance with other
investments which are assigned ratings by NRSROs. Any such comparisons may be
useful to investors who wish to compare the Fund's past performance with other
rated investments.
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Capital Management, Inc.
(formerly, Wells Fargo Investment Management) a subsidiary of Wells Fargo Bank,
is listed in the top 100 by Institutional Investor magazine in its July 1997
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 its investment adviser or sub-adviser and the total amount of
assets and mutual fund assets managed by Wells Fargo Bank. As of August 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 $19 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
13
<PAGE>
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
Net asset value per share for the Fund is determined on each day the Fund
is open as of 9:00 a.m. and 1:00 p.m. (Pacific time).
As indicated under "Determination of Net Asset Value, Dividends and
Distributions" 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
Act. The amortized cost method involves valuing a security at its cost and
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 investors 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 investments 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 investors 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 Eligible Securities
determined by the Company's 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 is required to establish procedures
designed to stabilize, to the extent reasonably possible, the Fund's net asset
value. Such procedures include review of the Fund's portfolio 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 within 1/2 of 1% of the value 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, the Board will
take such corrective action as it regards as necessary and appropriate,
including the sale of portfolio instruments prior to maturity to
14
<PAGE>
realize capital gains or losses or to shorten average portfolio maturity,
withholding dividends or establishing a net asset value by using available
market quotations.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day the Fund is open. The Fund is open for
business each day the New York Stock Exchange ("NYSE") is open for trading (a
"Business Day"). Currently, the NYSE is closed on New Year's Day, Martin Luther
King Jr. Day, President's 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 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
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the securities at a net price. Debt securities also may be purchased in
underwritten offerings and may be purchased directly from the issuer. Generally,
U.S. Government Obligations, 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 Company are prohibited from dealing with the Company as a
principal in the purchase and sale of securities unless an exemptive order
allowing such transactions is obtained from the SEC or an exemption is otherwise
available. The Fund may purchase municipal or other obligations from
underwriting syndicates of which Stephens or Wells Fargo Bank is a member under
certain conditions in accordance with the provisions of a rule adopted under the
1940 Act and in compliance with procedures adopted by the Board of Directors.
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. While Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions, the Fund will not
necessarily be paying the lowest spread or commission available.
In assessing the best overall terms available for any transaction, Wells
Fargo Bank considers factors deemed relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
Wells Fargo Bank may cause the 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 Wells Fargo Bank
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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 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 program. 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 Board of 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.
Brokerage Commissions. For the year ended December 31, 1996, the
predecessor portfolio and the Master Portfolio did not pay brokerage
commissions.
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Securities of Regular Broker/Dealers. As of December 31, 1996, the Master
Portfolio owned securities (pooled repurchase agreements) of its "regular
brokers or dealers" or their parents, as defined in the 1940 Act as follows:
$45,507,000 in Goldman Sachs & Co., $13,000,000 in Morgan Stanley, $68,637,000
in JP Morgan, and $9,319,000 in HSBC.
Portfolio Turnover. Because the investments of the Fund consist of
securities with relatively short-term maturities, the Fund can expect to
experience high portfolio turnover. 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.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees from the
Fund in whole or in part. Any such waiver will reduce the Fund's expenses and,
accordingly, have a favorable impact on it's performance. 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
auditors, 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
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectus describes
generally the tax treatment of distributions by the Fund. This section of the
SAI includes additional information concerning federal income taxes.
In General. 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
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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 dividends, interest, certain payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related to
the regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) 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.
In addition, the Fund must, in general, derive less than 30% of its gross
income from the sale or other disposition of securities or options thereon held
for less than three months. However, this restriction has been repealed with
respect to taxable years beginning after August 5, 1997.
The Fund must also distribute or be deemed to distribute to its
shareholders at least 90% of the Fund's net investment income earned in each
taxable year. In general, these distributions must actually or be deemed to be
made in the taxable year. However, in certain circumstances, such distributions
may be made in the 12 months following the taxable year. The Fund intends to pay
out substantially all of its net investment income and net realized capital
gains (if any) for each year.
Excise Tax. A 4% nondeductible excise tax will be imposed on the Fund (other
than to the extent of its tax-exempt interest income) to the extent it does not
meet certain minimum distribution requirements by the end of each calendar year.
The Fund intends to 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.
Corporate shareholders of the Fund may be eligible for the
dividends-received deduction on dividends distributed out of the Fund's net
investment income attributable to dividends received from domestic corporations,
which, if received directly by the corporate shareholder, would qualify for such
deduction. In order to qualify for the
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dividends-received deduction, a corporate shareholder must hold the Fund shares
paying the dividends upon which the deduction is based for at least 46 days.
Taxation of Fund Investments. Except as provided herein, gains and losses
on the sale of portfolio securities by the Fund will generally be capital gains
and losses. Such gains and losses will ordinarily be long-term capital gain and
loss if the securities have been held by the Fund for more than 12 months at the
time of disposition of the securities (however, see "Capital Gain
Distributions" below).
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, but was not previously recognized pursuant to an available
election, during the term the Fund held the debt obligation.
Capital Gain Distributions. Distributions which are designated by the Fund
as capital gain distributions will be taxed to shareholders as net capital gain
(generally, the excess of net long-term capital gain over net short-term capital
loss), to the extent such distributions are attributable to net capital gain of
the Fund, 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.
