<PAGE>
As filed with the Securities and Exchange Commission
on August 5, 1997
Registration No. 33-42927; 811-6419
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
[X]
Post-Effective Amendment No. 33
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 34 [X]
(Check appropriate box or boxes)
------------------------
STAGECOACH FUNDS, INC.
(Exact Name of Registrant as specified in Charter)
111 Center Street
Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)
--------------------------
Registrant's Telephone Number, including Area Code: (800) 643-9691
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With a copy to:
Robert M. Kurucza, Esq.
Marco E. Adelfio, Esq.
Morrison & Foerster LLP
2000 Pennsylvania Ave., N.W.
Washington, D.C. 20006
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant [ ] on _________ pursuant
to Rule 485(b), or to Rule 485(b)
[X] 60 days after filing pursuant [ ] on _________ pursuant
to Rule 485(a)(1), or to Rule 485(a)(1)
[ ] 75 days after filing pursuant [ ] on ___________pursuant
to Rule 485(a)(2), or to Rule 485(a)(2)
<PAGE>
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has registered an indefinite number of shares of its Common
Stock, $.001 par value, under the Securities Act of 1933, pursuant to Rule 24f-2
under the Investment Company Act of 1940, as amended. The Rule 24f-2 Notice for
the fiscal period ending September 30, 1996, was filed with the Securities and
Exchange Commission on November 27, 1996. The Rule 24f-2 Notice for the fiscal
period ending March 31, 1997, was filed with the Securities and Exchange
Commission on May 29, 1997.
This Post-Effective Amendment to the Registrant's Registration Statement also
has been executed by Master Investment Trust (a registered investment company
with separate series in which certain series of the Registrant invest
substantially all of their assets) and its trustees and principal officer.
<PAGE>
EXPLANATORY NOTE
----------------
This Post-Effective Amendment to the Registration Statement (the
"Amendment") of Stagecoach Funds, Inc. (the "Company") is being filed to
register Class C shares of the Company's California Tax-Free Bond, National Tax-
Free, Small Cap, Aggressive Growth and Ginnie Mae Funds; Administrative Class
shares of the Company's Prime Money Market Mutual and Treasury Money Market
Mutual Funds; and Institutional Class shares of the Company's National Tax-Free
Money Market Mutual Fund. This Amendment does not affect the Registration
Statement for any of the Company's other Funds.
<PAGE>
Cross Reference Sheet
---------------------
CLASS C SHARES
--------------
Form N-1A Item Number
- ---------------------
Part A Prospectus Captions
- ------ -------------------
1 Cover Page
2 Prospectus Summary; Summary of Fund Expenses
3 Not Applicable
4 The Fund(s) and Management; Prospectus Appendix - Additional
Investment Policies
5 How the Fund(s) Work(s); The Fund(s) and Management; Management,
Distribution and Servicing Fees
6 The Fund(s) and Management; Investing in the Fund(s)
7 Investing in the Fund(s); Dividend and Capital Gain
Distributions; Taxes
8 Investing in the Fund(s); Additional Shareholder Services; How
to Redeem Shares
9 Not Applicable
Part B Statement of Additional Information Captions
- ------ --------------------------------------------
10 Cover Page
11 Table of Contents
12 General
13 Investment Restrictions; Additional Permitted Investment
Activities;
SAI Appendix
14 Management
15 Management
16 Management; Distribution Plan; Servicing Plan; Fund Expenses
Independent Auditors
17 Portfolio Transactions
18 Capital Stock; Other Information
19 Determination of Net Asset Value; Additional Purchase and
Redemption Information
20 Federal Income Taxes
21 Distribution Plan
22 Performance Calculations
23 Financial Information
Part C Other Information
- ------ -----------------
24-32 Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Document.
<PAGE>
Cross Reference Sheet
---------------------
ADMINISTRATIVE AND INSTITUTIONAL CLASS SHARES
---------------------------------------------
Form N-1A Item Number
- ---------------------
Part A Prospectus Captions
- ------ -------------------
1 Cover Page
2 Prospectus Summary; Summary of Fund Expenses
3 Not Applicable
4 The Fund(s) and Management; Prospectus Appendix - Additional
Investment Policies
5 How the Fund(s) Work(s); The Fund(s) and Management; Management
and Servicing Fees
6 The Fund(s) and Management; Investing in the Fund(s)
7 Investing in the Fund(s); Dividend and Capital Gain
Distributions; Taxes
8 Investing in the Fund(s); Exchanges
9 Not Applicable
Part B Statement of Additional Information Captions
- ------ --------------------------------------------
10 Cover Page
11 Table of Contents
12 General
13 Investment Restrictions; Additional Permitted Investment
Activities;
SAI Appendix
14 Management
15 Management
16 Management; Fund Expenses
Independent Auditors
17 Portfolio Transactions
18 Capital Stock; Other Information
19 Determination of Net Asset Value; Additional Purchase and
Redemption Information
20 Federal Income Taxes
21 Management
22 Performance Calculations
23 Financial Information
Part C Other Information
- ------ -----------------
24-32 Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Document.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[LOGO OF STAGECOACH FUNDS APPEARS HERE]
------------------------------------
PROSPECTUS
------------------------------------
CALIFORNIA TAX-FREE BOND FUND
NATIONAL TAX-FREE FUND
CLASS C
October 6, 1997
<PAGE>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION
DATED AUGUST 5, 1997
STAGECOACH FUNDS(R)
CALIFORNIA TAX-FREE BOND FUND
NATIONAL TAX-FREE FUND
CLASS C
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about Class C shares of the
CALIFORNIA TAX-FREE BOND FUND and NATIONAL TAX-FREE FUND (each, a "Fund" and,
together, the "Funds").
The CALIFORNIA TAX-FREE BOND FUND seeks to provide investors with a high level
of income exempt from federal income taxes and California personal income
taxes, while preserving capital, by investing in medium- to long-term,
investment-grade municipal securities. Under normal market conditions,
substantially all of the California Tax-Free Bond Fund's assets consist of
municipal obligations the interest on which is exempt from federal income tax
and California personal income tax.
The NATIONAL TAX-FREE FUND seeks to provide investors with income exempt from
federal income tax.
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 a Fund's goals match your own. A Statement of Additional
Information ("SAI"), dated October 6, 1997, containing additional information
about the Funds, 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.
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 A FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND ADMINISTRATOR, AND IS
COMPENSATED FOR PROVIDING THE FUNDS WITH CERTAIN OTHER SERVICES. STEPHENS INC.
("STEPHENS"), WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE FUNDS'
SPONSOR, CO-ADMINISTRATOR AND DISTRIBUTOR.
PROSPECTUS DATED OCTOBER 6, 1997
PROSPECTUS
<PAGE>
Table of Contents
-------
<TABLE>
<S> <C>
Prospectus Summary 1
Summary of Fund Expenses 4
Explanation of Tables 5
How the Funds Work 7
The Funds and Management 13
Investing in the Funds 15
Dividend and Capital Gain Distributions 21
How to Redeem Shares 22
Additional Shareholder Services 26
Management, Distribution and Servicing Fees 29
Taxes 32
Prospectus Appendix--Additional Investment Policies A-1
</TABLE>
PROSPECTUS
<PAGE>
Prospectus Summary
The Funds provide you with a convenient way to invest in various portfolios of
securities selected and supervised by professional management. The following
provides summary information about the Funds. For more information, please
refer to the identified Prospectus sections and generally to the Prospectus and
SAI.
Q. WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
A. The CALIFORNIA TAX-FREE BOND FUND seeks to provide investors with a high
level of income exempt from federal income taxes and California personal
income taxes, while preserving capital, by investing in medium- to long-
term, investment-grade municipal securities.
The NATIONAL TAX-FREE FUND seeks to provide investors with income exempt
from federal income tax.
Under normal market conditions, substantially all of each Fund's assets are
invested in municipal obligations that are exempt from federal income tax
and, for the California Tax-Free Bond Fund, exempt from California personal
income tax; and except during temporary defensive periods or when
acceptable securities are unavailable for investment by the Fund, at least
65% of the California Tax-Free Bond Fund's total net assets will be
invested in municipal obligations of issuers exempt from California
personal income tax. Additionally, except during periods of unusual market
condition, each Fund will have at least 80% of its net assets invested in
securities the interest on which is exempt from federal income tax. See
"How the Funds Work" and "Prospectus Appendix -- Additional Investment
Policies" for further information on investments.
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF
INVESTMENT?
A. An investment in a Fund is not insured against loss of principal. When the
value of the securities that a Fund owns declines, so does the value of
your Fund's shares. Therefore, you should be prepared to accept some risk
with the money you invest in a Fund. The portfolio debt instruments of a
Fund are subject to interest-rate risk and credit risk. Interest-rate risk
is the risk that increases in market interest rates may adversely affect
the value of the municipal securities in which each Fund invests and hence
the value of your investment in a Fund; the value of such securities
generally changes inversely to changes in market interest rates. Credit
risk is the risk that the issuers of the debt instruments in which a Fund
may invest may default on the payment of principal and/or interest. In
addition, each Fund may invest a portion of its assets in municipal
securities that are considered to have speculative characteristics.
1 PROSPECTUS
<PAGE>
Since the California Tax-Free Bond Fund invests primarily in securities
issued by California and its agencies and municipalities, events in
California are more likely to affect the Fund's investments. Each Fund is
nondiversified, which means that its assets may be invested among fewer
issuers and therefore the value of assets may be subject to greater impact
by events affecting one of its investments. As with all mutual funds, there
can be no assurances that a Fund will achieve its investment objective.
See "How the Funds Work -- Investment Objectives and Policies -- Risk
Factors" and "Additional Permitted Investment Activities" in the SAI for
further information about the Funds' investments and related risks.
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the Funds' investment adviser, manages your
investments. Wells Fargo Bank also provides the Funds with administrative,
transfer agency, dividend disbursing agency and custodial services. In
addition, Wells Fargo Bank is a shareholder servicing agent and a selling
agent for the Funds. See "The Funds and Management" and "Management,
Distribution and Servicing Fees."
Q. HOW DO I INVEST?
A. You may invest by purchasing Fund shares at their public offering price,
which is the net asset value per share ("NAV") plus any applicable sales
charge. Class C shares that are redeemed within one year of purchase are
subject to a maximum contingent-deferred sales charge of 1.00% of the
lesser of NAV at purchase or NAV at redemption. You may open an account by
making an initial investment of at least $1,000, and you may add to your
account by making additional investments of at least $100, with certain
exceptions. Shares may be purchased by wire, by mail or by an automatic
investment feature called the AutoSaver Plan on any day the Fund is open.
Fund shares may not be suitable for tax-exempt investors, since such
investors would not benefit from the exempt status of the Funds' dividends.
See "Investing in the Funds" for more details, or contact Stephens (the
Funds' distributor), a shareholder servicing agent or a selling agent (such
as Wells Fargo Bank).
Q. HOW WILL I RECEIVE DIVIDENDS AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends from net investment income are declared daily and distributed
monthly. Any capital gains are distributed at least annually. Distributions
are automatically reinvested in additional shares of the same class of the
Fund at NAV (without a sales charge) unless you elect to receive
distributions credited to your Wells Fargo Bank account, paid in cash or in
shares of certain other funds in the Stagecoach
PROSPECTUS 2
<PAGE>
Family of Funds in which you have an established account that has met the
applicable minimum initial investment requirement. Investment income
available for distribution to holders of a class of shares is reduced by
the class expenses payable on behalf of those shares. See "Dividend and
Capital Gain Distributions" and "Additional Shareholder Services."
Q. HOW MAY I REDEEM SHARES?
A. You may redeem shares by telephone, by letter or by an automatic feature
called the Systematic Withdrawal Plan on any day the Fund is open for
business. Contingent-deferred sales charges may be charged upon redemption
of Class C shares. The Company reserves the right to impose charges for
wiring redemption proceeds. See "How To Redeem Shares" and "How to Purchase
Shares" for more details, or contact Stephens, a shareholder servicing
agent or a selling agent (such as Wells Fargo Bank).
Q. WHAT ARE DERIVATIVES AND DO THE FUNDS USE THEM?
A. Derivatives are financial instruments whose value is derived, at least in
part, from the price of another security or a specified asset, index or
rate. Some of the permissible investments described in this Prospectus,
such as variable-rate instruments that have an interest rate that is reset
periodically based on an index, are considered derivatives. Some
derivatives may be more sensitive than direct securities to changes in
interest rates or sudden market moves. Some derivatives also may be
susceptible to fluctuations in yield or value due to their structure or
contract terms.
Q. WHAT STEPS DO THE FUNDS TAKE TO CONTROL DERIVATIVES-RELATED RISKS?
A. Wells Fargo Bank uses a variety of internal risk management procedures to
ensure that derivatives use is consistent with a Fund's investment
objective, does not expose the Fund to undue risks and is closely
monitored. These procedures include providing periodic reports to the Board
of Directors concerning the use of derivatives. Derivatives use by a Fund
also is subject to broadly applicable investment policies. For example, a
Fund may not invest more than a specified percentage of its assets in
"illiquid securities," including derivatives that do not have active
secondary markets. Nor may a Fund use certain derivatives without
establishing adequate "cover" in compliance with SEC rules limiting the use
of leverage. For more information on each Fund's investment activities, see
"How the Funds Work" and "Prospectus Appendix -- Additional Investment
Policies."
3 PROSPECTUS
<PAGE>
PROSPECTUS
Summary of Fund Expenses
SHAREHOLDER TRANSACTION EXPENSES
CLASS C SHARES
<TABLE>
<CAPTION>
CALIFORNIA NATIONAL
TAX-FREE TAX-FREE
BOND FUND FUND
---------- --------
<S> <C> <C>
Maximum Sales Charge on Purchases (as a percentage of
offering price)....................................... None None
Maximum Sales Charge on Reinvested Dividends........... None None
Maximum Sales Charge on Redemptions
Redemption during year 1.............................. 1.00% 1.00%
Redemption after year 1............................... None None
Exchange Fees.......................................... None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
CALIFORNIA NATIONAL
TAX-FREE TAX-FREE
BOND FUND FUND
---------- --------
<S> <C> <C>
Management Fee (after waivers or reimbursements)/1/..... [ ]% [ ]%
Rule 12b 1 Fees/2/...................................... [ ]% [ ]%
Other Expenses (after waivers or reimbursements)/3/..... [ ]% [ ]%
----- -----
TOTAL FUND OPERATING EXPENSES (after waivers or
reimbursements)/4/..................................... [ ]% [ ]%
</TABLE>
--------------
/1/ Management Fee (before waivers or reimbursements) would be [ ]% and
[ ]%, respectively.
/2/ Rule 12b-1 Fee (before waivers or reimbursements) would be [ ]% and [ ]%,
respectively.
/3/ Other Expenses (before waivers or reimbursements) would be [ ]% and [ ]%,
respectively.
/4/ Total Fund Operating Expenses (before waivers or reimbursements) would
be [ ]% and [ ]%, respectively.
EXAMPLE OF EXPENSES
You would pay the following expenses on a $1,000 investment in Class C shares
of a 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
------ ------- ------- --------
<S> <C> <C> <C> <C>
CALIFORNIA TAX FREE BOND FUND................. $[ ] $[ ] $[ ] $[ ]
NATIONAL TAX-FREE FUND........................ $[ ] $[ ] $[ ] $[ ]
You would pay the following expenses on a $1,000 investment in Class C
shares of a Fund, assuming a 5% annual return and no redemption:
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
CALIFORNIA TAX FREE BOND FUND................. $[ ] $[ ] $[ ] $[ ]
NATIONAL TAX-FREE FUND........................ $[ ] $[ ] $[ ] $[ ]
</TABLE>
4
<PAGE>
Explanation of Tables
The purpose of the foregoing tables is to help you understand the various
costs and expenses that a shareholder in a Fund will pay directly or
indirectly. You may purchase Fund shares directly from the Company or through
Wells Fargo Bank or other institutions that have developed various account
products through which Fund shares may be purchased, and for which customers
may be charged a fee. The tables do not reflect any charges that may be imposed
by Wells Fargo Bank or another institution directly on certain customer
accounts in connection with an investment in a Fund.
SHAREHOLDER TRANSACTION EXPENSES are charges incurred when you buy or sell
Fund shares. You may be subject to a contingent-deferred sales charge on
purchases of Class C shares if you redeem such shares within a specified
period. There are no exchange fees. The Company reserves the right to impose a
charge for wiring redemption proceeds. See "Investing in the Funds -- Sales
Charges."
ANNUAL FUND OPERATING EXPENSES have been adjusted to reflect voluntary fee
waivers and expense reimbursements that are expected to continue to reduce
expenses during the current year. The amounts shown under "Rule 12b-1 Fee" for
each Fund, and under "Management Fee" for the California Tax-Free Bond Fund,
reflect contract amounts. The amount shown under "Other Expenses" are based on
applicable contract amounts and estimated/restated amounts expected to be in
effect during the current fiscal year. The amount shown under "Management Fee"
for the National Tax-Free Fund reflects a complete waiver of such fee expected
to be in effect during the current year. Any waivers or reimbursements would
reduce a Fund's total expenses. There can be no assurance that waivers or
reimbursements will continue after that date.
The Funds understand that a shareholder servicing agent also may impose
certain conditions on its customers, subject to the terms of this Prospectus,
in addition to or different from those imposed by a Fund, such as requiring a
higher minimum initial investment or payment of a separate fee for additional
services.
Long-term shareholders of the Funds could pay more in sales charges than the
economic equivalent of the maximum front-end sales charges applicable to mutual
funds sold by members of the National Association of Securities Dealers, Inc.
("NASD"). For more complete descriptions of the various costs and expenses you
can expect to incur as a shareholder in each Fund, please see "Investing in the
Funds --How to Buy Shares" and "Management, Distribution and Servicing Fees."
EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses associated
with a $1,000 investment over stated periods, based on the expenses in the
above tables and an assumed annual rate of return of 5%. The rate of return
should not be considered an indication of actual or expected performance of a
Fund nor a representation of past
PROSPECTUS
5
<PAGE>
or future expenses; actual expenses and returns may be greater or lesser than
those shown.
The Funds also offer certain classes of shares not described herein. The
expenses and corresponding returns of these other classes of shares may differ
from the expenses and returns of the shares described herein. Information
regarding these and any other investment options in the Funds may be obtained
by calling Stephens at 1-800-643-9691. Additional information regarding the
Funds' expenses is included under "The Funds and Management" and "Management,
Distribution and Servicing Fees" and in the SAI under "Management,"
"Distributions Plans" and "Servicing Plans."
PROSPECTUS 6
<PAGE>
How The Funds Work
INVESTMENT OBJECTIVES AND POLICIES
The CALIFORNIA TAX-FREE BOND FUND seeks to provide investors with a high level
of income exempt from federal income taxes and California personal income
taxes, while preserving capital, by investing in medium- to long-term,
investment-grade municipal securities. Medium- and long-term securities include
those securities with remaining maturities of 2 to 10 years and 10 or more
years, respectively.
As a matter of general operating policy, however, the California Tax-Free Bond
Fund seeks to have substantially all of its assets invested in such municipal
obligations. In addition, under normal market conditions, at least 65% of the
California Tax-Free Bond Fund's total assets are invested in municipal bonds,
as opposed to municipal notes or commercial paper.
The NATIONAL TAX-FREE FUND seeks to provide investors with income exempt from
federal income tax. The National Tax-Free Fund has no restrictions as to the
minimum or maximum maturity of any individual security held by it. The Fund's
average portfolio maturity will vary from time to time in light of current
market and economic conditions, the comparative yields on instruments with
different maturities and other factors.
Each Fund's assets are primarily invested in debt instruments issued by or on
behalf of states, territories and possessions of the United States, the
District of Columbia and their respective authorities, agencies,
instrumentalities and political subdivisions ("municipal obligations"). The
California Tax-Free Bond Fund expects that, except during temporary defensive
periods or when acceptable securities are unavailable for investment by the
Fund, at least 65% of its total assets will be invested in municipal
obligations of issuers located in California ("California Obligations"), and
issuers of the Virgin Islands, Guam and Puerto Rico, which are exempt from
California personal income tax. The amount of the Fund's assets invested in
such obligations may vary from time to time.
In seeking to achieve its investment objective, each Fund may invest in
municipal obligations that are private activity bonds the interest on which is
subject to the federal alternative minimum tax (though investments in such
securities, under normal market conditions, will not exceed 20% of each Fund's
total assets when added together with any taxable investments held by the
Fund). Moreover although each Fund does not presently intend to do so on a
regular basis, it may invest 25% or more of its assets in industrial
development bonds issued before August 7, 1986 that are not subject to the
federal alternative minimum tax and in municipal obligations the interest on
which is paid solely from revenue of similar projects if such investment is
deemed necessary or appropriate by the Fund's adviser.
7 PROSPECTUS
<PAGE>
As a fundamental policy, each Fund will have at least 80% of its respective
net assets invested in securities, the interest on which is exempt from federal
income tax, except during periods of unusual market conditions. For purposes of
this investment limitation, securities are considered taxable if the interest
payable on them is treated as a specific tax preference item under the federal
alternative minimum tax. The Funds' investment adviser may rely on an opinion
of either counsel to the issuer of the municipal obligations or bond counsel
regarding the tax treatment of these obligations.
Municipal obligations acquired by a Fund will be rated in one of the three
highest investment-grade categories at the time of purchase by a nationally
recognized statistical rating organization ("NRSRO"). (See the Appendix to the
SAI for a description of the applicable rating categories). In addition, the
California Tax-Free Bond Fund may purchase investment-grade obligations within
the fourth highest category when acceptable obligations with higher ratings are
unavailable for investment by the Fund. While obligations rated within the
fourth highest category are regarded as having an adequate capacity to pay
principal and interest, such obligations lack outstanding investment
characteristics and in fact have speculative characteristics as well. Changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher grade bonds. The Funds also may invest in unrated municipal securities
that are determined by Wells Fargo Bank, as investment adviser, to be of
comparable quality to municipal securities that are rated investment grade.
If, subsequent to its purchase by a Fund, an issue of debt securities should
cease to be rated by one or more of a Fund's selected NRSROs due to factors
relating to the value of the security, or if its rating should be reduced by
one or more of such NRSROs below the minimum rating required for purchase by
such Fund, the investment adviser will consider such event in determining
whether the Fund should continue to hold the security. Furthermore, unrated
obligations purchased by a Fund will be determined by the investment adviser to
be comparable in quality to instruments that are so rated.
The Funds also may acquire tax-exempt commercial paper rated within the
highest rating category or, when deemed advisable by the Fund's investment
adviser, rated within the second highest rating category. The Funds may acquire
municipal notes and variable rate demand obligations rated within one of the
two highest rating categories.
Each Fund may from time to time invest a portion of its assets on a temporary
basis (for example, when appropriate municipal obligations are unavailable) or
for temporary defensive purposes in short-term taxable money market
instruments, in securities issued by other investment companies that invest in
taxable or tax-exempt money market instruments and in U.S. Government
obligations. In addition, the Funds may hold uninvested cash reserves pending
investment, during temporary defensive periods, or if, in the opinion of the
investment adviser, suitable tax-exempt obligations are unavailable. The Funds
also may purchase zero-coupon bonds (i.e., discount debt
PROSPECTUS 8
<PAGE>
obligations that do not make periodic interest payments) that are subject to
greater market fluctuations from changing interest rates than debt obligations
of comparable maturities that make current distributions of interest.
Each Fund may temporarily invest some of its assets in open-end tax-free funds
with a similar fundamental investment objective and which pay interest that is
exempt from federal income tax and not subject to the federal alternative
minimum tax, subject to the limitations of the Investment Company Act of 1940,
as amended (the "1940 Act"). The Funds also may invest temporarily in cash
reserves or certain high-quality, taxable money market instruments, or may
engage in other investment activities. Each Fund may elect to invest
temporarily up to 20% of its net assets in certain permitted taxable
investments, which include cash reserves, U.S. Government obligations,
obligations of domestic banks, commercial paper, taxable municipal obligations,
and for the California Tax-Free Bond Fund, certain repurchase agreements. The
California Tax-Free Bond Fund may make loans of portfolio securities. Such
temporary investments would most likely be made when there is an unexpected or
abnormal level of investor purchases or redemptions of shares of the Fund or
because of unusual market conditions. The income from these temporary
investments and investment activities may be subject to federal income tax and
California personal income tax. However, as stated above, Wells Fargo Bank
seeks to invest substantially all of the Funds' assets in securities exempt
from such taxes. Additional descriptions of tax-free municipal obligations,
taxable money market instruments, and other investment activities is contained
in the "Prospectus Appendix -- Additional Investment Policies" and in the SAI.
The investment objective of the National Tax-Free Fund, as stated in the third
paragraph of this section, is not fundamental and may be changed without
shareholder approval. The investment objective of the California Tax-Free Bond
Fund, as stated in the first paragraph of this section, is fundamental and may
be changed only with shareholder approval. Any such change may result in a Fund
having an investment objective different from the objective that the
shareholder considered appropriate at the time of investment in the Fund. As
with all mutual funds, there can be no assurance that the Funds will achieve
their investment objectives. Wells Fargo Bank, as investment adviser to the
Funds, pursues each Fund's objective by investing (under normal market
conditions) substantially all of the Funds' assets in various types of
municipal obligations as described above. These municipal obligations and the
taxable investments described below may bear interest at rates that are not
fixed ("floating- and variable-rate instruments").
A more complete description of the Funds' investments and investment
activities is contained in "Prospectus Appendix -- Additional Investment
Policies" and in the SAI.
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RISK FACTORS
As noted above and discussed further in the SAI, some of the securities
purchased by the California Tax-Free Bond Fund may be rated below the three
highest rating categories, and may be rated in the lowest investment grade
category, by NRSROs.
The price per share of each Fund will fluctuate with changes in value of the
investments held by the Fund. Shareholders of a Fund should, therefore, expect
the value of their shares to fluctuate with changes in the value of the
securities owned by that Fund and the value of an investment in a Fund may
increase or decrease.
The market value of a Fund's investment in fixed-income securities changes in
response to changes in interest rates and the relative financial strength of
each issuer. During periods of falling interest rates, the value of fixed-
income securities generally rises. Conversely, during periods of rising
interest rates, the value of such securities generally declines. Debt
securities with longer maturities, which tend to produce higher yields, are
subject to potentially greater capital appreciation and depreciation than
obligations with shorter maturities. Changes in the financial strength of an
issuer or changes in the ratings of any particular security also may affect the
value of these investments. Fluctuations in the market value of fixed-income
securities subsequent to their acquisition will not affect cash income from
such securities but will be reflected in a Fund's net asset value.
Each Fund may invest 25% or more of its assets in municipal obligations that
are related in such a way that an economic, business or political development
or change affecting one such obligation would also affect the other
obligations; for example, a Fund may own different municipal obligations which
pay interest based on the revenues of similar types of projects. To the extent
that a Fund's assets are concentrated in municipal obligations payable from
revenues on similar projects, the Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if the Fund's
assets were not so concentrated. Furthermore, for the National Tax-Free Fund,
payment of municipal obligations of certain projects may be secured by
mortgages or deeds of trust. In the event of a default, enforcement of the
mortgages or deeds of trust will be subject to statutory enforcement procedures
and limitations, including rights of redemption and limitations on obtaining
deficiency judgments. In the event of a foreclosure, collection of the proceeds
of the foreclosure may be delayed and the amount of proceeds from the
foreclosure may not be sufficient to pay the principal of and accrued interest
on the defaulted municipal obligations.
Each Fund is classified as non-diversified under the 1940 Act. Investment
return on a non-diversified portfolio typically is dependent upon the
performance of a smaller number of securities relative to the number held in a
diversified portfolio. Consequently, the change in value of any one security
may affect the overall value of a non-diversified portfolio more than it would
a diversified portfolio, and thereby subject
PROSPECTUS 10
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the market-based net asset value per share of the non-diversified portfolio to
greater fluctuations. In addition, a non-diversified portfolio may be more
susceptible to economic, political and regulatory developments than a
diversified investment portfolio with a similar objective may be.
The concentration of the California Tax-Free Bond Fund in municipal
obligations of California raises additional considerations. Payment of the
interest on and the principal of these obligations is dependent upon the
continuing ability of state issuers and/or obligors of state, municipal and
public authority debt obligations to meet their obligations thereunder.
Investors should consider the greater risk inherent in a Fund's concentration
in such obligations versus the safety that comes with a less geographically
concentrated investment portfolio and should compare the yield available on a
portfolio of state-specific issues with the yield of a more diversified
portfolio including issues of other states before making an investment
decision.
In addition to the risk of nonpayment of state and local governmental debt, if
such debt declines in quality and is downgraded by the NRSROs, it may become
ineligible for purchase by a Fund. Since there are a number of buyers of such
debt that may be similarly restricted, the supply of eligible securities could
become inadequate at certain times. Similarly, there is a relatively small
active market for California Obligations and the market price of such bonds may
therefore be volatile. If the California Tax-Free Bond Fund were forced to sell
a large volume of California Obligations for any reason, such as to meet
redemption requests for a large number of shares, there is a risk that the
large sale itself would adversely affect the value of the Fund's portfolio.
California experienced recurring budget deficits for four of its five fiscal
years ended June 30, 1992, caused by lower than anticipated tax revenues and
increased expenditures for certain programs. The budget deficits of the early
1990's depleted the state's available cash resources, and the state had to use
a series of external borrowings to meet its cash needs. As a consequence,
between 1991 and 1994, three of the agencies rating California's long-term debt
lowered their rating of the state's general obligation bonds. In particular, on
July 15, 1994, Moody's Investors Service lowered its rating from "Aa" to "A1,"
Standard & Poor's Ratings Group lowered its rating from "A+" to "A" and termed
its outlook as "stable," and Fitch Investors Service lowered its rating from
"AA" to "A." Such downgrading may impair issuers of California municipal
obligations from paying interest on or repaying the principal of such
California municipal obligations. Although further downgrading and other
factors may impact the availability of securities that meet a Fund's investment
policies and restrictions, California has had operating surpluses for its past
four fiscal years ended June 30, 1996 and has forecast a balanced 1996-1997
fiscal year budget. On July 30, 1996, Standard & Poor's upgraded its rating of
California municipal obligations back to "A+," reflecting California's economic
improvement. However, the rating agencies continue to monitor events in the
state and the state and local governments' responses to budget
11 PROSPECTUS
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shortfalls. The Fund's investment adviser continues to monitor and evaluate the
Fund's investments in light of the events in California and the Fund's
investment objective and investment policies. See "Special Considerations
Affecting California Municipal Obligations" in the SAI.
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.
There is, of course, no assurance that a Fund will achieve its investment
objective or be successful in preventing or minimizing the risk of loss that is
inherent in investing in particular types of investment products. See
"Prospectus Appendix -- Additional Investment Policies" and the SAI for further
information about investment policies and risks.
PERFORMANCE
The performance of each class of shares of the Funds may be advertised from
time to time in terms of yield, tax-equivalent yield and average annual total
return. These 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 a Fund.
The yield of Class C shares is calculated by dividing the net investment
income per share earned during a specified period (usually 30 days or one
month) by its net asset value (which does not include the maximum contingent-
deferred sales charge), on the last day of such period and annualizing the
result. That is, the amount of income generated by an investment during the
month is assumed to be generated each month during the year and is shown as a
percentage of the investment. The effective yield is calculated similarly but,
when annualized, the income earned is assumed to be reinvested. The effective
yield is slightly higher than the yield because of the compounding effect of
this assumed reinvestment. The tax-equivalent yield of a class of shares is
similarly calculated but assumes that a stated federal and/or state income tax
rate has been applied to determine the tax-equivalent figure.
In addition to presenting a standardized total return, from time to time, the
Funds also may present nonstandardized cumulative or other total returns,
yields, and distribution rates for purposes of advertising and/or sales
literature. For example, the performance figure of the shares of a class may be
calculated on the basis of an investment at the net asset value per share or at
the net asset value per share plus a reduced sales charge (see "Investing in
the Funds -- How To Buy Shares"), rather than the public offering price per
share. In this case, the figures might not reflect the effect of the sales
charge that you may have paid.
PROSPECTUS 12
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Standardized and nonstandardized total return figures for the Funds also may
be presented. Average annual total return of a class of shares is based on the
overall dollar or percentage change in value of a hypothetical investment in
such shares and assumes that all Fund dividends and capital gain distributions
are reinvested in the shares of that class. The standardized average annual
total return for Class A shares is calculated assuming you have paid the
maximum sales charge, and for Class B and Class C, shares assuming on a one-
year investment, you have paid the maximum contingent-deferred sales charge, on
your hypothetical investment.
Because of differences in the fees and/or expenses borne by shares of each
class of a Fund, the net performance figures on such shares can be expected, at
any given time, to vary from the net performance figures for other classes of a
Fund. Performance figures are computed separately for each class of shares. The
Funds' performance calculations may reflect waivers and/or reimbursements that,
if effective, increase the yields and returns payable to shareholders. Any fees
that may be imposed by a shareholder servicing agent directly on its customer
accounts are not reflected in the performance calculations. Any such fees, if
charged, will reduce the actual return received by customers on their
investments.
Additional information about Fund performance is contained in the SAI under
"Performance Calculations" and in the Annual Report, which are available upon
request free of 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.
The Funds and Management
THE FUNDS
The Funds are two funds of 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.
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 series
or class, unless otherwise required by law (such as when the voting matter
affects only one series or class). As a Fund shareholder, you are entitled to
one vote for each share owned and fractional votes for fractional shares owned.
Each class of shares in a fund represents an equal, proportionate interest in a
fund with other shares of the same class. Shareholders of
PROSPECTUS
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each class bear their pro rata portion of the fund's operating expenses, except
for certain class-specific expenses that are allocated to a particular class
and, accordingly, may affect performance. Please contact Stagecoach Shareholder
Services at 1-800-222-8222 if you would like additional information about other
funds or classes of shares offered. A more detailed description of the voting
rights and attributes of the shares is contained in the "Capital Stock" section
of each Fund's SAI.
MANAGEMENT
Wells Fargo Bank is the Funds' investment adviser, administrator, transfer and
dividend disbursing agent and custodian. In addition, Wells Fargo Bank serves
as a shareholder servicing agent and as a selling agent of the Funds. 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 31, 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 the investment adviser to the
other separately managed funds of the Company, and as investment adviser or
sub-adviser to separately managed funds of five other registered, open-end,
management investment companies. Wells Fargo Bank, a wholly-owned subsidiary of
Wells Fargo & Company, is located at 420 Montgomery Street, San Francisco,
California 94104.
Subsequent to its acquisition by Wells Fargo & Company on April 1, 1996, Wells
Fargo Investment Management, Inc. ("WFIM") (formerly, First Interstate Capital
Management, Inc.) served as investment adviser to the predecessor portfolio of
the National Tax-Free Fund. WFIM, a wholly-owned subsidiary of Wells Fargo
Bank, has changed its name to Wells Capital Management Incorporated and is
located at 444 Market Street, San Francisco, California 94105. Prior to October
1, 1995, First Interstate Bank of Washington, N.A., an affiliate of First
Interstate Capital Management, Inc. served as investment adviser to the
predecessor portfolio to the National Tax-Exempt Fund.
PORTFOLIO MANAGERS
Mr. David Klug assumed sole responsibility for the day-to-day management of
the California Tax-Free Bond Fund on June 1, 1995. Mr. Klug had been a co-
manager of the California Tax-Free Bond Fund since January 1992. Mr. Klug's
current position with Wells Fargo Bank is Senior Tax-Exempt
Specialist/Portfolio Manager. He has managed municipal bond portfolios for
Wells Fargo Bank for over nine years. Prior to joining Wells Fargo Bank, he
managed the municipal bond portfolio for a major property and casualty
insurance company. Mr. Klug holds an M.B.A. from the University of Chicago, and
is a member of the National Federation of Municipal Analysts and its California
chapter.
PROSPECTUS
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Ms. Laura Milner assumed responsibility for the day-to-day management of the
portfolio of the National Tax-Free Fund as of September 1996. Ms. Milner is
also co-manager of the California Tax-Free Bond Fund. Ms. Milner's current
position with Wells Fargo Bank is Senior Tax-Exempt Specialist/Portfolio
Manager. Her background includes over seven years experience specializing in
short- and long-term municipal securities with Salomon Brothers. She is a
member of the National Federation of Municipal Analysts and its California
chapter.
Ms. Mary Gail Walton is also responsible for the day-to-day portfolio
management of the National Tax-Free Fund. Ms. Walton joined Wells Fargo Bank in
1996 from First Interstate Capital Management and has been co-portfolio manager
of the Fund since February 1, 1997. She had worked at First Interstate Bank
since 1991 specializing in tax exempt portfolio management. She holds a B.A.
from the University of Washington and is a chartered financial analyst
candidate.
Morrison & Foerster LLP, counsel to the Company and special counsel to Wells
Fargo Bank has advised the Company and Wells Fargo Bank that Wells Fargo Bank
and its affiliates may perform the services contemplated by the Advisory
Contracts and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
Investing in the Funds
OPENING AN ACCOUNT
You can buy Fund shares in one of the several ways described below. You must
complete and sign an Account Application to open an account. Additional
documentation may be required from corporations, associations and certain
fiduciaries. Do not mail cash. If you have any questions or need extra forms,
please call 1-800-222-8222.
After an application has been processed and an account has been established,
subsequent purchases of different funds of the Company under the same umbrella
account do not require the completion of additional applications. A separate
application must be processed for each different umbrella account number (even
if the
PROSPECTUS
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registration is the same). Call the number on your confirmation statement to
obtain information about what is required to change registration.
The Company or Stephens may make the Prospectus available in an electronic
format. Upon receipt of a request from you or your representative, the Company
or Stephens will transmit or cause to be transmitted promptly, without charge,
a paper copy of the electronic Prospectus. Share Value
SHARE VALUE
The value of a Fund share is its "net asset value" or NAV. Wells Fargo Bank
calculates the NAV of the Funds each day the Funds are open as of the close of
regular trading on the New York Stock Exchange ("NYSE") (referred to hereafter
as "the close of the NYSE"), which is currently 1:00 p.m. (Pacific time). The
Funds are open Monday through Friday and are closed weekends and standard NYSE
holidays (a "Business Day"). The NAV per share for each class of shares is the
value of a Fund's assets allocable to a particular class, less the liabilities
charged to that class by the total number of the outstanding shares of that
class. All expenses are accrued daily and taken into account for the purpose of
computing the NAV, which is expected to fluctuate daily. Shares of a Fund may
be purchased on any Business Day through Stephens, the transfer agent, a
selling agent (as defined below), or a shareholder servicing agent (as defined
below).
Except for debt obligations with remaining maturities of 60 days or less,
which are valued at amortized cost, the Funds' other assets are valued at
current market prices, or if such prices are not readily available, at fair
value as determined in good faith by the Company's Board of Directors. Prices
used for such valuations may be provided by independent pricing services.
HOW TO BUY SHARES
Shares of each Fund are offered continuously at the applicable offering price
(NAV plus any applicable sales charge) next determined after a purchase order
is received in the form specified for the purchase method being used, as
described below. Payment for shares purchased through a selling agent is not
due from the selling agent until the settlement date, normally three Business
Days after the order is placed. The selling agent is responsible for forwarding
payment for shares being purchased to the Funds promptly.
Payment must accompany orders placed directly through the transfer agent. When
payment for Fund shares through the transfer agent is by a check that is drawn
on any member bank of the Federal Reserve System, federal funds normally become
available to a Fund on the Business Day after the check is deposited. Checks
drawn on a non-
PROSPECTUS
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member bank or a foreign bank may take substantially longer to be converted
into federal funds and, accordingly, may delay the execution of an order.
Payments for shares of each class of a Fund are invested in full and
fractional shares at the applicable offering price. If shares are purchased by
a check that does not clear, the Company reserves the right to cancel the
purchase and hold the investor responsible for any losses or fees incurred. In
addition, the Company may hold payment on any redemption until reasonably
satisfied that your investments made by check have been collected (which may
take up to 10 days).
The minimum initial investment is $100 through the AutoSaver Plan (described
below) and otherwise $1,000. Generally, all subsequent investments must be at
least $100 or more. Where Fund shares are acquired in exchange for shares of
another fund in the Stagecoach Family of Funds, the minimum initial investment
amount applicable to the shares being exchanged generally carries over.
However, if the value of your investment in the shares you are exchanging has
been reduced below the minimum initial investment amount by changes in market
conditions or sales charges (and not by redemptions), you may carry over the
lesser amount into one of the Funds. In addition, the minimum initial or
subsequent purchase amount requirements may be waived or lowered for
investments effected on a group basis by certain entities and their employees,
such as pursuant to a payroll deduction or other accumulation plan. The Company
reserves the right to reject any purchase order. If you have questions
regarding purchases of shares, please call the Company at 1-800-222-8222, or
contact a shareholder servicing agent or selling agent.
Shares of the Funds may not be suitable investments for tax-exempt
institutions or tax-sheltered retirement plans, since such investors would not
benefit from the exempt status of the Funds' dividends. See "Federal Income
Taxes -- Special Tax Considerations" in the Funds' SAI.
CONTINGENT-DEFERRED SALES CHARGE -- CLASS C SHARES
Class C shares may be subject to a contingent-deferred sales charge ("CDSC").
A CDSC is an amount you pay if you redeem your shares within a specific period.
The CDSC will be equal to a percentage of the lesser of the NAV of such shares
at the time of purchase or the NAV of such shares at redemption.
Class C shares redeemed within one year of receipt of a purchase order for
such shares will be subject to a contingent-deferred sales charge equal to
1.00% of an amount equal to the lesser of the NAV of your Class C shares at the
time of purchase or the NAV of your Class C shares at redemption.
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Contingent-deferred sales charges are not imposed on amounts representing
increases in NAV above the NAV at the time of purchase and are not assessed on
Class C shares purchased through reinvestment of dividends or capital gain
distributions.
The amount of any contingent-deferred sales charge, if any, paid upon
redemption of Class C shares is determined in a manner designed to result in
the lowest sales charge rate being assessed. When a redemption request is made,
Class C shares acquired pursuant to the reinvestment of dividends and capital-
gain distributions are considered to be redeemed first. After this, such shares
are considered redeemed on a first-in, first-out basis so that Class C shares,
as applicable, held for a longer period of time are considered redeemed prior
to more recently acquired Class C shares. For a discussion of the interaction
between the optional Exchange Privilege and contingent-deferred sales charges
see "Additional Shareholder Services -- Exchange Privilege."
Contingent-deferred sales charges are waived on redemptions of Class C shares
(i) following the death or disability (as defined in the Internal Revenue Code
of 1986, as amended (the "Code")) of a shareholder, (ii) to the extent that the
redemption represents a scheduled distribution from an IRA or other retirement
plan to a shareholder who has reached age 59 1/2, (iii) effected pursuant to
the Company's right to liquidate a shareholder's account if the aggregate NAV
of the shareholder's account is less than the minimum account size, or (iv) in
connection with the combination of the Company with any other registered
investment company by a merger, acquisition of assets, or any other
transaction.
In deciding whether to purchase Class C shares, you should compare the fees
assessed on Class A shares (including front-end sales charges) against those
assessed on Class B and Class C shares (including potential contingent-deferred
sales charges and higher Rule 12b-1 fees than Class A shares) in light of the
amount to be invested and the anticipated time that the shares will be owned.
If your purchase amount would qualify you for a reduced sales charge on Class A
shares, you should consider carefully whether you would pay lower fees
ultimately on Class A, Class B or Class C shares. Call 1-800-222-8222 to obtain
a prospectus describing the Funds' other classes of shares.
You may buy Fund shares on any Business Day by any of the methods described
below. The Company reserves the right to reject any purchase order or suspend
sales at any time. Payment for orders that are not received is returned after
prompt inquiry. The issuance of shares is recorded on the Company's books, and
share certificates are not issued.