The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers were generally taxed at a maximum rate of 28% on net
capital gain. Noncorporate taxpayers are now generally taxed at a maximum rate
of 20% on net capital gain attributable to gains realized on the sale of
property held for greater than 18 months, and a maximum rate of 28% on net
capital gain attributable to gain realized on the sale of property held for
greater than 1 year and 18 months or less. The 1997 Act retains the treatment of
short-term capital gain and did not affect the taxation of corporate taxpayers.
The Treasury is authorized to issue regulations for application of the reduced
capital gain tax rates enacted under the 1997 Act to pass-through entities,
including regulated investment companies. Noncorporate shareholders of the Fund
may therefore qualify for the reduced rate of tax on capital gain dividends paid
by the Fund.
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. A disposition of Fund shares pursuant to
redemption (including a redemption in-kind) or exchanges will ordinarily result
in a taxable capital gain or loss, depending on the amount received for the
shares (or are deemed to receive in the case of an exchange) and the cost of
your shares.
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 or load on a
new purchase of shares of the Fund or a different regulated investment company,
the sales charge or load previously incurred acquiring the Fund's shares shall
not be taken into account (to the extent such previous sales charge or load does
not exceed the reduction in sales charge or load 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.
In addition, 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. The foregoing recharacterization rule does
not apply to losses realized under a periodic redemption plan.
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 to reduce or eliminate the benefit of
exemptions and deductions); the maximum individual marginal tax rate applicable
to net capital gains is 28% (see "Capital Gain Distributions" above); and the
maximum corporate tax rate applicable to ordinary income and net capital gains
is 35% (marginal tax rates may be higher for some corporations to reduce or
eliminate the benefit of lower marginal income tax rates). 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,
source of income and other matters.
Foreign Shareholders. Under the Code, distributions of net investment
income by the Fund to a nonresident alien individual, foreign trust (i.e., trust
which a U.S. court if able to exercise primary supervision over administration
of that trust and one or more U.S. persons have authority to control substantial
decisions of that trust), foreign estate (i.e., the income of which is not
subject to U.S. tax regardless of source), 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). Such tax withholding generally is not
refundable. 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. Furthermore,
distributions of net long-term capital gains are not generally subject to tax
withholding.
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 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.
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CAPITAL STOCK
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Organization and Capital Stock."
The Fund is a fund in the Stagecoach Family of Funds. The Company was
organized as a Maryland corporation on September 9, 1991 and currently offers
shares of over thirty 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, one or more classes 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 1-800-222-8222 if you would like additional
information about other funds or classes of shares offered.
With respect to matters affecting one class but not another, shareholders
vote as a class; for example, the approval of a Plan. 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
a fund's fundamental investment policy affects only one series and would be
voted upon only by shareholders of the fund involved. Additionally, approval of
an advisory contract, since it affects only one fund, is a matter to be
determined separately by series. Approval by the shareholders of one series is
effective as to that series whether or not sufficient votes are received from
the shareholders of the other series to approve the proposal as to those series.
As used in the Prospectus and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of a 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.
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Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. The Company may dispense with an
annual meeting of shareholders in any year in which it is not required to elect
Directors under the 1940 Act.
Each share represents an equal proportional interest in a Fund with each
other share of the same class and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Fund as
are declared in the discretion of the Directors. In the event of the liquidation
or dissolution of the Company, shareholders of a Fund are entitled to receive
the assets attributable to that Fund that are available for distribution, and a
distribution of any general assets not attributable to a particular Fund that
are available for distribution in such manner and on such basis as the Directors
in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and non-assessable by the Company.
As of August 31, 1997, no shareholders were known by the Company to own 5%
or more of the predecessor portfolio's outstanding shares.
OTHER
The Company's Registration Statement, including the Prospectus and SAI for
the Fund, and the exhibits filed therewith, may be examined at the office of the
SEC in Washington, D.C. Statements contained in the Prospectus or the SAI as to
the contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditors for the
Company. KPMG Peat Marwick LLP provides audit services, tax return preparation
and assistance and consultation in connection with review of certain Securities
and Exchange Commission filings. KPMG Peat Marwick LLP's address is Three
Embarcadero Center, San Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments and unaudited financial statements for the
predecessor portfolio and Master Portfolio for the six month period ended June
30, 1997 are hereby incorporated by reference to the Overland Semi-Annual
Reports as filed with the SEC on September 3, 1997.
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The portfolio of investments, audited financial statements and independent
auditors' report for the predecessor portfolio for the year ended December 31,
1996, are hereby incorporated by reference to the Overland Annual Reports as
filed with the SEC on March 11, 1997.
The Company's Annual Reports for the fiscal period ended March 31, 1997,
were filed with the SEC on June 4, 1997. Annual Reports may be obtained by
calling 1-800-222-8222.
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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 two highest ratings for corporate bonds are "Aaa" and "Aa."
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. Moody's applies numerical
modifiers: 1, 2 and 3 in the "Aa" category 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 two highest ratings for corporate bonds are "AAA" and "AA." 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 obligations only in small degree." The ratings in the "AA"
category may be modified by the addition of a plus or minus sign to show
relative standing within the category.
Commercial Paper
Moody's: The highest rating for corporate commercial paper is "P-1" (Prime-
1). Issuers rated "P-1" have a "superior ability for repayment of senior short-
term debt obligations."
S&P: The "A-1" rating for corporate commercial paper is 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-1