INITIAL PURCHASES BY WIRE
1.Complete an Account Application.
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2. Instruct the wiring bank to transmit the specified amount in federal funds
($1,000 or more) to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000587
Attention: Stagecoach Funds (Name of Fund) (designate Class C)
Account Name(s): Name(s) in which to be registered
Account Number: (if investing into an existing account)
3. A completed Account Application should be mailed, or sent by telefacsimile
with the original subsequently mailed, to the following address immediately
after funds are wired and must be received and accepted by the transfer
agent before an account can be opened:
Wells Fargo Bank, N.A.
Stagecoach Shareholder Services
P.O. Box 7066
San Francisco, California 94120-7066
Telefacsimile: 1-415-546-0280
4. Share purchases for Class C shares are effected at the NAV next determined
after the Account Application is received and accepted.
INITIAL PURCHASES BY MAIL
1. Complete an Account Application. Indicate the services to be used.
2. Mail the Account Application and a check for $1,000 or more, payable to
"Stagecoach Funds (Name of Fund) (designate Class C)" to the address set
forth in "Initial Purchases by Wire."
3. Share purchases for Class C shares are effected at the NAV next determined
after the Account Application is received and accepted.
AUTOSAVER PLAN PURCHASES
The Company's AutoSaver Plan provides you with a convenient way to establish
and automatically add to your Fund account on a monthly basis. To participate
in the AutoSaver Plan, you must specify an amount ($100 or more) to be
withdrawn automatically by the transfer agent on a monthly basis from an
account with a bank that is designated in your Account Application and is
approved by the transfer agent ("Approved Bank Account"). You may open an
Approved Bank Account with Wells
PROSPECTUS
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Fargo Bank. The transfer agent draws and uses this amount to purchase specified
shares of the designated Fund and class on your behalf each month on or about
the day that you have selected, or, if you have not selected a day, on or about
the 20th day of each month. If you hold shares through a brokerage account, the
AutoSaver Plan will comply with the terms of your brokerage agreement. The
transfer agent requires a minimum of ten (10) Business Days to implement your
AutoSaver Plan purchases or to process your request to change the day on which
the AutoSaver purchase is processed. There are no separate fees charged to you
by the Company for participating in the AutoSaver Plan.
You may change your investment amount, the date on which your AutoSaver
purchase is effected, suspend purchases or terminate your election at any time
by notifying the transfer agent at least five (5) Business Days prior to any
scheduled transaction. An election will be terminated automatically if your
Approved Bank Account balance is insufficient to make a scheduled withdrawal or
if either your Approved Bank Account or your Fund Account is closed.
ADDITIONAL PURCHASES
You may make additional purchases of $100 or more by instructing a Fund's
transfer agent to debit your Approved Bank Account, by wire by instructing the
wiring bank to transmit the specified amount as directed above for initial
purchases, or by mail with a check payable to "Stagecoach Funds (Name of Fund)
(designate Class C)" to the address set forth above. Write your Fund account
number on the check and include the detachable stub from your Account Statement
or a letter providing your Fund account number.
PURCHASES THROUGH SELLING AGENTS
You may place a purchase order for Fund shares through a broker/dealer or
financial institution that has entered into a selling agreement with Stephens,
as the Funds' Distributor ("Selling Agent"). If your order for Fund shares is
placed by the close of the NYSE, the purchase order is executed on the same day
if the order is received by the transfer agent before the close of business. If
your purchase order is received by a Selling Agent after the close of the NYSE
or by the transfer agent after the close of business, then your purchase order
is executed on the next Business Day after the day your order is placed. The
Selling Agent is responsible for the prompt transmission of your purchase order
to the Company. Because payment for shares of the Funds is not due until the
settlement date, the Selling Agent might benefit from the temporary use of your
payment. A financial institution that acts as a Selling Agent, shareholder
servicing agent or in certain other capacities may be required to register as a
dealer pursuant to applicable state securities laws, which may differ from
federal law and any interpretations expressed herein.
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PURCHASES THROUGH SHAREHOLDER SERVICING AGENTS
Purchase orders for Fund shares may be transmitted to the transfer agent
through any entity that has entered into a shareholder servicing agreement on
behalf of a Fund with the Company ("Shareholder Servicing Agent"), such as
Wells Fargo Bank. See "Management, Distribution and Servicing Fees --
Shareholder Servicing Agent." A Shareholder Servicing Agent may transmit your
purchase order to the transfer agent, including a purchase order for which
payment is to be transferred from your Approved Bank Account or wired from a
financial institution. If your order is transmitted by a Shareholder Servicing
Agent on your behalf to the transfer agent before the close of the NYSE, the
purchase order is executed on the same day. If your Shareholder Servicing Agent
transmits your purchase order to the transfer agent after the close of the
NYSE, then your order generally is executed on the next Business Day after the
day your order is received. The Shareholder Servicing Agent is responsible for
the prompt transmission of your purchase order to the transfer agent.
STATEMENTS AND REPORTS
The Company, or a Shareholder Servicing Agent on their behalf, typically sends
you a confirmation or statement of your account after every transaction that
affects your share balance or your Fund account registration. Every January you
will be provided a 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, you will receive financial statements.
Dividend And Capital Gain Distributions
Dividends from net investment income of the Funds are declared daily payable
to shareholders of record as of the close of regular trading of the NYSE
(currently 1:00 p.m., Pacific time). Dividends declared in a month generally
are distributed on the last Business Day of each month. You begin earning
dividends on the Business Day after the date your purchase order is effective
and continue to earn dividends through the day you redeem your shares.
Dividend and capital gain distributions have the effect of reducing the NAV
per share by the amount distributed. Although dividends and distributions paid
to you on newly issued shares shortly after your purchase would represent, in
substance, a return of your capital, the dividends and distributions would
ordinarily be taxable to you. All expenses (e.g., shareholder servicing and
distribution fees) attributable to a particular class may affect the relative
dividend and/or capital gain distributions of such Class.
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If you redeem shares before the dividend payment date, any dividends credited
to you are distributed on the following dividend payment date unless you have
redeemed all of the shares in your account, in which case you receive your
accrued dividends together with your redemption proceeds. The Funds distribute
any capital gains at least annually.
Dividends 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 dividends and any capital-gain distributions, as
discussed below under "Additional Shareholder Services -- Dividend and Capital
Gain Distribution Options."
How To Redeem Shares
You may redeem Fund shares on any Business Day. Your shares are redeemed at
the NAV per share next calculated after the Company has received your
redemption request in proper form. The Company ordinarily remits your
redemption proceeds, net of any contingent-deferred sales charge (the "net
redemption proceeds"), within seven days after your redemption order is
received in proper form, unless the SEC permits a longer period under
extraordinary circumstances. Such extraordinary circumstances could include a
period during which an emergency exists as a result of which (a) disposal by a
Fund of securities owned by it is not reasonably practicable or (b) it is not
reasonably practicable for a Fund fairly to determine the value of its net
assets, or a period during which the SEC by order permits deferral of
redemptions for the protection of security holders of a Fund. In addition, a
Fund may hold payment on your redemptions until reasonably satisfied that your
investments made by check have been collected (which can take up to 10 days
from the purchase date).
To ensure acceptance of your redemption request, please follow the procedures
described below. Although it is not the Funds' current intention, the Funds may
make payment of redemption proceeds in securities if conditions warrant,
subject to regulation by some state securities commissions. In addition, the
Company reserves the right to impose charges for wiring redemption proceeds. A
Selling Agent or a Shareholder Servicing Agent may charge separate account,
service or transaction fees. Due to the high cost of maintaining Fund accounts
with small balances, the Company reserves the right to close your account and
send you the proceeds if the balance falls below the applicable minimum balance
because of a redemption (including a redemption of shares of a Fund after you
have made only the applicable minimum initial investment). You will be given 30
days' notice to make an additional investment to increase your account balance
to the minimum balance. For a discussion of applicable minimum balance
requirements, see "Investing in the Funds -- How to Buy Shares."
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All redemptions generally are made in cash, except that the commitment to
redeem shares in cash extends only to redemption requests made by each Fund
shareholder during any 90-day period of up to the lesser of $250,000 or 1% of
the net asset value of the Fund at the beginning of such period. This
commitment is irrevocable without the prior approval of the SEC and is a
fundamental policy of the Fund that may not be changed without shareholder
approval. In the case of redemption requests by shareholders in excess of such
amounts, the Board of Directors reserves the right to have the Fund make
payment, in whole or in part, in securities or other assets, in case of an
emergency or any time a cash distribution would impair the liquidity of the
Fund to the detriment of the existing shareholders. In this event, the
securities would be valued in the same manner as the securities of the Fund
are valued. If the recipient were to sell such securities, he or she would
incur brokerage costs in converting such securities to cash.
REDEMPTIONS BY TELEPHONE
Telephone redemption or exchange privileges are made available to you
automatically upon opening an account, unless you specifically decline the
privileges. Telephone redemption privileges authorize the transfer agent to
act on telephone instructions from any person representing himself or herself
to be the investor and reasonably believed by the transfer agent to be
genuine. The Company requires the transfer agent to employ reasonable
procedures, such as requiring a form of personal identification, to confirm
that instructions are genuine and, if it does not follow such procedures, the
Company and the transfer agent may be liable for any losses due to
unauthorized or fraudulent instructions. Neither the Company nor the transfer
agent will be liable for following telephone instructions reasonably believed
to be genuine.
REDEMPTIONS BY MAIL
1. Write a letter of instruction. Indicate the Class and the dollar amount or
number of Fund shares you want to redeem. Refer to your Fund account number
and give your taxpayer identification number ("TIN"), which is generally
your social security or employer identification number.
2. Sign the letter in exactly the same way the account is registered. If there
is more than one owner of the shares, all must sign.
3. Signature guarantees are not required for redemption requests unless
redemption proceeds of $5,000 or more are to be paid to someone other than
you at your address of record or your Approved Bank Account, or other
unusual circumstances exist that cause the transfer agent to determine that
a signature guarantee is necessary or prudent to protect against
unauthorized redemption requests. If required, a signature must be
guaranteed by an "eligible guarantor institution," which includes a
commercial bank that is an FDIC member, a trust
PROSPECTUS
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<PAGE>
company, a member firm of a domestic stock exchange, a savings association,
or a credit union that is authorized by its charter to provide a signature
guarantee. Signature guarantees by notaries public are not acceptable.
Further documentation may be requested from corporations, administrators,
executors, personal representatives, trustees or custodians.
4. Mail your letter to the transfer agent at the mailing address set forth
under "Investing in the Funds -- Initial Purchases by Wire."
Unless other instructions are given in proper form, a check for your net
redemption proceeds is sent to your address of record.
EXPEDITED REDEMPTIONS BY MAIL OR TELEPHONE
You may request an expedited redemption of Fund shares by letter, in which
case your receipt of redemption proceeds, but not the Fund's receipt of your
redemption request, would be expedited. In addition, you also may request an
expedited redemption of shares of a Fund by telephone on any Business Day, in
which case both your receipt of redemption proceeds and a Fund's receipt of
your redemption request would be expedited. You may request expedited
redemption by telephone only if the total value of the shares redeemed is $100
or more.
You may request expedited redemption by telephone by calling the transfer
agent at the telephone number listed on your transaction confirmation or by
calling 1-800-222-8222.
You may request expedited redemption by mail by mailing your expedited
redemption request to the transfer agent at the mailing address set forth
under "Investing in the Funds -- Initial Purchases by Wire."
Upon request, net redemption proceeds of expedited redemptions of $5,000 or
more are wired or credited to your Approved Bank Account or wired to the
Selling Agent designated in your Account Application. The Company reserves the
right to impose a charge for wiring redemption proceeds. When proceeds of your
expedited redemption are to be paid to someone else, to an address other than
that of record, or to an Approved Bank Account or Selling Agent that you have
not predesignated in your Account Application, your expedited redemption
request must be made by letter and the signature(s) on the letter may be
required to be guaranteed, regardless of the amount of the redemption.
If your expedited redemption request for shares is received by the transfer
agent by the close of the NYSE on a Business Day, your redemption proceeds are
transmitted to your Approved Bank Account or Selling Agent on the next
Business Day (assuming your investment check has cleared as described above),
absent extraordinary circumstances. Extraordinary circumstances could include
those described above as potentially
PROSPECTUS
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delaying redemptions, and also could include situations involving an unusually
heavy volume of wire transfer orders on a national or regional basis or
communication or transmittal delays that could cause a brief delay in the
wiring or crediting of funds. A check for net redemption proceeds of less than
$5,000 is mailed to your address of record or, at your election, credited to
your Approved Bank Account.
During periods of drastic economic or market activity or changes, you may
experience problems implementing an expedited redemption by telephone. In the
event you are unable to reach the transfer agent by telephone, you should
consider using overnight mail to implement an expedited redemption. The Company
reserves the right to modify or terminate the expedited telephone redemption
privilege at any time.
SYSTEMATIC WITHDRAWAL PLAN
The Company's Systematic Withdrawal Plan provides you with a convenient way to
have Fund shares redeemed from your account and the net redemption proceeds
distributed to you on a monthly basis. You may participate in the Systematic
Withdrawal Plan only if you have a Fund account valued at $10,000 or more as of
the date of your election to participate, your dividends and capital gain
distributions are being reinvested automatically, and you are not participating
in the AutoSaver Plan at any time while participating in the Systematic
Withdrawal Plan. You specify an amount ($100 or more) to be distributed by
check to your address of record or deposited in your Approved Bank Account. The
transfer agent redeems sufficient shares and mails or deposits your net
redemption proceeds as instructed on or about the fifth Business Day prior to
the end of each month. There are no separate fees charged to you by the Company
for participating in the Systematic Withdrawal Plan.
It may take up to ten (10) days after receipt of your request to establish
your participation in the Systematic Withdrawal Plan. You may change your
withdrawal amount, suspend withdrawals or terminate your election at any time
by notifying the transfer agent at least five (5) Business Days prior to any
scheduled transaction. Your participation in the Systematic Withdrawal Plan is
terminated automatically if your Fund account is closed, or, in some cases, if
your Approved Bank Account is closed.
REDEMPTIONS THROUGH SELLING AGENTS
If your redemption order is received by a Selling Agent before the close of
the NYSE and received by the transfer agent before the close of business on the
same day, the order is executed at the NAV determined as of the close of the
NYSE on that day. If your redemption order is received by a Selling Agent after
the close of the NYSE, or is not received by the transfer agent prior to the
close of business, your order is executed at the NAV determined as of the close
of the NYSE on the next Business Day. The Selling Agent is responsible for the
prompt transmission of your redemption order to the Company.
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<PAGE>
Unless you have made other arrangements with a Selling Agent and the transfer
agent has been informed of such arrangements, net redemption proceeds of a
redemption order made by you through a Selling Agent are credited to your
Approved Bank Account. If no such account is designated, a check for the net
redemption proceeds is mailed to your address of record or, if such address is
no longer valid, the net redemption proceeds are credited to your account with
the Selling Agent. You may request a check from the Selling Agent or may elect
to retain the net redemption proceeds in such account. The Selling Agent may
charge you a service fee. In addition, it may benefit from the use of your
redemption proceeds until the check it issues to you has cleared or until such
proceeds have been disbursed or reinvested on your behalf.
REDEMPTIONS THROUGH SHAREHOLDER SERVICING AGENTS
You may request a redemption of Fund shares through your Shareholder Servicing
Agent. Any redemption request made by telephone through your Shareholder
Servicing Agent must redeem shares with a total value equal to $100 or more. If
your redemption order is transmitted by the Shareholder Servicing Agent on your
behalf to the transfer agent before the close of the NYSE, the redemption order
is executed at the NAV determined as of the close of the NYSE on that day. If
your Shareholder Servicing Agent transmits your redemption order to the
transfer agent after the close of the NYSE, then your order is executed on the
next Business Day after the date your order is received. The Shareholder
Servicing Agent is responsible for the prompt transmission of your redemption
order to the Company.
Unless you have made other arrangements with your Shareholder Servicing Agent,
and the transfer agent has been informed of such arrangements, net redemption
proceeds of a redemption order made by you through your Shareholder Servicing
Agent are credited to your Approved Bank Account. If no such account is
designated, a check for the net redemption proceeds is mailed to your address
of record or, if such address is no longer valid, the net redemption proceeds
are credited to your account with your Shareholder Servicing Agent or to
another account designated in your agreement with your Shareholder Servicing
Agent. The Shareholder Servicing Agent may charge you a service fee. In
addition, it may benefit from the use of your redemption proceeds until any
check it issues for you has cleared or until such proceeds have been disbursed
or reinvested on your behalf.
Additional Shareholder Services
The Company offers you a number of optional services. As noted above, you can
take advantage of the AutoSaver Plan, the Systematic Withdrawal Plan, and
Expedited Redemptions by Letter and Telephone. In addition, you have several
distribution
PROSPECTUS
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payment options and an exchange privilege, which are described below. If you
have questions about the distribution options available to you, please call 1-
800-222-8222.
DIVIDEND AND DISTRIBUTION OPTIONS
When you fill out your Account Application, you can choose from the following
dividend and distribution options listed below.
A. The Automatic Reinvestment Option provides for the reinvestment of your
dividend and capital gain distributions in additional shares of the same class
of the Fund that paid such dividend or capital gain distributions.
Distributions declared in a month generally are reinvested in additional shares
at NAV on the last Business Day of such month. You are assigned this option
automatically if you make no choice on your Account Application.
B. The Fund Purchase Option lets you use your dividend and/or capital gain
distributions from the Funds to purchase, at NAV, shares of another fund in the
Stagecoach Family of Funds with which you have an established account that has
met the applicable minimum initial investment requirement. Distributions paid
on Class C shares may be invested in Class C shares of another fund, in Retail
shares of a fund offered by another investment company in the Stagecoach Family
of Funds, in Class A shares of the Government Money Market Mutual, Money Market
Mutual, National Tax-Free Money Market Mutual, Prime Money Market Mutual or
Treasury Money Market Mutual Funds or in shares of the California Tax-Free
Money Market Mutual Funds (collectively, the "Money Market Mutual Funds").
Distributions paid on Class C shares may not be invested in shares of a non-
money market fund with single class of shares.
C. The Automatic Clearing House Option permits you to have dividend and
capital gain distributions deposited in your Approved Bank Account. In the
event your Approved Bank Account is closed, and such distribution is returned
to the Funds' dividend disbursing agent, the distribution is reinvested in your
Fund account at the NAV next determined after the distribution has been
returned. In addition, your Automatic Clearing House Option is then converted
to the Automatic Reinvestment Option.
D. The Check Payment Option allows you to receive a check for all dividend and
capital gain distributions, which generally is mailed either to your designated
address or your designated Approved Bank Account shortly following declaration.
If the U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, those checks are reinvested in your Fund account at
the NAV next determined after the earlier of the date the checks have been
returned to the dividend disbursing agent or the date six months after the
payment of such distribution. In addition, your Check Payment Option is then
converted to the Automatic Reinvestment Option.
PROSPECTUS
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The Company forwards moneys to the dividend disbursing agent so that it may
issue you distribution checks under the Check Payment Option. The dividend
disbursing agent may benefit from the temporary use of such moneys until these
checks clear. The Company takes reasonable efforts to locate investors whose
checks are returned or uncashed after six months.
EXCHANGE PRIVILEGE
The exchange privilege is a convenient way to buy shares in the Stagecoach
Family of Funds to respond to changes in your investment needs. You can
exchange between the various funds as follows:
<TABLE>
<CAPTION>
EXCHANGES BETWEEN YES NO
----------------- --- ---
<S> <C> <C>
Class C shares and Class C shares................................. X
Class C shares and a Money Market Mutual Fund..................... X
Class C Shares and Class A shares of a non-Money Market Mutual
Fund............................................................. X
Class C shares and Class B shares................................. X
</TABLE>
Important factors that you should consider:
. You will need to read the prospectus of the fund into which you want to
exchange.
. Every exchange is a redemption of shares of one fund and a purchase of
shares of another fund. The redemption may produce a gain or loss for
federal income tax purposes.
. You must exchange at least the minimum initial purchase amount of the fund
you are redeeming, unless your balance has fallen below that amount due to
market conditions or you have already met the minimum initial purchase
amount of the fund you are purchasing.
. You will not pay a contingent deferred sales charge on any exchange from
Class C shares into other Class C shares or a Money Market Mutual Fund.
The new shares will continue to age while they are in the new fund and
will be charged the contingent deferred sales charge applicable to the
original shares upon redemption.
. If you exchange Class C shares for shares of a Money Market Mutual Fund,
you may not re-exchange shares of the Money Market Mutual Fund for shares
other than Class C shares.
. Stagecoach may limit the number of times shares may be exchanged or may
reject any telephone exchange order. Subject to limited exceptions,
Stagecoach will notify you 60 days before discontinuing or modifying the
exchange privilege.
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You may exchange shares by writing the Transfer Agent or, if you have
telephone privileges, you may call the Transfer Agent. Exchanges are subject to
the procedures and conditions applicable to purchasing and redeeming shares.
Management, Distribution
and Servicing Fees
INVESTMENT ADVISER
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank, as the Funds' investment adviser, provides investment guidance and
policy direction in connection with the management of the Funds' assets. The
adviser also furnishes the Board of Directors with periodic reports on the
Funds' investment strategy and performance. For these services, the adviser is
entitled to a monthly investment advisory fee at the annual rate of 0.50% of
the average daily net assets of each Fund. From time to time, each Fund,
consistent with its investment objective, policies and restrictions, may invest
in securities of companies with which Wells Fargo Bank has a lending
relationship.
Advisory Fees Paid
For the nine-month period ended September 30, 1996, the California Tax-Free
Bond Fund paid advisory fees to Wells Fargo Bank at the annual rate of 0.50% of
its average daily net assets. For the year ended September 30, 1996, the
National Tax-Free Fund paid advisory fees at the annual rate of 0.08% of its
average daily net assets. For the period prior to September 6, 1996, this
includes amounts paid to Wells Fargo Investment Management, Inc. by the
predecessor portfolio of the National Tax-Free Fund.
For the year ended December 31, 1995, the California Tax-Free Bond Fund paid
advisory fees to Wells Fargo Bank at the annual rate of 0.50% of its average
daily net assets.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank serves as the Funds' custodian and transfer and dividend
disbursing agent. Under the Custody Agreement, a 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 Custody Agreement. Wells Fargo Bank performs its custodial and
transfer and dividend disbursing agency services at 525 Market Street, San
Francisco, California 94105.
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<PAGE>
SHAREHOLDER SERVICING AGENT
The Company has entered into shareholder servicing agreements with Wells Fargo
Bank and other entities on behalf of each class of Fund shares. Under such
agreements, Shareholder Servicing Agents (including Wells Fargo Bank) agree, as
agent for their customers, to provide shareholder administrative and liaison
services, with respect to Fund shares, which include, without limitation,
aggregating and transmitting shareholder orders for purchases, exchanges and
redemptions; maintaining shareholder accounts and records; and providing such
other related services as the Company or a shareholder may reasonably request.
For these services, a Shareholder Servicing Agent is entitled to receive
monthly fees, at the annual rate of up to 0.25% of the average daily net assets
attributable to Class C shares of the Funds owned of record or beneficially by
investors with whom the Shareholder Servicing Agent maintains a servicing
relationship. In no case shall payments exceed any maximum amount that may be
deemed applicable under applicable laws, regulations or rules, including the
Conduct Rules of the NASD ("NASD Rules").
A Shareholder Servicing Agent also may impose certain conditions and/or fees
on its customers, subject to the terms of this Prospectus, in addition to or
different from those imposed by a Fund, such as requiring a higher minimum
initial investment or payment of a separate fee for additional services. Each
Shareholder Servicing Agent has agreed to disclose any fees it may directly
charge its customers who are shareholders of a Fund and to notify them in
writing at least 30 days before it imposes any transaction fees.
ADMINISTRATOR AND CO-ADMINISTRATOR
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank as administrator and Stephens as co-administrator, provide the Funds
with administrative services, including general supervision of each Fund's
operation, coordination of other services to the Funds, 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 each Fund's business,
and Stephens compensates the Company's Directors and officers who are
affiliated with Stephens. For these administrative services, Wells Fargo Bank
and Stephens are entitled to monthly fees at the annual rates of 0.04% and
0.02%, respectively, of the average daily net assets of each Fund. Wells Fargo
Bank and Stephens may delegate certain of their administrative duties to sub-
administrators.
Stephens previously provided substantially the same services as sole
administrator to the Funds. For the nine-month period ended September 30, 1996,
the California Tax-Free Bond Fund paid administrative fees to Stephens at the
annual rate of 0.03% of its
PROSPECTUS
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<PAGE>
average daily net assets. For the year ended September 30, 1996, the National
Tax-Free Fund paid administrative fees at the annual rate of 0.10% of its
average daily net assets. For the period prior to September 6, 1996, this
includes amounts paid to Furman Selz LLC by the predecessor portfolio of the
National Tax-Free Fund.
SPONSOR AND DISTRIBUTOR
Stephens is the Funds' sponsor and co-administrator and distributes the Funds'
shares. Stephens is a full service broker/dealer and investment advisory firm
located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its
predecessor have been providing securities and investment services for more
than 60 years. Additionally, they have been providing discretionary portfolio
management services since 1983. Stephens currently manages investment
portfolios for pension and profit sharing plans, individual investors,
foundations, insurance companies and university endowments.
Stephens, as the Funds' principal underwriter within the meaning of the 1940
Act, has entered into a Distribution Agreement with the Company pursuant to
which Stephens is responsible for distributing Fund shares. The Company also
has adopted a Distribution Plan on behalf of each Class of the Funds under the
SEC's Rule 12b-1 ("Plans"). Under the Class C Plan for the Funds, the Company
may pay to Stephens, as compensation for distribution-related services
provided, or reimbursement for distribution-related expenses incurred, a
monthly fee at an annual rate of up to 0.50% of the average daily net assets
attributable to Class C shares. On July 23, 1997, the Company's Board of
Directors approved an increase to the fee payable pursuant to the Plans. The
new fee, if approved by shareholders at a shareholder meeting scheduled for
December 1997, will be 0.75%.
Distribution-related expenses include the cost of preparing and printing
prospectuses and other promotional materials and of delivering prospectuses and
those materials to prospective Class C 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 brokers/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.
Under the Distribution Agreement, Stephens may enter into selling agreements
with Selling Agents that wish to make available Fund shares to their respective
customers. Each Fund may participate in joint distribution activities with any
of the other funds of the Company, in which event, expenses reimbursed out of
the assets of a Fund may be
31 PROSPECTUS
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attributable, in part, to the distribution-related activities of another fund
of the Company. Generally, the expenses attributable to joint distribution
activities are allocated among each Fund and the other funds of the Company in
proportion to their relative net asset sizes, although the Company's Board of
Directors may allocate such expenses in any other manner that it deems fair and
equitable.
In addition, the Plans contemplate that, to the extent any fees payable
pursuant to a shareholder servicing agreement (discussed above) are deemed to
be for distribution-related services, such payments are approved and payable
pursuant to the Plans, subject to any limits under applicable law, regulations
or rules, including the NASD Rules. Financial institutions acting as Selling
Agents, Shareholder Servicing Agents, or in certain other capacities may be
required to register as dealers pursuant to applicable state securities laws
that may differ from federal law and any interpretations expressed herein.
Stephens has established a cash and non-cash compensation program, pursuant to
which broker/dealers or financial institutions that sell shares of the
Company's funds may earn additional compensation in the form of trips to sales
seminars or vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise, or the cash value of a non-cash
compensation item.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective
fees in whole or in part and reimburse expenses payable to others. Any such
waivers or reimbursements will reduce a Fund's expenses and, accordingly, have
a favorable impact on the Fund's performance. Except for the expenses borne by
Wells Fargo Bank and Stephens, each Fund of the Company bears all costs of its
operations, including its pro rata portion of Company expenses such as fees and
expenses of its independent auditors and legal counsel, compensation of the
Company's directors who are not affiliated with the adviser, administrator or
any of their affiliates; advisory, transfer agency, custody and administration
fees, and any extraordinary expenses. Expenses attributable to each Fund or
class, are charged against the assets of the Fund or class. General expenses of
the Company are allocated among all of the funds of the Company in a manner
proportionate to the net assets of each Fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.
Taxes
Dividends distributed from a Fund's net interest income from tax-exempt
securities will not be subject to federal income taxes. Dividends distributed
from a Fund's interest income attributable to taxable securities and net short-
term capital gains, if any, and
PROSPECTUS 32
<PAGE>
capital gain distributions will be taxable when paid, whether you take such
distributions in cash or have them automatically reinvested in additional Fund
shares. However, such distributions declared in October, November and December
and distributed in the following January will be taxable as if they were paid
by December 31.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares
will ordinarily result in a taxable capital gain or loss, depending on the
amount you receive for your shares (or are deemed to receive in the case of
exchanges) and the cost of your shares. See "Federal Income Taxes --
Disposition of Fund Shares" in the SAIs.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Federal Income Taxes -- Foreign Shareholders" in the
SAIs. In certain circumstances, U.S. residents may also be subject to
withholding taxes. See "Federal Income Taxes -- Backup Withholding" in the
SAIs.
CALIFORNIA TAX-FREE BOND FUND -- CALIFORNIA STATE INCOME TAXES
Individuals, trusts and estates resident in California will not be subject to
California personal income tax on dividends from the California Tax-Free Bond
Fund that represent tax-exempt interest paid on municipal obligations of the
State of California, its political subdivisions, direct obligations of the U.S.
government and certain other issuers, including Puerto Rico, Guam, and the U.S.
Virgin Islands. Such individuals, trusts and estates will be subject to
California personal income tax on other distributions received from the
California Tax-Free Bond Fund, including distributions of interest on municipal
obligations issued by other issuers and all capital gains.
Except as noted above with respect to California personal income taxation of
individuals, trusts and estates resident in California, dividends and
distributions from the California Tax-Free Bond Fund may be taxable to
investors under state or local law as dividend income even though all or a
portion of such distributions may be derived from interest on tax-exempt
obligations which, if realized directly, would be exempt from such income
taxes.
Shareholders of the California Tax-Free Bond Fund, including part-year
residents of California, should consult their tax advisors about other state
and local tax consequences of their investments in the California Tax-Free Bond
Fund, which may have different consequences from those under federal income tax
law. The Company makes no representations as to California state and local
taxes that may be imposed on a corporate investor in the California Tax-Free
Bond Fund or other Funds, and such investors should consult with their own tax
advisors.
33 PROSPECTUS
<PAGE>
NATIONAL TAX-FREE FUND -- STATE AND LOCAL TAXES
Investors are advised to consult their tax advisors concerning the application
of state and local taxes, which may have different consequences from those
under federal income tax law.
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 and state tax considerations generally affecting the Funds
and their shareholders. It is not intended as a substitute for careful tax
planning; you should consult your tax advisor with respect to your specific tax
situation as well as with respect to foreign, state and local taxes. Additional
tax considerations, including the federal alternative minimum tax, are
discussed in the SAI for the Funds.
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Prospectus Appendix -- Additional Investment Policies
FUND INVESTMENTS
Municipal Securities
The Funds may invest in municipal bonds rated at the date of purchase "Baa" or
better by Moody's or "BBB" or better by S&P, or unrated bonds that are
considered by the investment adviser to be of comparable quality. Bonds rated
"Baa" and "BBB" have speculative characteristics and are more likely than
higher-rated bonds to have a weakened capacity to pay principal and interest in
times of adverse economic conditions; all are considered investment grade.
Municipal bonds generally have a maturity at the time of issuance of up to 40
years.
The Funds may invest in municipal notes rated at the date of purchase "MIG 2"
(or "VMIG 2" in the case of an issue having a variable rate with a demand
feature) or better by Moody's or "SP-2" or better by S&P, or unrated notes that
are considered by the investment adviser to be of comparable quality. Municipal
notes generally have maturities at the time of issuance of three years or less.
Municipal notes are generally issued in anticipation of the receipt of tax
funds, of the proceeds of bond placements, or of other revenues. The ability of
an issuer to make payments on notes is therefore especially dependent on such
tax receipts, proceeds from bond sales or other revenues, as the case may be.
The Funds may invest in municipal commercial paper rated at the date of
purchase "Prime-1" or "Prime-2" by Moody's or "A-1+," "A-1" or "A-2" by S&P, or
unrated commercial paper that is considered by the investment adviser to be of
comparable quality. Municipal commercial paper is a debt obligation with a
stated maturity of 270 days or less that is issued to finance seasonal working
capital needs or as short-term financing in anticipation of longer-term debt.
In the event a security purchased by the California Tax-Free Bond Fund is
downgraded below investment grade, the Fund may retain such security, although
the Fund may not have more than 5% of its assets invested in securities rated
below investment grade at any time. A description of the ratings is contained
in the Appendix to the Funds' SAI.
Municipal obligations also may include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
PROSPECTUS
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<PAGE>
Certain of the municipal obligations held by the Funds may be insured as to
the timely payment of principal and interest. The insurance policies will
usually be obtained by the issuer of the municipal obligation at the time of
its original issuance. In the event that the issuer defaults on an interest or
principal payment, the insurer will be notified and will be required to make
payment to the bondholders. There is, however, no guarantee that the insurer
will meet its obligations. In addition, such insurance will not protect against
market fluctuations caused by changes in interest rates and other factors.
The National Tax-Free Fund may purchase municipal obligations known as
"certificates of participation" which represent undivided proportional
interests in lease payments by a governmental or nonprofit entity. The lease
payments and other rights under the lease provide for and secure the payments
on the certificates. Lease obligations may be limited by applicable municipal
charter provisions or the nature of the appropriation for the lease. In
particular, lease obligations may be subject to periodic appropriation. Lease
obligations also may be abated if the leased property is damaged or becomes
unsuitable for the lessee's purpose. If the entity does not appropriate funds
for future lease payments, the entity cannot be compelled to make such
payments. Furthermore, a lease may or may not provide that the certificate
trustee can accelerate lease obligations upon default. If the trustee could not
accelerate lease obligations upon default, the trustee would only be able to
enforce lease payments as they became due. In the event of a default or failure
of appropriation, it is unlikely that the trustee would be able to obtain an
acceptable substitute source of payment. Certificates of participation are
generally subject to redemption by the issuing municipal entity under specified
circumstances. If a specified event occurs, a certificate is callable at par
either at any interest payment date or, in some cases, at any time. As a
result, certificates of participation are not as liquid or marketable as other
types of municipal obligations and are generally valued at par or less than par
in the open market.
The Funds' investment adviser, under the supervision of the Board of
Directors, makes determinations concerning the liquidity of a municipal lease
obligation based on all relevant factors. The National Tax-Free Fund also may
purchase unrated municipal lease obligations. The Funds' investment adviser,
under the supervision of the Board of Directors, determines the credit quality
of such leases on an ongoing basis, including an assessment of the likelihood
that the underlying lease will not be canceled.
Opinions relating to the validity of municipal obligations and to the
exemption of interest thereon from regular federal income tax (and to the
exemption of interest from state personal income tax) are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Funds,
the Funds' investment adviser nor their counsel will review the proceedings
relating to the issuance of municipal obligations or the bases for such
opinions.
For a further discussion of factors affecting purchases of municipal
obligations by the California Tax-Free Bond Fund, see "Special Considerations
Affecting California Municipal Securities" in the SAI.
PROSPECTUS
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<PAGE>
Taxable Investments
Pending the investment of proceeds from the sale of shares of the Funds or
proceeds from sales of portfolio securities or in anticipation of redemptions
or to maintain a "defensive" posture when, in the opinion of Wells Fargo Bank,
as investment adviser, it is advisable to do so because of market conditions,
each Fund may elect to invest temporarily up to 20% of the current value of its
net assets in cash reserves, in instruments that pay interest which is exempt
from federal income taxes, but not, for the California Tax-Free Bond Fund, from
California's personal income tax, or the following taxable high-quality money
market instruments: (i) U.S. Government obligations; (ii) negotiable
certificates of deposit, bankers' acceptance and fixed time deposits and other
obligations of domestic banks (including foreign branches) that have more than
$1 billion in total assets at the time of investment and are members of the
Federal Reserve System or are examined by the Comptroller of the Currency or
whose deposits are insured by the FDIC; (iii) commercial paper rated at the
date of purchase "Prime-1" by Moody's or "A-1+" or "A-1" by S&P; (iv) certain
repurchase agreements; and (v) high-quality municipal obligations, the income
from which may or may not be exempt from federal income taxes.
U.S. Government Obligations
The Funds may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Payment of principal and interest on U.S. Government Obligations (i) may be
backed by the full faith and credit of the United States ( as with U.S.
Treasury bills and GNMA certificates) or (ii) may be backed solely by the
issuing or guaranteeing agency or instrumentality itself (as with FNMA notes).
In the latter case investors must look principally to the agency or
instrumentality issuing or guaranteeing the obligation for ultimate repayment,
which agency or instrumentality may be privately owned. There can be no
assurance that the U.S. Government will provide financial support to its
agencies or instrumentalities where it is not obligated to do so. In addition,
U.S. Government Obligations are subject to fluctuations in market value due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
Forward Commitments, When-Issued Purchases, Stand-by Commitments and Delayed-
Delivery Transactions
The Funds may purchase or sell securities on a when-issued or delayed-delivery
basis and make contracts to purchase or sell securities for a fixed price at a
future date beyond customary settlement time. Securities purchased or sold on a
when-issued, delayed-delivery or forward-commitment basis involve a risk of
loss if the value of the security to be purchased declines, or the value of the
security to be sold increases,
PROSPECTUS
A-3
<PAGE>
before the settlement date. Although a Fund will generally purchase securities
with the intention of acquiring them, a Fund may dispose of securities
purchased on a when-issued, delayed-delivery or a forward-commitment basis
before settlement when deemed appropriate by the adviser. When issued
securities are subject to market fluctuation, and no income accrues to the
purchaser during the period prior to issuance. The purchase price and the
interest rate received on debt securities are fixed at the time the purchaser
enters into the commitment. Purchasing a security on a when-issued basis can
involve a risk that the market price at the time of delivery may be lower than
the agreed-upon purchase price, in which case there could be an unrealized loss
at the time of delivery.
The National Tax-Free Fund also may acquire "stand-by commitments" with
respect to municipal obligations held in their respective portfolios. Under a
stand-by commitment, a dealer agrees to purchase at the Fund's option specified
municipal obligations at a price equal to their amortized cost value plus
accrued interest. The Fund will acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their respective
rights thereunder for trading purposes.
Each Fund establishes a segregated account in which it maintains cash, U.S.
Government obligations or other high-quality debt instruments in an amount at
least equal in value to its respective commitments to engage in when-issued
purchases and delayed delivery transactions. If the value of these assets
declines, the Fund places additional liquid assets in the account on a daily
basis so that the value of the assets in the account is equal to the amount of
such commitments.
Other Investment Companies
Subject to the limitations of the 1940 Act, the Funds may invest in shares of
other unaffiliated open-end investment companies that have a fundamental policy
of investing, under normal circumstances, at least 80% of their net assets in
obligations that are exempt from federal income taxes and are not subject to
the federal alternative minimum tax. Such investment companies can be expected
to charge management fees and other operating expenses that would be in
addition to those charged to the Funds. However, the Funds' investment adviser
has undertaken to waive its advisory fees with respect to assets so invested.
In no event may a Fund, together with any company or companies controlled by
it, own more than 3% of the total outstanding voting stock of any such company,
nor may a Fund, together with any such company or companies, invest more than
5% of its assets in any one such company or invest more than 10% of its assets
in securities of all such companies combined. Notwithstanding any other
investment policy or limitation (whether or not fundamental), as a matter of
fundamental policy, the National Tax-Free Fund may invest all of its assets in
the securities of a single open-end, management investment company with
substantially the same fundamental investment objective, policies and
limitations as the Fund.
PROSPECTUS
A-4
<PAGE>
Floating- and Variable-Rate Instruments
The Funds may purchase debt instruments with 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 Funds may purchase include certificates of
participation in such instruments. Floating- and variable-rate instruments are
subject to interest-rate risk and credit risk.
Wells Fargo Bank, as investment adviser, will monitor on an ongoing basis the
ability of an issuer of a demand instrument to pay principal and interest on
demand. Events affecting the ability of the issuer of a demand instrument to
make payment when due may occur between the time a Fund elects to demand
payment and the time payment is due, thereby affecting such Fund's ability to
obtain payment at par. Demand instruments whose demand feature is not
exercisable within seven days, may be treated as liquid provided that an active
secondary market exists. See "Additional Permitted Investment Activities" in
the SAI for additional information.
Illiquid Securities
The National Tax-Free Fund will not knowingly invest more than 15% (10% for
the California Tax-Free Bond Fund) of the value of its net assets is securities
that are illiquid because of restrictions on transferability or other reasons.
Illiquid securities shall not include securities eligible for resale pursuant
to Rule 144A under the Securities Act of 1933 (the "1933 Act") that have been
determined to be liquid by the adviser, pursuant to guidelines established by
the Company's Board of Directors, and commercial paper that is sold under
Section 4(2) of the 1933 Act (i) is not traded flat or in default as to
interest or principal and (ii) is rated in one of the two highest categories by
at least two nationally recognized statistical rating organizations and the
adviser, pursuant to guidelines established by the Company's Board of
Directors, has determined the commercial paper to be liquid; or (iii) is rated
in one of the two highest categories by one nationally recognized statistical
rating organization and the adviser, pursuant to guidelines established by the
Company's Board of Directors, has determined that the commercial paper is of
equivalent quality and is liquid), if by any reason thereof the value of its
aggregate investment in such classes of securities will exceed the applicable
limitation described above with respect to its total assets.
Repurchase Agreements
The California Tax-Free Bond 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 mutually agreed-upon time and price. The period of maturity is
usually quite short, often overnight or a few days, although it may extend over
a number of months. The Fund may enter into repurchase agreements only with
respect to securities that could otherwise be purchased by the Fund, and all
repurchase transactions must be collateralized. The Fund may incur a loss on a
repurchase transaction if the seller
PROSPECTUS
A-5
<PAGE>
defaults and the value of the underlying collateral declines or is otherwise
limited or if receipt of the security or collateral is delayed. The California
Tax-Free Bond Fund may participate in pooled repurchase agreement transactions
with other funds advised by Wells Fargo Bank. See "Additional Permitted
Investment Activities" in the SAI for additional information.
Derivative Securities
The Funds may invest in structured notes, bonds or other instruments with
interest rates that are determined by reference to changes in the value of
other interest rates, indices or financial indicators ("References") or the
relative change in two or more References. The Funds may also hold derivative
instruments that have interest rates that re-set inversely to changing current
market rates and/or have embedded interest rate floors and caps that require
the issuers to pay an adjusted interest rate if market rates fall below or rise
above a specified rate. These instruments represent relatively recent
innovations in the bond markets, and the trading market for these instruments
is less developed than the markets for traditional types of debt instruments.
It is uncertain how these instruments will perform under different economic and
interest-rate scenarios. Because certain of these instruments are leveraged,
their market values may be more volatile than other types of bonds and may
present greater potential for capital gain or loss. The imbedded option
features of other derivative instruments could limit the amount of appreciation
a Fund can realize on its investment, could cause a Fund to hold a security it
might otherwise sell or could force the sale of a security at inopportune times
or for prices that do not reflect current market value. The possibility of
default by the issuer or the issuer's credit provider may be greater for these
structured and derivative instruments than for other types of instruments. In
some cases it may be difficult to determine the fair value of a structured or
derivative instrument because of a lack of reliable objective information and
an established secondary market for some instruments may not exist.
INVESTMENT POLICIES AND RESTRICTIONS
Any fundamental investment policy may not be changed without approval by the
vote of the holders of a majority of such Fund's outstanding voting securities,
as described under "Capital Stock" in the Funds' SAI. If the Company's Board of
Directors determines, however, that a Fund's investment objective can best be
achieved by a substantive change in a nonfundamental investment policy or
strategy, the Company's Board may make such change without shareholder approval
and will disclose any such material changes in the then-current prospectus. The
following description summarizes several of the Funds' fundamental
restrictions, which are set forth in full in the SAI.
As matters of fundamental policy:
1. The National Tax-Free Fund may not purchase securities (except U.S.
Government securities and repurchase agreements collateralized by such
securities) if more than
PROSPECTUS
A-6
<PAGE>
5% of its total assets at the time of purchase will be invested in securities
of any one issuer, except that up to 50% of its total assets may be invested
without regard to this 5% limitation.
2. The National Tax-Free Fund may not invest 25% or more of its total assets
at the time of purchase in securities of issuers whose principal business
activities are in the same industry and the California Tax-Free Bond Fund may
not purchase the securities of issuers conducting their principal business
activity in the same industry, if immediately after the purchase and as a
result thereof, the value of such Fund's investments in that industry would be
25% or more of the current value of the Fund's total assets, provided that
there is no limitation with respect to investments in (a) municipal securities
(for the purpose of this restriction, private activity bonds shall not be
deemed municipal securities if the payment of principal and interest on such
bonds is the ultimate responsibility of nongovernmental users) and (b) U.S.
Government obligations.
3. The Funds may not borrow money, except in amounts up to 10% of the value of
its total assets at the time of borrowing (for the California Tax-Free Bond
Fund, only from banks 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 by a Fund while any
such outstanding borrowings exceed 5% of its net assets.
4. The National Tax-Free Fund will not at any time knowingly have more than
15% of its net assets in illiquid securities. However, if a percentage
restriction on the investment or use of assets set forth in this Prospectus is
adhered to at the time a transaction is effected, later changes in percentage
resulting from changing values will not be considered a violation.
5. The California Tax-Free Bond Fund may make loans of portfolio securities in
accordance with its investment policies.
As matters of nonfundamental policy:
1. The California Tax-Free Bond Fund may not invest more than 10% of the
current value of its net assets in securities that are illiquid by virtue of
the absence of a readily available market or because of legal or contractual
restrictions on resale or maturities of more than seven days, unless the Board
of Directors or investment adviser, pursuant to guidelines adopted by the
Board, determines that a liquid trading market exists. For a discussion of
whether a certain security is excluded from the Fund's limitation see "Illiquid
Securities" in this Appendix.
2. The National Tax-Free Fund may invest up to 15% of the current value of its
net assets in illiquid securities.
PROSPECTUS
A-7
<PAGE>
For purposes of complying with the Code, the California Tax-Free Bond Fund
will diversify its holdings so that, at the end of each quarter of the taxable
year: (i) at least 50% of the market value of its assets is represented by
cash, U.S. Government obligations and other securities limited in respect of
any one issuer to an amount not greater than 5% of the Fund's assets and 10% of
the outstanding voting securities of such issuer; and (ii) not more than 25% of
the value of its assets is invested in the securities of any one issuer (other
than U.S. Government obligations and the securities of other regulated
investment companies), or of two or more issuers which the taxpayer controls
and which are determined to be engaged in the same or similar trades or
businesses or related trades or businesses. With respect to paragraph (i), it
may be possible that the Company would own more than 10% of the outstanding
voting securities of an issuer.
PROSPECTUS
A-8
<PAGE>
Advised by WELLS FARGO BANK, N.A.
Sponsored/Distributed by
Stephens Inc., Member NYSE/SIFC
NOT FDIC INSURED
SCF179 (10/97)
<PAGE>
STAGECOACH FUNDS(R)
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH FUNDS:
--------------------------------------------------------------------------
. are NOT FDIC insured
. are NOT guaranteed by Wells Fargo Bank
. are NOT deposits or obligations of the Bank
. involve investment risk, including possible loss of principal.
[LOGO OF RECYCLED PAPER APPEARS HERE]
Printed on Recycled Paper SCF179 (10/97)
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[LOGO OF STAGECOACH FUNDS APPEARS HERE]
------------------------------------
PROSPECTUS
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SMALL CAP FUND
AGGRESSIVE GROWTH FUND
CLASS C
October 6, 1997
<PAGE>
PROSPECTUS
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION
DATED AUGUST 5, 1997
STAGECOACH FUNDS(R)
SMALL CAP FUND
AGGRESSIVE GROWTH FUND
CLASS C
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about Class C shares offered in
two funds of the Stagecoach Family of Funds -- the SMALL CAP FUND and the
AGGRESSIVE GROWTH FUND (each a "Fund" and, collectively, the "Funds").
Please read this Prospectus and retain it for future reference. It is designed
to provide you with important information and to help you decide if a Fund's
goals match your own. A Statement of Additional Information ("SAI"), dated
October 6, 1997 has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this Prospectus. The SAI is
available free of charge by writing to Stagecoach Funds, Inc., c/o Stagecoach
Shareholder Services, Wells Fargo Bank, N.A., P.O. Box 7066, San Francisco, CA
94120-7066, or by calling the Company at 1-800-222-8222. If you hold shares in
an IRA, please call 1-800-BEST-IRA (1-800-237-8472) for information or
assistance.
The SMALL CAP FUND seeks above-average long-term capital appreciation in order
to provide investors with a rate of total return exceeding that of the Russell
2000 Index (before fees and expenses) over a time horizon of three to five
years.
The AGGRESSIVE GROWTH FUND seeks to provide investors with an above-average
level of capital appreciation.
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 A FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND ADMINISTRATOR, AND IS
COMPENSATED FOR PROVIDING THE FUNDS AND FUNDS WITH CERTAIN OTHER SERVICES.
STEPHENS INC. ("STEPHENS"), WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS
THE SPONSOR, CO-ADMINISTRATOR AND DISTRIBUTOR FOR THE FUNDS.
PROSPECTUS DATED OCTOBER 6, 1997
<PAGE>
Each Fund currently invests all of its assets in a corresponding Master
Portfolio (the "Master Portfolios") of Master Investment Trust ("MIT"), an
open-end, management investment company, rather than directly in a portfolio of
securities. Each Master Portfolio has the same investment objective as the
corresponding Fund and the Fund's performance corresponds directly with its
Master Portfolio's performance. REFERENCES TO THE INVESTMENTS, INVESTMENT
POLICIES AND RISKS OF A FUND, UNLESS OTHERWISE INDICATED, SHOULD BE UNDERSTOOD
AS REFERENCES TO THE INVESTMENTS, INVESTMENT POLICIES AND RISKS OF THE
CORRESPONDING MASTER PORTFOLIO.
On July 23, 1997, the Company's Board of Directors approved an agreement and
plan of consolidation to reorganize the funds of another investment company,
Overland Express Funds, Inc., with and into certain funds of the Company (the
"Consolidation"). If the Consolidation is completed as anticipated, the Master
Portfolios will be dissolved in December of 1997. The Funds will no longer
invest their assets in the Master Portfolios, but instead will invest directly
in a portfolio of securities. The Funds will retain Wells Fargo Bank, the
Master Portfolios' current investment adviser, to manage their assets in
substantially the same manner as Wells Fargo Bank currently manages the Master
Portfolios' assets and for the same level of advisory fees.
PROSPECTUS
<PAGE>
Table of Contents
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<TABLE>
<S> <C>
Prospectus Summary 1
Summary of Fund Expenses 5
Explanation of Tables 6
How the Funds Work 17
The Funds and Management 14
Investing in the Funds 16
Dividend and Capital Gain Distributions 22
How to Redeem Shares 22
Additional Shareholder Services 27
Management, Distribution and Servicing Fees 30
Taxes 33
Prospectus Appendix -- Additional Investment Policies A-1
</TABLE>
PROSPECTUS
<PAGE>
Prospectus Summary
The Funds provide you with a convenient way to invest in various portfolios of
securities selected and supervised by professional management. The following
provides you with summary information about the Funds. For more information,
please refer to the identified Prospectus sections and generally to the Funds'
Prospectus and SAI.
Q.WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
A. The SMALL CAP FUND seeks above-average long-term capital appreciation in
order to provide investors with a rate of total return exceeding that of
the Russell 2000 Index (before fees and expenses) over a time horizon of
three to five years. The Fund pursues this objective through the active
management of a broadly diversified portfolio consisting primarily of
growth-oriented common stocks with market capitalizations between $50
million and $1 billion at the time of acquisition. The Fund intends to sell
the common stock of any company in its investment portfolio after such
Company's market capitalization exceeds $2 billion.
The AGGRESSIVE GROWTH FUND seeks to provide investors with an above-
average level of capital appreciation. The Fund pursues this objective
through the active management of a broadly diversified portfolio of equity
securities of companies expected to experience strong growth in revenues,
earnings and assets. The Fund is designed to provide above-average capital
growth for investors willing to assume above-average risk.
See "How the Funds Work," "Prospectus Appendix -- Additional Investment
Policies" and the SAI for further information on investments.
Q.WHAT ARE THE FUNDS' PRINCIPAL INVESTMENTS?
A. The Small Cap Fund seeks to achieve its investment objective through the
active management of a broadly diversified portfolio consisting primarily
of growth-oriented common stocks. Under normal market conditions, the Fund
invests primarily in companies whose market capitalizations fall within the
capitalization range of companies listed on the Russell 2000 Index. As of
July 1996, the capitalization range of companies in the Russell 2000 Index
was between $161 million and $1.1 billion. The range is expected to change
frequently. The Fund will sell the common stock of any company in its
investment portfolio after such company's market capitalization exceeds $2
billion.
The Russell 2000 Index is a subset of the larger Russell 3000 Index. The
Russell 3000 Index is an index of 3000 small capitalization U.S.
companies. The Russell 2000 Index consists of the 2000 smallest companies
in the larger Russell 3000 Index.
PROSPECTUS
1
<PAGE>
The Aggressive Growth Fund seeks to achieve its investment objective
through the active management of a broadly diversified portfolio of equity
securities of companies expected to experience strong growth in revenues,
earnings and assets. The Fund invests primarily in common stocks that are
expected by Wells Fargo Bank to have better-than average prospects for
appreciation. Under normal market conditions, the Fund will hold at least
20 common stock issues spread across multiple industry groups and at least
50% of the Fund's assets will be invested in companies whose market
capitalizations at the time of acquisition are within the range of
companies listed on the S&P Small Cap 600 Index. As of April 30, 1997, the
capitalization range for companies in the S&P Small Cap 600 Index was
between $21 million and $2.4 billion. The range of the S&P Small Cap 600
Index is expected to change.
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF
INVESTMENT?
A. An investment in a Fund is not insured against loss of principal. When the
value of the securities that a Fund owns declines, so does the value of
your shares of the Fund. Therefore, you should be prepared to accept some
risk with the money you invest in the Funds. The portfolio equity
securities of the Funds are subject to equity market risk. Equity market
risk is the risk that stock prices will fluctuate or decline over short or
even extended periods. As of the date of this Prospectus, the stock market,
as measured by the S&P 500 Index and other commonly used indices, is
trading at or close to record levels. There can be no guarantee that these
performance levels will continue. The portfolio debt instruments of the
Funds are subject to credit and interest-rate risk. Credit risk is the risk
that issuers of the debt instruments in which the Funds invest may default
on the payment of principal and/or interest. Interest-rate risk is the risk
that increases in market interest rates may adversely affect the value of
the debt instruments in which the Funds invest and hence the value of your
investment in a Fund. The Funds may invest a significant portion of their
respective assets in securities of smaller and newer issuers. Investments
in such companies may present opportunities for capital appreciation
because of high potential earnings growth, but may present greater risks
than investments in more established companies with longer operating
histories and greater financial capacity. Investments in foreign securities
by a Fund involve special risks and considerations not usually associated
with investments in U.S. Companies. As with all mutual funds, there can be
no assurance that the Funds will achieve their investment objectives. See
"How the Funds Work -- Investment Objectives and Policies", "How the Funds
Work --Risk Factors" and "Prospectus Appendix -- Additional Investment
Policies" below, and "Additional Permitted Investment Activities" in the
SAI for further information about the Funds' investments and related risks.
PROSPECTUS
2
<PAGE>
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the Funds' investment adviser, manages your
investments. Wells Fargo Bank also provides transfer and dividend
disbursing agency services to the Funds and serves as custodian to the
Funds. In addition, Wells Fargo Bank is a shareholder servicing agent and a
selling agent. See "The Funds and Management" and "Management, Distribution
and Servicing Fees."
Q. HOW DO I INVEST?
A. You may invest by purchasing shares of the Funds at their public offering
price, which is the net asset value ("NAV") plus any applicable sales
charge. Class C shares that are redeemed within one year of purchase are
subject to a maximum contingent deferred sales charge of 1.00% of the
lesser of NAV at purchase or NAV at redemption. You may open an account by
investing at least $1,000 and may add to your account by making additional
investments of at least $100, although certain exceptions to these minimums
may be available. Shares may be purchased by wire, by mail or by an
automatic investment feature called the AutoSaver Plan on any day the New
York Stock Exchange is open. See "Investing in the Funds." For more
details, contact Stephens (the Funds' sponsor and distributor), a
shareholder servicing agent or a selling agent (such as Wells Fargo Bank).
Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends of the Funds are declared and distributed annually. Any capital
gains are distributed by all the Funds at least annually. Dividend and
capital gain distributions are automatically reinvested in shares of the
same class of the respective Fund at NAV without a sales charge unless you
elect to receive distributions in cash. You may also elect to reinvest
dividends in shares of certain other funds in the Stagecoach Family of
Funds with which you have an established account that has met the
applicable minimum initial investment requirement. Investment income
available for distribution to holders of a class of shares is reduced by
the class expenses payable on behalf of those shares. See "Dividend and
Capital Gain Distributions" and "Additional Shareholder Services."
Q. HOW MAY I REDEEM SHARES?
A. You may redeem shares by telephone, by letter or by an automatic feature
called the Systematic Withdrawal Plan on any day the Fund is open for
business. Contingent-deferred sales charges may be charged upon redemption
of Class C shares. In addition, the Company reserves the right to impose
charges for wiring redemption proceeds. See "How To Redeem Shares" and "How
to Purchase
PROSPECTUS
3
<PAGE>
Shares -- Contingent Deferred Sales Charges -- Class C Shares." For more
details, contact Stephens, a shareholder servicing agent or a selling agent
(such as Wells Fargo Bank).
Q. WHAT ARE DERIVATIVES AND DO THE FUNDS USE THEM?
A. Derivatives are financial instruments whose value is derived, at least in
part, from the price of another security or a specified asset, index or
rate. Some of the permissible investments described in this Prospectus,
such as buying and selling options and futures and entering into currency
exchange contracts or swap agreements, are considered derivatives. Some
derivatives may be more sensitive than direct securities to changes in
interest rates or sudden market moves. Some derivatives also may be
susceptible to fluctuations in yield or value due to their structure or
contract terms.
Q. WHAT STEPS DO THE FUNDS TAKE TO CONTROL DERIVATIVES-RELATED RISKS?
A. Wells Fargo Bank uses a variety of internal risk management procedures to
ensure that derivatives use is consistent with each Fund's investment
objective, does not expose the Fund to undue risks and is closely
monitored. These procedures include providing periodic reports to the Board
of Directors concerning the use of derivatives. Derivatives use by each
Fund also is subject to broadly applicable investment policies. For
example, a Fund may not invest more than a specified percentage of its
assets in "illiquid securities," including those derivatives that do not
have active secondary markets. Nor may a Fund use certain derivatives
without establishing adequate "cover" in compliance with SEC rules limiting
the use of leverage. For more information on the Funds' investment
activities, see "How the Funds Work" and "Prospectus Appendix -- Additional
Investment Policies."
PROSPECTUS
4
<PAGE>
PROSPECTUS
Summary of Fund Expenses
SHAREHOLDER TRANSACTION EXPENSES
CLASS C SHARES
<TABLE>
<CAPTION>
SMALL AGGRESSIVE
CAP GROWTH
FUND FUND
----- ----------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchase (as a percentage
of offering price)........................................None. None
Maximum Sales Charge on Reinvested Dividends............. None None
Maximum Sales Charge Imposed on Redemptions
Redemption during year 1................................ 1.00% 1.00%
Redemption after year 1................................. 0.00% 0.00%
Exchange Fees............................................ None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
SMALL AGGRESSIVE
CAP GROWTH
FUND FUND
----- ----------
<S> <C> <C>
Management Fee/1/......................................... [ ]% [ ]%
Rule 12b-1 Fee/2/......................................... [ ]% [ ]%
Other Expenses (after waivers or reimbursements)/3/....... [ ]% [ ]%
TOTAL FUND OPERATING EXPENSES (after waivers or
reimbursements)/4/....................................... [ ]% [ ]%
</TABLE>
--------------
/1/Management Fee (before waivers or reimbursements) would be [ ]% and [ ]%,
respectively.
/2/Rule 12b-1 Fee (before waivers or reimbursements) would be [ ]% and [ ]%,
respectively.
/3/Other Expenses (before waivers or reimbursements) would be [ ]% and [ ]%,
respectively.
/4/Total Fund Operating Expenses (before waivers or reimbursements) would be
[ ]% and [ ]%, respectively.
EXAMPLE OF EXPENSES
You would pay the following expenses on a $1,000 investment in Class C shares
of a 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
------ ------- ------- --------
<S> <C> <C> <C> <C>
SMALL CAP FUND................................ $[ ] $[ ] $[ ] $[ ]
AGGRESSIVE GROWTH............................. $[ ] $[ ] $[ ] $[ ]
</TABLE>
You would pay the following expenses on a $1,000 investment in Class C
shares of a Fund, assuming a 5% annual return and no redemption:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
SMALL CAP FUND................................ $[ ] $[ ] $[ ] $[ ]
AGGRESSIVE GROWTH............................. $[ ] $[ ] $[ ] $[ ]
</TABLE>
5
<PAGE>
Explanation of Tables
The purpose of the foregoing tables is to help you understand the various
costs and expenses that a shareholder in a Fund will pay directly or
indirectly. You may purchase Fund shares directly from the Company or through
Wells Fargo Bank or other institutions that have developed various account
products through which Fund shares may be purchased, and for which customers
may be charged a fee. The tables does not reflect any charges that may be
imposed by Wells Fargo Bank or another institution directly on certain customer
accounts in connection with an investment in a Fund.
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell Fund
shares. You may be subject to a contingent-deferred sales charge on a Fund's
Class C shares if you redeem such shares within a specified period. The Company
reserves the right to impose a charge for wiring redemption proceeds. There are
no exchange fees. See "Investing in the Funds -- Contingent Deferred Sales
Charges."
ANNUAL FUND OPERATING EXPENSES have been adjusted to reflect voluntary fee
waivers or reimbursements that are expected to continue to reduce expenses
during the current year. The amounts shown under "Management Fee" and "Rule
12b-1 Fee" for the Funds are based on applicable contract amounts. The amounts
shown under "Other Expenses" for these Funds are based on estimated/restated
amounts expected to be in effect during the current year. Wells Fargo Bank and
Stephens at their sole discretion may waive or reimburse all or a portion of
their respective fees charged to, or expenses paid by, a Fund. Any waivers or
reimbursements would reduce a Fund's total expenses.
Long-term shareholders of the Funds could pay more in sales charges than the
economic equivalent of the maximum front-end sales charges applicable to mutual
funds sold by members of the National Association of Securities Dealers Inc.
("NASD"). For more complete descriptions of the various costs and expenses you
can expect to incur as a shareholder in each Fund, please see "Investing in the
Funds -- How To Buy Shares" and "Management, Distribution and Servicing Fees."
EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses associated
with a $1,000 investment over stated periods, based on the expenses in the
above tables and an assumed annual rate of return of 5%. This annual rate of
return should not be considered an indication of actual or expected performance
of a Fund nor a representation of past or future expenses; actual expenses and
returns may be greater or lesser than those shown.
Each Fund offers certain classes of shares not described herein. The expenses
and corresponding returns of these other classes may differ from the expenses
and returns of the shares described herein. Information regarding these and any
other investment options in the Funds may be obtained by calling Stephens at 1-
800-643-9691. Additional information regarding the Funds' expenses is included
under "The Funds
PROSPECTUS
6
<PAGE>
and Management" and "Management, Distribution and Servicing Fees" and in the
SAI under "Management," "Distributions Plans" and "Servicing Plans."
How The Funds Work
INVESTMENT OBJECTIVES AND POLICIES
SMALL CAP FUND
The Small Cap Fund seeks above-average long-term capital appreciation in order
to provide investors with a rate of total return exceeding that of the Russell
2000 Index (before fees and expenses) over a time horizon of three to five
years. The Fund seeks to achieve its investment objective through the active
management of a broadly diversified portfolio of growth-oriented common stocks.
The Fund seek to provide above-average capital growth for investors willing to
assume above-average risk.
Under normal market conditions, the Small Cap Fund invests primarily in
companies whose market capitalizations fall within the capitalization range of
the companies listed on the Russell 2000, although it may sometimes invest in
companies with capitalizations greater or less than these amounts. As of July
1996, the capitalization range of the Russell 2000 was between $161 million and
$1.1 billion. The range is expected to change frequently. The Fund will sell
the common stock of any company in its investment portfolio after such
company's market capitalization exceeds $2 billion. The Fund invests primarily
in common stocks of domestic and foreign companies believed by Wells Fargo
Bank, as investment adviser, to be characterized by new or innovative products,
services or processes and to have above-average prospects for capital
appreciation.
Under normal market conditions, the Small Cap Fund holds at least 20 common
stock issues spread across multiple industry groups and sectors of the economy.
The majority of these holdings consist of smaller capitalization companies,
established growth companies and turnaround or acquisition candidates. The Fund
may acquire securities through initial public offerings of companies whose
securities have been offered to the public for three months or less ("IPOs")
and may acquire and hold securities of start-up companies and other newer
issuers. It is expected that no more than 20% of the Fund's assets will be
invested in these highly aggressive issues at one time. The Fund also may
invest in securities of foreign governmental or private issuers or in equity
securities of companies in emerging or less developed markets. The Fund may
invest up to 25% of its assets in American Depositary Receipts and similar
instruments. The equity securities in the Fund's investment portfolio may have
some of the following characteristics: low or no dividends; smaller market
capitalizations (less than $1 billion); less market liquidity; newly public
companies (i.e., recent initial
7 PROSPECTUS
<PAGE>
public offering); relatively short operating histories; aggressive
capitalization structures (including high debt levels); and involvement in
rapidly growing/changing industries and/or new technologies.
Under ordinary market conditions, up to 5% of the Small Cap Fund's net assets
will be invested in convertible debt securities that are not either rated in
the four highest rating categories by one or more NRSROs, such as Moody's or
S&P, or unrated securities determined by Wells Fargo Bank to be of comparable
quality. Securities rated in the fourth lowest rating category (i.e , rated
"BBB" by S&P or "Baa" by Moody's) are regarded by S&P as having an adequate
capacity to pay interest and repay principal, but changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make such repayments. Moody's considers such securities as having
speculative characteristics.
From time to time Wells Fargo Bank may determine that conditions in the
securities markets make pursuing the Small Cap Fund's basic investment strategy
inconsistent with the best interests of the Fund's investors. At such times,
Wells Fargo Bank may use temporary alternative strategies, primarily designed
to reduce fluctuations in the value of the Fund's assets. In implementing these
temporary "defensive" strategies, the Fund may invest in preferred stock or
investment-grade debt securities and in money market securities. It is expected
that these temporary "defensive" investments will not exceed 35% of the Fund's
total assets.
The Small Cap Fund pursues an active trading investment strategy, and the
length of time the Fund has held a particular security is not generally a
consideration in investment decisions. Accordingly, the Fund's portfolio
turnover rate may be higher than that of other funds that do not pursue an
active trading investment strategy. Portfolio turnover generally involves some
expense to the Fund, including brokerage commissions or dealer mark-ups and
other transactions costs on the sale of securities and the reinvestment in
other securities. Portfolio turnover also can generate capital gains tax
consequences.
A more complete description of the Fund's investments and investment
activities is contained in "Prospectus Appendix -- Additional Investment
Policies" in the SAI.
The Small Cap Fund is the successor to certain assets of the Small
Capitalization Growth Fund for Employment Retirement Plans, a collective
investment fund (the "Collective Investment Fund"). The Collective Investment
Fund was a private, non-registered investment fund previously managed by Wells
Fargo Bank. Immediately prior to the commencement of the Fund's operations, the
assets of the Collective Investment Fund were purchased by the Fund and the
Collective Investment Fund redeemed all of its outstanding interests and ceased
operating as a trust. The Fund manages its investments in a manner identical in
all material respects to the operation of the Collective Investment Fund.
PROSPECTUS 8
<PAGE>
Wells Fargo Bank, as investment adviser, reserves the right to close the
Small Cap Fund to new investors at its discretion and may reopen and close the
Fund thereafter to new investors. If the Fund is closed, shareholders who
maintain open accounts with the Fund may make additional investments in the
Fund.
AGGRESSIVE GROWTH FUND
The Aggressive Growth Fund seeks to provide investors with an above-average
level of capital appreciation. The Aggressive Growth Fund seeks to achieve its
investment objective through the active management of a broadly-diversified
portfolio of equity securities of companies expected to experience strong
growth in revenues, earnings and assets. The Fund is designed to provide
above-average capital growth for investors willing to assume above-average
risk.
The Aggressive Growth Fund invests primarily in common stocks that Wells
Fargo Bank, as investment adviser, believes have better-than-average prospects
for appreciation. Under normal market conditions, the Fund will hold at least
20 common stock issues spread across multiple industry groups, with the
majority of these holdings consisting of established growth companies,
turnaround or acquisition candidates, or attractive larger capitalization
companies. The Fund also may invest up to 25% of its assets in American
Depositary Receipts ("ADRs") and similar instruments and may invest up to 15%
of its assets in equity securities of companies in emerging or less developed
markets. The stock issues held by the Fund may have some of the following
characteristics: low or no dividends; smaller market capitalizations; less
market liquidity; relatively short operating histories; aggressive
capitalization structures (including high debt levels); and involvement in
rapidly growing/changing industries and/or new technologies.
Additionally, it is expected that the Fund may from time to time acquire
securities through initial public offerings, and may acquire and hold common
stocks of smaller and newer issuers. It is expected that no more than 40% of
the Fund's assets will be invested in these highly aggressive issues at one
time.
Although the Aggressive Growth Fund will hold a number of larger
capitalization stocks, under normal market conditions more than 50% of the
Fund's total assets will be invested in companies whose market capitalizations
at the time of acquisition are within the capitalization range of companies
listed on the S&P Small Cap 600 Index. As of April 30, 1997, the
capitalization range for companies in the S&P Small Cap 600 Index was between
$21 million and $2.4 billion. The capitalization range for the S&P Small Cap
600 Index is expected to change frequently. The Fund may invest in companies
with a market capitalization under $21 million if the investment adviser to
the Fund believes such investments to be in the best interest of the Fund.
9 PROSPECTUS
<PAGE>
Under ordinary market conditions, at least 65% of the value of the total
assets of the Fund will be invested in common stocks and in securities which
are convertible into common stocks that Wells Fargo Bank, as investment
adviser, believes have better-than-average prospects for appreciation. The Fund
also may invest in convertible debt securities. At most, 5% of the Fund's net
assets will be invested in convertible debt securities that are either not
rated in the four highest rating categories by one or more nationally
recognized statistical rating organizations ("NRSROs"), such as Moody's
Investor Service, Inc. ("Moody's") or Standard & Poor's Ratings Group ("S&P"),
or unrated securities determined by Wells Fargo Bank to be of comparable
quality. See "Risk Factors" below.
From time to time, when the adviser, Wells Fargo Bank, determines market
conditions make pursuing the Fund's basic investment strategy inconsistent with
the best interests of the Fund's investors, the Fund may use temporary
alternative strategies, primarily designed to reduce fluctuations in the value
of the Fund's assets. In implementing these temporary "defensive" strategies,
the Fund may invest in preferred stock or investment-grade debt securities that
are convertible into common stock and in money market instruments. Generally,
these temporary "defensive" investments will not exceed 30% of the Fund's total
assets.
A more complete description of the Fund's investments and investment
activities is contained in "Prospectus Appendix -- Additional Investment
Policies" and in the SAI.
The Master Portfolios
Each Fund currently invests all of its assets in a corresponding Master
Portfolio with an identical investment objective. As discussed above, the
Company's Board of Directors has voted to approve the Consolidation and the
dissolution of the Master Portfolios. The Consolidation and dissolution is
expected to occur in December. Upon completion of the Consolidation and
dissolution, the Funds will invest all of their assets directly in a portfolio
of securities and will no longer invest in the Master Portfolios. The Funds
will retain Wells Fargo Bank, the Master Portfolios' current investment
adviser, to manage their assets. For additional information about the existing
master/feeder structure, including information on shareholder voting rights and
additional options for investment in the Master Portfolios, please see each
Fund's SAI. You may obtain a copy of the SAI free of charge by calling 1-800-
222-8222.
RISK FACTORS
The price per share of each of the Funds will fluctuate with changes in value
of the investments held by the Fund. Shareholders of a Fund should, therefore,
expect the value of their shares to fluctuate with changes in the value of the
securities owned by that Fund and the value of an investment in a Fund may
increase or decrease.
PROSPECTUS 10
<PAGE>
The portfolio equity securities of the Funds are subject to equity market
risk. Equity market risk is the risk that stock prices will fluctuate or
decline over short or even extended periods. As of the date of this Prospectus,
the stock market, as measured by the S&P 500 Index and other commonly used
indices, is trading at or close to record levels. There can be no guarantee
that these performance levels will continue. The portfolio debt instruments of
the Funds are subject to credit and interest-rate risk. Credit risk is the risk
that issuers of the debt instruments in which the Funds invest may default on
the payment of principal and/or interest. Interest-rate risk is the risk that
increases in market interest rates may adversely affect the value of the debt
instruments in which the Funds invest and hence the value of your investment in
a Fund.
The market value of a Fund's investment in fixed-income securities will change
in response to changes in interest rates and the relative financial strength of
each issuer. During periods of falling interest rates, the value of fixed-
income securities generally rises. Conversely, during periods of rising
interest rates, the value of such securities generally declines. Debt
securities with longer maturities, which tend to produce higher yields, are
subject to potentially greater capital appreciation and depreciation than
obligations with shorter maturities. Changes in the financial strength of an
issuer or changes in the ratings of any particular security also may affect the
value of these investments. Fluctuations in the market value of fixed-income
securities subsequent to their acquisition will not affect cash income from
such securities but will be reflected in a Fund's net asset value. Securities
rated in the fourth highest rating category are regarded by S&P as having an
adequate capacity to pay interest and repay principal, but changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make such repayments. Moody's considers such securities as having
speculative characteristics. Subsequent to its purchase by the Fund, an issue
of securities may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by the Fund. The adviser will consider
such an event in determining whether a Fund should continue to hold the
obligation. Securities rated below the fourth highest rating category
(sometimes called "junk bonds") are often considered to be speculative and
involve greater risk of default or price changes due to changes in the issuer's
credit-worthiness. The market prices of these securities may fluctuate more
than higher quality securities and may decline significantly in periods of
general economic difficulty.
There may be some additional risks associated with investments in smaller
and/or newer companies because their shares tend to be less liquid than
securities of larger companies. Further, shares of small and new companies are
generally more sensitive to purchase and sale transactions and changes in the
issuer's financial condition and, therefore, the prices of such stocks may be
more volatile than those of larger company stocks and may be subject to more
abrupt price movements than securities of larger companies.
11 PROSPECTUS
<PAGE>
Investing in the securities of issuers in any foreign country, including
American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs")
and similar securities, involves special risks and considerations not typically
associated with investing in U.S. companies. These include differences in
accounting, auditing and financial reporting standards; generally higher
commission rates on foreign portfolio transactions; the possibility of
nationalization, expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations (which may include suspension of the
ability to transfer currency from a country); and political, social and
monetary or diplomatic developments that could affect U.S. investments in
foreign countries. Additionally, dispositions of foreign securities and
dividends and interest payable on those securities may be subject to foreign
taxes, including withholding taxes. Foreign securities often trade with less
frequency and volume than domestic securities and, therefore, may exhibit
greater price volatility. Additional costs associated with an investment in
foreign securities may include higher custodial fees than apply to domestic
custodial arrangements and transaction costs of foreign currency conversions.
Changes in foreign exchange rates also will affect the value of securities
denominated or quoted in currencies other than the U.S. dollar. A Fund's
performance may be affected either unfavorably or favorably by fluctuations in
the relative rates of exchange between the currencies of different nations, by
exchange control regulations and by indigenous economic and political
developments.
There are special risks involved in investing in emerging-market countries.
Most are heavily dependent on international trade, and some are especially
vulnerable to recessions in other countries. Some of these countries are also
sensitive to world commodity prices and may be subject to political and social
uncertainties. Many investments in emerging markets can be considered
speculative, and their prices can be much more volatile than in the more
developed nations of the world. This difference reflects the greater
uncertainties of investing in less established markets and economies. In
addition, the financial markets of emerging markets countries are generally
less well capitalized and thus securities of issuers based in such countries
may be less liquid.
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.
The adviser may use certain derivative investments or techniques, such as
buying and selling options and futures contracts and entering into currency
exchange contracts or swap agreements, to adjust the risk and return
characteristics of a Fund's portfolio. Derivatives are financial instruments
whose value is derived, at least in part, from the price of another security or
a specified asset, index or rate. Some derivatives may be more sensitive than
direct securities to changes in interest rates or sudden market
PROSPECTUS 12
<PAGE>
moves. Some derivatives also may be susceptible to fluctuations in yield or
value due to their structure or contract terms. If a Fund's adviser judges
market conditions incorrectly, the use of certain derivatives could result in
a loss, regardless of the adviser's intent in using the derivatives.
The Funds pursue an active trading investment strategy, and the length of
time a Fund has held a particular security is not generally a consideration in
investment decisions. Accordingly, the portfolio turnover rate for the Funds
may be higher than that of other funds that do not pursue an active trading
investment strategy. Portfolio turnover generally involves some expense to a
Fund, including brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and the reinvestment in other securities.
Portfolio turnover also can generate short-term capital gains tax
consequences.
There is, of course, no assurance that a Fund will achieve its investment
objective or be successful in preventing or minimizing the risk of loss that
is inherent in investing in particular types of investment products. See
"Prospectus Appendix -- Additional Investment Policies" and the SAI for
further information about investment policies and risks.
PERFORMANCE
Fund performance may be advertised from time to time in terms of average
annual total return, cumulative total return and yield. 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 a Fund.
Average annual total return is based on the overall dollar or percentage
change in value of a hypothetical investment in shares of a class or Fund and
assumes that all dividends and capital-gain distributions attributable to such
class or Fund are reinvested at NAV in shares of that class or Fund. The
standardized average annual total return as calculated for Class C shares
assumes that you have paid the maximum applicable contingent deferred sales
charge on your hypothetical investment. Cumulative total return is calculated
similarly except that the return figure is aggregated over the relevant period
instead of annualized.
The yield on shares of a class or Fund is calculated by dividing the net
investment income per share earned during a specified period (usually 30 days)
by its public offering price per share. Standardized yield as calculated for
Class C shares assumes you have paid the maximum applicable contingent
deferred sales charge. Effective yield is calculated similarly but assumes
reinvestment of the income earned from a Fund. Because of the effects of
compounding, effective yields are slightly higher than yields.
13 PROSPECTUS
<PAGE>
In addition to presenting standardized performance figures, the Funds also may
present nonstandardized performance figures, including distribution rates. For
example, the performance figure of the shares of a class or Fund may be
calculated on the basis of an investment at the net asset value per share or at
net asset value per share plus a reduced sales charge (see "Investing in the
Funds -- How To Buy Shares") rather than the public offering price per share.
In this case, the figure might not reflect the effect of the sales charge that
you may have paid.
Additional information about the performance of each Fund is contained in the
SAI under "Performance Calculations" and in the Annual Report, which may be
obtained free of charge by calling the Company at 1-800-222-8222 or by writing
the Company at the address on the inside front cover of the Prospectus.
The Funds and Management
THE FUNDS
The Funds are two of the funds offered by 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.
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 are voted in the aggregate, rather than by series or
class, unless otherwise required by law (such as when the voting matter affects
only one series or class). Each class of shares represents an equal,
proportionate interest in a Fund with other shares of the same class.
Shareholders of each class bear their pro rata portion of a Fund's operating
expenses except for certain class-specific expenses that are allocated to a
particular class and, accordingly, may affect performance. Please contact
Stagecoach Shareholder Services at 1-800-222-8222 if you would like additional
information about investment options in the Stagecoach Family of Funds. A Fund
shareholder of record is entitled to one vote for each share owned and
fractional votes for fractional shares owned. A more detailed description of
the voting rights and attributes of the shares is contained in the "Capital
Stock" section of the SAI.
MANAGEMENT
Upon completion of the Consolidation and dissolution, Wells Fargo Bank will
be the investment adviser to the Funds. In addition, Wells Fargo Bank serves as
the Funds'
PROSPECTUS 14
<PAGE>
administrator, transfer and dividend disbursing agent and is a shareholder
servicing agent and selling agent. Wells Fargo Bank, one of the largest banks
in the United States, was founded in 1852 and is the oldest bank in the western
United States. As of [August 31, 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 the other separately managed funds of the Company, and
as investment adviser or sub-adviser to other registered, open-end, management
investment companies. Wells Fargo Bank, a wholly-owned subsidiary of Wells
Fargo & Company, is located at 420 Montgomery Street, San Francisco, California
94104.
PORTFOLIO MANAGERS
Mr. Jon Hickman, as Manager of the Growth Equity Team, is responsible as co-
manager for the Capital Appreciation Master Portfolio and has performed such
duties since the Capital Appreciation Master Portfolio's inception in March
1996. Mr. Hickman has also managed the Strategic Growth Fund of Overland
Express Funds, Inc., the predecessor fund to the Capital Appreciation Master
Portfolio, since its inception on January 20, 1993. In September of 1996, Mr.
Hickman assumed responsibility as co-manager of the Small Cap Master Portfolio
. Mr. Hickman had also co-managed the Small Capitalization Growth Fund from
November 1994 until the sale of its assets to the Small Cap Master Portfolio in
September 1995. Mr. Hickman has over sixteen years' experience in the
investment management field. He joined Wells Fargo Bank in 1986 managing equity
and balanced portfolios for individuals and employee benefit plans. He is a
senior member of Wells Fargo Bank's Equity Strategy Committee. Mr. Hickman has
a B.A. and an M.B.A in finance from Brigham Young University.
Mr. Steve Enos assists Mr. Hickman with the day-to-day management of the
Capital Appreciation Master Portfolio . In addition, as portfolio co-manager of
the Small Cap Master Portfolio since its inception in September of 1996, Mr.
Enos assists Mr. Hickman with the day-to-day management of the Master
Portfolio. Mr. Enos co-managed the Small Capitalization Growth Fund from
November 1994 until the sale of its assets to the Small Cap Master Portfolio in
September, 1996. Mr. Enos joined Wells Fargo in 1993 and is a member of the
Wells Fargo Bank Growth Equity Team. He began his career with First Interstate
Bank, where he was assistant vice president and portfolio manager. From 1991 to
1993, Mr. Enos was a principal at Dolan Capital Management where he managed
both personal and pension portfolios. Mr. Enos received his undergraduate
degree in economics from the University of California at Davis. Mr. Enos is a
Chartered Financial Analyst and a member of the Association for Investment
Management and Research.
Morrison & Foerster LLP, counsel to the Company and special counsel to Wells
Fargo Bank, has advised the Company and Wells Fargo Bank that the Company,
Wells
15 PROSPECTUS
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Fargo Bank and their affiliates may perform the services contemplated by the
Advisory Contracts and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future
judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such statutes,
regulations and judicial or administrative decisions or interpretations, could
prevent such entities from continuing to perform, in whole or in part, such
services. If any such entity were prohibited from performing any such 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 Funds
OPENING AN ACCOUNT
You can buy Fund shares in one of the ways described below. You must complete
and sign an Account Application to open an account. Additional documentation
may be required from corporations, associations and certain fiduciaries. Do not
mail cash. If you have any questions or need extra forms, please call 1-800-
222-8222.
After an application has been processed and an account has been established,
subsequent purchases of different funds of the Company under the same umbrella
account do not require the completion of additional applications. A separate
application must be processed for each different umbrella account number (even
if the registration is the same). Call the number on your confirmation
statement to obtain information about what is required to change registration.
To invest in the Funds through tax-deferred retirement plans, please contact a
shareholder servicing agent or a selling agent to receive information and the
required separate application. See "Tax-Deferred Retirement Plans" below.
The Company or Stephens may make the Prospectus available in an electronic
format. Upon receipt of a request from you or your representative, the Company
or Stephens will transmit or cause to be transmitted promptly, without charge,
a paper copy of the electronic Prospectus.
SHARE VALUE
The value of a share of each Fund or class is its "net asset value" or NAV.
Wells Fargo Bank calculates the NAV of the Funds on each day the Funds are open
as of the close of regular trading on the New York Stock Exchange ("NYSE")
(referred to hereafter as "the close of the NYSE"), which is currently 1:00
p.m. (Pacific time). The
16 PROSPECTUS
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Funds are open for business on each day the NYSE is open for trading (a
"Business Day"). The NAV per share for each class of shares is computed by
dividing the value of a Fund's assets allocable to a particular class, less the
liabilities charged to that class, by the total number of outstanding shares of
the class. All expenses are accrued daily and taken into account for purposes
of computing NAV, which is expected to fluctuate daily. Shares may be purchased
on any day the Funds are open for business.
Except for debt obligations with remaining maturities of 60 days or less,
which are valued at amortized cost, the Funds' other assets are valued at
current market prices, or if such prices are not readily available, at fair
value as determined in good faith by the Company's Board of Directors. Prices
used for such valuations may be provided by independent pricing services.
HOW TO BUY SHARES
Fund shares are offered continuously at the applicable offering price (NAV
plus any applicable sales charges) next determined after a purchase order is
received in the form specified for the purchase method being used, as described
in the following sections. Payment for shares purchased through a selling agent
(as defined below) is not due from the selling agent until the settlement date,
which is normally three Business Days after the order is placed. The selling
agent is responsible for forwarding payment for shares being purchased to the
Fund promptly. Payment must accompany orders placed directly through the
transfer agent.
Payments for Fund shares are invested in full and fractional shares of the
Fund (or class) at the applicable offering price. If shares are purchased by a
check that does not clear, the Company reserves the right to cancel the
purchase and hold the investor responsible for any losses or fees incurred. In
addition, the Company may hold payment on any redemption until reasonably
satisfied that your investments made by check have been collected (which may
take up to 10 days).
The minimum initial investment is generally $1,000. The minimum investment
amounts, however, are $100 through the AutoSaver Plan (described below) and
$250 for any tax-deferred retirement account for which Wells Fargo Bank serves
as trustee or custodian under a prototype trust approved by the Internal
Revenue Service ("IRS") (a "Plan Account"). Generally, all subsequent
investments must be made in amounts of $100 or more. Where Fund shares are
acquired in exchange for shares of another fund in the Stagecoach Family of
Funds, the minimum initial investment amount applicable to the shares being
exchanged generally carries over. If the value of your investment in the shares
of the fund from which you are exchanging has been reduced below the minimum
initial investment amount by changes in market conditions or sales charges (and
not by redemptions), then you may carry over the lesser amount into one of the
Funds. Plan Accounts that invest in the Funds through Wells Fargo
ExpressInvest--
17 PROSPECTUS
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(available to certain Wells Fargo tax-deferred retirement plans) are not
subject to the minimum initial or subsequent investment amount requirements. In
addition, the minimum initial or subsequent purchase amount requirements may be
waived or lowered for investments effected on a group basis by certain entities
and their employees, such as pursuant to a payroll deduction or other
accumulation plan. If you have questions regarding purchases of shares, please
call 1-800-222-8222. If you have questions regarding ExpressInvest--, please
call 1-800-237-8472. For additional information on tax-deferred accounts,
please refer to the section "How to Buy Shares" under Tax-Deferred Retirement
Plans or contact a shareholder servicing agent or selling agent.
CONTINGENT-DEFERRED SALES CHARGE -- CLASS C SHARES
Class C shares may be subject to a contingent-deferred sales charge ("CDSC").
A CDSC is an amount you pay if you redeem your shares within a specific period.
The CDSC will be equal to a percentage of the lesser of the NAV of such shares
at the time of purchase or the NAV of such shares at redemption.
Class C shares redeemed within one year of receipt of a purchase order for
such shares will be subject to a contingent-deferred sales charge equal to
1.00% of an amount equal to the lesser of the NAV of your Class C shares at the
time of purchase or the NAV of your Class C shares at redemption.
Contingent-deferred sales charges are not imposed on amounts representing
increases in NAV above the NAV at the time of purchase and are not assessed on
Class C shares purchased through reinvestment of dividends or capital gain
distributions.
The amount of any contingent-deferred sales charge, if any, paid upon
redemption of Class C shares is determined in a manner designed to result in
the lowest sales charge rate being assessed. When a redemption request is made,
Class C shares acquired pursuant to the reinvestment of dividends and capital-
gain distributions are considered to be redeemed first. After this, such shares
are considered redeemed on a first-in, first-out basis so that Class C shares
held for a longer period of time are considered redeemed prior to more recently
acquired Class C shares. For a discussion of the interaction between the
optional Exchange Privilege and contingent-deferred sales charges see
"Additional Shareholder Services--Exchange Privilege."
Contingent-deferred sales charges are waived on redemptions of Class C shares
(i) following the death or disability (as defined in the Internal Revenue Code
of 1986, as amended (the "Code")) of a shareholder, (ii) to the extent that the
redemption represents a scheduled distribution from an IRA or other retirement
plan to a shareholder who has reached age 59 1/2, (iii) effected pursuant to
the Company's right to liquidate a shareholder's account if the aggregate NAV
of the shareholder's account is less than the minimum account size, or (iv) in
connection with the combination of
PROSPECTUS 18
<PAGE>
the Company with any other registered investment company by a merger,
acquisition of assets, or any other transaction.
In deciding whether to purchase Class C shares, you should compare the fees
assessed on Class A shares (including front-end sales charges) against those
assessed on Class B and Class C shares (including potential contingent-deferred
sales charges and higher Rule 12b-1 fees than Class A shares) in light of the
amount to be invested and the anticipated time that the shares will be owned.
If your purchase amount would qualify you for a reduced sales charge on Class A
shares, you should consider carefully whether you would pay lower fees
ultimately on Class A, Class B or Class C shares. Call 1-800-222-8222 to obtain
a prospectus describing the Funds' other classes of shares.
You may buy shares on any Business Day by any of the methods described below.
The Company reserves the right to reject any purchase order or suspend sales at
any time. Payment for orders that are not received is returned after prompt
inquiry. The issuance of shares is recorded on the Company's books, and share
certificates are not issued.
INITIAL PURCHASES BY WIRE
1. Complete an Account Application.
2. Instruct the wiring bank to transmit the specified amount in federal funds
($1,000 or more) to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000587
Attention: Stagecoach Funds (Name of Fund) (designate Class C)
Account Name(s): Name(s) in which to be registered
Account Number: (if investing into an existing account)
3. A completed Account Application should be mailed, or sent by telefacsimile
with the original subsequently mailed, to the following address immediately
after the funds are wired, and must be received and accepted by the transfer
agent before an account can be opened:
Wells Fargo Bank, N.A.
Stagecoach Shareholder Services
P.O. Box 7066
San Francisco, California 94120-7066
Telefacsimile: 1-415-546-0280
4. Share purchases for Class C shares are effected at the NAV next determined
after the Account Application is received and accepted.
PROSPECTUS
19
<PAGE>
INITIAL PURCHASES BY MAIL
1. Complete an Account Application. Indicate the services to be used.
2. Mail the Account Application and a check for $1,000 or more payable to
"Stagecoach Funds (Name of Fund) (designate Class C)," to the address set
forth in "Initial Purchases by Wire."
3. Share purchases for Class C shares are effected at the NAV next determined
after the Account Application is received and accepted.
AUTOSAVER PLAN PURCHASES
The Company's AutoSaver Plan provides you with a convenient way to establish
and automatically add to your Fund account on a monthly basis. To participate
in the AutoSaver Plan, you must specify an amount ($100 or more) to be
withdrawn automatically by the transfer agent on a monthly basis from an
account with a bank that is designated in your Account Application and is
approved by the transfer agent ("Approved Bank Account"). You may open an
Approved Bank Account with Wells Fargo Bank. The transfer agent withdraws and
uses this amount to purchase specified Fund shares on your behalf generally on
or about the day that you have selected or, if you have not selected a day, on
or about the 20th day of each month. Certain restrictions may apply to shares
held in a brokerage account. The transfer agent requires a minimum of ten (10)
Business Days to implement your AutoSaver Plan purchases. If you hold shares
through a brokerage account, your AutoSaver Plan will comply with the terms of
your brokerage agreement. There are no separate fees charged to you by the
Funds for participating in the AutoSaver Plan.
You may change your investment amount, the date on which your AutoSaver
Purchase is effected, suspend purchases or terminate your election at any time
by providing notice to the transfer agent at least five (5) Business Days prior
to any scheduled transaction.
TAX-DEFERRED RETIREMENT PLANS
You may be entitled to invest in the Funds through a Plan Account or other
tax-deferred retirement plan. Contact a shareholder servicing agent or a
selling agent (such as Wells Fargo Bank) for materials describing Plan Accounts
available through it, and the benefits, provisions, and fees of such Plan
Accounts. The minimum initial investment amount for Fund shares acquired
through a Plan Account is $250 (the minimum initial investment amount is not
applicable if you participate in ExpressInvest through a Plan Account).
Application materials for opening a tax-deferred retirement plan can be
obtained from a shareholder servicing agent or a selling agent. Return your
completed tax-
PROSPECTUS 20
<PAGE>
deferred retirement plan application to your shareholder servicing agent or a
selling agent for approval and processing. If your tax-deferred retirement plan
application is incomplete or improperly filled out, there may be a delay before
a Fund account is opened. You should ask your shareholder servicing agent or
selling agent about the investment options available to your tax-deferred
retirement plan, since some of the funds in the Stagecoach Family of Funds may
be unavailable as options. Moreover, certain features described herein, such as
the AutoSaver Plan and the Systematic Withdrawal Plan, may not be available to
individuals or entities who invest through a tax-deferred retirement plan.
ADDITIONAL PURCHASES
You may make additional purchases of $100 or more by instructing the Funds'
transfer agent to debit your Approved Bank Account, by wire by instructing the
wiring bank to transmit the specified amount as directed above for initial
purchases, or by mail with a check payable to "Stagecoach Funds (Name of Fund)
(designate Class C)" to the address set forth under "Initial Purchases by
Wire." Write your Fund account number on the check and include the detachable
stub from your Statement of Account or a letter providing your Fund account
number.
PURCHASES THROUGH SELLING AGENTS
You may place a purchase order for shares of the Funds through a broker/dealer
or financial institution that has entered into a selling agreement with
Stephens, as the Funds' Distributor ("Selling Agent"). If your order is placed
by the close of the NYSE, the purchase order is executed on the same day if the
order is received by the transfer agent before the close of business. If your
purchase order is received by a Selling Agent after the close of the NYSE or by
the transfer agent after the close of business, then your purchase order is
executed on the next Business Day following the day your order is placed. The
Selling Agent is responsible for the prompt transmission of your purchase order
to the Company. Because payment for shares of the Funds is not due until
settlement date, the Selling Agent might benefit from the temporary use of your
payment. A financial institution that acts as a Selling Agent, shareholder
servicing agent or in certain other capacities may be required to register as a
dealer pursuant to applicable state securities laws, which may differ from
federal law and any interpretations expressed herein.
PURCHASES THROUGH SHAREHOLDER SERVICING AGENTS
Purchase orders for Fund shares may be transmitted to the transfer agent
through any entity that has entered into a shareholder servicing agreement with
the Funds ("Shareholder Servicing Agent"), such as Wells Fargo Bank. See
"Management, Distribution and Servicing Fees -- Shareholder Servicing Agent."
The Shareholder Servicing Agent may transmit a purchase order to the transfer
agent, on your behalf,
21 PROSPECTUS
<PAGE>
including a purchase order for which payment is to be transferred from your
Approved Bank Account or wired from a financial institution. If your order is
transmitted by the Shareholder Servicing Agent, on your behalf, to the transfer
agent before the close of the NYSE, the purchase order generally will be
executed on the same day. If your Shareholder Servicing Agent transmits your
purchase order to the transfer agent after the close of the NYSE, then your
order generally is executed on the next Business Day following the day your
order is received. The Shareholder Servicing Agent is responsible for the
prompt transmission of your purchase order to the transfer agent.
STATEMENTS AND REPORTS
The Company, or a Shareholder Servicing Agent on its behalf, typically sends
you a confirmation or statement of your account after every transaction that
affects your share balance or your Fund account registration. Every January,
you will be provided a statement with tax information for the previous year to
assist you in tax return preparation. At least twice a year, you will receive
financial statements.
Dividend and Capital Gain Distributions
The Funds intend to distribute annual dividends of substantially all of their
net investment income. The Funds distribute any capital gains at least
annually. You have several options for receiving dividend and capital gain
distributions. They are discussed under "Additional Shareholder Services --
Dividend and Capital Gain Distribution Options."
Dividend and capital gain distributions have the effect of reducing the NAV
per share by the amount distributed. Although distributions paid to you on
newly issued shares shortly after your purchase would represent, in substance,
a return of your capital, the distributions would ordinarily be taxable to you.
All expenses that are attributable to a particular class also may affect the
relative dividends and/or capital gains distributions of such class.
How To Redeem Shares
You may redeem Fund shares on any Business Day. Your shares are redeemed at
the NAV next calculated after the Company has received your redemption request
in proper form. The Company ordinarily remits redemption proceeds, net of any
contingent deferred sales charge (the "redemption proceeds"), within seven days
after your redemption order is received in proper form, unless the SEC permits
a longer period
PROSPECTUS 22
<PAGE>
under extraordinary circumstances. Such extraordinary circumstances could
include a period during which an emergency exists as a result of which (a)
disposal by a Fund of securities owned by it is not reasonably practicable or
(b) it is not reasonably practicable for a Fund fairly to determine the value
of its net assets, or a period during which the SEC by order permits deferral
of redemptions for the protection of security holders of such Fund. In
addition, the Company may hold payment on your redemptions until reasonably
satisfied that your investments made by check have been collected (which can
take up to 10 days from the purchase date). To ensure acceptance of your
redemption request, please follow the procedures described below. In addition,
the Funds reserve the right to impose charges for wiring redemption proceeds.
All redemptions of shares generally are made in cash, except that the
commitment to redeem shares in cash extends only to redemption requests made by
each Fund shareholder during any 90-day period of up to the lesser of $250,000
or 1% of the net asset value of the Fund at the beginning of such period. This
commitment is irrevocable without the prior approval of the SEC and is a
fundamental policy of the Fund that may not be changed without shareholder
approval. In the case of redemption requests by shareholders in excess of such
amounts, the Board of Directors reserves the right to have the Fund make
payment, in whole or in part, in securities or other assets, in case of an
emergency or any time a cash distribution would impair the liquidity of the
Fund to the detriment of the existing shareholders. In this event, the
securities would be valued in the same manner as the securities of the Fund are
valued. If the recipient were to sell such securities, he or she would incur
brokerage costs in converting such securities to cash.
Due to the high cost of maintaining Fund accounts with small balances, the
Company reserves the right to close your account and send you the proceeds if
the balance falls below the applicable minimum balance because of a redemption
(including a redemption of shares of a Fund after an investor has made only the
applicable minimum initial investment). However, you will be given 30 days'
notice to make an additional investment to increase your account balance to
$1,000 or more. Plan Accounts are not subject to minimum Fund account balance
requirements. For a discussion of applicable minimum balance requirements, see
"Investing in theFunds -- How To Buy Shares."
REDEMPTIONS BY TELEPHONE
Telephone redemption or exchange privileges are made available to you
automatically upon opening an account, unless you specifically decline the
privileges. Telephone redemption privileges authorize the transfer agent to act
on telephone instructions from any person representing himself or herself to be
the investor and reasonably believed by the transfer agent to be genuine. The
Company requires the
23 PROSPECTUS
<PAGE>
transfer agent to employ reasonable procedures, such as requiring a form of
personal identification, to confirm that instructions are genuine and, if it
does not follow such procedures, the Company and the transfer agent may be
liable for any losses due to unauthorized or fraudulent instructions. Neither
the Company nor the transfer agent will be liable for following telephone
instructions reasonably believed to be genuine.
REDEMPTIONS BY MAIL
1. Write a letter of instruction. Indicate the class, if applicable, and the
dollar amount or number of Fund shares you want to redeem. Refer to your
Fund account number and give your taxpayer identification number ("TIN"),
which generally is your social security or employer identification number.
2. Sign the letter in exactly the same way the account is registered. If there
is more than one owner of the shares, all must sign.
3. Signature guarantees are not required for redemption requests unless
redemption proceeds of $5,000 or more are to be paid to someone other than
you at your address of record or your Approved Bank Account, or other
unusual circumstances exist which cause the transfer agent to determine
that a signature guarantee is necessary or prudent to protect against
unauthorized redemption requests. If required, a signature must be
guaranteed by an "eligible guarantor institution," which includes a
commercial bank that is an FDIC member, a trust company, a member firm of a
domestic stock exchange, a savings association, or a credit union that is
authorized by its charter to provide a signature guarantee. Signature
guarantees by notaries public are not acceptable. Further documentation may
be requested from corporations, administrators, executors, personal
representatives, trustees or custodians.
4. Mail your letter to the transfer agent at the address set forth under
"Investing in the Funds -- Initial Purchases by Wire."
Unless other instructions are given in proper form, a check for your net
redemption proceeds is sent to your address of record.
EXPEDITED REDEMPTIONS BY MAIL OR TELEPHONE
You may request an expedited redemption of shares of a Fund by letter, in
which case your receipt of redemption proceeds, but not the Fund's receipt of
your redemption request, is expedited. In addition, you also may request an
expedited redemption of shares of a Fund by telephone on any Business Day, in
which case both your receipt of redemption proceeds and the Fund's receipt of
your redemption request is expedited. You may request expedited redemption by
telephone only if the total value of the shares redeemed is $100 or more.
PROSPECTUS 24
<PAGE>
You may request expedited redemption by telephone by calling the transfer
agent at the telephone number listed on your transaction confirmation or by
calling 1-800-222-8222.
You may request expedited redemption by mail by mailing your expedited
redemption request to the transfer agent at the mailing address set forth under
"Investing in the Funds -- Initial Purchases by Wire."
Upon request, redemption proceeds of your expedited redemptions of $5,000 or
more, net of any contingent deferred sales charge, are wired or credited to an
Approved Bank Account designated in your Account Application or wired to the
Selling Agent designated in your Account Application. The Company reserves the
right to impose a charge for wiring redemption proceeds. When proceeds of your
expedited redemption are to be paid to someone else, to an address other than
that of record, or to your Approved Bank Account or Selling Agent that you have
not predesignated in your Account Application, your expedited redemption
request must be made by letter and the signature(s) on the letter may be
required to be guaranteed, regardless of the amount of the redemption. If your
expedited redemption request is received by the transfer agent by the close of
the NYSE on a Business Day, your redemption proceeds are transmitted to your
Approved Bank Account or Selling Agent on the next Business Day (assuming your
investment check has cleared as described above), absent extraordinary
circumstances. Such extraordinary circumstances could include those described
above as potentially delaying redemptions and also could include situations
involving an unusually heavy volume of wire transfer orders on a national or
regional basis or communication or transmittal delays that could cause a brief
delay in the wiring or crediting of funds. A check for net redemption proceeds
is mailed to your address of record or, at your election, credited to your
Approved Bank Account.
During periods of drastic economic or market activity or changes, you may
experience problems implementing an expedited redemption by telephone. In the
event you are unable to reach the transfer agent by telephone, you should
consider using overnight mail to implement an expedited redemption. The Company
reserves the right to modify or terminate the expedited telephone redemption
privilege at any time.
SYSTEMATIC WITHDRAWAL PLAN
The Company's Systematic Withdrawal Plan provides you with a convenient way to
have Fund shares redeemed from your account and the net redemption proceeds
distributed to you on a monthly basis. You may participate in the Systematic
Withdrawal Plan only if you have a Fund account valued at $10,000 or more as of
the date of your election to participate, your dividends and capital-gain
distributions are being reinvested automatically, and you are not participating
in the AutoSaver Plan at any time while participating in the Systematic
Withdrawal Plan. You specify an amount ($100 or more) to be distributed by
check to your address of record or deposited in your
25 PROSPECTUS
<PAGE>
Approved Bank Account. The transfer agent redeems sufficient shares and mails
or deposits your net redemption proceeds as instructed on or about the fifth
Business Day prior to the end of each month. There are no separate fees charged
to you by the Company for participating in the Systematic Withdrawal Plan.
It may take up to ten (10) days after receipt of your request to establish
your participation in the Systematic Withdrawal Plan. You may change your
withdrawal amount, suspend withdrawals or terminate your election at any time
by notifying the transfer agent at least five (5) Business Days prior to any
scheduled transaction. Your participation in the Systematic Withdrawal Plan is
terminated automatically if your Fund account is closed, or, in some cases, if
your Approved Bank Account is closed.
REDEMPTIONS THROUGH SELLING AGENTS
If your redemption order is received by a Selling Agent before the close of
the NYSE and received by the transfer agent before the close of business on the
same day, the order is executed at the NAV determined as of the close of the
NYSE on that day. If your redemption order is received by a Selling Agent after
the close of the NYSE, or is not received by the transfer agent prior to the
close of business, your order is executed at the NAV determined as of the close
of the NYSE on the next Business Day. The Selling Agent is responsible for the
prompt transmission of your redemption order to the Company.
Unless you have made other arrangements with the Selling Agent, and the
transfer agent has been informed of such arrangements, net redemption proceeds
of a redemption order made by you through a Selling Agent are credited to your
Approved Bank Account. If no such account is designated, a check for the net
redemption proceeds are mailed to your address of record or, if such address is
no longer valid, the net proceeds are credited to your account with the Selling
Agent. You may request a check from the Selling Agent or elect to retain the
net redemption proceeds in such account. The Selling Agent may charge you a
service fee. In addition, it may benefit from the use of your redemption
proceeds until the check it issues to you has cleared or until such proceeds
have been disbursed or reinvested on your behalf.
REDEMPTIONS THROUGH SHAREHOLDER SERVICING AGENTS
You may request a redemption of shares of a Fund through your Shareholder
Servicing Agent. Any redemption request made by telephone through your
Shareholder Servicing Agent must redeem shares with a total value equal to $100
or more. If your redemption order is transmitted by the Shareholder Servicing
Agent, on your behalf, to the transfer agent before the close of the NYSE, the
redemption order is executed at the NAV determined as of the close of the NYSE
on that day. If your Shareholder Servicing Agent transmits your redemption
order to the transfer agent after the close of the NYSE, then your order is
executed on the next Business Day following the date your order is
PROSPECTUS 26
<PAGE>
received. The Shareholder Servicing Agent is responsible for the prompt
transmission of your redemption order to the Company.
Unless you have made other arrangements with your Shareholder Servicing Agent,
and the transfer agent has been informed of such arrangements, net redemption
proceeds of a redemption order made by you through your Shareholder Servicing
Agent are credited to your Approved Bank Account. If no such account is
designated, a check for the net redemption proceeds is mailed to your address
of record or, if such address is no longer valid, the net redemption proceeds
are credited to your account with your Shareholder Servicing Agent or to
another account designated in your agreement with your Shareholder Servicing
Agent. The shareholder servicing agent may charge you a fee. In addition, the
shareholder servicing agent may benefit from the use of proceeds credited to
your account until any check it issues to you has cleared or until such
proceeds have been disbursed or reinvested on your behalf.
Additional Shareholder Services
The Company offers you a number of optional services. As noted above, you can
take advantage of the AutoSaver Plan, Tax-Deferred Retirement Plans, the
Systematic Withdrawal Plan and Expedited Redemptions by Letter and Telephone.
In addition, you have several dividend and distribution payment options and an
exchange privilege, which are described below. If you have questions about the
distribution options available to you, please call 1-800-222-8222.
DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
When you fill out your Account Application, you can choose from the following
distribution options listed below.
A. The Automatic Reinvestment Option provides for the reinvestment of your
dividend and capital gain distributions in additional shares of the same class
of the Fund which paid such dividends or capital gain distributions.
Distributions declared in a month generally are reinvested in additional shares
at NAV on the last business day of such month. You are assigned this option
automatically if you make no choice on your Account Application.
B. The Fund Purchase Option lets you use your dividend and/or capital-gain
distributions from a Fund to purchase, at NAV, shares of another fund in the
Stagecoach Family of Funds with which you have an established account that has
met the applicable minimum initial investment requirement. Distributions paid
on Class C shares may be invested in Class C shares of another fund, in Retail
shares of a fund offered by another investment company in the Stagecoach Family
of Funds, in Class A shares of the Government Money Market Mutual, Money Market
Mutual, National Tax-Free Money
27 PROSPECTUS
<PAGE>
Market Mutual, Prime Money Market Mutual or Treasury Money Market Mutual Funds
or in shares of the California Tax-Free Money Market Mutual Fund (collectively,
the "Money Market Mutual Funds"). Distributions paid on Class C shares may not
be invested in shares of a non-Money Market Fund with a single class of shares.
C. The Automatic Clearing House Option permits you to have dividend and
capital gain distributions deposited in your Approved Bank Account. In the
event your Approved Bank Account is closed and such distribution is returned to
the Funds' dividend disbursing agent, the distribution is reinvested in your
Fund account at the NAV next determined after the distribution has been
returned. Your Automatic Clearing House Option is then converted automatically
to the Automatic Reinvestment Option.
D. The Check Payment Option lets you receive a check for all dividend and
capital gain distributions, which generally is mailed either to your designated
address or your Approved Bank Account shortly following declaration. If the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, those checks are reinvested in your Fund account at
the NAV next determined after the earlier of the date the checks have been
returned to the Fund's dividend disbursing agent or the date six months after
the payment of such distribution. Your Check Payment Option is then converted
automatically to the Automatic Reinvestment Option.
The Company forwards moneys to the dividend disbursing agent so that it may
issue you distribution checks under the Check Payment Option. The dividend
disbursing agent may benefit from the temporary use of such moneys until these
checks clear. The Company takes reasonable efforts to locate investors whose
checks are returned or uncashed after six months.
PROSPECTUS 28
<PAGE>
Exchange Privilege
The exchange privilege is a convenient way to buy shares in another fund of
the Stagecoach Family of Funds to respond to changes in your investment needs.
You can exchange between the various funds as follows:
<TABLE>
<CAPTION>
YES NO
EXCHANGES BETWEEN --- ---
<S> <C> <C>
Class C shares and Class C shares X
Class C shares and a Money Market Mutual Fund X
Class C shares and Class A shares of a non-Money Market Mutual Fund X
Class C shares and Class B shares X
</TABLE>
Important factors that you should consider:
. You will need to read the prospectus of the fund into which you want to
exchange.
. Every exchange is a redemption of shares of one fund and a purchase of
shares of another fund. The redemption may produce a gain or loss for
federal income tax purposes.
. You must exchange the minimum initial purchase amount of the fund you are
redeeming, unless your balance has fallen below that amount due to market
conditions or you have already met the minimum initial purchase amount of
the fund you are purchasing.
. You will not pay a contingent deferred sales charge on any exchange from
Class C shares into other Class C shares or a Money Market Mutual Fund.
The new shares will continue to age while they are in the new fund and
will be charged the contingent deferred sales charge applicable to the
original shares upon redemption.
. If you exchange Class C shares for shares of a Money Market Mutual Fund,
you may not re-exchange shares of the Money Market Mutual Fund for shares
other than Class C shares.
. The Company may limit the number of times shares may be exchanged or may
reject any telephone exchange order. Subject to limited exceptions, the
Company will notify you 60 days before discontinuing or modifying the
exchange privilege.
You may exchange shares by writing the Transfer Agent or, if you have
telephone privileges, you may call the Transfer Agent. Exchanges are subject to
the procedures and conditions applicable to purchasing and redeeming shares.
PROSPECTUS
29
<PAGE>
Management, Distribution
and Servicing Fees
INVESTMENT ADVISER
Upon completion of the Consolidation and dissolution and subject to the
overall supervision of the Company's Board of Directors, Wells Fargo Bank, as
investment adviser will provide investment guidance and policy direction in
connection with the management of the Funds' assets and will furnish the
Company's Board of Directors with periodic reports on the Funds' investment
strategies and performance.
For its services as investment adviser to the Small Cap Fund and the
Aggressive Growth Fund, Wells Fargo Bank will be entitled to monthly investment
advisory fees at the annual rate of 0.60% and 0.50%, respectively, of the
Funds' average daily net assets. From time to time, Wells Fargo Bank may waive
its advisory fees in whole or in part. Any such waiver will reduce expenses of
the Funds, and, accordingly, have a favorable impact on the Funds' performance.
From time to time, each of the Funds, consistent with its investment objective,
policies and restrictions, may invest in securities of companies with which
Wells Fargo Bank has a lending relationship.
Wells Fargo Bank currently serves as investment adviser to the Master
Portfolios under substantially the same terms and conditions described above.
Advisory Fees Paid
For the period from commencement of operations (February 20, 1996) to
September 30, 1996, the Aggressive Growth Fund was a feeder fund of the Capital
Appreciation Master Portfolio, and paid its proportionate share of advisory
fees paid by the Master Portfolio. During this period, the Capital Appreciation
Master Portfolio paid advisory fees to Wells Fargo Bank at the annual rate of
0.34% of the Aggressive Growth Fund's average daily net assets.
For the period from commencement of operations (September 16, 1996) to
September 30, 1996, the Small Cap Fund was a feeder fund of the Small Cap
Master Portfolio, and paid its proportionate share of advisory fees paid by the
Master Portfolio. During this period, the Small Cap Master Portfolio paid
advisory fees to Wells Fargo Bank at the annual rate of 0.60% of the Small Cap
Fund's average daily net assets.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank serves as custodian to each Fund. Under the Custody Agreement
with Wells Fargo Bank, a 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 Custody
Agreement. Wells Fargo Bank
PROSPECTUS 30
<PAGE>
serves as each Fund's transfer and dividend disbursing agent. 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 Funds have entered into shareholder servicing agreements with Wells Fargo
Bank and other entities on behalf of each Fund or class. Under such agreements,
Shareholder Servicing Agents (including Wells Fargo Bank) agree, as agents for
their customers, to provide administrative services with respect to Fund
shares, which include aggregating and transmitting shareholder orders for
purchases, exchanges and redemptions; maintaining shareholder accounts and
records, aggregating and placing purchase, exchange and redemption
transactions, and providing such other related services as the Company or a
shareholder may reasonably request. For these services, a Shareholder Servicing
Agent is entitled to receive a monthly fee at an annual rate of up to 0.25% of
the average daily net assets attributable to each Class of shares of the Funds
owned during the period by investors with whom the Shareholder Servicing Agent
maintains a servicing relationship. In no event will the fees paid exceed the
maximum amount payable to the Shareholder Servicing Agent under applicable
laws, regulations or rules, including the Conduct Rules of the NASD ("NASD
Rules").
Shareholder Servicing Agents also may impose certain conditions on their
customers, subject to the terms of this Prospectus, in addition to or different
from those imposed by the Company, such as requiring a higher minimum initial
investment or payment of a separate fee for additional services. Each
Shareholder Servicing Agent is required to agree to disclose any fees it may
directly charge its customers who are shareholders of a Fund and to notify them
in writing at least 30 days before it imposes any transaction fees.
ADMINISTRATOR AND CO-ADMINISTRATOR
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank and Stephens as administrator and co-administrator, respectively,
provide the Funds with administrative services, including general supervision
of each Fund's operation, coordination of the other services provided to each
Fund, compilation of information for reports to the SEC and the state
securities commissions, preparation of proxy statements and shareholder
reports, and general supervision of data compilation in connection with
preparing periodic reports to the Company's Directors and officers. Wells Fargo
Bank and Stephens also furnish office space and certain facilities to conduct
each Fund's business, and Stephens compensates the Company's Directors,
officers and employees who are affiliated with Stephens. For these
administrative services, Wells Fargo Bank and Stephens are entitled to receive
monthly fees at the annual rates of 0.04% and 0.02%, respectively, of each
Fund's average daily net assets. Wells Fargo Bank and Stephens may delegate
certain of their administrative duties to sub-administrators.
31 PROSPECTUS
<PAGE>
Stephens previously provided substantially the same services as sole
administrator to the Funds. For the period ended September 30, 1996, the
Aggressive Growth and Small Cap Funds paid administrative fees to Stephens at
the annual rates of 0.03%, and 0.05%, respectively, of each Fund's average
daily net assets.
SPONSOR AND DISTRIBUTOR
Stephens is the Funds' sponsor and co-administrator, and distributes the
Funds' shares. Stephens is a full service broker/dealer and investment advisory
firm located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and
its predecessor have been providing securities and investment services for more
than 60 years. Additionally, they have been providing discretionary portfolio
management services since 1983. Stephens currently manages investment
portfolios for pension and profit sharing plans, individual investors,
foundations, insurance companies and university endowments.
Stephens, as the principal underwriter of the Funds within the meaning of the
1940 Act, has entered into a Distribution Agreement with the Company pursuant
to which Stephens is responsible for distributing shares of the Funds. The
Company also has adopted a Distribution Plan on behalf of each Fund or class of
shares under the SEC's Rule 12b-1 ("Plans"). Under the Class C Plan for the
Funds, the Company may pay to Stephens, as compensation for distribution-
related services provided, or reimbursement for distribution-related expenses
incurred, a monthly fee at an annual rate of up to 0.75%.
Distribution-related expenses include the cost of preparing and printing
prospectuses and other promotional materials and of delivering prospectuses and
those materials to prospective Class C 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.
In addition, the Plans contemplate that, to the extent any fees payable
pursuant to a shareholder servicing agreement (discussed above) are deemed to
be for distribution-related services, such payments are approved and payable
pursuant to the Plans, subject to any limits under applicable law, regulations
or rules, including the NASD Rules. Financial institutions acting as Selling
Agents, Shareholder Servicing Agents or in certain other capacities may be
required to register as dealers pursuant to applicable
PROSPECTUS 32
<PAGE>
state securities laws which may differ from federal law and any interpretations
expressed herein.
The Distribution Agreement provides that Stephens shall act as agent for the
Funds for the sale of their shares, and may enter into selling agreements with
Selling Agents that wish to make available shares of the Funds to their
respective customers. The Funds may participate in joint distribution
activities with any of the other funds of the Company, in which event, expenses
reimbursed out of the assets of the Funds may be attributable, in part, to the
distribution-related activities of another fund of the Company. Generally, the
expenses attributable to joint distribution activities will be allocated among
each Fund and the other funds of the Company in proportion to their relative
net asset sizes, although the Company's Board of Directors may allocate such
expenses in any other manner that it deems fair and equitable.
Stephens has established a cash and non-cash compensation program, pursuant to
which broker/dealers or financial institutions that sell shares of the
Company's funds may earn additional compensation in the form of trips to sales
seminars or vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise or the cash value of a non-cash
compensation item.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective
fees in whole or in part and reimburse expenses payable to others. Any such
waivers or reimbursements will reduce a Fund's expenses and, accordingly, have
a favorable impact on such Fund's performance. Except for the expenses borne by
Wells Fargo Bank and Stephens, each Fund bears all costs of its operations,
including its pro rata portion of Company expenses such as fees and expenses of
its independent auditors and legal counsel, and compensation of the Company's
directors who are not affiliated with the adviser, administrator or any of
their affiliates; advisory, transfer agency, custody and administration fees;
and any extraordinary expenses. Expenses attributable to each fund or class are
charged against the assets of the fund or class. General expenses of the
Company are allocated among all of the funds of the Company in a manner
proportionate to the net assets of each fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.
Taxes
Distributions from a 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. A portion of dividend distributions to
corporate shareholders may
33 PROSPECTUS
<PAGE>
be excludable pursuant to the "dividends-received deduction" allowable to
corporate shareholders. Distributions from a Fund's net long-term capital gains
are designated as capital gain distributions and taxable to the Fund's
shareholders as long-term capital gains. In general, your distributions will be
taxable when paid, whether you take such distributions in cash or have them
automatically reinvested in additional Fund shares. However, distributions
declared in October, November, and December and distributed by the following
January will be taxable as if they were paid by December 31.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares
will ordinarily result in a taxable capital gain or loss, depending on the
amount you receive for your shares (or are deemed to receive in the case of
exchanges) and the cost of your shares. See "Federal Income Taxes--Disposition
of Fund Shares" in the SAIs.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Federal Income Taxes -- Foreign Shareholders" in the
SAIs. In certain circumstances, U.S. residents may also be subject to
withholding taxes. See "Federal Income Taxes -- Backup Withholding" in the
SAIs.
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 Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Further federal tax
considerations are discussed in the SAI for each Fund.
PROSPECTUS 34
<PAGE>
Prospectus Appendix -- Additional Investment Policies
FUND INVESTMENTS
Set forth below is a description of certain investments and additional
investment policies for each Fund. Additional information about each Fund's
investments is contained in each Fund's SAI. References to the investments and
investment policies and restrictions of a Fund, unless otherwise indicated,
should be understood as references to the investments and investment policies
and restrictions of the Master Portfolio in which the Fund invests its assets.
Temporary Investments
Each Fund may hold a certain portion of its assets in cash or short-term
investments in order to maintain adequate liquidity for redemption requests or
other cash management needs or for temporary defensive purposes during periods
of unusual market volatility. The short-term investments that the Funds may
purchase include, among other things, U.S. government obligations, shares of
other mutual funds, repurchase agreements, obligations of domestic banks and
short-term obligations of foreign banks, corporations and other entities. See
"Additional Permitted Investment Activities" in the SAI for additional
information.
U.S. Government Obligations
The Funds may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government obligations").
Payment of principal and interest on U.S. Government obligations (i) may be
backed by the full faith and credit of the United States (as with U.S. Treasury
bills and GNMA certificates) or (ii) may be backed solely by the issuing or
guaranteeing agency or instrumentality itself (as with FNMA notes). In the
latter case investors must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government will provide financial support to its agencies or instrumentalities
where it is not obligated to do so. In addition, U.S. Government obligations
are subject to fluctuations in market value due to fluctuations in market
interest rates. As a general matter, the value of debt instruments, including
U.S. Government obligations, declines when market interest rates increase and
rises when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their
structure or contract terms.
A-1 PROSPECTUS
<PAGE>
Floating- and Variable-Rate Instruments
The Funds may purchase debt instruments with 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 Funds may purchase include certificates of
participation in such instruments. Floating- and variable-rate instruments are
subject to interest-rate risk and credit risk. See "Additional Permitted
Investment Activities" in the SAI for additional information.
Repurchase Agreements
The Funds may enter into repurchase transactions in which the seller of a
security to a Fund agrees to repurchase that security from such Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. A Fund may enter into repurchase agreements only with respect to
securities that could otherwise be purchased by the Fund, and all repurchase
transactions must be collateralized. A 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 Funds may participate in pooled repurchase agreement transactions
with other funds advised by Wells Fargo Bank. See "Additional Permitted
Investment Activities" in the SAI for additional information.
Convertible Securities
The Funds may invest in convertible securities that provide current income and
are issued by companies with the characteristics described above for each Fund
and that have a strong earnings and credit record. The Funds may purchase
convertible securities that are fixed-income debt securities or preferred
stocks, and which may be converted at a stated price within a specified period
of time into a certain quantity of the common stock of the same issuer.
Convertible securities, while usually subordinate to similar nonconvertible
securities, are senior to common stocks in an issuer's capital structure.
Convertible securities offer flexibility by providing the investor with a
steady income stream (which generally yield a lower amount than similar
nonconvertible securities and a higher amount than common stocks) as well as
the opportunity to take advantage of increases in the price of the issuer's
common stock through the conversion feature. Fluctuations in the convertible
security's price can reflect changes in the market value of the common stock or
changes in market interest rates. At most, 5% of each Fund's net assets will be
invested, at the time of purchase, in convertible securities that are not rated
in the four highest rating categories by one or more NRSROs, such as Moody's or
S&P, or unrated but determined by the Adviser to be of comparable quality.
PROSPECTUS A-2
<PAGE>
Other Investment Companies
The Funds 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. Wells Fargo Bank
will waive its advisory fees for that portion of a Fund's assets so invested,
except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition. The Funds also may purchase shares of exchange-
listed, closed-end funds. Notwithstanding any other investment policy or
limitation (whether or not fundamental), as a matter of fundamental policy,
each Fund may invest all of its assets in the securities of a single open-end,
management investment company with substantially the same fundamental
investment objective, policies and limitations as such Fund.
Foreign Obligations and Securities
The Funds may invest in foreign securities through American Depositary
Receipts ("ADRs"), Canadian Depositary Receipts ("CDRs"), European Depositary
Receipts ("EDRs"), International Depositary Receipts ("IDRs") and Global
Depositary Receipts ("GDRs") or other similar securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs (sponsored or unsponsored) are receipts typically issued by a
U.S. bank or trust company and traded on a U.S. stock exchange, and CDRs are
receipts typically issued by a Canadian bank or trust company that evidence
ownership of underlying foreign securities. Issuers of unsponsored ADRs are not
contractually obligated to disclose material information in the U.S. and,
therefore, such information may not correlate to the market value of the
unsponsored ADR. EDRs and IDRs are receipts typically issued by European banks
and trust companies, and GDRs are receipts issued by either a U.S. or non-U.S.
banking institution, that evidence ownership of the underlying foreign
securities. Generally, ADRs in registered form are designed for use in U.S.
securities markets and EDRs and IDRs in bearer form are designed primarily for
use in Europe. The Corporate Stock Fund may invest up to 25% of its assets in
high-quality, short-term debt obligations of foreign branches of U.S. banks or
U.S. branches of foreign banks that are denominated in and pay interest in U.S.
dollars, and similar obligations of foreign governmental and private issuers.
Investments in foreign securities involve certain considerations that are not
typically associated with investing in domestic securities. There may be less
publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to the same accounting,
auditing and financial reporting standards or governmental supervision as
domestic issuers. In addition, with respect to certain foreign countries, taxes
may be withheld at the source under foreign tax laws, and there is a
possibility of expropriation or confiscatory taxation, political, social and
monetary instability or diplomatic developments that could adversely affect
investments
A-3 PROSPECTUS
<PAGE>
in, the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries.
Emerging Markets
Each Fund may invest up to 15% of its assets in equity securities of companies
in "emerging markets." The Funds consider countries with emerging markets to
include the following: (i) countries with an emerging stock market as defined
by the International Finance Corporation; (ii) countries with low- to middle-
income economies according to the International Bank for Reconstruction and
Development (more commonly referred to as the World Bank); and (iii) countries
listed in World Bank publications as developing. The adviser may invest in
those emerging markets that have a relatively low gross national product per
capita, compared to the world's major economies, and which exhibit potential
for rapid economic growth. The adviser believes that investment in equity
securities of emerging market issuers offers significant potential for long-
term capital appreciation.
Equity securities of emerging market issuers may include common stock,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment
trust securities. The Funds may invest in ADRs, CDRs, GDRs, EDRs, and IDRs of
such issuers.
Emerging market countries include, but are not limited to: Argentina, Brazil,
Chile, China, the Czech Republic, Columbia, Ecuador, Greece, Hong Kong,
Indonesia, India, Malaysia, Mexico, the Philippines, Poland, Portugal, Peru,
Russia, Singapore, South Africa, Thailand, Taiwan and Turkey. A company is
considered in a country, market or region if it conducts its principal business
activities there, namely, if it derives a significant portion (at least 50%) of
its revenues or profits from goods produced or sold, investments made, or
services performed therein or has at least 50% of its assets situated in such
country, market or region.
There are special risks involved in investing in emerging-market countries.
Most are heavily dependent on international trade, and some are especially
vulnerable to recessions in other countries. Many of these countries are also
sensitive to world commodity prices. Some countries may still have obsolete
financial systems, economic problems or archaic legal systems. In addition,
many of these nations are experiencing political and social uncertainties. Many
investments in emerging markets can be considered speculative, and their prices
can be much more volatile than in the more developed nations of the world. This
difference reflects the greater uncertainties of investing in less established
markets and economies. The financial markets of emerging markets countries are
generally less well capitalized and thus securities of issuers based in such
countries may be less liquid.
PROSPECTUS A-4
<PAGE>
Money Market Instruments
The Funds may invest in the following types of high quality money market
instruments that have remaining maturities not exceeding one year: (i) U.S.
Government obligations; (ii) negotiable certificates of deposit, bankers'
acceptances and fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1 billion in total assets at
the time of investment and are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are insured by
the FDIC; (iii) commercial paper rated at the date of purchase "Prime-1" by
Moody's or "A-1" or "A-1--" by S&P, or, if unrated, of comparable quality as
determined by Wells Fargo Bank, as investment adviser; (iv) repurchase
agreements; and (v) for the Corporate Stock Fund only, non-convertible
corporate debt securities (e.g., bonds and debentures) with remaining
maturities at the date of purchase of no more than one year that are rated at
least "Aa" by Moody's or "AA" by S&P. The Funds also may invest in short-term
U.S. dollar-denominated obligations of foreign banks (including U.S. branches)
that at the time of investment: (i) have more than $10 billion, or the
equivalent in other currencies, in total assets; (ii) are among the 75 largest
foreign banks in the world as determined on the basis of assets; (iii) have
branches or agencies in the United States; and (iv) in the opinion of Wells
Fargo Bank, as investment adviser, are of comparable quality to obligations of
U.S. banks which may be purchased by the Funds.
Options
The Funds may purchase or sell options on individual securities or options on
indices of securities as described below. The purchaser of an option risks a
total loss of the premium paid for the option if the price of the underlying
security does not increase or decrease sufficiently to justify exercise. The
seller of an option, on the other hand, will recognize the premium as income if
the option expires unrecognized but foregoes any capital appreciation in excess
of the exercise price in the case of a call option and may be required to pay a
price in excess of current market value in the case of a put option.
Call and Put Options on Specific Securities. The Small Cap Fund may invest in
call and put options on a specific security. The Aggressive Growth Fund may
invest up to 15% of its assets, represented by the premium paid, in the
purchase of call and put options in respect of specific securities (or groups
of "baskets" of specific securities).
A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, an underlying security at the exercise price at
any time during the option period. Conversely, a put option gives the purchaser
of the option the right to sell, and obligates the writer to buy, an underlying
security at the exercise price at any time during the option period.
Investments by a Fund in off-exchange options will be treated
A-5 PROSPECTUS
<PAGE>
as "illiquid" and therefore subject to the Fund's policy of not investing more
than 15% of its net assets in illiquid securities.
The Small Cap Fund may write covered call option contracts and secured put
options as Wells Fargo Bank deems appropriate. A covered call option is a call
option for which the writer of the option owns the security covered by the
option. Covered call options written by a Fund expose the Fund during the term
of the option (i) to the possible loss of opportunity to realize appreciation
in the market price of the underlying security or (ii) to possible loss caused
by continued holding of a security which might otherwise have been sold to
protect against depreciation in the market price of the security. If a Fund
writes a secured put option, it assumes the risk of loss should the market
value of the underlying security decline below the exercise price of the
option. The aggregate value of the securities subject to options written by a
Fund will not exceed 15% of the value of the assets of the Small Cap Fund. The
use of covered call options and securities put options will not be a primary
investment technique of the Funds, and they are expected to be used
infrequently. If the adviser is incorrect in its forecast of market value or
other factors when writing the foregoing options, a Fund would be in a worse
position than it would have been had the foregoing investment techniques not
been used.
Each Fund may engage in unlisted over-the-counter options with broker/dealers
deemed creditworthy by the adviser. Closing transactions for such options are
usually effected directly with the same broker/dealer that effected the
original option transaction. A Fund bears the risk that the broker/dealer will
fail to meet its obligations. There is no assurance that a liquid secondary
trading market exists for closing out an unlisted option position. Furthermore,
unlisted options are not subject to the protections afforded purchasers of
listed options by the Options Clearing Corporation, which performs the
obligations of its members who fail to perform in connection with the purchase
or sale of options.
Stock Index Options. The Small Cap Fund may purchase call and put options and
write covered call options on stock indices listed on national securities
exchanges or traded in the over-the-counter market to the extent of 15% of the
value of its net assets.
The effectiveness of purchasing or writing stock index options will depend
upon the extent to which price movements in a Fund's investment portfolio
correlate with price movements of the stock index selected. Because the value
of a stock index option depends upon changes to the price of all stocks
comprising the index rather than the price of a particular stock, whether a
Fund will realize a gain or loss from the purchase or writing of options on an
index depends upon movements in the price of all stocks in the index, rather
than movements in the price of a particular stock. Accordingly, successful use
by a Fund of options on stock indexes will be subject to Wells Fargo Bank's
ability to correctly analyze movements in the direction of the stock market
generally or of particular industry or market segments.
PROSPECTUS A-6
<PAGE>
Forward Commitments, When-Issued Purchases and Delay-Delivery Transactions
Each Fund may purchase or sell securities on a when-issued or delayed-delivery
basis and make contracts to purchase or sell securities for a fixed price at a
future date beyond customary settlement time. Securities purchased or sold on a
when-issued, delayed-delivery or forward commitment basis involve a risk of
loss if the value of the security to be purchased declines, or the value of the
security to be sold increases, before the settlement date. Although a Fund will
generally purchase securities with the intention of acquiring them, a Fund may
dispose of securities purchased on a when-issued, delayed-delivery or a forward
commitment basis before settlement when deemed appropriate by the adviser. For
additional information relating to option trading practices, including the
particular risks thereof, see the SAI.
Custodial Receipts for Treasury Securities
The Funds may purchase participations in trusts that hold U.S. Treasury
securities (such as TIGRs and CATS) or other obligations where the trust
participations evidence ownership in either the future interest payments or the
future principal payments on the obligations. These participations are normally
issued at a discount to their "face value," and can exhibit greater price
volatility than ordinary debt securities because of the way in which their
principal and interest are returned to investors. Investments by a Fund in such
participations will not exceed 5% of the value of that Fund's total assets.
Privately Issued Securities (Rule 144A)
The Funds may invest in privately issued securities which may be resold in
accordance with Rule 144A under the Securities Act of 1933 ("Rule 144A
Securities"). Rule 144A Securities are restricted securities which are not
publicly traded. Accordingly, the liquidity of the market for specific Rule
144A Securities may vary. Delay or difficulty in selling such securities may
result in a loss to a Fund. Privately issued securities that are determined by
the investment adviser to be "illiquid" are subject to the Funds' policy of not
investing more than 15% of its net assets in illiquid securities.
Corporate Reorganizations
The Funds may invest in securities for which a tender or exchange offer has
been made or announced, and in securities of companies for which a merger,
consolidation, liquidation or similar reorganization proposal has been
announced if, in the judgment of Wells Fargo Bank, there is a reasonable
prospect of capital appreciation significantly greater than the added portfolio
turnover expenses inherent in the short term nature of such transactions. The
principal risk associated with such investments is that such offers or
proposals may not be consummated within the time and under the terms
contemplated at the time of the investment, in which case, unless such offers
or
A-7 PROSPECTUS
<PAGE>
proposals are replaced by equivalent or increased offers or proposals which are
consummated, the Funds may sustain a loss.
The use of derivatives by the Fund also is subject to broadly applicable
investment policies. For example, a Fund may not invest more than a specified
percentage of its assets in "illiquid securities," including those derivatives
that do not have active secondary markets. Nor may the Fund use certain
derivatives without establishing adequate "cover" in compliance with SEC
positions regarding the use of leverage.
Loans of Portfolio Securities
Each Fund may lend securities from their portfolios to brokers, dealers and
financial institutions (but not individuals) in order to increase the return on
such Fund's portfolio. The value of the loaned securities may not exceed one-
third of a Fund's total assets and loans of portfolio securities are fully
collateralized based on values that are market-to-market daily. The Funds will
not enter into any portfolio security lending arrangement having a duration of
longer than one year. The principal risk of portfolio lending is potential
default or insolvency of the borrower. In either of these cases, a Fund could
experience delays in recovering securities or collateral or could lose all or
part of the value of the loaned securities. The Funds may pay reasonable
administrative and custodial fees in connection with loans of portfolio
securities and may pay a portion of the interest or fee earned thereon the
borrower or a placing broker. See "Additional Permitted Investment Activities"
in the SAI for additional information.
INVESTMENT POLICIES AND RESTRICTIONS
Each Fund's investment objective, as set forth in "How the Funds Work --
Investment Objectives and Policies," is fundamental; that is, it may not be
changed without approval by the vote of the holders of a majority of a Fund's
outstanding voting securities, as described under "Capital Stock" in the SAI
for each Fund. If the Board of Directors determines, however, that a Fund's
investment objective can best be achieved by a substantive change in a
nonfundamental investment policy or strategy, the Company may make such change
without shareholder approval and will disclose any such material changes in the
then-current Prospectus.
Fundamental Investment Policies
As matters of fundamental policy, the Funds: (i) may not purchase securities
of any issuer, except U.S. Government Obligations, if as a result, more than 5%
of the value of such Fund's total assets would be invested in the securities of
such issuer or a Fund would own more than 10% of the outstanding voting
securities of such issuer, provided that the Funds may invest all its assets in
a diversified, open-end management investment company, or a series thereof,
with the same investment objective, policies and restrictions as such Fund,
without regard to the limitations set forth in such clause
PROSPECTUS
A-8
<PAGE>
(i); (ii) each such Fund may borrow from banks up to 10% of the current value
of its net assets for temporary purposes only in order to meet redemptions, and
these borrowings may be secured by the pledge of up to 10% of the current value
of its net assets (but investments may not be purchased by a Fund while any
such outstanding borrowings exceed 5% of the Fund's net assets); (iii) each
such Fund may make loans of portfolio securities in accordance with its
investment policies; and (iv) each such Fund may not invest 25% or more of its
assets (i.e., concentrate) in any particular industry, except that a Fund may
invest 25% or more of its assets in U.S. Government obligations. With respect
to fundamental investment policy (i) above, the Funds are subject to this
restriction only with respect to 75% of their respective assets, and, with
regard to the Funds, it may be possible that the Company would own more than
10% of the outstanding voting securities of the issuer. The Funds may invest
all of its assets in a diversified, open-end management investment company or a
series thereof, with the same investment objective, policies and restrictions
as the Fund, without regard to these limitations. With respect to fundamental
policy (iii) above, the Small Cap Fund may not make loans of portfolio
securities having a value that exceeds 33 1/3% of the current value of its net
assets.
Non-Fundamental Investment Policies
As a matter of nonfundamental policy, each Fund may invest up to 15% of its
respective net assets in illiquid securities. For these purposes, illiquid
securities include, among others, (a) securities that are illiquid by virtue of
the absence of a readily available market or legal or contractual restrictions
on resale, (b) fixed time deposits that are subject to withdrawal penalties and
that have maturities of more than seven days and (c) repurchase agreements not
terminable within seven days.
Illiquid securities shall not include securities eligible for resale pursuant
to Rule 144A under the Securities Act of 1933 (the "1933 Act") that have been
determined to be liquid by the adviser, pursuant to guidelines established by
the Company's Board of Directors, and commercial paper that is sold under
Section 4(2) of the 1933 Act that (i) is not traded flat or in default as to
interest or principal and (ii) is rated in one of the two highest categories by
at least two NRSROs and the adviser, pursuant to guidelines established by the
Company's Board of Directors, has determined the commercial paper to be liquid;
or (iii) is rated in one of the two highest categories by one NRSRO and the
adviser, pursuant to guidelines established by the Company's Board of
Directors, has determined that the commercial paper is of equivalent quality
and is liquid), if by any reason thereof the value of its aggregate investment
in such classes of securities will exceed 10% of its total assets.
PROSPECTUS
A-9
<PAGE>
Advised by WELLS FARGO BANK, N.A.
Sponsored/Distributed by
Stephens Inc., Member NYSE/SIPC
NOT FDIC INSURED SCF178 (10/97)
<PAGE>
STAGECOACH FUNDS(R)
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH FUNDS:
--------------------------------------------------------------------------
. are NOT INSURED BY THE FDIC or U.S. Government
. are NOT obligations or deposits of Wells Fargo Bank
nor guaranteed by the Bank
. involve investment risk, including possible loss of principal.
[LOGO OF RECYCLED PAPER APPEARS HERE]
Printed on Recycled Paper SCF178 (10/97)
<PAGE>
---------------
BULK RATE
[LOGO] U.S. POSTAGE
P.O. Box 7066 PAID
San Francisco, CA 94120-7066 DALLAS, TEXAS
Permit No. 1808
---------------
STAGECOACH FUNDS:
--------------------------------------------------------------------------
. are NOT INSURED BY THE FDIC or U.S. Government
. are NOT obligations or deposits of Wells Fargo Bank
nor guaranteed by the Bank
. involve investment risk, including possible loss of principal
[LOGO OF RECYCLED PAPER APPEARS HERE]
Printed on Recycled Paper SCF178 (10/97)
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[LOGO OF STAGECOACH FUNDS APPEARS HERE]
------------------------------------
PROSPECTUS
------------------------------------
GINNIE MAE FUND
CLASS C
October 6, 1997
<PAGE>
PROSPECTUS
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION
DATED AUGUST 5, 1997
STAGECOACH FUNDS(R)
GINNIE MAE FUND
CLASS C
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about Class C shares of the
GINNIE MAE FUND -- which is one of the funds of the Stagecoach Family of Funds.
The GINNIE MAE FUND seeks to provide investors with a long-term total rate of
return through preserving capital and earning high interest income by investing
principally in a portfolio of U.S. Government mortgage pass-through securities,
consisting of securities issued by the Government National Mortgage Association
(popularly called "Ginnie Maes"), Federal National Mortgage Association and
Federal Home Loan Mortgage Corporation.
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 October 6, 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.
ALTHOUGH CERTAIN PORTFOLIO INSTRUMENTS HELD BY THE FUND MAY BE INSURED OR
GUARANTEED BY THE UNITED STATES OR ANY FEDERAL AGENCY OR INSTRUMENTALITY,
SHARES OF THE FUND ARE NOT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK, N.A. ("WELLS FARGO BANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND ADMINISTRATOR AND IS COMPENSATED
FOR PROVIDING THE FUND WITH CERTAIN OTHER SERVICES. STEPHENS INC. ("STEPHENS"),
WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE FUND'S SPONSOR, CO-
ADMINISTRATOR AND DISTRIBUTOR.
PROSPECTUS DATED OCTOBER 6, 1997
<PAGE>
Table of Contents
-------
<TABLE>
<S> <C>
Prospectus Summary 1
Summary of Fund Expenses 5
Explanation of Tables 5
How the Fund Works 7
The Fund and Management 11
Investing in the Fund 13
Dividend and Capital Gain Distributions 19
How to Redeem Shares 19
Additional Shareholder Services 24
Management, Distribution and Servicing Fees 26
Taxes 30
Prospectus Appendix -- Additional Investment Policies A-1
</TABLE>
PROSPECTUS
<PAGE>
Prospectus Summary
The Fund provides you with a convenient way to invest in various portfolios 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 Ginnie Mae Fund seeks to provide investors with a long-term total rate
of return through preserving capital and earning high interest income by
investing principally in a portfolio of U.S. Government mortgage pass-
through securities, consisting primarily of securities issued by the
Government National Mortgage Association ("GNMA"), Federal National
Mortgage Association ("FNMA") and Federal Home Loan Mortgage Corporation
("FHLMC").
Under normal market conditions, the Fund currently invests at least 65% of
its assets in securities issued by GNMA. The Company's Board of Directors
recently approved a change to this policy, and it is anticipated that in
the near future the Fund will invest at least 65% of its assets in U.S.
Government pass-through securities, such as Ginnie Mae, Fannie Mae and
Federal Home Mortgage Corporation securities, but will no longer invest at
least 65% of its assets in Ginnie Mae securities. See "How the Fund
Works -- Investment Objective and Policies" and "Prospectus Appendix --
Additional Investment Policies" for further information on investments.
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF
INVESTMENT?
A. An investment in the Fund is not insured against loss of principal. When
the value of the securities that the Fund owns declines, so does the value
of the Fund's shares. Therefore, you should be prepared to accept some risk
with the money you invest in the Fund.
The market value of investments in fixed-income securities changes in
response to changes in interest rates and the relative financial strength
of each issuer. During periods of falling interest rates, the value of
fixed-income securities generally rises. Conversely, during periods of
rising interest rates, the value of such securities generally declines.
Debt securities with longer maturities, which tend to produce higher
yields, are subject to potentially greater capital appreciation and
depreciation than obligations with shorter maturities. Changes in the
financial strength of an issuer or changes in the ratings of any
particular security may also affect the value of these investments.
Fluctuations in the market value of fixed-income securities subsequent to
their acquisition does not affect cash income from such securities but is
reflected in the Fund's net asset value. For example, the mortgage-backed
securities in which the Fund invests are subject to extension
1 PROSPECTUS
<PAGE>
risk. This is the risk that when interest rates rise, prepayments of the
underlying obligations slow, and prevent reinvestment of the proceeds at
higher interest rates. The income from the securities typically remains
stable, but the value of the securities may fall and adversely affect the
NAV of the Fund's shares. The Fund also may purchase zero-coupon bonds
(i.e., discount debt obligations that do not make periodic interest
payments) that are subject to greater market fluctuations from changing
interest rates than debt obligations of comparable maturities which make
current distributions of interest. The debt securities in which the Fund
may invest are subject to credit risk, which is the risk that the issuer
cannot pay all or a portion of the obligation represented by a particular
security.
The Fund invests primarily in U.S. Government obligations, including
securities issued or guaranteed as to principal and interest by the U.S.
Government and supported by the full faith and credit of the U.S.
Treasury. U.S. Government obligations also include securities issued or
guaranteed by federal agencies or instrumentalities, including government-
sponsored enterprises. Some obligations of agencies or instrumentalities
of the U.S. Government are supported by the full faith and credit of the
United States or U.S. Treasury guarantees; others, by the right of the
issuer or guarantor to borrow from the U.S. Treasury; still others, by the
discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others, only by the
credit of the agency or instrumentality issuing the obligation. In the
case of obligations not backed by the full faith and credit of the United
States, the investor must look principally to the agency or
instrumentality issuing or guaranteeing the obligation for ultimate
repayment, which agency or instrumentality may be privately owned. There
can be no assurance that the U.S. Government will provide financial
support to its agencies or instrumentalities where it is not obligated to
do so. Certain types of U.S. Government obligations are subject to
fluctuations in yield or value due to their structure or contract terms.
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 transfer agency, dividend
disbursing agency and custodial services to the Fund. In addition, Wells
Fargo Bank is a shareholder servicing agent and a selling agent of the
Fund. See "The Fund and Management" and "Management, Distribution and
Servicing Fees" for further information.
PROSPECTUS 2
<PAGE>
Q.HOW DO I INVEST?
A. You may invest by purchasing shares of the Fund at their public offering
price, which is the net asset value ("NAV") per share plus any applicable
sales charge. Class C shares are subject to a maximum contingent deferred
sales charge of 1.00% of the lesser of NAV at purchase or NAV at
redemption. You may open an account by making an initial investment of at
least $1,000, and you may add to your account by making additional
investments of at least $100, with certain exceptions. Shares may be
purchased by wire, by mail or by an automatic investment feature called the
AutoSaver Plan on any day the Fund is open. See "Investing in the Fund" for
more details, or contact Stephens (the Fund's distributor), a shareholder
servicing agent or a selling agent (such as Wells Fargo Bank).
Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends of the Fund are declared daily and distributed monthly. Any
capital gains are distributed at least annually. Distributions paid by the
Fund are automatically reinvested in shares of the same class of the Fund
at NAV (without a sales charge). You may also elect to receive dividends
credited to your Wells Fargo Bank account, distributed in cash, or in
shares of certain other funds in the Stagecoach Family of Funds in which
you have an established account that meets the applicable minimum initial
investment requirement. 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. You may redeem shares by telephone, by letter or by an automatic feature
called the Systematic Withdrawal Plan on any day the New York Stock
Exchange is open for business. Contingent-deferred sales charges may be
charged upon redemption of Class C shares. The Company reserves the right
to impose charges for wiring redemption proceeds. See "How To Redeem
Shares" and "How to Purchase Shares -- Contingent-Deferred Sales Charges --
Class C Shares" for more details, or contact Stephens, a shareholder
servicing agent or a selling agent (such as Wells Fargo Bank).
Q.WHAT ARE DERIVATIVES AND DOES THE FUND USE THEM?
A. Derivatives are financial instruments whose value is derived, at least in
part, from the price of another security or a specified asset, index or
rate. Some of the permissible investments described in this Prospectus,
such as floating- and
3 PROSPECTUS
<PAGE>
variable-rate instruments, structured notes and certain U.S. Government
obligations, are considered derivatives. Some derivatives may be more
sensitive than direct securities to changes in interest rates or sudden
market moves. Some derivatives also may be susceptible to fluctuations in
yield or value due to their structure or contract terms.
Q. WHAT STEPS DOES THE FUND TAKE TO CONTROL DERIVATIVES-RELATED RISKS?
A. Wells Fargo Bank, as investment adviser to the Fund, uses a variety of
internal risk management procedures to ensure that derivatives' use is
consistent with the Fund's investment objective, does not expose the Fund
to undue risks and is closely monitored. These procedures include providing
periodic reports to the Board of Directors concerning the use of
derivatives. Derivatives use by the Fund also is subject to broadly
applicable investment policies. For example, the Fund may not invest more
than a specified percentage of its assets in "illiquid securities,"
including derivatives that do not have active secondary markets. Nor may
the Fund use certain derivatives without establishing adequate "cover" in
compliance with SEC rules limiting the use of leverage. For more
information on the Fund's investment activities, see "How the Fund Works"
and "Prospectus Appendix -- Additional Investment Policies."
PROSPECTUS 4
<PAGE>
PROSPECTUS
Summary of Fund Expenses
SHAREHOLDER TRANSACTION EXPENSES
CLASS C SHARES
<TABLE>
<CAPTION>
GINNIE MAE
FUND
----------
<S> <C>
Maximum Sales Charge Imposed on Purchase (as a percentage of
offering price)................................................ None
Maximum Sales Charge on Reinvested Dividends.................... None
Maximum Sales Charge on Redemptions
Redemption during year 1 ...................................... 1.00%
Redemption after year 1 ....................................... 0.00%
Exchange Fees................................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
GINNIE MAE
FUND
----------
<S> <C>
Management Fee (before waivers or reimbursements)/1/............. [ ]%
Rule 12b-1 Fee/2/................................................ [ ]%
Other Expenses (after waivers or reimbursements)/3/.............. [ ]%
------
TOTAL FUND OPERATING EXPENSES (after waivers or
reimbursements)/4/.............................................. [ ]%
======
</TABLE>
--------------
/1/ Management Fee (before waivers or reimbursements) would be [ ]%.
/2/ Rule 12b-1 Fee (before waivers or reimbursements) would be [ ]%.
/3/ Other Expenses (before waivers or reimbursements) would be [ ]%.
/4/ Total Fund Operating Expenses (before waivers or reimbursements) would
be [ ]%.
EXAMPLE OF EXPENSES
You would pay the following expenses on a $1,000 investment in Class C
shares of 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
GINNIE MAE FUND ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class C Shares................................ $[ ] $[ ] $[ ] $[ ]
</TABLE>
You would pay the following expenses on a $1,000 investment in Class C
shares of the Fund, assuming a 5% annual return and no redemption:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
GINNIE MAE FUND ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class C Shares................................ $[ ] $[ ] $[ ] $[ ]
</TABLE>
Explanation of Tables
The purpose of the foregoing tables is to help you understand the various
costs and expenses that a shareholder in the Fund will pay directly or
indirectly. You may purchase Fund shares directly from the Company or through
Wells Fargo Bank or other institutions that have developed various account
products through which Fund shares
5
<PAGE>
may be purchased, and for which customers may be charged a fee. The tables do
not reflect any charges that may be imposed by Wells Fargo Bank or another
institution directly on certain customer accounts in connection with an
investment in the Fund.
SHAREHOLDER TRANSACTION EXPENSES are charges incurred when you buy or sell
Fund shares. You may be subject to a contingent-deferred sales charge on
purchases of Class C shares of the Fund if you redeem such shares within a
specified period. There are no exchange fees. The Company reserves the right to
impose a charge for wiring redemption proceeds. See "Investing in the Fund --
Sales Charges."
ANNUAL FUND OPERATING EXPENSES have been adjusted to reflect voluntary fee
waivers and expense reimbursements that are expected to reduce expenses during
the current year. The amount shown under "Other Expenses" is based on
estimated/restated amounts expected to be in effect during the current fiscal
year. The remaining amounts are based on contract rates. Any waivers or
reimbursements will reduce the Fund's total expenses. There can be no assurance
that waivers or reimbursements will continue after that date. The Fund
understands that a shareholder servicing agent also may impose certain
conditions on its customers, subject to the terms of this Prospectus, in
addition to or different from those imposed by the Fund, such as requiring a
higher minimum initial investment or payment of a separate fee for additional
services.
Long-term shareholders of the Fund could pay more in sales charges than the
economic equivalent of the maximum front-end sales charges applicable to mutual
funds sold by members of the National Association of Securities Dealers, Inc.
("NASD"). For more complete descriptions of the various costs and expenses you
can expect to incur as a shareholder in the Fund, please see "Investing in the
Fund -- How To Buy Shares" and "Management, Distribution and Servicing Fees."
EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses associated
with a $1,000 investment over stated periods, based on the expenses in the
above tables and an assumed annual rate of return of 5%. The annual rate of
return should not be considered an indication of actual or expected performance
of the Fund nor a representation of past or future expenses; actual expenses
and returns may be greater or lesser than those shown.
The Fund offers certain classes of shares not described herein. The expenses
and corresponding returns of these other classes may differ from the expenses
and returns of the shares described herein. Information regarding these and any
other investment options in the Fund may be obtained by calling Stephens at 1-
800-643-9691. Additional information regarding the Fund's expenses is included
under "The Fund and Management" and "Management, Distribution and Servicing
Fees" and in the SAI under "Management," "Distributions Plans" and "Servicing
Plans."
PROSPECTUS 6
<PAGE>
How the Fund Works
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to provide investors with a long-term total rate of return
through preserving capital and earning high interest income by investing
principally in a portfolio of U.S. Government mortgage pass-through securities,
consisting primarily of securities issued by GNMA, FNMA and FHLMC. This
investment objective is fundamental and cannot be changed without shareholder
approval. Under normal market conditions, the Fund will invest at least 65% of
its total assets in GNMA securities. These securities may bear interest at
rates that are not fixed ("floating- and variable-rate instruments") or may be
purchased on a "when-issued" or "firm commitment basis."
On July 23, 1997, the Company's Board of Directors approved the elimination of
the existing non-fundamental investment policy of the Ginnie Mae Fund that
requires the Fund to invest at least 65% of its total assets in Ginnie Mae
securities. The Fund will continue to invest at least 65% of its assets in U.S.
Government pass-through securities, such as Ginnie Mae, Fannie Mae and Federal
Home Loan Mortgage Corporation securities, but will no longer invest at least
65% of its total assets in Ginnie Mae securities. As a result of this change in
non-fundamental investment policy, the Board also has approved the Fund
changing its name to the "U.S. Government Income Fund." It is anticipated that
these changes will take effect on or about [DECEMBER 15, 1997.]
GNMAs, FNMAs and FHLMCs are mortgage-backed securities representing part
ownership of a pool of residential mortgage loans. A "pool" or group of such
mortgages is assembled and, after being approved by the entity, is offered to
investors through securities dealers. Once approved by GNMA, a government
corporation within the U.S. Department of Housing and Urban Development, the
timely payment of interest and principal of a GNMA security is guaranteed by
the full faith and credit of the U.S. Government. FNMA and FHLMC are federally
chartered corporations supervised by the U.S. Government, acting as government-
sponsored enterprises. FNMA and FHLMC securities are not direct obligations of
the U.S. Treasury, and are supported by the credit of FNMA or FHLMC only. FNMA
guarantees timely payment of interest and principal on its securities; FHLMC
guarantees timely payment of interest and ultimate payment of principal only.
The Fund also may invest in U.S. Treasury securities, which are backed by the
full faith and credit of the U.S. Government, and repurchase agreements. The
Fund may temporarily invest some of its assets in shares of unaffiliated
registered, open-end investment companies, subject to the limitations of the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund may also
invest in high-quality money market instruments, which include U.S. Government
obligations, obligations of domestic and foreign banks, and short-term
corporate debt obligations. Such temporary
7 PROSPECTUS
<PAGE>
investments would most likely be made when there is an unexpected or abnormal
level of investor purchases or redemptions of Fund shares or because of unusual
market conditions. The Fund also may lend its portfolio securities. A more
complete description of the Fund's investments and investment activities is
contained in the "Prospectus Appendix -- Additional Investment Policies" and in
the Fund's SAI.
RISK FACTORS
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. Shareholders of the Fund should, therefore,
expect the value of their shares to fluctuate with changes in the value of the
securities owned by the Fund and the value of an investment in the Fund may
increase or decrease.
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 invest may default on the payment of principal and/or interest.
Interest-rate risk is the risk that increases in market interest rates may
adversely affect the value of the debt instruments in which the Fund invests
and hence the value of your investment in the Fund.
The Fund may invest in illiquid securities may include certain restricted
securities. Illiquid 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 the Fund.
The adviser may use certain derivative investments or techniques, such as
investments in floating- and variable-rate instruments, structured notes and
certain U.S. Government obligations, to adjust the risk and return
characteristics of the Fund's portfolio. Derivatives are financial instruments
whose value is derived, at least in part, from the price of another security or
a specified asset, index or rate. Some derivatives may be more sensitive than
direct securities to changes in interest rates or sudden market moves. Some
derivatives also may be susceptible to fluctuations in yield or value due to
their structure or contract terms. If the Fund's adviser judges market
conditions incorrectly, the use of certain derivatives could result in a loss,
regardless of the adviser's intent in using the derivatives.
There is, of course, no assurance that the Fund will achieve its investment
objective or be successful in preventing or minimizing the risk of loss that is
inherent in investing in particular types of investment products. See
"Prospectus Appendix--Additional Investment Policies" and the SAI for further
information about investment policies and risks.
PROSPECTUS 8
<PAGE>
Although GNMA securities are guaranteed by the U.S. Government as to timely
payment of principal and interest and ARMS are guaranteed by the U.S.
Government, its agencies or instrumentalities (including government-sponsored
enterprises as noted above), the market value of these securities, upon which
the Fund's daily net asset value is based, will fluctuate. The Fund is subject
to interest-rate risk, that is, the risk that increases in interest rates may
adversely affect the value of the securities in which the Fund invests, and
hence the value of your investment in the Fund. The value of the securities in
which the Fund invests generally changes inversely to changes in interest
rates.
The full and timely payment of principal and interest on GNMA ARMS is
guaranteed by GNMA and backed by the full faith and credit of the U.S.
Government. FNMA also guarantees full and timely payment of both interest and
principal, while FHLMC guarantees full and timely payment of interest and
ultimate payment of principal. FNMA and FHLMC ARMS are not backed by the full
faith and credit of the U.S. Government. However, because FNMA and FHLMC are
government-sponsored enterprises, these securities are considered by some
investors to be high-quality investments that present minimal credit risks. The
yields provided by these ARMS have historically exceeded the yields on other
types of U.S. Government securities with comparable maturities. Of course,
there can be no assurance that this historical performance will continue or
that the Fund, which is a diversified Fund, will meet its investment objective.
Moreover, no assurance can be given that the U.S. Government would supply
financial support to U.S. Government-sponsored enterprises such as FNMA and
FHLMC in the event of a default in payment on the underlying mortgages which
the government- sponsored enterprise is unable to make good. Principal on the
mortgages underlying the mortgage pass-through securities in which the Fund may
invest may be prepaid in advance of maturity. Such prepayments tend to increase
when interest rates decline and may present the Fund with more principal to
invest at lower rates. The converse also tends to be the case.
Furthermore, there can be no assurance that the U.S. Government would supply
financial support to its agencies or instrumentalities, where it is not
obligated to do so. Principal on the mortgages underlying the mortgage pass-
through securities in which the Short-Intermediate Ginnie Mae Fund invests may
be prepaid in advance of maturity; these prepayments tend to increase when
interest rates decline, presenting the Fund with more principal to invest at
lower rates. The converse also tends to be the case when interest rates rise.
S&P and Moody's assign ratings based upon their judgment of the risk of
default (i.e., the risk that the issuer or guarantor may default in the payment
of principal and/or interest) of the securities underlying the CMOs. However,
investors should understand that most of the risk of these securities comes
from interest-rate risk (i.e.,
9 PROSPECTUS
<PAGE>
the risk that market interest rates may adversely affect the value of the
securities in which the Fund invests) and not from the risk of default. CMOs
may have significantly greater interest rate risk than traditional government
securities with identical ratings. The adjustable-rate portions of CMOs have
significantly less interest rate risk.
PERFORMANCE
Fund performance may be advertised from time to time in terms of average
annual total return, cumulative total return and yield. Performance figures are
based on historical results and are not intended to indicate future
performance. Performance figures are calculated separately for each class of
shares of the Fund.
Average annual total return of a class of shares is based on the overall
dollar or percentage change in value of a hypothetical investment in the class
during a specified period and assumes that all Fund dividends and capital gain
distributions are reinvested at NAV in shares of that class. The standardized
average annual total return as calculated for Class C shares assumes that you
have paid the maximum applicable contingent-deferred sales charge on the
hypothetical investment. Cumulative total return is calculated similarly,
except that the return figure is aggregated over the relevant time period
instead of annualized.
The yield of a class of shares is calculated by dividing the net investment
income per share earned during a specified period (usually 30 days) by the NAV
of the class on the last day of the period and annualizing the result.
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.
For purposes of advertising, from time to time, the Fund also may present
nonstandardized total returns, yields and, in sales literature, distribution
rates. For example, the performance figure of the shares of a class may be
calculated on the basis of an investment at the net asset value per share or at
net asset value per share plus a reduced sales charge (see "Investing in the
Fund -- How To Buy Shares"), rather than the public offering price per share.
In this case, the figure might not reflect the effect of the sales charge that
you may have paid.
Because of 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. Performance figures are computed separately for each class of Fund
shares. The Fund's performance figures calculations may reflect waivers and/or
reimbursements that, if effective, would increase the yields and returns
payable to shareholders. Any fees that may be imposed by a selling agent or
shareholder servicing agent directly on its customer accounts are
PROSPECTUS 10
<PAGE>
not reflected in the performance calculations. Any such fees, if charged, will
reduce the actual return received by customers on their investments.
Additional performance information is contained in the SAI under "Performance
Calculations" and the Annual Report, which are available upon request free of
charge by calling the Company at 1-800-222-8222 or by writing the Company at
the address shown on the inside front cover of the Prospectus.
The Fund and Management
THE FUNDS
The Fund is one fund of 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.
The Company's Board of Directors supervises the Fund's activities and monitors
its contractual arrangements with various service-providers. Although the
Company is not required to hold annual shareholder meetings, special meetings
may be required for purposes such as electing or removing Directors, approving
advisory contracts and distribution plans, and changing the Fund's investment
objective or fundamental investment policies. All shares of the Company have
equal voting rights and are voted in the aggregate, rather than by series or
class, unless otherwise required by law (such as when the voting matter affects
only one series or class). A Fund shareholder of record is entitled to one vote
for each share owned and fractional votes for fractional shares owned. Each
class of shares in the Fund represents an equal, proportionate interest in the
Fund with other shares of the same class. Shareholders of each class bear their
pro rata portion of the Fund's operating expenses, except for certain class-
specific expenses that are allocated to a particular class and, accordingly,
may affect performance. Please contact Stagecoach Shareholder Services at 1-
800-222-8222 if you would like additional information about investment options
in the Stagecoach Family of Funds. 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 adviser, administrator,
transfer and dividend disbursing agent, and custodian. In addition, Wells Fargo
Bank is a shareholder servicing agent and 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 31, 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 the
11 PROSPECTUS
<PAGE>
investment adviser to other separately managed funds of the Company, and as
investment adviser or sub-adviser to five other registered, open-end,
management investment companies. Wells Fargo Bank, a wholly-owned subsidiary of
Wells Fargo & Company, is located at 420 Montgomery Street, San Francisco,
California 94104.
PORTFOLIO MANAGERS
Ms. Tamyra Thomas assumed responsibility as a co-portfolio manager for the
day-to-day management of the Fund as of July 16, 1996. Ms. Thomas is a Senior
Vice-President and the Chief Fixed Income Investment Officer of the Investment
Management Group of Wells Fargo Bank. Ms. Thomas has managed bond portfolios
for over a decade. She currently manages in excess of $1 billion of long-term
taxable bond portfolios for various foundations, defined benefit plans and
other clients. Prior to joining Wells Fargo Bank in 1988, she held a number of
senior investment positions for the Valley Bank & Trust Company of Utah
including Vice-President and Manager of the Investment Department and Chairman
of the Trust Investment Committee. She holds a B.S. degree from the University
of Utah and was past president of the Utah Bond Club. Ms. Thomas is a chartered
financial analyst.
Mr. Paul Single assumed responsibility for the day-to-day management of the
Fund's portfolio on May 1, 1995. Mr. Single has managed taxable bond portfolios
for over a decade, and has specific expertise in mortgage-backed securities.
Prior to joining Wells Fargo Bank, in early 1988, he was a senior portfolio
manager for Benham Capital Management Group. Mr. Single received his B.S. from
Springfield College.
Morrison & Foerster LLP, counsel to the Company and special counsel to Wells
Fargo Bank has advised the Company and Wells Fargo Bank that Wells Fargo Bank
and its affiliates may perform the services contemplated by the Advisory
Contracts and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
PROSPECTUS 12
<PAGE>
Investing in the Fund
OPENING AN ACCOUNT
You can buy Fund shares in one of the several ways described below. You must
complete and sign an Account Application to open an account. Additional
documentation may be required from corporations, associations and certain
fiduciaries. Do not mail cash. If you have any questions or need extra forms,
please call 1-800- 222-8222.
After an application has been processed and an account has been established,
subsequent purchases of different Fund of the Company under the same umbrella
account do not require the completion of additional applications. A separate
application must be processed for each different umbrella account number (even
if the registration is the same). Call the number on your confirmation
statement to obtain information about what is required to change registration.
To invest in the Fund through tax-deferred retirement plans through which the
Fund is available, please contact a shareholder servicing agent or a selling
agent to receive information and the required separate application. See "Tax-
Deferred Retirement Plans" below.
The Company or Stephens may make the Prospectus available in an electronic
format. Upon receipt of a request from you or your representative, the Company
or Stephens will transmit or cause to be transmitted promptly, without charge,
a paper copy of the electronic Prospectus.
SHARE VALUE
The value of a share of each class of the Fund is its "net asset value" or
NAV. Wells Fargo Bank calculates the NAV of the Fund on each day the Fund are
open as of the close of regular trading on the New York Stock Exchange ("NYSE")
(referred to hereinafter as "the close of the NYSE"), which is currently 1:00
p.m. (Pacific time). The Fund is open for business each day the NYSE is open
for trading (a "Business Day"). The NAV per share for each class of shares is
computed by dividing the value of the Fund's assets allocable to a particular
class, less the liabilities charged to that class by the total number of the
outstanding shares of that class. All expenses are accrued daily and taken into
account for the purpose of computing the NAV, which is expected to fluctuate
daily. Shares may be purchased on any day the Fund is open for business.
Except for debt obligations with remaining maturities of 60 days or less,
which are valued at amortized cost, the other assets of the Fund are valued at
current market
13 PROSPECTUS
<PAGE>
prices, or if such prices are not readily available, at fair value as
determined in good faith by the Company's Board of Directors. Prices used for
such valuations may be provided by independent pricing services.
HOW TO BUY SHARES
Fund shares are offered continuously at the applicable offering price (the NAV
plus any applicable sales charge) next determined after a purchase order is
received in the form specified for the purchase method being used, as described
in the following sections. Payment for shares purchased through a selling agent
is not due from the selling agent until the settlement date, normally three
Business Days after the order is placed. The selling agent is responsible for
promptly forwarding payment to the Fund for share purchases. Payment must
accompany orders placed directly through the transfer agent.
Payments for shares of each class of the Fund are invested in full and
fractional shares at the applicable offering price. If shares are purchased by
a check that does not clear, the Company reserves the right to cancel the
purchase and hold the investor responsible for any losses or fees incurred. In
addition, the Company may hold payment on any redemption until reasonably
satisfied that your investments made by check have been collected (which may
take up to 10 days).
The minimum initial investment is generally $1,000. The minimum investment
amounts, however are $100 through the AutoSaver Plan (described below) and $250
for any tax-deferred retirement account for which Wells Fargo Bank serves as
trustee or custodian under a prototype trust approved by the Internal Revenue
Service ("IRS") (a "Plan Account"). Generally, all subsequent investments must
be made in amounts of $100 or more. Where Fund shares are acquired in exchange
for shares of another fund in the Stagecoach Family of Funds, the minimum
initial investment amount applicable to the shares being exchanged generally
carries over. If the value of your investment in shares of the fund from which
you are exchanging has been reduced below the minimum initial investment amount
by changes in market conditions or sales charges (and not by redemptions), you
may carry over the lesser amount into one of the funds. Plan Accounts that
invest in the Fund through Wells Fargo ExpressInvest TM (available to certain
Wells Fargo tax-deferred retirement plans) are not subject to the minimum
initial or subsequent investment amount requirements. In addition, the minimum
initial or subsequent purchase amount requirements may be waived or lowered for
investments effected on a group basis by certain entities and their employees,
such as pursuant to a payroll deduction or other accumulation plan. If you have
questions regarding purchases of shares or ExpressInvest, please call 1-800-
222-8222 or contact a shareholder servicing agent or selling agent. For
additional information on tax-deferred accounts, please refer to "Investing in
the Fund -- Tax-Deferred Retirement Plans" or contact a shareholder servicing
agent or selling agent.
PROSPECTUS 14
<PAGE>
CONTINGENT-DEFERRED SALES CHARGE -- CLASS C SHARES
Class C shares may be subject to a contingent-deferred sales charge ("CDSC").
A CDSC is an amount you pay if you redeem your shares within a specific period.
The CDSC will be equal to a percentage of the lesser of the NAV of such shares
at the time of purchase or the NAV of such shares at redemption.
Class C shares redeemed within one year of receipt of a purchase order for
such shares will be subject to a contingent-deferred sales charge equal to
1.00% of an amount equal to the lesser of the NAV of your Class C shares at the
time of purchase or the NAV of your Class C shares at redemption.
Contingent-deferred sales charges are not imposed on amounts representing
increases in NAV above the NAV at the time of purchase and are not assessed on
Class C shares purchased through reinvestment of dividends or capital gain
distributions.
The amount of any contingent-deferred sales charge, if any, paid upon
redemption of Class C shares is determined in a manner designed to result in
the lowest sales charge rate being assessed. When a redemption request is made,
Class C shares acquired pursuant to the reinvestment of dividends and capital-
gain distributions are considered to be redeemed first. After this, such shares
are considered redeemed on a first-in, first-out basis so that Class C shares,
as applicable, held for a longer period of time are considered redeemed prior
to more recently acquired Class C shares. For a discussion of the interaction
between the optional Exchange Privilege and contingent-deferred sales charges
see "Additional Shareholder Services -- Exchange Privilege."
Contingent-deferred sales charges are waived on redemptions of Class C shares
(i) following the death or disability (as defined in the Internal Revenue Code
of 1986, as amended (the "Code")) of a shareholder, (ii) to the extent that the
redemption represents a scheduled distribution from an IRA or other retirement
plan to a shareholder who has reached age 59 1/2, (iii) effected pursuant to
the Company's right to liquidate a shareholder's account if the aggregate NAV
of the shareholder's account is less than the minimum account size, or (iv) in
connection with the combination of the Company with any other registered
investment company by a merger, acquisition of assets, or any other
transaction.
In deciding whether to purchase Class C shares, you should compare the fees
assessed on Class A shares (including front-end sales charges) against those
assessed on Class B and Class C shares (including potential contingent-deferred
sales charges and higher Rule 12b-1 fees than Class A shares) in light of the
amount to be invested and the anticipated time that the shares will be owned.
If your purchase amount would qualify you for a reduced sales charge on Class A
shares, you should consider carefully whether you would pay lower fees
ultimately on Class A, Class B or Class C shares. Call 1-800-222-8222 to obtain
a prospectus describing the Fund's other classes of shares.
15 PROSPECTUS
<PAGE>
You may buy shares on any Business Day by any of the methods described below.
The Company reserves the right to reject any purchase order or suspend sales at
any time. Payment for orders that are not received is returned after prompt
inquiry. The issuance of shares is recorded on the Company's books, and share
certificates are not issued.
INITIAL PURCHASE BY WIRE
1.Complete an Account Application.
2. Instruct the wiring bank to transmit the specified amount in federal funds
($1,000 or more) to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000587
Attention: Stagecoach Funds (Name of Fund) (designate Class C)
Account Name(s): Name(s) in which to be registered
Account Number: (if investing into an existing account)
3. A completed Account Application should be mailed, or sent by telefacsimile
with the original subsequently mailed, to the following address immediately
after funds are wired and must be received and accepted by the transfer
agent before an account can be opened:
Wells Fargo Bank, N.A.
Stagecoach Shareholder Services
P.O. Box 7066
San Francisco, California 94120-7066
Telefacsimile: 1-415-546-0280
4. Share purchases for Class C shares are effected at the NAV next determined
after the Account Application is received and accepted.
INITIAL PURCHASES BY MAIL
1.Complete an Account Application. Indicate the services to be used.
2. Mail the Account Application and a check for $1,000 or more payable to
"Stagecoach Funds (Name of Fund) (designate Class C)" to the address set
forth in "Initial Purchases by Wire."
3. Share purchases are effected at the NAV next determined after the Account
Application is received and accepted.
PROSPECTUS
16
<PAGE>
AUTOSAVER PLAN PURCHASES
The Company's AutoSaver Plan provides you with a convenient way to establish
and automatically add to your Fund account on a monthly basis. To participate
in the AutoSaver Plan, you must specify an amount ($100 or more) to be
withdrawn automatically by the transfer agent on a monthly basis from an
account with a bank that is designated in your Account Application and is
approved by the transfer agent ("Approved Bank Account"). You may open an
Approved Bank Account with Wells Fargo Bank. The transfer agent withdraws and
uses this amount to purchase specified shares of the designated Fund and class
on your behalf each month on or about the day that you have selected, or, if
you have not selected a day, on or about the 20th day of each month. If you
hold shares through a brokerage account, the AutoSaver Plan will comply with
the terms of your brokerage agreement. The transfer agent requires a minimum of
ten (10) Business Days to implement your AutoSaver Plan purchases or to process
your request to change the day on which the AutoSaver purchase is processed.
There are no separate fees charged to you by the Company for participating in
the AutoSaver Plan.
You may change your investment amount, the date on which your AutoSaver
purchase is effected, suspend purchases or terminate your election at any time
by notifying the transfer agent at least five (5) Business Days prior to any
scheduled transaction.
TAX-DEFERRED RETIREMENT PLANS
You may be entitled to invest in the Fund through a Plan Account or other tax-
deferred retirement plan. Contact a shareholder servicing agent or a selling
agent (such as Wells Fargo Bank) for materials describing Plan Accounts
available through it, and the benefits, provisions, and fees of such Plan
Accounts. The minimum initial investment amount for Fund shares acquired
through a Plan Account is $250 (the minimum initial investment amount is not
applicable if you participate in ExpressInvest through a Plan Account).
Application materials for opening a tax-deferred retirement plan can be
obtained from a shareholder servicing agent or a selling agent. Return your
completed tax-deferred retirement plan application to your shareholder
servicing agent or a selling agent for approval and processing. If your tax-
deferred retirement plan application is incomplete or improperly filled out,
there may be a delay before the Fund account is opened. You should ask your
shareholder servicing agent or selling agent about the investment options
available to your tax-deferred retirement plan, since some of the Fund in the
Stagecoach Family of Funds may be unavailable or inappropriate as options.
Moreover, certain features described herein, such as the AutoSaver Plan and the
Systematic Withdrawal Plan, may not be available to individuals or entities who
invest through a tax-deferred retirement plan.
17 PROSPECTUS
<PAGE>
ADDITIONAL PURCHASES
You may make additional purchases of $100 or more by instructing the Fund's
transfer agent to debit your Approved Bank Account, by wire by instructing the
wiring bank to transmit the specified amount as directed above for initial
purchases, or by mail with a check payable to "Stagecoach Funds (name of Fund)
(designate Class C)" to the address set forth under "Initial Purchases by
Wire." Write your Fund account number on the check and include the detachable
stub from your Account Statement or a letter providing your Fund account
number.
PURCHASES THROUGH SELLING AGENTS
You may place a purchase order for Fund shares through a broker/dealer or
financial institution that has entered into a selling agreement with Stephens,
as the Fund Distributor ("Selling Agent"). If your order is placed by the close
of the NYSE, the purchase order is executed on the same day if the order is
received by the transfer agent before the close of business. If your purchase
order is received by a Selling Agent after the close of the NYSE or by the
transfer agent after the close of business, then your purchase order is
executed on the next Business Day after the day your order is placed. The
Selling Agent is responsible for the prompt transmission of your purchase order
to the Company. Because payment for Fund shares is not due until settlement
date, the Selling Agent might benefit from the temporary use of your payment. A
financial institution that acts as a Selling Agent, shareholder servicing agent
or in certain other capacities may be required to register as a dealer pursuant
to applicable state securities laws, which may differ from federal law and any
interpretations expressed herein.
PURCHASES THROUGH SHAREHOLDER SERVICING AGENTS
Purchase orders for Fund shares may be transmitted to the transfer agent
through any entity that has entered into a shareholder servicing agreement with
the Company ("Shareholder Servicing Agent"), such as Wells Fargo Bank. See
"Management, Distribution and Servicing Fees -- Shareholder Servicing Agent." A
Shareholder Servicing Agent may transmit your purchase order to the transfer
agent, including a purchase order for which payment is to be transferred from
your Approved Bank Account or wired from a financial institution. If your order
is transmitted by a Shareholder Servicing Agent on your behalf to the transfer
agent before the close of the NYSE, the purchase order is executed on the same
day. If your Shareholder Servicing Agent transmits your purchase order to the
transfer agent after the close of the NYSE, then your order is executed on the
next Business Day after the day your order is received. The Shareholder
Servicing Agent is responsible for the prompt transmission of your purchase
order to the transfer agent.
PROSPECTUS 18
<PAGE>
STATEMENTS AND REPORTS
The Company, or a Shareholder Servicing Agent on its behalf, will typically
send you a confirmation or statement of your account after every transaction
that affects your share balance or your Fund account registration. Every
January, you will be provided a statement with tax information for the previous
year to assist you in tax return preparation. At least twice a year, you will
receive financial statements.
Dividend and Capital Gain
Distributions
Dividends of the Fund are declared daily payable to shareholders of record as
of the close of regular trading of the NYSE (currently, 1:00 p.m., Pacific
time). Dividends declared in a month generally are distributed on the last
Business Day of each month. You begin earning dividends on the Business Day
after the date your purchase order is effective and continue to earn dividends
through the day you redeem your shares. The Fund intends to distribute any
capital gains at least annually.
Dividend and capital-gain distributions have the effect of reducing the NAV
per share by the amount distributed. Although distributions paid to you on
newly issued shares shortly after your purchase would represent, in substance,
a return of your capital, the distributions would ordinarily be taxable to you.
All expenses that are attributable to a particular class also may affect the
relative dividend and/or capital gains distributions of such class.
If you redeem shares before the dividend payment date, any dividends credited
to you are distributed on the following dividend payment date unless you have
redeemed all shares in your account, in which case you will receive your
accrued dividends together with your redemption proceeds.
Dividends 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.
How To Redeem Shares
You may redeem Fund shares on any Business Day. Your shares are redeemed at
the NAV per share next calculated after the Company has received your
redemption request in proper form. The Company ordinarily remits redemption
proceeds, net of any contingent-deferred sales charge (the "net redemption
proceeds"), within seven days
19 PROSPECTUS
<PAGE>
after your redemption order is received in proper form, unless the SEC permits
a longer period under extraordinary circumstances. Such extraordinary
circumstances could include a period during which an emergency exists as a
result of which (a) disposal by the Fund of securities owned by it is not
reasonably practicable or (b) it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or a period during which the
SEC by order permits deferral of redemptions for the protection of the security
holders of the Fund. In addition, the Fund may hold payment on your redemptions
until reasonably satisfied that your investments made by check have been
collected (which can take up to 10 days from the purchase date). To ensure
acceptance of your redemption request, please follow the procedures described
below. In addition, the Company reserves the right to impose charges for wiring
redemption proceeds.
All redemptions of shares generally are made in cash, except that the
commitment to redeem shares in cash extends only to redemption requests made by
a Fund shareholder during any 90-day period of up to the lesser of $250,000 or
1% of the net asset value of the Fund at the beginning of such period. This
commitment is irrevocable without the prior approval of the SEC and is the
Fundamental policy of the Fund that may not be changed without shareholder
approval. In the case of redemption requests by shareholders in excess of such
amounts, the Board of Directors reserves the right to have the Fund make
payment, in whole or in part, in securities or other assets, in case of an
emergency or any time a cash distribution would impair the liquidity of the
Fund to the detriment of the existing shareholders. In this event, the
securities would be valued in the same manner as the securities of the Fund are
valued. If the recipient were to sell such securities, he or she would incur
brokerage costs in converting such securities to cash.
Due to the high cost of maintaining Fund accounts with small balances, the
Company reserves the right to close your account and send you the proceeds if
the balance falls below the applicable minimum balance because of a redemption
(including a redemption of shares of the Fund after you have made only the
applicable minimum initial investment). However, you will be given 30 days'
notice to make an additional investment to increase your account balance to the
required minimum balance. Plan Accounts are not subject to minimum Fund account
balance requirements. For a discussion of applicable minimum balance
requirements, see "Investing in the Fund --How To Buy Shares."
REDEMPTIONS BY TELEPHONE
Telephone redemption or exchange privileges are made available to you
automatically upon opening an account, unless you specifically decline the
privileges. Telephone redemption privileges authorize the transfer agent to act
on telephone instructions from any person representing himself or herself to be
the investor and reasonably believed by the transfer agent to be genuine. The
Company requires the
PROSPECTUS 20
<PAGE>
transfer agent to employ reasonable procedures, such as requiring a form of
personal identification, to confirm that instructions are genuine and, if it
does not follow such procedures, the Company and the transfer agent may be
liable for any losses due to unauthorized or fraudulent instructions. Neither
the Company nor the transfer agent will be liable for following telephone
instructions reasonably believed to be genuine.
REDEMPTIONS BY MAIL
1. Write a letter of instruction. Indicate the class and the dollar amount or
number of Fund shares you want to redeem. Refer to your Fund account number
and give your taxpayer identification number ("TIN"), which is generally
your social security or employer identification number.
2. Sign the letter in exactly the same way the account is registered. If there
is more than one owner of the shares, all must sign.
3. Signature guarantees are not required for redemption requests unless
redemption proceeds of $5,000 or more are to be paid to someone other than
you at your address of record or to your Approved Bank Account, or other
unusual circumstances exist that cause the transfer agent to determine that
a signature guarantee is necessary or prudent to protect against
unauthorized redemption requests. If required, a signature must be
guaranteed by an "eligible guarantor institution", which includes a
commercial bank that is an FDIC member, a trust company, a member firm of a
domestic stock exchange, a savings association, or a credit union that is
authorized by its charter to provide a signature guarantee. Signature
guarantees by notaries public are not acceptable. Further documentation may
be requested from corporations, administrators, executors, personal
representatives, trustees or custodians.
4. Mail your letter to the transfer agent at the mailing address set forth
under "Investing in the Fund -- Initial Purchases by Wire."
Unless other instructions are given in proper form, a check for your net
redemption proceeds is sent to your address of record.
EXPEDITED REDEMPTIONS BY MAIL OR TELEPHONE
You may request an expedited redemption of Fund shares by letter, in which
case your receipt of redemption proceeds, but not the Fund's receipt of your
redemption request, would be expedited. In addition, you also may request an
expedited redemption of Fund shares by telephone on any Business Day, in which
case both your receipt of redemption proceeds and the Fund's receipt of your
redemption request would be expedited. You may request expedited redemption by
telephone only if the total value of the shares redeemed is $100 or more.
21 PROSPECTUS
<PAGE>
You may request expedited redemption by telephone by calling the transfer
agent at the telephone number listed on your transaction confirmation or by
calling 1-800-222-8222.
You may request expedited redemption by mail by mailing your expedited
redemption request to the transfer agent at the mailing address set forth under
"Investing in the Fund -- Initial Purchases by Wire."
Upon request, net redemption proceeds of your expedited redemptions of $5,000
or more are wired or credited to your Approved Bank Account or wired to the
Selling Agent designated in your Account Application. The Company reserves the
right to impose a charge for wiring redemption proceeds. When proceeds of your
expedited redemption are to be paid to someone else, to an address other than
that of record, or to an Approved Bank Account or Selling Agent that you have
not predesignated in your Account Application, your expedited redemption
request must be made by letter and the signature(s) on the letter may be
required to be guaranteed, regardless of the amount of the redemption.
If your expedited redemption request is received by the transfer agent by the
close of the NYSE on a Business Day, your redemption proceeds are transmitted
to your designated Approved Bank Account or Selling Agent on the next Business
Day (assuming your investment check has cleared as described above), absent
extraordinary circumstances. Extraordinary circumstances could include those
described above as potentially delaying redemptions and also could include
situations involving an unusually heavy volume of wire transfer orders on a
national or regional basis or communication or transmittal delays that could
cause a brief delay in the wiring or crediting of funds. A check for net
redemption proceeds of less than $5,000 is mailed to your address of record or,
at your election, credited to your Approved Bank Account.
During periods of drastic economic or market activity or changes, you may
experience problems implementing an expedited redemption by telephone. In the
event you are unable to reach the transfer agent by telephone, you should
consider using overnight mail to implement an expedited redemption. The Company
reserves the right to modify or terminate the expedited telephone redemption
privilege at any time.
SYSTEMATIC WITHDRAWAL PLAN
The Company's Systematic Withdrawal Plan provides you with a convenient way to
have Fund shares redeemed from your account and the net redemption proceeds
distributed to you on a monthly basis. You may participate in the Systematic
Withdrawal Plan only if you have the Fund account valued at $10,000 or more as
of the date of your election to participate, your dividends and capital gain
distributions are being reinvested automatically and you are not participating
in the AutoSaver Plan at any time
PROSPECTUS 22
<PAGE>
while participating in the Systematic Withdrawal Plan. You specify an amount
($100 or more) to be distributed by check to your address of record or
deposited in your designated Approved Bank Account. The transfer agent redeems
sufficient shares and mails or deposits your net redemption proceeds as
instructed on or about the fifth Business Day prior to the end of each month.
There are no separate fees charged to you by the Company for participating in
the Systematic Withdrawal Plan.
It may take up to ten (10) days after receipt of your request to establish
your participation in the Systematic Withdrawal Plan. You may change your
withdrawal amount, suspend withdrawals or terminate your election at any time
by notifying the transfer agent at least five (5) Business Days prior to any
scheduled transaction. Your participation in the Systematic Withdrawal Plan is
terminated automatically if your Fund account is closed or, in some cases, if
your Approved Bank Account is closed.
REDEMPTIONS THROUGH SELLING AGENTS
If your redemption order is received by a Selling Agent before the close of
the NYSE and received by the transfer agent before the close of business on the
same day, the order is executed at the NAV determined as of the close of the
NYSE on that day. If your redemption order is received by a Selling Agent after
the close of the NYSE, or is not received by the transfer agent prior to the
close of business, your order is executed at the NAV determined as of the close
of the NYSE on the next Business Day. The Selling Agent is responsible for the
prompt transmission of your redemption order to the Company.
Unless you have made other arrangements with the Selling Agent and the
transfer agent has been informed of such arrangements, net redemption proceeds
of a redemption order made by you through a Selling Agent are credited to your
Approved Bank Account. If no such account is designated, a check for the net
redemption proceeds is mailed to your address of record or, if such address is
no longer valid, the net redemption proceeds are credited to your account with
the Selling Agent. You may request a check from the Selling Agent or may elect
to retain the net redemption proceeds in such account. The Selling Agent may
charge you a service fee. In addition, it may benefit from the use of your
redemption proceeds until the check it issues to you has cleared or until such
proceeds have been disbursed or reinvested on your behalf.
REDEMPTIONS THROUGH SHAREHOLDER SERVICING AGENTS
You may request a redemption of Fund shares through your Shareholder Servicing
Agent. Any redemption request made by telephone through your Shareholder
Servicing Agent must redeem shares with a total value equal to $100 or more. If
your redemption order is transmitted by the Shareholder Servicing Agent on your
behalf to the transfer agent before the close of the NYSE, the redemption order
is executed at the NAV determined as of the close of the NYSE on that day. If
your Shareholder Servicing Agent
23 PROSPECTUS
<PAGE>
transmits your redemption order to the transfer agent after the close of the
NYSE, then your order is executed on the next Business Day after the date your
order is received. The Shareholder Servicing Agent is responsible for the
prompt transmission of your redemption order to the Company.
Unless you have made other arrangements with your Shareholder Servicing Agent,
and the transfer agent has been informed of such arrangements, net redemption
proceeds of a redemption order made by you through your Shareholder Servicing
Agent are credited to your Approved Bank Account. If no such account is
designated, a check for the net redemption proceeds is mailed to your address
of record or, if such address is no longer valid, the net redemption proceeds
is credited to your account with your Shareholder Servicing Agent or to another
account designated in your agreement with your Shareholder Servicing Agent. The
Shareholder Servicing Agent may charge you a service fee. In addition, it may
benefit from the use of your redemption proceeds until any check it issues for
you has cleared or until such proceeds have been disbursed or reinvested on
your behalf.
Additional Shareholder Services
The Company offers you a number of optional services. As noted above, you can
take advantage of the AutoSaver Plan, Tax-Deferred Retirement Plans, the
Systematic Withdrawal Plan, and Expedited Redemptions by Letter and Telephone.
In addition, you have several distribution payment options and an exchange
privilege, which are described below. If you have questions about the
distribution options available to you, please call 1-800-222-8222.
DIVIDEND AND DISTRIBUTION OPTIONS
When you fill out your Account Application, you can choose from the following
distribution options listed below.
A. The Automatic Reinvestment Option provides for the reinvestment of your
dividend and capital gain distributions in additional shares of the same class
of the Fund that paid such distributions. Distributions declared in a month
generally are reinvested in additional shares at NAV on the last Business Day
of such month. You are assigned this option automatically if you make no choice
on your Account Application.
B. The Fund Purchase Option lets you use your dividend and/or capital gain
distributions from the Fund to purchase, at NAV, shares of another fund in the
Stagecoach Family of Funds with which you have an established account that has
met the applicable minimum initial investment requirement. Distributions paid
on Class C shares may be invested in Class C shares of another fund, in Retail
shares of a fund
PROSPECTUS 24
<PAGE>
offered by another investment company in the Stagecoach Family of Funds, in
Class A shares of the Government Money Market Mutual, Money Market Mutual,
National Tax-Free Money Market Mutual, Prime Money Market Mutual or Treasury
Money Market Mutual Funds or in shares of the California Tax-Free Money Market
Mutual Fund (collectively, the "Money Market Mutual Funds"). Distributions paid
on Class C shares may not be invested in shares of a non-money market fund with
a single class of shares.
C. The Automatic Clearing House Option permits you to have dividend and
capital gain distributions deposited in your Approved Bank Account. In the
event your Approved Bank Account is closed, and such distribution is returned
to the Fund's dividend disbursing agent, the distribution is reinvested in your
Fund account at the NAV next determined after the distribution has been
returned. In addition, your Automatic Clearing House Option is then converted
to the Automatic Reinvestment Option.
D. The Check Payment Option lets you receive a check for all dividend and/or
capital gain distributions, which generally is mailed either to your designated
address or your Approved Bank Account shortly following declaration. If the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, those checks are reinvested in your Fund account at
the NAV next determined after the earlier of the date the checks have been
returned to the Fund's dividend disbursing agent or the date six months after
the payment of such distribution. In addition, your Check Payment Option is
then converted to the Automatic Reinvestment Option.
The Company forwards moneys to the dividend disbursing agent so that it may
issue you distribution checks under the Check Payment Option. The dividend
disbursing agent may benefit from the temporary use of such moneys until these
checks clear. The Company takes reasonable efforts to locate investors whose
checks are returned or uncashed after six months.
EXCHANGE PRIVILEGE
The exchange privilege is a convenient way to buy shares in another fund of
the Stagecoach Family of Funds to respond to changes in your investment needs.
You can exchange between the various funds as follows:
<TABLE>
<CAPTION>
EXCHANGES BETWEEN YES NO
----------------- --- ---
<S> <C> <C>
Class C shares and Class C shares................................. X
Class C shares and a Money Market Mutual Fund..................... X
Class C shares and Class A shares of a non-Money Market Mutual
Fund............................................................. X
Class C shares and Class B shares................................. X
</TABLE>
25 PROSPECTUS
<PAGE>
Important factors that you should consider:
. You will need to read the prospectus of the fund into which you want to
exchange.
. Every exchange is a redemption of shares of one fund and a purchase of
shares of another fund. The redemption may produce a gain or loss for
federal income tax purposes.
. You must exchange the minimum initial purchase amount of the fund you are
redeeming, unless your balance has fallen below that amount due to market
conditions or you have already met the minimum initial purchase amount of
the fund you are purchasing.
. You will not pay a contingent deferred sales charge on any exchange from
Class C shares into other Class C shares or a Money Market Mutual Fund.
The new shares will continue to age while they are in the new fund and
will be charged the contingent deferred sales charge applicable to the
original shares upon redemption.
. If you exchange Class C shares for shares of a Money Market Mutual Fund,
you may not re-exchange shares of the Money Market Mutual Fund for shares
other than Class C shares.
. The Company may limit the number of times shares may be exchanged or may
reject any telephone exchange order. Subject to limited exceptions, the
Company will notify you 60 days before discontinuing or modifying the
exchange privilege.
You may exchange shares by writing the Transfer Agent or, if you have
telephone privileges, you may call the Transfer Agent. Exchanges are subject to
the procedures and conditions applicable to purchasing and redeeming shares.
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 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 strategy and performance. For its services as investment adviser to
the Fund, Wells Fargo Bank is entitled to a monthly investment advisory fee at
an annual rate equal to 0.50% of the first $250 million of the Fund's average
daily net assets, 0.40% of the next $250
PROSPECTUS 26
<PAGE>
million, and 0.30% in excess of $500 million. 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.
Advisory Fees Paid
For the nine-month period ended September 30, 1996, the Fund paid advisory
fees to Wells Fargo bank at the annual rate of 0.50% of its average daily net
assets. For the year ended December 31, 1995, the Fund paid advisory fees to
Wells Fargo Bank at the annual rate of 0.50% of its average daily net assets.
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, 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 Fund has entered into shareholder servicing agreements with Wells Fargo
Bank and other entities on behalf of each class. Under such agreements,
Shareholder Servicing Agents (including Wells Fargo Bank) agree, as agents for
their customers, to provide administrative services with respect to Fund
shares, which include aggregating and transmitting shareholder orders for
purchases, exchanges and redemptions; maintaining shareholder accounts and
records, aggregating and placing purchase, exchange and redemption
transactions, and providing such other related services as the Company or a
shareholder may reasonably request. For these services, a Shareholder Servicing
Agent is entitled to receive a fee at an annual rate of up to 0.25% of the
average daily net assets attributable to each Class of shares of the Fund,
owned during the period by investors with whom the Shareholder Servicing Agent
maintains a servicing relationship. In no event will the fees paid exceed the
maximum amount payable to the Shareholder Servicing Agent under applicable
laws, regulations or rules, including the Conduct Rules of the NASD ("NASD
Rules").
Shareholder Servicing Agents also may impose certain conditions on their
customers, subject to the terms of this Prospectus, in addition to or different
from those imposed by the Company, such as requiring a higher minimum initial
investment or payment of a separate fee for additional services. Each
Shareholder Servicing Agent is required to agree to disclose any fees it may
directly charge its customers who are shareholders of a Fund and to notify them
in writing at least 30 days before it imposes any transaction fees.
27 PROSPECTUS
<PAGE>
ADMINISTRATOR AND CO-ADMINISTRATOR
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank as administrator and Stephens as co-administrator provide the Fund
with administrative services, including general supervision of the Fund's
operation, coordination of 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 Directors and officers who are affiliated with
Stephens. For these administrative services, Wells Fargo Bank and Stephens are
entitled to receive monthly fees at the annual rates 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 administrative duties to sub-
administrators.
Stephens previously provided substantially the same services as sole
administrator to the Fund. For the nine-month period ended September 30, 1996,
the Fund paid administrative fees to Stephens at the annual rate of 0.03% of
the Fund s average daily net assets.
SPONSOR AND DISTRIBUTOR
Stephens is the Fund's sponsor and co-administrator and distributes the Fund's
shares. Stephens is a full service broker/dealer and investment advisory firm
located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its
predecessor have been providing securities and investment services for more
than 60 years. Additionally, they have been providing discretionary portfolio
management services since 1983. Stephens currently manages investment
portfolios for pension and profit sharing plans, individual investors,
foundations, insurance companies and university endowments.
Stephens, as the Fund's principal underwriter within the meaning of the 1940
Act, has entered into a Distribution Agreement with the Company pursuant to
which Stephens is responsible for distributing the shares of the Fund. The
Company also has adopted a Distribution Plan on behalf of each Class of the
Fund under the SEC's Rule 12b-1 ("Plans"). Under the Class C Plan for the Fund,
the Company may pay to Stephens, as compensation for distribution-related
services provided, or reimbursement for distribution-related expenses incurred,
a monthly fee at an annual rate of up to 0.50% of the average daily net assets
attributable to Class C shares. On July 23, 1997, the Company's Board of
Directors approved an increase to the fee payable pursuant to the Plans. The
new fee, if approved by shareholders at a shareholder meeting scheduled for
December 1997, will be 0.75%.
Distribution-related expenses include the cost of preparing and printing
prospectuses and other promotional materials and of delivering prospectuses and
those materials to prospective Class C shareholders. Distribution-related
services may include, among other services, costs and expenses for
advertisements, sales literature, direct
PROSPECTUS 28
<PAGE>
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 the Fund's shares.
Under the Distribution Agreement, Stephens may enter into selling agreements
with Selling Agents that wish to make available Fund shares to their respective
customers. On behalf of the shares of the Fund, the Fund may participate in
joint distribution activities with any of the other funds of the Company, in
which event, expenses reimbursed out of the assets of the Fund may be
attributable, in part, to the distribution-related activities of another fund
of the Company. Generally, the expenses attributable to joint distribution
activities are allocated to the Fund and the other funds of the Company in
proportion to their relative net asset sizes, although the Company's Board of
Directors may allocate such expenses in any other manner that it deems fair and
equitable.
In addition, the Plans contemplate that, to the extent any fees payable
pursuant to a shareholder servicing agreement (discussed above) are deemed to
be for distribution-related services, such payments are approved and payable
pursuant to the Plans, subject to any limits under applicable law, regulations
or rules, including the NASD Rules. Financial institutions acting as Selling
Agents, Shareholder Servicing Agents, or in certain other capacities may be
required to register as dealers pursuant to applicable state securities laws
that may differ from federal law and any interpretations expressed herein.
Stephens has established a cash and non-cash compensation program, pursuant to
which broker/dealers or financial institutions that sell shares of the
Company's funds may earn additional compensation in the form of trips to sales
seminars or vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise or the cash value of a non-cash
compensation item.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective
fees in whole or in part and reimburse expenses payable to others. Any such
waivers or reimbursements will reduce the Fund's expenses and, accordingly,
have a favorable impact on the Fund's performance. Except for the expenses
borne by Wells Fargo Bank and Stephens, the Fund bears all costs of its
operations, including its pro rata portion of Company expenses such as fees and
expenses of its independent auditors and legal counsel, and compensation of the
Company's directors who are not affiliated with the
29 PROSPECTUS
<PAGE>
adviser, administrator or any of their affiliates; advisory, transfer agency,
custody and administration fees; and any extraordinary expenses. Expenses
attributable to the Fund or a class are charged against the assets of the Fund
or class. General expenses of the Company are allocated among all of the
Company's funds in a manner proportionate to the net assets of each fund, on a
transactional basis, or on such other basis as the Company's Board of Directors
deems equitable.
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. A portion of dividend distributions to
corporate shareholders may be excludable pursuant to the "dividends-received
deduction" allowable to corporate shareholders. Distributions from the Fund's
net long-term capital gains are designated as capital gain distributions and
taxable to the Fund's shareholders as long-term capital gains. In general, your
distributions will be taxable when paid, whether you take such distributions in
cash or have them automatically reinvested in additional Fund shares. However,
distributions declared in October, November, and December and distributed by
the following January will be taxable as if they were paid by December 31.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares
will ordinarily result in a taxable capital gain or loss, depending on the
amount you receive for your shares (or are deemed to receive in the case of
exchanges) and the cost of your shares. See "Federal Income Taxes --
Disposition of Fund Shares" in the SAIs.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Federal Income Taxes -- Foreign Shareholders" in the
SAIs. In certain circumstances, U.S. residents may also be subject to
withholding taxes. See "Federal Income Taxes -- Backup Withholding" in the
SAIs.
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 for the Fund.
PROSPECTUS 30
<PAGE>
Prospectus Appendix -- Additional Investment Policies
FUND INVESTMENTS
Temporary Investments
The Fund may hold a certain portion of its assets in cash or short-term
investments in order to maintain adequate liquidity for redemption requests or
other cash management needs or for temporary defensive purposes during periods
of unusual market volatility. The short-term investments that the Fund may
purchase include, among other things, U.S. government obligations, shares of
other mutual Fund, repurchase agreements, obligations of domestic banks and
short-term obligations of foreign banks, corporations and other entities. See
"Additional Permitted Investment Activities" in the SAI for additional
Information.
U.S. Government Obligations
The Fund may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Payment of principal and interest on U.S. Government Obligations (i) may be
backed by the full faith and credit of the United States (as with U.S. Treasury
bills and GNMA certificates) or (ii) may be backed solely by the issuing or
guaranteeing agency or instrumentality itself (as with FNMA notes). In the
latter case investors must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government will provide financial support to its agencies or instrumentalities
where it is not obligated to do so. In addition, U.S. Government Obligations
are subject to fluctuations in market value due to fluctuations in market
interest rates. As a general matter, the value of debt instruments, including
U.S. Government Obligations, declines when market interest rates increase and
rises when market interest rates decrease. Certain types of U.S. Government
Obligations are subject to fluctuations in yield or value due to their
structure or contract terms.
Mortgage-Related Securities
The Fund may invest in mortgage-related securities. Mortgage pass-through
securities are securities representing interests in "pools" of mortgages in
which payments of both interest and principal on the securities are made
monthly, in effect "passing through" monthly payments made by the individual
borrowers on the residential mortgage loans which underlie the securities (net
of fees paid to the issuer or guarantor of the securities). Early repayment of
principal on mortgage pass-through securities (arising from prepayments of
principal due to sale of the underlying property, refinancing, or foreclosure,
net of fees and costs which may be incurred) may expose the Fund to a lower
rate of return upon reinvestment of principal. Also, if a security subject to
prepayment has been purchased at a premium, in the event of prepayment the
value of
A-1 PROSPECTUS
<PAGE>
the premium would be lost. Like other fixed-income securities, when interest
rates rise, the value of a mortgage-related security generally will decline;
however, when interest rates decline, the value of mortgage-related securities
with prepayment features may not increase as much as other fixed-income
securities. Payment of principal and interest on some mortgage pass-through
securities (but not the market value of the securities themselves) may be
guaranteed by the full faith and credit of the U.S. Government or its agencies
or instrumentalities. Mortgage pass-through securities created by non-
government issuers (such as commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issuers) may be supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance, and letters of
credit, which may be issued by governmental entities, private insurers or the
mortgage poolers.
The Fund also may invest in investment grade Collateralized Mortgage
Obligations ("CMOs"). CMOs may be collateralized by whole mortgage loans but
are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC or FNMA. CMOs are structured into multiple
classes, with each class bearing a different stated maturity. Payments of
principal, including prepayments, are first returned to investors holding the
shortest maturity class; investors holding the longer maturity classes receive
principal only after the first class has been retired. As new types of
mortgage-related securities are developed and offered to investors, the Adviser
will, consistent with the Fund's investment objective, policies and quality
standards, consider making investments in such new types of mortgage-related
securities.
Mortgage Participation Certificates
FHLMC issues two types of mortgage pass-through securities: mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA certificates in that each PC represents a pro rata
share of all interest and principal payments made and owed on the underlying
pool of mortgages. GMCs also represent a pro rata interest in a pool of
mortgages. These instruments, however, pay interest semiannually and return
principal once a year in guaranteed minimum payments.
These mortgage-backed securities differ from bonds in that principal is paid
back by the borrower over the length of the loan rather than returned in a lump
sum at maturity. They are called "pass-through" securities because both
interest and principal payments, including prepayments, are passed through to
the holder of the security. The GNMA securities in which the Fund will invest
are of the "modified" type, which entitles the holder of such certificates to
receive its share of all interest and principal payments owed on the underlying
pool of mortgage loans, regardless of whether or not the mortgagors actually
make the payments.
PROSPECTUS A-2
<PAGE>
The payment of principal on the underlying mortgages may exceed the minimum
required by the schedule of payments for the mortgages. Such prepayments are
made at the option of the mortgagors for a wide variety of reasons reflecting
their individual circumstances. For example, mortgagors may speed up the rate
at which they prepay their mortgages when interest rates decline sufficiently
to encourage refinancing. The Fund, when such prepayments are passed through to
it, may be able to reinvest them only at a lower rate of interest. As a result,
if the Fund purchases such securities at a premium, a prepayment rate that is
faster than expected will reduce yield to maturity, while a prepayment rate
that is slower than expected will have the opposite effect of increasing yield
to maturity. Conversely, if the Fund purchased such securities at a discount,
faster than expected prepayments will increase, while slower than expected
prepayments will reduce, yield to maturity. Accelerated prepayments on
securities purchased by the Fund at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is repaid in full. In choosing specific issues, Wells Fargo Bank, as
investment adviser, will have made assumptions about the likely speed of
prepayment. Actual experience may vary from this assumption resulting in a
higher or lower investment return than anticipated.
Other Asset-Backed Securities
The Fund may invest in asset-backed securities that are unrelated to mortgage
loans. These asset-backed securities may consist of undivided fractional
interests in pools of consumer loans or receivables held in trust. Examples
include certificates for automobile receivables (CARS) and credit card
receivables (CARDS). Payments of principal and interest on these asset-backed
securities are "passed through" on a monthly or other periodic basis to
certificate holders and are typically supported by some form of credit
enhancement, such as a letter of credit, surety bond, limited guaranty, or
subordination. The extent of credit enhancement varies, but usually amounts to
only a fraction of the asset-backed security's par value until exhausted.
Ultimately, asset-backed securities are dependent upon payment of the consumer
loans or receivables by individuals, and the certificate holder frequently has
no recourse to the entity that originated the loans or receivables. The actual
maturity and realized yield will vary based upon the prepayment experience of
the underlying asset pool and prevailing interest rates at the time of
prepayment. Asset-backed securities are relatively new instruments and may be
subject to greater risk of default during periods of economic downturn than
other instruments. Also, the secondary market for certain asset-backed
securities may not be as liquid as the market for other types of securities,
which could result in the Fund experiencing difficulty in valuing or
liquidating such securities.
Stripped Obligations
The Fund may purchase Treasury receipts and other "stripped" securities that
evidence ownership in either the future interest payments or the future
principal
PROSPECTUS A-3
<PAGE>
payments on U.S. Government and other obligations. These participations, which
may be issued by the U.S. Government (or a U.S. Government agency or
instrumentality) or by private issuers such as banks and other institutions,
are issued at a discount to their "face value," and may include stripped
mortgage-backed securities ("SMBS"). Stripped securities, particularly, SMBS,
may exhibit greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to investors.
Forward Commitments, When-Issued Purchases and Delay-Delivery Transactions
The Fund may purchase or sell securities on a when-issued or delayed-delivery
basis and make contracts to purchase or sell securities for a fixed price at a
future date beyond customary settlement time. Securities purchased or sold on a
when-issued, delayed-delivery or forward commitment basis involve a risk of
loss if the value of the security to be purchased declines, or the value of the
security to be sold increases, before the settlement date. Although the Fund
will generally purchase securities with the intention of acquiring them, the
Fund may dispose of securities purchased on a when-issued, delayed-delivery or
a forward commitment basis before settlement when deemed appropriate by the
adviser. During the period between commitment and settlement, no payment is
made by the Fund and no interest accrues to the Fund. In some instances, the
Fund may sell a security and at the same time make a commitment to purchase the
same security at a future date at a specified price. Conversely, the Fund may
purchase a security and at the same time make a commitment to sell the same
security at a future date at a specified price. These types of transactions are
executed simultaneously in what are known as "roll" transactions. For example,
a securities dealer may seek to purchase a particular security which the Fund
owns. The Fund will sell that security to the dealer and simultaneously enter
into a "firm commitment" agreement to buy back the same security at a future
date, as described above. The net effect of these transactions is to generate
income for the Fund since the dealer is willing to execute these transactions
at prices favorable to the Fund in order to acquire the specific security which
it buys in the initial purchase transaction. Wells Fargo Bank will limit these
transactions to a maximum of 35% of the Fund's total assets. There is a risk
that a party with whom the Fund enters into when-issued or firm commitment
agreements may not perform its obligation to deliver or purchase the
securities, which could result in a gain or loss to the Fund. To minimize the
risk of default, the Fund enters into such transactions only with those major
banks and non-bank U.S. Government securities dealers who are recognized by the
Board of Governors of the Federal Reserve System as primary dealers. As
described further in its SAI, the Fund may purchase certain securities on a
when-issued basis, although it currently does not expect to invest more than 5%
of its assets in such securities.
PROSPECTUS A-4
<PAGE>
Commercial Paper
The Fund may invest in commercial paper (including variable amount master
demand notes) which refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations which permit the investment of fluctuating amounts at varying
market rates of interest pursuant to arrangements between the issuer and a
commercial bank acting as agent for the payee of such notes whereby both
parties have the right to vary the amount of the outstanding indebtedness on
the notes. Commercial paper may include floating- and variable-rate
instruments.
Floating- and Variable-Rate Instruments
The Fund may purchase debt instruments with interest rates that are
periodically adjusted at specified intervals or whenever a benchmark rate or
index changes. These adjustments generally limit the increase or decrease in
the amount of interest received on the debt instruments. The floating- and
variable-rate instruments that the Fund may purchase include certificates of
participation in such instruments. Floating- and variable-rate instruments are
subject to interest-rate risk and credit risk.
Repurchase Agreements
The Fund may enter into repurchase transactions in which the seller of a
security to the Fund agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. The Fund may enter into repurchase agreements only with respect to
securities that could otherwise be purchased by the Fund, and all repurchase
transactions must be collateralized. The Fund may incur a loss on a repurchase
transaction if the seller defaults and the value of the underlying collateral
declines or is otherwise limited or if receipt of the security or collateral is
delayed. The Fund may participate in pooled repurchase agreement transactions
with other funds advised by Wells Fargo Bank. See "Additional Permitted
Investment Activities" in the SAI for additional information.
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. Wells Fargo Bank
will waive its advisory fees for that portion of the Fund's assets so invested,
except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition. The Fund also may purchase shares of exchange-
listed, closed-end funds.
A-5 PROSPECTUS
<PAGE>
Illiquid Securities
The Fund may invest in securities not registered under the 1933 Act 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.
Foreign Obligations
The Fund may invest up to 25% of its assets in high-quality, short-term debt
obligations of foreign branches of U.S. banks or U.S. branches of foreign banks
that are denominated in and pay interest in U.S. dollars. Investments in
foreign obligations involve certain considerations that are not typically
associated with investing in domestic obligations. There may be less publicly
available information about a foreign issuer than about a domestic issuer.
Foreign issuers also are not subject to the same uniform accounting, auditing
and financial reporting standards or governmental supervision as domestic
issuers. In addition, with respect to certain foreign countries, taxes may be
withheld at the source under foreign 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.
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objective, as set forth in "How the Fund Works --
Investment Objectives and Policies," is not fundamental; that is, it may be
changed without approval by the vote of the holders of a majority of the Fund's
outstanding voting securities, as described under "Capital Stock" in the Fund's
SAI. If the Board of Directors determines that the Fund's investment objective
can best be achieved by a substantive change in a nonfundamental investment
policy or strategy, the Company may make such change without shareholder
approval and will disclose any such material changes in the then-current
Prospectus.
Fundamental Investment Policies
If a percentage restriction on the investment or use of assets set forth in
this Prospectus is adhered to at the time a transaction is effected, later
changes in percentages resulting from changing values will not be considered a
violation, however, the Fund will not at any time have more than 10% of its net
assets invested in illiquid securities.
As matters of fundamental policy, the Fund may: (i) not purchase securities of
any issuer (except U.S. Government obligations) if as a result more than 5% of
the value of
PROSPECTUS A-6
<PAGE>
the Fund's total assets would be invested in the securities of such issuer or
the Fund would own more than 10% of the outstanding voting securities of such
issuer; (ii) make loans of portfolio securities in accordance with its
investment policies; and (iii) not invest 25% or more of its assets (i.e.,
concentrate) in any particular industry, except that the Fund may invest 25% or
more of its assets in U.S. Government Obligations. As a matter of fundamental
policy, the Fund may borrow from banks up to 20% of the current value of its
net assets for temporary purposes only in order to meet redemptions, and these
borrowings may be secured by the pledge of up to 20% of the current value of
its net assets. The Fund may not purchase investments while any such
outstanding borrowing exceeds 5% of the Fund's net assets.
With respect to fundamental investment policy (i) above, it may be possible
that the Company would own more than 10% of the outstanding voting securities
of the issuer. With respect to fundamental investment policy concerning bank
borrowing above, the Fund presently does not intend to put at risk more than 5%
of its assets during the coming year. With respect to fundamental investment
policy (ii) above, the Fund does not intend to put at risk more than 5% of its
assets during the coming year.
Nonfundamental Investment Policies
As a matter of nonfundamental 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.
Illiquid securities shall not include securities eligible for resale pursuant
to Rule 144A under the Securities Act of 1933 (the "1933 Act") that have been
determined to be liquid by the adviser, pursuant to guidelines established by
the Company's Board of Directors, and commercial paper that is sold under
Section 4(2) of the 1933 Act that (i) is not traded flat or in default as to
interest or principal and (ii) is rated in one of the two highest categories by
at least two nationally recognized statistical rating organizations and the
adviser, pursuant to guidelines established by the Company's Board of
Directors, has determined the commercial paper to be liquid; or (iii) is rated
in one of the two highest categories by one nationally recognized statistical
rating organization and the adviser, pursuant to guidelines established by the
Company's Board of Directors has determined that the commercial paper is of
equivalent quality and is liquid, if by any reason thereof the value of its
aggregate investment in such classes of securities will exceed 10% of its total
assets.
A-7 PROSPECTUS
<PAGE>
Advised by WELLS FARGO BANK, N.A.
Sponsored/Distributed by
Stephens Inc., Member NYSE/SIPC
NOT FDIC INSURED SCF176 (10/97)
<PAGE>
STAGECOACH FUNDS(R)
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH FUND:
--------------------------------------------------------------------------
. are NOT FDIC insured
. are NOT guaranteed by Wells Fargo Bank
. are NOT deposits or obligations of the Bank
. involve investment risk, including possible loss of principal.
[PRINTED ON RECYCLED PAPER LOGO APPEARS HERE]
Printed on Recycled Paper SCF176 (10/97)
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[LOGO OF STAGECOACH FUNDS APPEARS HERE]
------------------------------------
PROSPECTUS
------------------------------------
PRIME MONEY MARKET MUTUAL FUND
TREASURY MONEY MARKET MUTUAL FUND
ADMINISTRATIVE CLASS
October 6, 1997
<PAGE>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION
DATED AUGUST 5, 1997
STAGECOACH FUNDS (R)
PRIME MONEY MARKET MUTUAL FUND
TREASURY MONEY MARKET MUTUAL FUND
ADMINISTRATIVE CLASS
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about Administrative Class shares
offered by two funds of the Stagecoach Family of Funds -- the PRIME MONEY
MARKET MUTUAL and TREASURY MONEY MARKET MUTUAL FUNDS (each, a "Fund" and
collectively, the "Funds").
The PRIME MONEY MARKET MUTUAL FUND seeks to provide investors with maximized
current income to the extent consistent with preservation of capital and
maintenance of liquidity. The TREASURY MONEY MARKET MUTUAL FUND seeks to
provide investors with current income and stability of principal.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A 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 a Fund's goals match your own. A Statement of Additional
Information ("SAI"), dated October 6, 1997, containing additional information
about the Funds 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 1-800-260-5969.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK, N.A. ("WELLS FARGO BANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN A FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND ADMINISTRATOR AND PROVIDES THE
FUNDS WITH CERTAIN OTHER SERVICES FOR WHICH IT IS COMPENSATED. STEPHENS INC.
("STEPHENS"), WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE FUNDS'
SPONSOR, CO-ADMINISTRATOR AND DISTRIBUTOR.
PROSPECTUS DATED OCTOBER 6, 1997
PROSPECTUS
<PAGE>
Table of Contents
-------
<TABLE>
<S> <C>
Prospectus Summary 1
Summary of Fund Expenses 3
Explanation of Tables 3
How the Funds Work 4
The Funds and Management 10
Investing in the Funds 11
Exchanges 15
Dividend and Capital Gain Distributions 16
Management and Servicing Fees 17
Taxes 19
Prospectus Appendix -- Additional Investment Policies A-1
</TABLE>
PROSPECTUS
<PAGE>
Prospectus Summary
The Funds provide investors with a convenient way to invest in a portfolio of
securities selected and supervised by professional management. The following
provides summary information about the Funds. For more information, please
refer specifically to the identified Prospectus sections and generally to the
Funds' Prospectus and SAI.
Q. WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
A. The PRIME MONEY MARKET MUTUAL FUND seeks to provide investors with
maximized current income to the extent consistent with preservation of
capital and maintenance of liquidity. The Fund pursues its objective by
investing its assets in a broad range of short-term, high quality U.S.
dollar-denominated money market instruments, which have remaining
maturities not exceeding 397 days (13 months), and in certain repurchase
agreements.
The TREASURY MONEY MARKET MUTUAL FUND seeks to provide investors with
current income and stability of principal. The Fund's fundamental policy is
to seek its objective by investing its assets only in obligations issued or
guaranteed by the U.S. Treasury and in notes and other instruments,
including repurchase agreements, collateralized or secured by such
obligations, which have remaining maturities not exceeding 397 days (13
months).
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF
INVESTMENT?
A. Investments in a 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 a Fund. Although each 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. A 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 each Fund invests. As with all
mutual funds, there can be no assurance that a Fund will achieve its
investment objective. See "How the Funds Work -- Risk Factors" in this
Prospectus and "Additional Investment Activities" in the SAI for further
information about Fund Investments and related risks.
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as each Fund's investment adviser, manages your
investments. Wells Fargo Bank also provides the Funds with administrative,
transfer agency, dividend disbursing agency, and custodial services. In
addition, Wells Fargo Bank is a shareholder servicing agent and selling
agent for the Funds. See "The Funds and Management" and "Management and
Servicing Fees" for further information.
1 PROSPECTUS
<PAGE>
Q. HOW DO I INVEST?
A. Qualified investors may invest by purchasing Administrative Class shares of
the Funds at the net asset value per share without a sales charge ("NAV").
Qualified investors include certain customers of affiliate, franchise or
correspondent banks of Wells Fargo & Company and other selected
institutions ("Institutions"). Customers may include individuals, trusts,
partnerships and corporations. Purchases are effected through the
customer's account with the Institution under the terms of the customer's
account agreement with the Institution. Investors wishing to purchase a
Fund's Administrative Class shares should contact their account
representatives. The minimum initial purchase amount on Administrative
Class shares is $150,000 and the minimum subsequent purchase amount on such
shares is $25,000, although certain exceptions to these minimums may be
available. See "Investing in the Funds" for additional information.
Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends from net investment income of a Fund are declared daily and
distributed monthly and any capital gains are distributed at least
annually. All distributions are automatically reinvested in additional
Administrative Class shares of such Fund at NAV. Shareholders may also
elect to receive dividends in cash. See "Dividend and Capital Gain
Distributions" for additional information.
Q. HOW MAY I REDEEM SHARES?
A. You may redeem shares at NAV, on any day the Funds are open, without charge
by the Company. Administrative Class shares held by an Institution on
behalf of its customers must be redeemed under the terms of the customer's
account agreement with the Institution. Institutions are responsible for
transmitting redemption requests to the Company crediting its customers'
accounts. The Company reserves the right to impose charges for wiring
redemption proceeds. See "Investing in the Funds -- Redemption of
Administrative Class Shares."
PROSPECTUS 2
<PAGE>
Summary of Fund Expenses
ADMINISTRATIVE CLASS SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
PRIME MONEY TREASURY MONEY
MARKET MUTUAL FUND MARKET MUTUAL FUND
------------------ ------------------
<S> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price)..................... None None
Maximum Sales Charge on Reinvested
Distributions....................... None None
Maximum Sales Charge on Redemptions.. None None
Exchange Fees........................ None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
<TABLE>
<CAPTION>
PRIME MONEY TREASURY MONEY
MARKET MUTUAL FUND MARKET MUTUAL FUND
------------------ ------------------
<S> <C> <C>
Management Fee (after waivers or
reimbursements)/1/................... [ ]% [ ]%
Rule 12b-1 Fee........................ None None
Other Expenses (after waivers or
reimbursements)/2/................... [ ]% [ ]%
---- ----
TOTAL FUND OPERATING EXPENSES (after
waivers or reimbursements)/3/........ [ ]% [ ]%
</TABLE>
- --------------
/1/Management Fee (before waivers or reimbursements) would be [ ]% for each
Fund.
/2/Other Expenses (before waivers or reimbursements) would be [ ]% and
[ ]%, respectively.
/3/Total Fund Operating Expenses (before waivers or reimbursements) would be
[ ]% and [ ]% respectively.
Note: The table does not reflect any charges that may be imposed by Wells
Fargo Bank or another Institution directly on certain customer accounts
in connection with an investment in a Fund.
EXAMPLE OF EXPENSES
An investor would pay the following expenses on a $1,000 investment in a
Fund's Administrative Class shares, 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
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Money Market Mutual Fund.............. $[ ] $[ ] $[ ] $[ ]
Treasury Money Market Mutual Fund........... $[ ] $[ ] $[ ] $[ ]
</TABLE>
Explanation of Tables
The purpose of the foregoing tables is to help a shareholder understand the
various costs and expenses that an investor in a Fund will pay directly or
indirectly. The tables do not reflect any changes that may be imposed by Wells
Fargo Bank or another Institution directly on its customer accounts in
connection with an investment in a Fund.
PROSPECTUS
3
<PAGE>
SHAREHOLDER TRANSACTION EXPENSES are charges incurred when a shareholder buys
or sells Fund shares. Administrative Class shares are sold with no shareholder
transaction expenses imposed by the Company. The Company reserves the right to
impose a charge for wiring redemption proceeds.
ANNUAL FUND OPERATING EXPENSES are based on applicable contract amounts and
amounts incurred during the prior fiscal year restated to reflect voluntary fee
waivers and expense reimbursements expected to reduce expenses during the
current year. Any waivers or reimbursements will reduce a Fund's total
expenses. There can be no assurance that waivers or reimbursements will
continue after that time. For more complete descriptions of the various costs
and expenses you can expect to incur as an investor in the Funds, please see
"Investing in the Funds -- How to Buy Shares" and "Management and Servicing
Fees."
EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses associated
with a $1,000 investment over stated periods, based on the expenses in the
above tables and an assumed annual rate of return of 5%. The rate of return
should not be considered an indication of actual or expected performance of a
Fund nor a representation of past or future expenses; actual expenses and
returns may be greater or less than those shown.
How The Funds Work
INVESTMENT OBJECTIVES AND POLICIES
Set forth below is a description of the investment objectives and related
policies of the Funds. Each Fund seeks to maintain a net asset value of $1.00
per share. Their assets consist only of obligations with remaining maturities
(as defined by the SEC) of 397 days (13 months) or less at the date of
acquisition, and the dollar-weighted average maturity of each Fund's
investments is 90 days or less. There can be no assurance that each Fund's
investment objective will be achieved or that either Fund will be able to
maintain a net asset value of $1.00 per share. A more complete description of
the Funds' investments and investment activities is contained in "Prospectus
Appendix -- Additional Investment Policies" and the SAI.
THE PRIME MONEY MARKET MUTUAL FUND seeks to provide investors with maximized
current income to the extent consistent with the preservation of capital and
maintenance of liquidity. The Fund pursues its objective by investing in a
broad range of short-term, high quality U.S. dollar-denominated money market
instruments, which have remaining maturities not exceeding 397 days (13
months), and in certain repurchase agreements.
THE TREASURY MONEY MARKET MUTUAL FUND seeks to provide investors with current
income and stability of principal. The Fund's fundamental policy is to invest
PROSPECTUS 4
<PAGE>
only in obligations issued or guaranteed by the U.S. Treasury and in notes and
other instruments, including repurchase agreements, collateralized or secured
by such obligations, which have remaining maturities not exceeding 397 days (13
months).
The Funds' investment objectives, and the Treasury Money Market Mutual Fund's
fundamental policy stated above, may not be changed without the vote of a
majority of the outstanding shares of the particular Fund.
All securities acquired by the Funds will be U.S. Government obligations (see
below) or "First Tier Eligible Securities" as defined under Rule 2a-7 of the
Investment Company Act of 1940 (the "1940 Act"). First Tier Eligible Securities
generally consist of instruments that are either rated at the time of purchase
in the highest rating category by one or more unaffiliated nationally
recognized statistical rating organizations ("NRSROs") or issued by issuers
with such ratings. The Appendix to the SAI includes a description of the
applicable ratings. Unrated instruments purchased by the Fund will be of
comparable quality as determined by the adviser pursuant to guidelines approved
by the Board of Directors.
U.S. Treasury and U.S. Government Obligations. The Treasury Money Market
Mutual Fund may invest only in obligations issued or guaranteed by the U.S.
Treasury such as bills, notes, bonds and certificates of indebtedness, and in
notes and repurchase agreements collateralized or secured by such obligations.
These obligations may also include U.S. Treasury STRIPS (U.S. Treasury
securities that have been separated into their component parts of principal and
interest payments and recorded as such in the Federal Reserve book-entry record
keeping system). The Prime Money Market Mutual Fund may invest in U.S. Treasury
obligations, as well as in obligations of agencies and instrumentalities of the
U.S. Government ("U.S. Government obligations"). U.S. Government obligations in
which the Fund may invest include securities issued or guaranteed as to
principal and interest by the U.S. Government and supported by the full faith
and credit of the U.S. Treasury. U.S. Treasury obligations differ mainly in the
length of their maturity. Treasury bills, the most frequently issued marketable
government securities, have a maturity of up to one year and are issued on a
discount basis. U.S. Government obligations also include securities issued or
guaranteed by federal agencies or instrumentalities, including government-
sponsored enterprises. Some obligations of agencies or instrumentalities of the
U.S. Government are supported by the full faith and credit of the United States
or U.S. Treasury guarantees; others, by the right of the issuer or guarantor to
borrow from the U.S. Treasury; still others, by the discretionary authority of
the U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, only by the credit of the agency or
instrumentality issuing the obligation. In the case of obligations not backed
by the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S.
5 PROSPECTUS
<PAGE>
Government will provide financial support to its agencies or instrumentalities
where it is not obligated to do so. As a general matter, the value of debt
instruments, including U.S. Government obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
The Prime Money Market Mutual Fund may also purchase "stripped securities"
such as TIGRs or CATs, which are interests in U.S. Treasury obligations offered
by broker-dealers and other financial institutions that represent ownership in
either the future interest payments or the future principal payments on the
U.S. Treasury obligations. Stripped securities are issued at a discount to
their "face value" and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are paid
to investors.
In addition to the types of instruments described above, the Prime Money
Market Mutual Fund may purchase U.S. dollar-denominated bank obligations such
as time deposits, certificates of deposit, bankers' acceptances, bank notes and
deposit notes issued by domestic and foreign banks. Time deposits are non-
negotiable deposits maintained at a banking institution for a specified period
of time normally at a stated interest rate. Certificates of deposit are
certificates evidencing the obligation of a bank to repay funds deposited with
it for a specified period of time. Bankers acceptances are negotiable deposits
or bills of exchange, normally drawn by an importer or exporter to pay for
specific merchandise, which are "accepted" by a bank (meaning, in effect, that
the bank unconditionally agrees to pay the face value of the instrument at
maturity). Bank notes usually represent senior debt of the bank.
The Prime Money Market Mutual Fund may also purchase commercial paper, short-
term notes, medium-term notes and bonds issued by domestic and foreign
corporations that meet the Fund's maturity limitations. Certain types of
commercial paper are issued only in private placements and may be subject to
restrictions on resale and are therefore less liquid.
The Prime Money Market Mutual Fund may also invest in U.S. dollar denominated
obligations issued or guaranteed by foreign governments or any of their
political subdivisions, agencies or instrumentalities. Such obligations include
debt obligations of supranational entities. Supranational entities include
international organizations designated or supported by governmental entities to
promote economic reconstruction or development and international banking
institutions and related government agencies. Examples of these include the
International Bank for Reconstruction and Development (the "World Bank"), the
Asian Development Bank and the InterAmerican Development Bank.
The Prime Money Market Mutual Fund may purchase asset-backed securities, which
are securities backed by mortgages, installment sales contracts, credit-card
receivables
PROSPECTUS 6
<PAGE>
or other assets. The average life of asset-backed securities varies with the
maturities of the underlying instruments, and the average life of a mortgage-
backed instrument, in particular, is likely to be substantially less than the
original maturity of the mortgage pools underlying the securities as the result
of mortgage prepayments. For this and other reasons, an asset-backed security's
stated maturity may be shortened, and the securities' total return may be
difficult to predict precisely. Such difficulties are not, however, expected to
have a significant effect on the Fund since the remaining maturity of any
asset-backed security acquired will be thirteen months or less. Asset-backed
securities purchased by the Fund may include collateralized mortgage
obligations issued by private companies.
The Funds may attempt to increase yields by trading to take advantage of
short-term market variations which may result in high portfolio turnover, which
should not adversely affect the Funds since they do not ordinarily pay
brokerage commissions on the purchase of short-term debt obligations.
A more complete description of the Funds' investments and investment
activities is contained in "Prospectus Appendix -- Additional Investment
Policies" and in the SAI.
RISK FACTORS
Investments in the Fund are not bank deposits or obligations of Wells Fargo
Bank and are not insured by the FDIC, nor are they insured or guaranteed
against loss of principal. Therefore, investors should be willing to accept
some risk with money invested in the Fund. Although the Fund seeks to maintain
a stable net asset value of $1.00 per share, there is no assurance that it will
be able to do so. The Fund may not achieve as high a level of current income as
other mutual funds that do not limit their investment to the high credit
quality instruments in which the Fund invest. 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 Funds, under the 1940 Act, must comply with certain investment criteria
designed to provide liquidity, reduce risk, and allow the Funds to each
maintain a stable net asset value of $1.00 per share. Each Fund's dollar-
weighted average portfolio maturity must not exceed 90 days. Any security that
a Fund purchases must have a remaining maturity of not more than 397 days. In
addition, a Fund purchase 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 Wells Fargo Bank, as the Funds' investment adviser, under
guidelines adopted by the Company's Board of Directors).
7 PROSPECTUS
<PAGE>
The portfolio debt instruments of the Funds are subject to credit and
interest-rate risk. Credit risk is the risk that issuers of the debt
instruments in which the Funds invest may default on the payment of principal
and/or interest. Interest-rate risk is the risk that increases in market
interest rates may adversely affect the value of the debt instruments in which
the Funds invest and hence the value of your investment in a Fund.
Each Fund seeks to reduce risk by investing its assets in securities of
various issuers. As such, each Fund is considered to be diversified for
purposes of the 1940 Act. In addition, the Funds emphasize safety of principal
and high credit quality. In particular, the internal investment policies of
Wells Fargo Bank, the Funds' investment adviser, prohibit the purchase for a
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 either 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, neither Fund may invest in securities whose interest rate reset
provisions are tied to an index that materially lags short-term interest
rates, such as Cost of Funds Index floaters. The Funds may invest only in
floating-rate securities that bear interest at a rate that resets quarterly or
more frequently and which resets based on changes in standard money market
rate indices such as U.S. Government Treasury bills, London Interbank Offered
Rate or LIBOR, the prime rate, published commercial paper rates, federal funds
rates, Public Securities Associates floaters or JJ Kenney index floaters.
The Treasury Money Market Mutual Fund restricts its investment to U.S.
Treasury obligations that meet all of the standards described above.
Obligations issued or guaranteed by the U.S. Treasury have historically
involved little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such obligations may vary
during the period a shareholder owns shares of the Fund. It should be noted
that neither the United States, nor any agency or instrumentality thereof, has
guaranteed, sponsored or approved the Fund or its shares.
PROSPECTUS 8
<PAGE>
Since the Prime Money Market Mutual Fund may purchase U.S. dollar-denominated
securities issued by foreign issuers, the Fund may be subject to investment
risks that are different in some respects from those incurred by a fund that
invests exclusively in debt obligations of domestic issuers. Such potential
risks include future political and economic developments, the possible
imposition of withholding taxes on interest income payable on the securities by
the particular country in which the issuer is located, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions that might
adversely affect the payment of principal and interest on these securities. In
addition, foreign banks and other issuers are not necessarily subject to the
same regulatory requirements that apply to domestic issuers (such as reserve
requirements, loan limitations, examinations, accounting, auditing and
recordkeeping requirements, and public availability of information), and the
Fund may experience difficulties in obtaining or enforcing a judgment against a
foreign issuer. Absent any unusual market conditions, the Fund will not invest
more than 25% of its total assets in securities issued by foreign issuers.
Generally, securities in which the Funds invest will not earn as high a yield
as securities of longer maturity and/or of lesser quality that are more subject
to market volatility. Each Fund attempts to maintain the value of its shares at
a constant $1.00 per share, although there can be no assurance that a Fund 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
Fund performance 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 a Fund.
Yield refers to the income generated by an investment in a class of a Fund's
shares over a specified period (usually 7 days), expressed as an annual
percentage rate. Effective yield is calculated similarly but assumes that the
income earned from the shares is reinvested at NAV in shares of the same class
of a Fund. Because of the effects of compounding, effective yields are slightly
higher than yields.
Average annual total return of Administrative Class shares is based on the
overall dollar or percentage change of an investment in such shares and assumes
the investment is at NAV and all dividends and any capital-gain 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 Funds may also present non-standard performance figures, such as
yields and effective
9 PROSPECTUS
<PAGE>
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 Funds, the performance figures on one class of shares can be expected, at
any given time, to vary from the performance figures for other classes of the
Funds.
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 1-800-260-5969 or by writing the
Company at the address shown on the front cover of the Prospectus.
The Funds And Management
THE FUNDS
The Funds are two 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. 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 are
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). A Fund
shareholder of record is entitled to one vote for each share owned and
fractional votes for fractional shares owned. See "Management" in the SAI for
more information on the Company's Directors and Officers. Each class of shares
represents an equal proportionate interest in a Fund with other shares of the
same class. Shareholders of each class bear their pro rata portion of a Fund's
operating expenses except for certain class-specific expenses (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
and, accordingly, may affect performance. For information on another fund or a
class of shares, please call Stagecoach Shareholder Services at 1-800-260-5969
or write the Company at the address shown on the front cover of the Prospectus.
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 each Fund's investment adviser, administrator,
custodian, transfer agent and dividend disbursing agent (the "Transfer Agent").
In addition, Wells Fargo Bank serves as a selling agent of the Funds. Wells
Fargo Bank, one of the largest banks in the United States, was founded in 1852
and is the oldest bank in the western
PROSPECTUS 10
<PAGE>
United States. As of [AUGUST 31, 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 (or the master
portfolio in which a fund may invest) 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 525 Market Street, San Francisco,
California 94105.
Morrison & Foerster LLP, counsel to the Company and special counsel to Wells
Fargo Bank, has advised the Company and Wells Fargo Bank that Wells Fargo Bank
and its affiliates may perform the services contemplated by the Advisory
Contracts and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
Investing In The Funds
Administrative Class shares may be purchased on any day the Funds are open for
business (a "Business Day"). The Funds are open Monday through Friday and are
closed on weekends, federal bank, and New York Stock Exchange ("NYSE")
holidays. On any day the trading markets for both U.S. government securities
and money market instruments close early, the Funds 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 12:00 Noon (Pacific time).
The Company or Stephens may make the Prospectus available in an electronic
format. Upon receipt of a request from an investor or the investor's
representative, the Company or Stephens will transmit or cause to be
transmitted promptly, without charge, a paper copy of the electronic
Prospectus.
SHARE VALUE
The value of a share of each class is its NAV. Wells Fargo Bank calculates the
NAV of each class of the Funds as of 12:00 Noon and 1:00 p.m. (Pacific time) on
each
11 PROSPECTUS
<PAGE>
Business Day. The NAV per share of each class of shares of a Fund is computed
by dividing the value of a Fund's assets allocable to a particular class, less
the liabilities charged to that class by the total number of outstanding shares
of that class. All expenses, including fees paid to the investment adviser and
administrator, are accrued daily and taken into account for the purpose of
determining the NAV. As noted above, the Funds seek to maintain a constant
$1.00 NAV share price, although there is no assurance that they will be able to
do so.
Each Fund's NAV is calculated on the basis of the amortized-cost method. This
valuation method is based on the receipt of a steady rate of payment on
portfolio instruments from the date of purchase until maturity rather than
actual changes in market value. The Company's Board of Directors believes that
this valuation method accurately reflects fair value.
PURCHASE OF ADMINISTRATIVE CLASS SHARES
Administrative Class shares of the Funds are sold at NAV (without a sales
charge) on a continuous basis primarily to certain customers ("Customers") of
affiliate, franchise or correspondent banks of Wells Fargo & Company and other
selected institutions (previously defined as Institutions). Customers may
include individuals, trusts, partnerships and corporations. Share purchases are
effected through a Customer's account at an Institution under the terms of the
Customer's account agreement with the Institution, and confirmations of share
purchases and redemptions are sent by the Funds to the Institution involved.
The minimum initial purchase amount on Administrative Class shares is $150,000
and the minimum subsequent purchase amount on such shares is $25,000. Investors
in various fiduciary accounts and certain other investors are not subject to
minimum initial or subsequent purchase amount requirements.
Institutions (or their nominees), acting on behalf of their Customers,
normally are the holders of record of Administrative Class shares. Customers'
beneficial ownership of Administrative Class shares is reflected in the account
statements provided by Institutions to their Customers. The exercise of voting
rights and the delivery to Customers of shareholder communications from the
Funds is governed by the Customers' account agreements with an Institution.
Investors wishing to purchase Administrative Class shares of the Funds should
contact their account representatives.
Administrative Class shares of the Funds are sold at the NAV per share next
determined after a purchase order has become effective. Purchase orders placed
by an Institution must be received by the Company by 12:00 Noon (Pacific time)
on any Business Day. Payment for such shares may be made by Institutions in
federal funds or other funds immediately available to the custodian no later
than 1:00 p.m. (Pacific time) on that Business Day.
PROSPECTUS 12
<PAGE>
Institutions are responsible for transmitting orders for purchases by their
Customers and delivering required funds on a timely basis. If funds are not
received within the periods described above, the order will be canceled,
notice thereof will be given, and the Institution will be responsible for any
loss to a Fund or its shareholders.
Institutions may charge certain account fees depending on the type of account
the investor has established with the Institution. In addition, an Institution
may receive fees from the Funds with respect to the investments of its
Customers as described under "Management and Servicing Fees." Payment for
Administrative Class shares of a Fund may, in the discretion of the investment
adviser, be made in the form of securities that are permissible investments
for the Fund. For further information see "Additional Purchase and Redemption
Information" in the SAI.
The Company reserves the right to reject any purchase order or to suspend
sales at any time. Payment for orders that are not received will be returned
after prompt inquiry. The issuance of Administrative Class shares is recorded
on the Company's books, and share certificates are not issued.
WIRE INSTRUCTIONS FOR DIRECT PURCHASES BY INSTITUTIONS
1. Complete an Account Application.
2. Instruct the wiring bank to transmit the specified amount in federal funds
to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000587
Attention: Stagecoach Funds (Name of Fund and designate
Administrative Class)
Account Name(s): Name(s) in which to be registered
Account Number: (if investing into an existing account)
3. A completed Account Application should be sent by telefacsimile, with the
original subsequently mailed, to the following address immediately after
the funds are wired and must be received and accepted by the Transfer Agent
before an account can be opened:
Wells Fargo Bank, N.A.
Stagecoach Shareholder Services
P.O. Box 7066
San Francisco, California 94120-7066
Telefacsimile: 1-415-546-0280
4. Share purchases are effected at the NAV next determined after the Account
Application is received and accepted.
PROSPECTUS
13
<PAGE>
STATEMENTS AND REPORTS
Institutions (or their nominees) typically send investors a confirmation or
statement of the account after every transaction that affects their share
balance or the 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,
shareholders receive financial statements.
REDEMPTION OF ADMINISTRATIVE CLASS SHARES
Redemption requests are effected at the NAV per share next determined after
receipt of a redemption request in good order by the Company. Administrative
Class shares held by an Institution on behalf of its Customers must be redeemed
in accordance with instructions and limitations pertaining to the Customer's
accounts at the Institution. Institutions are responsible for transmitting
redemption requests to the Company and crediting its Customers' accounts with
the redemption proceeds on a timely basis. The redemption proceeds for
Administrative Class shares of the Funds normally are wired to the redeeming
Institution the following Business Day after receipt of the request by the
Company. The Company reserves the right to delay the wiring of redemption
proceeds for up to seven days after it receives a redemption order if, in the
judgment of the investment adviser, an earlier payment could adversely affect
the Funds or unless the SEC permits a longer period under extraordinary
circumstances. Such extraordinary circumstances could include a period during
which an emergency exists as a result of which (a) disposal by the Funds of
securities owned by them is not reasonably practicable or (b) it is not
reasonably practicable for the Funds to fairly determine the value of their net
assets, or a period during which the SEC by order permits deferral of
redemptions for the protection of security holders of a Fund.
When Administrative Class shares are redeemed directly from the Funds, the
Company ordinarily send the proceeds by check to the shareholder at the address
of record on the next Business Day unless payment by wire is requested. The
Company may take up to seven days to make payment, although this will not be
the customary practice. Also, if the New York Stock Exchange is closed (or when
trading is restricted) for any reason other than the customary weekend or
holiday closing or if an emergency condition as determined by the SEC merits
such action, the Funds may suspend redemptions or postpone payment dates.
To be accepted by a Fund, a letter requesting redemption must include: (i) the
Fund's name and account registration from which the Administrative Class shares
are being redeemed; (ii) the account number; (iii) the amount to be redeemed;
(iv) the signatures of all registered owners; and (v) a signature guarantee by
any eligible guarantor institution. An "eligible guarantor institution"
includes a commercial bank that is an FDIC member, a trust company, a member
firm of a domestic stock exchange, a savings association, or a credit union
that is authorized by its charter to
PROSPECTUS 14
<PAGE>
provide a signature guarantee. Signature guarantees by notaries public are not
acceptable. Further documentation may be requested from corporations,
administrators, executors, personal representatives, trustees or custodians.
All redemptions of Administrative Class shares of the Funds are made in cash,
except that the commitment to redeem Administrative Class shares in cash
extends only to redemption requests made by each Fund shareholder during any
90-day period of up to the lesser of $250,000 or 1% of the NAV of the Funds at
the beginning of such period. This commitment is irrevocable without the prior
approval of the SEC. In the case of redemption requests by shareholders in
excess of such amounts, the Board of Directors reserves the right to have the
Funds make payment, in whole or in part, in securities or other assets, in case
of an emergency or any time a cash distribution would impair the liquidity of
the Funds to the detriment of the existing shareholders. In this event, the
securities would be valued in the same manner as the securities of the Funds
are valued. If the recipient were to sell such securities, the investors would
incur brokerage charges.
REDEMPTIONS BY TELEPHONE
Telephone exchange or redemption privileges authorize the Transfer Agent to
act on telephone instructions from any person representing himself or herself
to be the shareholder of record and reasonably believed by the Transfer Agent
to be genuine. The Company requires the Transfer Agent to employ reasonable
procedures, such as requiring a form of personal identification, to confirm
that instructions are genuine and, if it does not follow such procedures, the
Company and the Transfer Agent may be liable for any losses due to unauthorized
or fraudulent instructions. Neither the Company nor the Transfer Agent will be
liable for following telephone instructions reasonably believed to be genuine.
Exchanges
Administrative Class shares of a Fund may be exchanged for Administrative
Class shares of another Fund or for Institutional Class shares of one of the
Company's non-money market funds in an identically registered account (provided
that shares of the fund to be acquired are registered for sale in the
investor's state of residence) at respective net asset values. Investors
wishing to exchange Administrative Class shares should contact their account
representatives. Investors with questions may call the Company at 1-800-260-
5969. Before making an exchange from a Fund, an investor should observe the
following:
. Exchange transactions are effected through a Customer's account at an
Institution under the terms of the Customer's account agreement with the
Institution, and confirmations of share exchanges are sent by the Fund to
the Institution involved.
15 PROSPECTUS
<PAGE>
. You will need to read the prospectus of the fund into which you want to
exchange.
. Every exchange is a redemption of shares of one fund and the purchase of
shares of another fund.
. You must exchange at least the minimum initial purchase amount of the Fund
you are redeeming unless you have already met the minimum initial purchase
amount of the fund you are purchasing.
. The Company may limit the number of times shares may be exchanged or may
reject any telephone exchange order. Subject to limited exceptions, the
Company will notify you 60 days before discontinuing or modifying the
exchange privilege.
. No fees are currently charged to investors by the Company in connection
with exchanges through the Company although the Company reserves the
right, upon not less than 60 days' written notice, to charge investors a
nominal exchange fee in accordance with rules promulgated by the SEC.
In addition, Administrative Class shares of the Funds may be exchanged for
Class A shares in connection with the distribution of assets held in a
qualified trust, agency or custodial account maintained with the trust
department of a Wells Fargo Bank or another bank, trust company or thrift
institution, or in certain other cases where Administrative Class shares are
not held in such qualified accounts. Similarly, Class A shares may be exchanged
for each Fund's Administrative Class shares if the shares are to be held in
such a qualified trust, agency or custodial account.
Dividend and Capital Gain Distributions
Dividends from net investment income of the Funds are declared daily payable
to Administrative Class shareholders of record as of 12:00 Noon (Pacific time).
Administrative Class shareholders begin earning dividends on the Business Day
the investment is effected and continue to earn dividends through the day
before the date that the shares are redeemed. Dividends for a Saturday, Sunday
or Holiday are declared payable to shareholders of record as of the preceding
Business Day. The Funds declare and distribute any capital gains at least
annually. Expenses, such as state securities registration fees and transfer
agent fees, that are attributable to a particular class may affect the relative
dividends and/or capital-gain distributions of a class of shares.
Dividends declared in a month generally are distributed on the last Business
Day of that month. Dividends and any capital-gain distributions are
automatically invested in additional whole and fractional shares unless the
shareholder has elected to receive payment in cash.
PROSPECTUS 16
<PAGE>
Management and Servicing Fees
INVESTMENT ADVISER
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank, as the Funds' investment adviser, provides investment guidance and
policy direction in connection with the management of the Funds' assets. Wells
Fargo Bank also furnishes the Board of Directors with periodic reports on the
Funds' investment strategies and performance. For these services, Wells Fargo
Bank is entitled to receive monthly investment advisory fees at the annual
rate of 0.25% of the average daily net assets of each Fund. From time to time,
Wells Fargo Bank may waive such fees in whole or in part. Any such waiver will
reduce the expenses of the Funds and, accordingly, have a favorable impact on
the Funds' performance. From time to time, the Funds, consistent with their
investment objective, policies and restrictions, may invest in securities of
entities with which Wells Fargo Bank has a lending relationship. For the
fiscal year ended March 31, 1997, the Prime Money market Mutual and Treasury
Money Market mutual Funds paid advisory fees at the annual rates of 0.14% and
0.13%, respectively, of their average daily net assets. For periods prior to
September 6, 1996, these amounts includes advisory fee paid by the Funds to
Wells Fargo Investment Management.
ADMINISTRATOR AND CO-ADMINISTRATOR
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank as Administrator and Stephens as Co-administrator, provide the Fund
with administrative services, including general supervision of the Fund's
operation, coordination of the other services provided to the Fund,
compilation of information for reports to the SEC and the state securities
commissions, preparation of proxy statements and shareholder reports, and
general supervision of data compilation in connection with preparing periodic
reports to the Company's Directors and officers. Wells Fargo Bank and Stephens
also furnish office space and certain facilities to conduct the Funds'
business, and Stephens compensates the Company's Directors and officers who
are affiliated with Stephens. For these administrative services, Wells Fargo
Bank and Stephens are entitled to receive a monthly fee at the annual rate of
0.04% and 0.02%, respectively, of the Fund's average daily net assets. Wells
Fargo Bank and Stephens may delegate certain of their respective
administrative duties to sub-administrators.
Stephens previously provided substantially the same services as sole
administrator to the Funds. For the year ended September 30, 1996, the Prime
Money Market Mutual and Treasury Money Market Mutual Funds paid administrative
fees at the annual rate of 0.09% of each Fund's average daily net assets. For
the period prior to September 6, 1996, this includes amounts paid to The
Dreyfus Corporation by the Funds.
17 PROSPECTUS
<PAGE>
SPONSOR AND DISTRIBUTOR
Stephens is the Company's sponsor and co-administrator and distributes the
Fund's shares. Stephens is a full service broker/dealer and investment advisory
firm located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and
its predecessor have been providing securities and investment services for more
than 60 years, including discretionary portfolio management services since
1983. Stephens currently manages investment portfolios for pension and profit-
sharing plans, individual investors, foundations, insurance companies and
university endowments.
Stephens, as the principal underwriter of the Funds within the meaning of the
1940 Act, has entered into a Distribution Agreement with the Company under
which Stephens acts as agent for each Fund for the sale of its shares and may
enter into selling agreements with other agents ("Selling Agents") that wish to
make available shares of the Funds to their respective customers.
Stephens has established a non-cash compensation program, pursuant to which
broker/dealers or financial institutions that sell shares of the Company's
funds may earn additional compensation in the form of trips to sales seminars
or vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise.
Financial institutions acting as Shareholder Servicing Agents or Selling
Agents, or in certain other capacities, may be required to register as dealers
pursuant to applicable state securities laws which may differ from federal law
and any interpretations expressed herein.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank also serves as the Funds' custodian and transfer and dividend
disbursing agent. Under the Custody Agreement, a 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 Custody Agreement. Wells Fargo Bank performs its custodial and
transfer and dividend disbursing agency services at 525 Market Street, San
Francisco, California 94105.
INSTITUTIONS AND SHAREHOLDER SERVICING AGENTS
The Funds have entered into a Shareholder Servicing Agreement on behalf of
Administrative Class shares with Wells Fargo Bank and may enter into similar
agreements with other Institutions ("Shareholder Servicing Agents"). Under such
agreements, Shareholder Servicing Agents (including Wells Fargo Bank) agree, as
agents for their customers, to provide shareholder administrative and liaison
services with respect to Fund shares, which include, without limitation,
aggregating and
PROSPECTUS 18
<PAGE>
transmitting shareholders orders for purchases, exchanges and redemptions;
maintaining shareholder accounts and records; exchanges and redemptions; and
providing such other related services as the Company or a shareholder may
reasonably request. For these services, a Shareholder Servicing Agent is
entitled to receive a fee at the annual rate of up to 0.15% of the average
daily net assets attributable to the Administrative Class shares owned of
record or beneficially by investors with whom the Shareholder Servicing Agent
maintains a servicing relationship. In no case shall payments exceed any
maximum amount that may be deemed applicable under applicable laws, regulations
or rules, including the Conduct Rules of the NASD ("NASD Rules").
A Shareholder Servicing Agent may impose certain conditions on its customers,
subject to the terms of this Prospectus, in addition to or different from those
imposed by a Fund, such as requiring a minimum initial investment or payment of
a separate fee for additional services. Each Shareholder Servicing Agent has
agreed to disclose any fees it may directly charge its customers who are
shareholders of a Fund and to notify them in writing at least 30 days before it
imposes any transaction fees.
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,
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 class.
General expenses of the Company are allocated among all of the funds of the
Company in a manner proportionate to the net assets of each fund, on a
transactional basis, or on such other basis as the Company's Board of Directors
deems equitable.
Taxes
Distributions from a 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 a Fund's net long-
term capital gains, if any, are designated as capital gain distributions and
taxable to the Fund's shareholders as long-term capital gains. In general, your
distributions will be taxable when paid, whether you take such distributions in
cash or have them automatically reinvested in additional Fund
19 PROSPECTUS
<PAGE>
shares. However, distributions declared in October, November, and December and
distributed by the following January will be taxable as if they were paid by
December 31.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Federal Income Taxes -- Foreign Shareholders" in your
SAI. In certain circumstances, U.S. residents may also be subject to
withholding taxes. See "Federal Income Taxes -- Backup Withholding" in your
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 Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Further federal tax
considerations are discussed in your SAI.
PROSPECTUS 20
<PAGE>
Prospectus Appendix -- Additional Investment Policies
FUND INVESTMENTS
Treasury Money Market Mutual Fund
The Treasury Money Market Mutual Fund may invest in the following:
(i) obligations issued or guaranteed by the U.S. Treasury such as bills,
notes, bonds and certificates of indebtedness, and in notes and
repurchase agreements collateralized or secured by such obligations (see
below);
(ii) certain repurchase agreements ("repurchase agreements") (discussed
below);
(iii) certain floating- and variable-rate instruments ("variable-rate
instruments);
(iv) securities purchased on a "when-issued" basis and securities
purchased or sold on a "forward-commitment" basis or "delayed-
settlement basis" (discussed below);
(v) certain reverse repurchase agreements ("reverse repurchase
agreements") (discussed below); and
(vi) certain securities issued by other investment companies.
Prime Money Market Mutual Fund
The Prime Money Market Mutual Fund may invest in the following:
(i) obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, including government-sponsored enterprises,
including U.S. Treasury obligations ("U.S. Government obligations")
(discussed below);
(ii) certain repurchase agreements ("repurchase agreements") (discussed
below);
(iii) certain floating- and variable-rate instruments ("variable-rate
instruments");
(iv) securities purchased on a "when-issued" basis and securities
purchased or sold on a "forward commitment" basis or "delayed
settlement basis" (discussed below);
(v) certain reverse repurchase agreements ("reverse repurchase
agreements") (discussed below);
(vi) certain securities issued by other investment companies;
(vii) negotiable certificates of deposit, fixed time deposits, bankers'
acceptances or other short-term obligations of U.S. banks (including
foreign branches) that
A-1
<PAGE>
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
("bank instruments");
(viii) 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 Corporation ("S&P") ("rated commercial paper");
(ix) 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;
(x) short-term, U.S. dollar-denominated obligations of U.S. branches of
foreign banks that at the time of investment have more than $10
billion, or the equivalent in other currencies, in total assets
("foreign bank obligations") (discussed below).
(xi) mortgage-backed securities (discussed below); and
(xii) certain other asset-backed securities (discussed below).
U.S. Government Obligations
The Funds may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Payment of principal and interest on U.S. Government Obligations (i) may be
backed by the full faith and credit of the United States (as with U.S.
Treasury bills and GNMA certificates) or (ii) may be backed solely by the
issuing or guaranteeing agency or instrumentality itself (as with FNMA notes).
In the latter case investors must look principally to the agency or
instrumentality issuing or guaranteeing the obligation for ultimate repayment,
which agency or instrumentality may be privately owned. There can be no
assurance that the U.S. Government will provide financial support to its
agencies or instrumentalities where it is not obligated to do so. In addition,
U.S. Government Obligations are subject to fluctuations in market value due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
Repurchase Agreements
The Funds may enter into repurchase transactions in which the seller of a
security to a Fund agrees to repurchase that security from such Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few
A-2
<PAGE>
days, although it may extend over a number of months. A Fund may enter into
repurchase agreements only with respect to securities that could otherwise be
purchased by the Fund, and all repurchase transactions must be collateralized.
A 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 Funds may participate in
pooled repurchase agreement transactions with other funds advised by Wells
Fargo Bank. See "Additional Permitted Investment Activities" in the SAI for
additional information.
Floating- and Variable-Rate Instruments
The Funds may purchase debt instruments with 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 Funds may purchase include certificates of
participation in such instruments. Floating- and variable-rate instruments are
subject to interest-rate risk and credit risk. See "Additional Permitted
Investment Activities" in the SAI for additional information.
Loans of Portfolio Securities
The Prime Money Market Mutual Fund may lend securities from its portfolio to
brokers, dealers and financial institutions (but not individuals) in order to
increase the return on its portfolio. The value of the loaned securities may
not exceed one-third of the Fund's total assets and loans of portfolio
securities are fully collateralized based on values that are marked-to-market
daily. The Fund will not enter into any portfolio security lending arrangement
having a duration of longer than one year. The principal risk of portfolio
lending is potential default or insolvency of the borrower. In either of these
cases, the Fund could experience delays in recovering securities or collateral
or could lose all or part of the value of the loaned securities. The Fund may
pay reasonable administrative and custodial fees in connection with loans of
portfolio securities and may pay a portion of the interest or fee earned
thereon the borrower or a placing broker. See "Additional Permitted Investment
Activities" in the SAI for additional information.
Forward-Commitments, When-Issued Purchases and Delayed-Delivery Transactions
Each Fund may purchase securities on a "when-issued" basis and may purchase or
sell securities on a "forward-commitment" basis. The Funds may also purchase or
sell securities on a "delayed-settlement" basis. When-issued and forward-
commitment transactions, which involve a commitment by a Fund to purchase or
sell particular securities with payment and delivery taking place at a future
date (perhaps one or two months later), permit the Funds to lock in a price or
yield on a security it owns or intends to purchase, regardless of future
changes in interest rates. Delayed settlement
A-3
<PAGE>
describes settlement of a securities transaction in the secondary market that
will occur sometime in the future. When-issued, forward-commitment and delayed-
settlement transactions involve the risk, however, that the yield or price
obtained in a transaction may be less favorable than the yield or price
available in the market when the securities delivery takes place. A Fund's
forward commitments, when-issued purchases and delayed settlements are not
expected to exceed 25% of the value of the Fund's total assets absent unusual
market conditions. The Funds do not intend to engage in these transactions for
speculative purposes but only in furtherance of their investment objectives.
Other Investment Companies
The Funds may invest up to 10% of their assets in shares of other open-end
investment companies that invest exclusively in the high-quality, short-term
money market instruments in which the Funds may invest. The Treasury Money
Market Mutual Fund may only invest in shares of other investment companies that
are structured to seek an investment objective that is similar to the Fund's
investment objective. The investment companies can be expected to charge
management fees and other operating expenses that would be in addition to those
charged to a Fund; however, the Funds' adviser has undertaken to waive its
advisory fees with respect to that portion of the Fund's assets so invested.
The Funds may invest in shares of other open-end investment companies up to the
limits prescribed by the 1940 Act.
Foreign Obligations
The Prime Money Market Mutual Fund may invest up to 25% 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. The Prime Money Market Mutual Fund may
also invest in U.S. dollar-denominated obligations issued or guaranteed by
foreign governments or any of their political subdivisions, agencies or
instrumentalities. Such obligations include debt obligations of supranational
entities. Supranational entities include international organizations designated
or supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies.
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,
A-4
<PAGE>
the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries.
Mortgage-Backed And Other Asset-Backed Securities
The Prime Money Market Mutual Fund may purchase asset-backed securities, which
are securities backed by mortgages, installment sales contracts, credit card
receivables or other assets. The average life of asset-backed securities varies
with the maturities of the underlying instruments, and the average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgage pools underlying the securities as
the result of mortgage prepayments. For this and other reasons, an asset-backed
security's stated maturity may be shortened, and the securities' total return
may be difficult to predict precisely. Such difficulties are not, however,
expected to have a significant effect on the Fund since the remaining maturity
of any asset-backed security acquired will be 397 days or less. Asset-backed
securities purchased by the Fund may include collateralized mortgage
obligations ("CMOs") issued by private companies.
INVESTMENT POLICIES AND RESTRICTIONS
Each Fund's investment objective, as set forth under "How the Funds Work --
Investment Objectives and Policies", is fundamental; that is, it may not be
changed without approval by the vote of the holders of a majority of the Fund's
outstanding voting securities, as described under "Capital Stock" in the SAI.
In addition, any fundamental investment policy may not be changed without such
shareholder approval. If the Company's Board of Directors determines, however,
that a Fund's investment objective could best be achieved by a substantive
change in a nonfundamental investment policy or strategy, the Company's Board
may make such change without shareholder approval and will disclose any such
material changes in the then-current prospectus.
Fundamental Investment Policies
As matters of fundamental policy, each Fund may: (i) borrow from banks up to
20% 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 by a Fund while any such outstanding borrowing in excess of 5% of its
net assets exists); and (ii) not invest more than 25% of its assets (i.e.,
concentrate) in any particular industry, excluding, U.S. Government obligations
and, with respect to the Prime Money Market Mutual Fund, the obligations of
U.S. banks and certain U.S. branches of foreign banks.
These investment restrictions are applied at the time investment securities
are purchased. As a matter of nonfundamental policy, the Funds may make loans
of
A-5
<PAGE>
portfolio securities or other assets, although neither Fund intends to do so
during the current fiscal year.
Non-Fundamental Investment Policies
As a matter of non-fundamental policy, neither Fund may: (i) purchase
securities of any issuer (except for U.S. Government obligations, for certain
temporary purposes and for certain guarantees and unconditional puts) if as a
result more than 5% of the value of its total assets would be invested in the
securities of such issuer, except that a Fund may invest up to 25% of its
assets in the highest-rated obligations of any one issuer for a period of up to
three business days, or if a Fund would own more than 10% of the outstanding
voting securities of such issuer; and (ii) invest more than 10% of the current
value of its net assets in securities that are illiquid by virtue of the
absence of a readily available market or legal or contractual restrictions on
resale or that have maturities of more than seven days. With respect to item
(i), it may be possible that the Company would own more than 10% of the
outstanding voting securities of an issuer. Also, as a matter of non-
fundamental policy and in accordance with the current regulations of the SEC,
the Prime Money Market Mutual Fund intends to limit its investments in the
obligations of any one non-U.S. governmental issuer to not more than 5% of its
total assets at the time of purchase, provided that the Fund may invest up to
25% of its assets in the obligations of one non-U.S. governmental issuer for a
period of up to three business days. For purposes of item (ii), repurchase
agreements that do not provide for payment to the Funds within seven days after
notice are subject to this 10% limit, unless the Company's Board of Directors
or the Funds' investment adviser, pursuant to guidelines adopted by the Board
of Directors, determines that a liquid trading market exists. Illiquid
securities shall not include (a) securities eligible for resale pursuant to
Rule 144A Securities Act of 1933 (the "1933 Act") Act that have been determined
to be liquid by the adviser, pursuant to guidelines established by the
Company's Board of Directors, and (b) commercial paper sold under Section 4(2)
of the 1933 Act that (i) is not traded flat or in default as to interest or
principal and (ii) is rated in one of the two highest categories by at least
two NRSROs and the adviser, pursuant to guidelines established by the Company's
Board of Directors, has determined the commercial paper to be liquid; or (iii)
is rated in one of the two highest categories by one NRSRO and the adviser,
pursuant to guidelines established by the Company's Board of Directors, has
determined that the commercial paper is of equivalent quality and is liquid, if
by any reason thereof the value of its aggregate investment in such classes of
securities will exceed 10% of its total assets.
A-6
<PAGE>
Advised by WELLS FARGO BANK, N.A.
Sponsored/Distributed by
Stephens Inc., Member NYSE/SIPC
NOT FDIC INSURED SCF177 (10/97)
<PAGE>
[LOGO]
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH 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.
LOGO
Printed on Recycled Paper SCF177 (10/97)
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[LOGO OF STAGECOACH FUNDS APPEARS HERE]
------------------------------------
PROSPECTUS
------------------------------------
NATIONAL TAX-FREE
MONEY MARKET MUTUAL FUND
INSTITUTIONAL CLASS
October 6, 1997
<PAGE>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION
DATED AUGUST 5, 1997
STAGECOACH FUNDS(R)
NATIONAL TAX-FREE MONEY MARKET MUTUAL FUND
INSTITUTIONAL CLASS
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about the Institutional Class
shares of one fund of the Stagecoach Family of Funds -- the NATIONAL TAX-FREE
MONEY MARKET MUTUAL FUND (the "Fund").
THE NATIONAL TAX-FREE MONEY MARKET MUTUAL FUND seeks to provide investors with
a high level of income exempt from federal income tax, while preserving capital
and liquidity. The Fund seeks to achieve this objective by investing in high-
quality, U.S. dollar-denominated money market instruments, primarily municipal
obligations.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
CONSTANT $1.00 NET ASSET VALUE PER SHARE.
Please read this Prospectus before investing and retain it for future
reference. It is designed to provide you with important information and to help
you decide if the Fund's goals match your own. A Statement of Additional
Information ("SAI"), dated October 6, 1997, containing additional information
about the Fund has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this Prospectus. The SAI is
available without charge by writing to Stagecoach Funds, Inc., c/o Stagecoach
Shareholder Services, Wells Fargo Bank, N.A., P.O. Box 7066, San Francisco, CA
94120-7066 or by calling (800) 260-5969.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK, N.A. ("WELLS FARGO BANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND ADMINISTRATOR AND PROVIDES THE
FUND WITH CERTAIN OTHER SERVICES FOR WHICH IT IS COMPENSATED. STEPHENS INC.
("STEPHENS"), WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE FUND'S
SPONSOR, CO-ADMINISTRATOR AND DISTRIBUTOR.
PROSPECTUS DATED OCTOBER 6, 1997
PROSPECTUS
<PAGE>
The Fund currently invests all of its assets in the Tax-Free Money Market
Master Portfolio (the "Master Portfolio") of Master Investment Trust ("MIT") an
open-end, management investment company, rather than directly in a portfolio of
securities. The Master Portfolio has the same investment objective as the Fund
and the Fund's performance corresponds directly with the Master Portfolio's
performance. References to the investments, investment policies and risks of
the Fund, unless otherwise indicated, should be understood as references to the
investments, investment policies and risks of the Master Portfolio.
On July 23, 1997, the Company's Board of Directors approved an agreement and
plan of consolidation to reorganize the funds of another investment company,
Overland Express Funds, Inc., with and into certain funds of the Company (the
"Consolidation"). If the Consolidation is completed as anticipated, the Master
Portfolio will be dissolved in December of 1997. The Fund will no longer invest
its assets in the Master Portfolio, but instead will invest directly in a
portfolio of securities. The Fund will retain Wells Fargo Bank, the Master
Portfolio's current investment adviser, to manage its assets in substantially
the same manner as Wells Fargo Bank currently manages the Master Portfolio's
assets and for the same level of advisory fees.
PROSPECTUS
<PAGE>
PROSPECTUS
Table of Contents
-------
<TABLE>
<S> <C>
Prospectus Summary 1
Summary of Fund Expenses 3
Explanation of Tables 4
How the Fund Works 4
The Fund and Management 8
Investing in the Fund 10
Exchanges 14
Dividends and Capital Gain Distributions 15
Management and Servicing Fees 15
Taxes 18
Prospectus Appendix -- Additional Investment Policies A-1
</TABLE>
<PAGE>
Prospectus Summary
The Fund provides investors with a convenient way to invest in a portfolio of
securities selected and supervised by professional management. The following
provides summary information about the Fund. For more information, please refer
specifically to the identified Prospectus sections and generally to the Fund's
Prospectus and SAI.
Q. WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
A. The Fund seeks to provide investors with a high level of income exempt from
federal income tax, while preserving capital and liquidity. The Fund, which
is a diversified portfolio, seeks to achieve its investment objective by
investing in high-quality, U.S. dollar-denominated money market
instruments, primarily municipal obligations. Under normal market
conditions, substantially all of the Fund's assets are invested in
municipal obligations that are exempt from federal income tax. The Fund
invests in securities with remaining maturities not exceeding 397 days (13
months), as determined in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"). See "How the Fund Works--
Investment Objectives and Policies" and "Prospectus Appendix -- Additional
Investment Policies" for further information on investments.
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF
INVESTMENT?
A. Investments in the Fund are not bank deposits or obligations of Wells Fargo
Bank and are not insured by the FDIC, nor are they insured or guaranteed
against loss of principal. Therefore, investors should be willing to accept
some risk with money invested in the Fund. Although the Fund seeks to
maintain a stable net asset value of $1.00 per share, there is no assurance
that it will be able to do so. The Fund may not achieve as high a level of
current income as other mutual funds that do not limit their investment to
the high credit quality instruments in which the Fund invests. As with all
mutual funds, there can be no assurance that the Fund will achieve its
investment objective. See "How the Fund Works -- Risk Factors" and
"Additional Permitted Investment Activities" in the SAI for further
information about the Fund's investments and related risks.
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the Fund's investment adviser, manages the Fund's
investments. Wells Fargo Bank also provides the Fund with administrative,
transfer agency, dividend disbursing agency, and custodial services. In
addition, Wells Fargo Bank is a shareholder servicing agent and a selling
agent for the Fund. "The Fund and Management" and "Management and Servicing
Fees" for further information.
1 PROSPECTUS
<PAGE>
Q. HOW DO I INVEST?
A. Qualified investors may invest by purchasing Institutional Class shares of
the Fund at the net asset value per share without a sales charge ("NAV") .
Qualified investors include certain customers of affiliate, franchise or
correspondent banks of Wells Fargo & Company and other selected
institutions ("Institutions"). Customers may include individuals, trusts,
partnerships and corporations. Purchases are effected through the
customer's account with the Institution under the terms of the customer's
account agreement with the Institution. The minimum initial purchase amount
is $150,000, with minimum subsequent purchase amounts of $25,000 or more in
each account, although certain exceptions to these minimums may be
available. Investors wishing to purchase the Fund's Institutional Class
shares should contact their account representatives. See "Investing in the
Fund" for additional information.
Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends from net investment income are declared daily and distributed
monthly, and any capital gains are distributed at least annually. All
distributions are automatically reinvested in additional Institutional
Class shares of the Fund at NAV. Shareholders also may elect to receive
distributions in cash. See "Dividend and Capital Gain Distributions" for
additional information.
Q. HOW MAY I REDEEM SHARES?
A. You may redeem shares at NAV, without charge by the Company. Institutional
Class shares held by an Institution on behalf of its customers must be
redeemed under the terms of the customer's account agreement with the
Institution. Institutions are responsible for transmitting redemption
requests to the Company and crediting its customers' accounts. The Company
reserves the right to impose charges for wiring redemption proceeds. See
"Investing in the Fund --Redemption of Institutional Class Shares."
PROSPECTUS 2
<PAGE>
Summary of Fund Expenses
INSTITUTIONAL CLASS SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge on Purchases (as a percentage of offering price).... None
Maximum Sales Charge on Reinvested Distributions......................... None
Maximum Sales Charge on Redemptions...................................... None
Exchange Fees............................................................ None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee (after waivers or reimbursements)/1/...................... [ ]%
Rule 12b-1 Fee........................................................... None
Other Expenses (after waivers or reimbursements)/2/...................... [ ]%
TOTAL FUND OPERATING EXPENSES (after waivers or reimbursements)/3/....... [ ]%
</TABLE>
- --------------
/1/ Management Fees (before waivers or reimbursements) would be payable at a
maximum annual rate of [ ]%.
/2/ Other Expenses (before waivers or reimbursements) would be [ ]%.
/3/ Total Fund Operating Expenses (before waivers or reimbursements) would be
[ ]%.
Note: The table does not reflect any charges that may be imposed by Wells Fargo
Bank or another Institution directly on certain customer accounts in connection
with an investment in the Fund.
EXAMPLE OF EXPENSES
You would pay the following expenses on a $1,000 investment in the Fund's
Institutional Class shares, assuming a 5% annual return and redemption at the
end of each time period indicated:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Institutional Class Shares...................... $[ ] $[ ] $[ ] $[ ]
</TABLE>
3 PROSPECTUS
<PAGE>
Explanation of Tables
The purpose of the above tables is to help a shareholder understand the
various costs and expenses that an investor in the Fund will pay directly or
indirectly.
SHAREHOLDER TRANSACTION EXPENSES are charges incurred when an investor buys or
sells Fund shares. Fund shares are sold with no shareholder transaction
expenses imposed by the Company. However, the Company reserves the right to
impose a charge for wiring redemption proceeds.
ANNUAL FUND OPERATING EXPENSES are based on applicable contract amounts
restated to reflect voluntary fee waivers and expense reimbursements that are
expected to continue to reduce expenses during the current year, except that
the "Management Fee" and "Other Expenses" are based on estimated amounts for
the current year. Any waivers or reimbursements would reduce the Fund's total
expenses. There can be no assurance that waivers or reimbursements will
continue. For more complete descriptions of the various costs and expenses you
can expect to incur as an investor in the Fund, please see "Management and
Servicing Fees."
EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses associated
with a $1,000 investment over stated periods, based on the expenses in the
above tables and an assumed annual rate of return of 5%. The rate of return
should not be considered an indication of actual or expected performance of the
Fund nor a representation of past or future expenses; actual expenses and
returns may be greater or lesser than those shown.
How the Fund Works
INVESTMENT OBJECTIVE AND POLICIES
Set forth below is a description of the investment objectives and related
policies of the Fund.
The Fund seeks to provide investors with a high level of income exempt from
federal income tax while preserving capital and liquidity. This investment
objective is fundamental and cannot be changed without shareholder approval.
The Fund, which is a diversified portfolio, seeks to achieve its investment
objective by investing in high-quality, short-term U.S. dollar-denominated
money market instruments, primarily municipal obligations, with remaining
maturities not exceeding thirteen (13) months.
Wells Fargo Bank, as investment adviser to the Fund, pursues the Fund's
objective by investing (under normal market conditions) substantially all of
the Fund's assets in the following types of municipal obligations that pay
interest which is exempt from federal
PROSPECTUS 4
<PAGE>
income tax: bonds, notes and commercial paper issued by or on behalf of states,
territories, and possessions of the United States (including the District of
Columbia) and their political subdivisions, agencies, instrumentalities
(including government-sponsored enterprises) and authorities, the interest on
which, in the opinion of counsel to the issuer or bond counsel, is exempt from
federal income tax. These municipal obligations and the taxable investments
described below may bear interest at rates that are not fixed ("floating- and
variable-rate instruments").
The Fund may temporarily invest some of its assets in cash reserves or certain
high-quality, taxable money market instruments, or may engage in other
investment activities as described in this Prospectus. The Fund may elect to
invest temporarily up to 20% of its net assets in certain permitted taxable
investments, including cash reserves, U.S. Government obligations, obligations
of domestic banks, commercial paper, taxable municipal obligations and
repurchase agreements. The Fund also may invest in U.S. dollar-denominated
obligations of foreign banks and foreign securities. Such temporary investments
most likely would be made when there is an unexpected or abnormal level of
investor purchases or redemptions of interests in the Fund or because of
unusual market conditions. The income from these temporary investments and
investment activities may be subject to federal income tax. However, as stated
above, Wells Fargo Bank seeks to invest substantially all of the Fund's assets
in securities exempt from such tax.
As a matter of fundamental policy which can not be changed without shareholder
approval, at least 80% of the net assets of the Fund are invested (under normal
market conditions) in municipal obligations that pay interest which is exempt
from federal income tax and is not subject to the federal alternative minimum
tax. However, as a matter of general operating policy, the Fund seeks to invest
substantially all of its assets in such municipal obligations. The Fund's
investment adviser may rely either on the opinion of counsel to the issuer of
the municipal obligations or bond counsel regarding the tax treatment of these
obligations. In addition, the Fund may invest 25% or more of its assets in
municipal obligations that are related in such a way that an economic, business
or political development or change affecting one such obligation would also
affect the other obligations; for example, the Fund may own different municipal
obligations which pay interest based on the revenues of similar types of
projects.
Additional information about the Fund's investment activities is contained in
the "Prospectus Appendix -- Additional Investment Policies."
The Master Portfolio
The Fund currently invests all of its assets in a corresponding Master
Porfolio with an identical investment objective. As discussed above, the
Company's Board of Directors has voted to approve the Consolidation and the
dissolution of the Master Portfolio. The Consolidation and dissolution is
expected to occur in December. Upon completion of
5 PROSPECTUS
<PAGE>
the Consolidation and dissolution, the Fund will invest all of its assets
directly in a portfolio of securities and will no longer invest in the Master
Portfolio. The Fund will retain Wells Fargo Bank, the Master Portfolio's
current investment adviser, to manage its assets. For additional information
about the existing master/feeder structure, including information on
shareholder voting rights and additional options for investment in the Master
Portfolio, please see the Fund's SAI. You may obtain a copy of the SAI free of
charge by calling 1-800-260-5969.
RISK FACTORS
Investments in the Fund are not bank deposits or obligations of Wells Fargo
Bank and are not insured by the FDIC, nor are they insured or guaranteed
against loss of principal. Therefore, investors should be willing to accept
some risk with money invested in the Fund. Although the Fund seeks to maintain
a stable net asset value of $1.00 per share, there is no assurance that it will
be able to do so. The Fund may not achieve as high a level of current income as
other mutual funds that do not limit their investment to the high credit
quality instruments in which the Fund invests.
The Fund, under the 1940 Act, must comply with certain investment criteria
designed to provide liquidity, reduce risk and allow the Fund to maintain a
stable net asset value of $1.00 per share. The Fund's dollar-weighted average
portfolio maturity must not exceed 90 days. Any security that the Fund
purchases must have a remaining maturity of not more than 397 days. In
addition, any security that the Fund purchases must present minimal credit
risks and be of high quality (i.e., be rated in the top two rating categories
by the requisite NRSROs or, if unrated, determined to be of comparable quality
to such rated securities). These determinations are made by Wells Fargo Bank,
as the Fund's investment adviser, under guidelines adopted by the Company's
Board of Directors.
The Fund seeks to reduce risk by investing its assets in securities of various
issuers. As such, the Fund is considered to be diversified for purposes of the
1940 Act. In addition, the Fund emphasizes safety of principal and high credit
quality. In particular, the internal investment policies of the Fund's
investment adviser, Wells Fargo Bank, prohibit the purchase for the Fund of
many types of floating-rate derivative securities that are considered
potentially volatile. The following types of derivative securities ARE NOT
permitted investments for the Fund:
. capped floaters (on which interest is not paid when market rates move
above a certain level);
. leveraged floaters (whose interest rate reset provisions are based on a
formula that magnifies changes in interest rates);
. range floaters (which do not pay any interest if market interest rates
move outside of a specified range);
PROSPECTUS 6
<PAGE>
. dual index floaters (whose interest rate reset provisions are tied to more
than one index so that a change in the relationship between these indices
may result in the value of the instrument falling below face value); and
. inverse floaters (which reset in the opposite direction of their index).
Additionally, the Fund may not invest in securities whose interest rate reset
provisions are tied to an index that materially lags short-term interest rates,
such as Cost of Funds Index floaters. The Fund may only invest in floating-rate
securities that bear interest at a rate that resets quarterly or more
frequently and that resets based on changes in standard money market rate
indices such as U.S. Treasury bills, London Interbank Offered Rate or LIBOR,
the prime rate, published commercial paper rates, federal funds rates, Public
Securities Associates floaters or JJ Kenney index floaters.
The portfolio debt instruments of the Fund are subject to credit and interest-
rate risk. Credit risk is the risk that issuers of the debt instruments in
which the Fund invests may default on the payment of principal and/or interest.
Interest-rate risk is the risk that increases in market interest rates may
adversely affect the value of the debt instruments in which the Fund invests
and hence the value of your investment in the Fund. These risks should be
lessened because the Fund invests in high-quality, short-term securities.
Generally, securities in which the Fund invests will not earn as high a yield
as securities of longer maturity and/or of lesser quality that are more subject
to market volatility. The Fund attempts to maintain the value of its shares at
a constant $1.00 per share, although there can be no assurance that the Fund
will always be able to do so. See "Prospectus Appendix -- Additional Investment
Policies" and the SAI for further information about the Fund's investment
policies and risks.
PERFORMANCE
The performance of the Fund may be advertised from time to time in terms of
current yield, effective yield, and average annual total return. In addition,
the Fund's performance may be advertised in terms of tax-equivalent yield or
effective tax-equivalent yield. Performance figures are based on historical
results and are not intended to indicate future performance. Performance
figures are calculated separately for each class of shares of the Fund.
Yield refers to the income generated by an investment in a class of shares of
the Fund over a specified period (usually 7 days), expressed as an annual
percentage rate. Effective yield is calculated similarly but assumes
reinvestment of the income earned from a class of shares of the Fund. Because
of the effects of compounding, effective yields are slightly higher than
yields. The tax-equivalent and effective tax-equivalent yields assume that a
stated income tax rate has been applied to determine the tax-equivalent
figures.
7 PROSPECTUS
<PAGE>
Average annual total return is based on the overall dollar or percentage
change of an investment in the Fund and assumes the investment is at NAV and
all dividends and distributions are also reinvested at NAV in shares of the
Fund.
In addition to presenting these standardized performance calculations, at
times, the Fund may also present non-standard performance figures, such as
yields and effective yields for a 30-day period or, in sales literature,
distribution rates.
Additional performance information is contained in the SAI under "Performance
Calculations" and in the Annual Report. The SAI and the Annual Report (when
available) may be obtained upon request without charge by calling the Company
at (800) 260-5969 or by writing the Company at the address shown on the front
cover of the Prospectus.
The Fund and Management
THE FUND
The Fund is one fund in the Stagecoach Family of Funds. The Company was
organized as a Maryland corporation on September 9, 1991 and currently offers
shares of more than twenty-five other funds. The Company's Board of Directors
supervises the Fund's activities and monitors its contractual arrangements with
various service providers. Although the Company is not required to hold annual
shareholder meetings, special meetings may be required for purposes such as
electing or removing Directors, approving advisory contracts and distribution
plans, and changing a fund's investment objective or fundamental investment
policies. All shares of the Company have equal voting rights and are voted in
the aggregate, rather than by fund or class, unless otherwise required by law
(such as when the voting matter affects only one fund or class). A Fund
shareholder of record is entitled to one vote for each share owned and
fractional votes for fractional shares owned. See "Management" in the SAI for
more information on the Company's Directors and Officers. Each class of shares
represents an equal proportionate interest in the Fund with other shares of the
same class. Shareholders of each class bear their pro rata portion of the
Fund's operating expenses except for certain class-specific expenses (e.g., any
state securities registration fees, shareholder servicing fees or distribution
fees that may be paid under Rule 12b-1) that are allocated to a particular
class and, accordingly, may affect performance. For information on another fund
or a class of shares, please call Stagecoach Shareholder Services at 1-800-260-
5969 or write the Company at the address shown on the front cover of the
Prospectus. A more detailed description of the voting rights and attributes of
the shares is contained under "Capital Stock" in the SAI.
PROSPECTUS 8
<PAGE>
MANAGEMENT
Upon completion of the Consolidation and the dissolution of the Master
Portfolio, Wells Fargo Bank will serve as the Fund's investment adviser,
administrator, custodian and transfer and dividend disbursing agent. In
addition, Wells Fargo Bank serves as a shareholder servicing agent and as a
selling agent for the Fund. Wells Fargo Bank, one of the largest banks in the
United States, was founded in 1852 and is the oldest bank in the western United
States. As of [August 31, 1997], Wells Fargo Bank provided investment advisory
services for approximately $[57] billion of assets of individuals, trusts,
estates and institutions. Wells Fargo Bank also serves as the investment
adviser or sub-adviser to other separately managed series of the Company, and
to other registered, open-end, management investment companies which consist of
several separately managed investment portfolios. Wells Fargo Bank, a wholly
owned subsidiary of Wells Fargo & Company, is located at 420 Montgomery Street,
San Francisco, California 94104.
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, and for
which it has brokerage placement authority, in the interest of seeking the most
favorable overall net results. When Wells Fargo Bank determines that a
particular security should be bought or sold for the Fund and other accounts
managed by Wells Fargo Bank, Wells Fargo Bank undertakes to allocate those
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 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.
9 PROSPECTUS
<PAGE>
Investing in the Fund
Institutional Class 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 an investor or the investor's
representative, the Company or Stephens will transmit or cause to be
transmitted promptly, without charge, a paper copy of the electronic
Prospectus.
SHARE VALUE
The value of a share of each class is its NAV. Wells Fargo Bank calculates the
NAV of each class of the Fund's shares as of 9:00 a.m. and 1:00 p.m. (Pacific
time) on each Business Day. The NAV per share for each class of shares is
computed by dividing the value of the Fund's assets allocable to a particular
class, less the liabilities charged to that class by the total number of
outstanding shares of that class. All expenses are accrued daily and taken into
account for the purpose of determining the NAV. As noted above, the Fund seeks
to maintain a constant $1.00 per share NAV, although there can be no assurance
that it will be able to do so.
The Fund's NAV is calculated on the basis of the amortized cost method. This
valuation method is based on the receipt of a steady rate of payment on
portfolio instruments from the date of purchase until maturity rather than
actual changes in market value. The Company's Board of Directors believes that
this valuation method accurately reflects fair value.
PURCHASE OF INSTITUTIONAL CLASS SHARES
Institutional Class shares of the Fund are sold at NAV (without a sales
charge) on a continuous basis primarily to certain customers ("Customers") of
affiliate, franchise or correspondent banks of Wells Fargo & Company and other
selected institutions (previously defined as Institutions). Customers may
include individuals, trusts, partnerships and corporations. Share purchases are
effected through a Customer's account at an Institution under the terms of the
Customer's account agreement with the Institution, and confirmations of share
purchases and redemptions are sent by the Fund to the Institution involved. The
minimum initial purchase amount on Institutional Class shares is $150,000 and
the minimum subsequent purchase amount on such shares is $25,000. Investors in
various fiduciary accounts and certain other investors are not subject to
minimum initial or subsequent purchase amount requirements.
PROSPECTUS 10
<PAGE>
Institutions (or their nominees), acting on behalf of their Customers,
normally are the holders of record of Institutional Class shares. Customers'
beneficial ownership of Institutional Class shares is reflected in the account
statements provided by Institutions to their Customers. The exercise of voting
rights and the delivery to Customers of shareholder communications from the
Fund is governed by the Customers' account agreements with an Institution.
Investors wishing to purchase Institutional Class shares of the Fund should
contact their account representatives.
Institutional Class shares of the Fund are sold at the NAV per share next
determined after a purchase order has become effective. Purchase orders placed
by an Institution must be received by the Company by 9:00 a.m. (Pacific time)
on any Business Day. Payment for such shares may be made by Institutions in
federal funds or other funds immediately available to the custodian no later
than 1:00 p.m. (Pacific time) on that Business Day.
Institutions are responsible for transmitting orders for purchases by their
Customers and delivering required funds on a timely basis. If funds are not
received within the periods described above, the order will be canceled, notice
thereof will be given, and the Institution will be responsible for any loss to
the Fund or its shareholders.
Institutions may charge certain account fees depending on the type of account
the investor has established with the Institution. In addition, an Institution
may receive fees from the Fund with respect to the investments of its Customers
as described under "Management and Servicing Fees." Payment for Institutional
Class shares of the Fund may, in the discretion of the investment adviser, be
made in the form of securities that are permissible investments for the Fund.
For further information see "Additional Purchase and Redemption Information" in
the SAI.
The Company reserves the right to reject any purchase order or to suspend
sales at any time. Payment for orders that are not received will be returned
after prompt inquiry. The issuance of Institutional Class shares is recorded on
the Company's books, and share certificates are not issued.
WIRE INSTRUCTIONS FOR DIRECT PURCHASES BY INSTITUTIONS
1. Complete an Account Application.
2. Instruct the wiring bank to transmit the specified amount in federal funds
to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000587
Attention: Stagecoach Funds (Name of Fund and designate Institutional Class)
Account Name(s): Name(s) in which to be registered
Account Number: (if investing into an existing account)
11 PROSPECTUS
<PAGE>
3. A completed Account Application should be sent by telefacsimile, with the
original subsequently mailed, to the following address immediately after the
funds are wired and must be received and accepted by the Transfer Agent
before an account can be opened:
Wells Fargo Bank, N.A.
Stagecoach Shareholder Services
P.O. Box 7066
San Francisco, California 94120-7066
Telefacsimile: 1-415-781-4082
4. Share purchases are effected at the NAV next determined after the Account
Application is received and accepted.
STATEMENTS AND REPORTS
Institutions (or their nominees) typically send investors a confirmation or
statement of the account after every transaction that affects their share
balance or the 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,
shareholders receive financial statements.
REDEMPTION OF INSTITUTIONAL CLASS SHARES
Redemption requests are effected at the NAV per share next determined after
receipt of a redemption request in good order by the Company. Institutional
Class shares held by an Institution on behalf of its Customers must be redeemed
in accordance with instructions and limitations pertaining to the Customer's
accounts at the Institution. Institutions are responsible for transmitting
redemption requests to the Company and crediting its Customers' accounts with
the redemption proceeds on a timely basis. The redemption proceeds for
Institutional Class shares normally are wired to the redeeming Institution the
following Business Day after receipt of the request by the Company. The Company
reserves the right to delay the wiring of redemption proceeds for up to seven
days after it receives a redemption order if, in the judgment of the investment
adviser, an earlier payment could adversely affect the Fund or unless the SEC
permits a longer period under extraordinary circumstances. Such extraordinary
circumstances could include a period during which an emergency exists as a
result of which (a) disposal by the Fund of securities owned by it is not
reasonably practicable or (b) it is not reasonably practicable for the Fund to
fairly determine the value of its net assets, or a period during which the SEC
by order permits deferral of redemptions for the protection of security holders
of the Fund.
When Institutional Class shares are redeemed directly from the Fund, the
Company ordinarily send the proceeds by check to the shareholder at the address
of record on the next Business Day unless payment by wire is requested. The
Company may take up
PROSPECTUS 12
<PAGE>
to seven days to make payment, although this will not be the customary
practice. Also, if the New York Stock Exchange is closed (or when trading is
restricted) for any reason other than the customary weekend or holiday closing
or if an emergency condition as determined by the SEC merits such action, the
Fund may suspend redemptions or postpone payment dates.
To be accepted by the Fund, a letter requesting redemption must include: (i)
the Fund's name and account registration from which the Institutional Class
shares are being redeemed; (ii) the account number; (iii) the amount to be
redeemed; (iv) the signatures of all registered owners; and (v) a signature
guarantee by any eligible guarantor institution. An "eligible guarantor
institution" includes a commercial bank that is an FDIC member, a trust
company, a member firm of a domestic stock exchange, a savings association, or
a credit union that is authorized by its charter to provide a signature
guarantee. Signature guarantees by notaries public are not acceptable. Further
documentation may be requested from corporations, administrators, executors,
personal representatives, trustees or custodians.
All redemptions of Institutional Class shares of the Fund are made in cash,
except that the commitment to redeem Institutional Class shares in cash extends
only to redemption requests made by each Fund shareholder during any 90-day
period of up to the lesser of $250,000 or 1% of the NAV of the Fund at the
beginning of such period. This commitment is irrevocable without the prior
approval of the SEC. In the case of redemption requests by shareholders in
excess of such amounts, the Board of Directors reserves the right to have the
Fund make payment, in whole or in part, in securities or other assets, in case
of an emergency or any time a cash distribution would impair the liquidity of
the Fund to the detriment of the existing shareholders. In this event, the
securities would be valued in the same manner as the securities of the Fund are
valued. If the recipient were to sell such securities, the investors would
incur brokerage charges.
REDEMPTIONS BY TELEPHONE
Telephone exchange or redemption privileges authorize the Transfer Agent to
act on telephone instructions from any person representing himself or herself
to be the shareholder of record and reasonably believed by the Transfer Agent
to be genuine. The Company requires the Transfer Agent to employ reasonable
procedures, such as requiring a form of personal identification, to confirm
that instructions are genuine and, if it does not follow such procedures, the
Company and the Transfer Agent may be liable for any losses due to unauthorized
or fraudulent instructions. Neither the Company nor the Transfer Agent will be
liable for following telephone instructions reasonably believed to be genuine.
13 PROSPECTUS
<PAGE>
Exchanges
Institutional Class shares of the Fund may be exchanged for Institutional
Class shares of one of the Company's other funds in an identically registered
account (provided that shares of the fund to be acquired are registered for
sale in the investor's state of residence) at respective net asset values.
Investors wishing to exchange Institutional Class shares should contact their
account representatives. Investors with questions may call the Company at 1-
800-260-5969. Before making an exchange from the Fund, an investor should
observe the following:
. Exchange transactions are effected through a Customer's account at an
Institution under the terms of the Customer's account agreement with the
Institution, and confirmations of share exchanges are sent by the Fund to
the Institution involved.
. You will need to read the prospectus of the fund into which you want to
exchange.
. Every exchange is a redemption of shares of one fund and the purchase of
shares of another fund.
. You must exchange at least the minimum initial purchase amount of the Fund
you are redeeming unless you have already met the minimum initial purchase
amount of the fund you are purchasing.
. The Company may limit the number of times shares may be exchanged or may
reject any telephone exchange order. Subject to limited exceptions, the
Company will notify you 60 day before discontinuing or modifying the
exchange privilege.
. No fees are currently charged to investors by the Company in connection
with exchanges through the Company although the Company reserves the
right, upon not less than 60 days' written notice, to charge investors a
nominal exchange fee in accordance with rules promulgated by the SEC.
In addition, Institutional Class shares of the Fund may be exchanged for Class
A shares in connection with the distribution of assets held in a qualified
trust, agency or custodial account maintained with the trust department of a
Wells Fargo Bank or another bank, trust company or thrift institution, or in
certain other cases where Institutional Class shares are not held in such
qualified accounts. Similarly, Class A shares may be exchanged for the Fund's
Institutional Class shares if the shares are to be held in such a qualified
trust, agency or custodial account.
PROSPECTUS 14
<PAGE>
Dividend and Capital Gain Distributions
Dividends from net investment income of the Fund are declared daily payable to
Institutional Class shareholders of record as of 9:00 a.m. (Pacific time).
Institutional Class shareholders begin earning dividends on the Business Day
the investment is effected and continue to earn dividends through the day
before the date that the shares are redeemed. Dividends for a Saturday, Sunday
or Holiday are declared payable to shareholders of record as of the preceding
Business Day. The Fund declares and distributes any capital gains at least
annually. Expenses, such as state securities registration fees and transfer
agent fees, that are attributable to a particular class may affect the relative
dividends and/or capital-gain distributions of a class of shares.
Dividends declared in a month generally are distributed on the last Business
Day of that month. Dividends and any capital-gain distributions are
automatically invested in additional whole and fractional shares unless the
shareholder has elected to receive payment in cash.
Management and Servicing Fees
INVESTMENT ADVISER
Upon completion of the Consolidation and the dissolution of the Master
Portfolio, and subject to the overall supervision of the Company's Board of
Directors, Wells Fargo Bank, as the Fund's investment adviser, will provide
investment guidance and policy direction in connection with the management of
the Fund's assets. Wells Fargo Bank also furnishes the Board of Directors with
periodic reports on the Fund's investment strategies and performance. For these
services, Wells Fargo Bank will be entitled to a monthly investment advisory
fee at the annual rate of 0.30% of the Fund's average daily net assets, and may
waive such fee in whole or in part. Any such waiver will reduce the Fund's
expenses and, accordingly, have a favorable impact on the Fund's yield. From
time to time, the Fund, consistent with its investment objective, policies and
restrictions, may invest in securities of companies with which Wells Fargo Bank
has a lending relationship.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank also serves as the Fund's custodian and transfer and dividend
disbursing agent. Under the Custody Agreement, the Fund may, at times, borrow
money from Wells Fargo Bank as needed to satisfy temporary liquidity needs.
Wells Fargo Bank charges interest on such overdrafts at a rate determined
pursuant to the Fund's Custody Agreement. Wells Fargo Bank performs its
custodial and transfer and dividend disbursing agency services at 525 Market
Street, San Francisco, California 94105.
15 PROSPECTUS
<PAGE>
INSTITUTIONS AND SHAREHOLDER SERVICING AGENTS
The Company has entered into Shareholder Servicing Agreements with Wells
Fargo Bank and other Institutions on behalf of the Institutional Class shares
of the Fund. Under such agreements, Shareholder Servicing Agents (including
Wells Fargo Bank) agree, as agents for their customers, to provide shareholder
administrative and liaison services with respect to Fund shares, which
include, without limitation, aggregating and transmitting shareholder orders
for purchases, exchanges and redemptions; maintaining shareholder accounts and
records; exchanges and redemptions; and providing such other related services
as the Company or a shareholder may reasonably request. For these services, a
Shareholder Servicing Agent is entitled to receive a fee at the annual rate of
up to 0.20% of the average daily net assets attributable to the Institutional
Class shares owned of record or beneficially by investors with whom the
Shareholder Servicing Agent maintains a servicing relationship. In no case
shall payments exceed any maximum amount that may be deemed applicable under
applicable laws, regulations or rules, including the Conduct Rules of the NASD
("NASD Rules").
A Shareholder Servicing Agent may impose certain conditions on its customers,
subject to the terms of this Prospectus, in addition to or different from
those imposed by the Fund, such as requiring a minimum initial investment or
payment of a separate fee for additional services. Each Shareholder Servicing
Agent has agreed to disclose any fees it may directly charge its customers who
are shareholders of the Fund and to notify them in writing at least 30 days
before it imposes any transaction fees.
ADMINISTRATOR AND CO-ADMINISTRATOR
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank as Administrator and Stephens as Co-administrator, provide the Fund
with administrative services, including general supervision of the Fund's
operation, coordination of the other services provided to the Fund,
compilation of information for reports to the SEC and the state securities
commissions, preparation of proxy statements and shareholder reports, and
general supervision of data compilation in connection with preparing periodic
reports to the Company's Directors and officers. Wells Fargo Bank and Stephens
also furnish office space and certain facilities to conduct the Fund's
business, and Stephens compensates the Company's Directors and officers who
are affiliated with Stephens. For these administrative services, Wells Fargo
Bank and Stephens are entitled to receive a monthly fee at the annual rate of
0.04% and 0.02%, respectively, of the Fund's average daily net assets. Wells
Fargo Bank and Stephens may delegate certain of their respective
administrative duties to sub-administrators.
SPONSOR AND DISTRIBUTOR
Stephens is the Company's sponsor and co-administrator and distributes the
Fund's shares. Stephens is a full service broker/dealer and investment
advisory firm located at
PROSPECTUS 16
<PAGE>
111 Center Street, Little Rock, Arkansas 72201. Stephens and its predecessor
have been providing securities and investment services for more than 60 years.
Additionally, they have been providing discretionary portfolio management
services since 1983. Stephens currently manages investment portfolios for
pension and profit-sharing plans, individual investors, foundations, insurance
companies and university endowments.
Stephens, as the principal underwriter of the Fund within the meaning of the
1940 Act, has entered into a Distribution Agreement with the Company under
which Stephens acts as agent for the Fund for the sale of its shares and may
enter into selling agreements with other agents (previously defined as Selling
Agents) that wish to make Fund shares available to their respective customers.
Stephens has established a non-cash compensation program, pursuant to which
broker/dealers or financial institutions that sell shares of the Company's
funds may earn additional compensation in the form of trips to sales seminars
or vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective
fees in whole or in part and reimburse expenses payable to others. Any such
waivers or reimbursements will reduce the Fund's expenses and, accordingly,
have a favorable impact on the Fund's performance. Except for the expenses
borne by Wells Fargo Bank and Stephens, each fund of the Company bears all
costs of its operations, including its pro rata portion of Company expenses
such as fees and expenses of its independent auditors, 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.
17 PROSPECTUS
<PAGE>
Taxes
Dividends distributed from the Fund's net interest income from tax-exempt
securities will not be subject to federal income taxes. Dividends attributable
to the Fund's interest income from taxable securities and short-term capital
gains are taxable to the Fund's shareholders as ordinary income. Distributions
from the Fund's net long-term capital gains, if any, are designated as capital
gain distributions and taxable to the Fund's shareholders as long-term capital
gains.
Dividend and capital gain distributions will be taxable when paid, whether
investors take such distributions in cash or have them automatically reinvested
in additional Fund shares. Distributions declared in October, November and
December and distributed in the following January will be treated 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
SAIs. In certain circumstances, U.S. residents may also be subject to
withholding taxes. See "Federal Income Taxes -- Backup Withholding" in the
SAIs.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important federal tax considerations generally affecting the Fund and its
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Additional tax
considerations, including the federal alternative minimum tax, where
applicable, are discussed in the Fund's SAI.
PROSPECTUS 18
<PAGE>
PROSPECTUS
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. REFERENCES TO THE INVESTMENTS AND
INVESTMENT POLICIES AND RESTRICTIONS OF THE FUND, UNLESS OTHERWISE INDICATED,
SHOULD BE UNDERSTOOD AS REFERENCES TO THE INVESTMENTS AND INVESTMENT POLICIES
AND RESTRICTIONS OF THE MASTER PORTFOLIO IN WHICH THE FUND INVESTS ITS ASSETS.
The Fund may invest in the following:
(i) certain municipal obligations;
(ii) certain U.S. Government obligations;
(iii) negotiable certificates of deposit, fixed time deposits, bankers'
acceptances or other obligations of U.S. banks (including foreign branches)
that have more than $1 billion in total assets at the time of investment and
are members of the Federal Reserve System or are examined by the Comptroller
of the Currency or whose deposits are insured by the FDIC;
(iv) commercial paper rated at the date of purchase P-1 by Moody's or "A-
1+" or "A-1" by S&P;
(v) certain floating- and variable-rate instruments;
(vi) certain repurchase agreements;
(vii) foreign bank obligations; and
(viii) certain securities issued by other investment companies.
Municipal Obligations
The Fund may invest in various types of municipal obligations. Municipal
bonds generally have a maturity at the time of issuance of up to 40 years.
Medium-term municipal notes are generally issued in anticipation of the
receipt of tax funds, of the proceeds of bond placements, or of other
revenues. The ability of an issuer to make payments on notes is therefore
especially dependent on such tax receipts, proceeds from bond sales or other
revenues, as the case may be. Municipal commercial paper is a debt obligation
with a stated maturity of 270 days or less that is issued to finance seasonal
working capital needs or as short-term financing in anticipation of longer-
term debt. From time to time, the Fund may invest 25% or more of the current
value of its total assets in certain "private activity bonds," such as
pollution control bonds; provided, however, that such investments will be made
only to the extent they are consistent with the Fund's fundamental policy of
investing, under normal circumstances, at least 80% of its net assets in
municipal obligations that are exempt from federal income tax and not subject
to the federal alternative minimum tax.
A-1
<PAGE>
The Fund will invest in the following municipal obligations with remaining
maturities not exceeding 13 months:
(i) long-term municipal bonds rated at the date of purchase "Aa" or better
by Moody's or "AA" or better by S&P;
(ii) municipal notes rated at the date of purchase "MIG 1" or "MIG 2" (or
"VMIG 1" or "VMIG 2" in the case of an issue having a variable rate with a
demand feature) by Moody's or "SP-1+" "SP-1" or "SP-2" by S&P; and
(iii) short-term municipal commercial paper rated at the date of purchase
"P-1" by Moody's or "A-1+", or "A-1" or "A-2" by S&P.
U.S. Government Obligations
The Fund may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Payment of principal and interest on U.S. Government Obligations (i) may be
backed by the full faith and credit of the United States ( as with U.S.
Treasury bills and GNMA certificates) or (ii) may be backed solely by the
issuing or guaranteeing agency or instrumentality itself (as with FNMA notes).
In the latter case investors must look principally to the agency or
instrumentality issuing or guaranteeing the obligation for ultimate repayment,
which agency or instrumentality may be privately owned. There can be no
assurance that the U.S. Government will provide financial support to its
agencies or instrumentalities where it is not obligated to do so. In addition,
U.S. Government Obligations are subject to fluctuations in market value due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
Other Investment Companies
Subject to the limitations set forth below and in the 1940 Act, the Fund may
invest in securities of other investment companies. For temporary investments,
the Fund may invest in shares of other open-end investment companies that
invest exclusively in high-quality short-term securities subject to the limits
set forth under Section 12 of the 1940 Act, provided however, that any such
company has a policy of investing, under normal market conditions, at least 80%
of its net assets in obligations that are exempt from federal income tax and
are not subject to the federal alternative minimum tax. Such investment
companies can be expected to charge management fees and other operating
expenses that would be in addition to those charged to the Fund.
Floating- and Variable-Rate Instruments
The Fund may purchase debt instruments with interest rates that are
periodically adjusted at specified intervals or whenever a benchmark rate or
index changes. These
PROSPECTUS A-2
<PAGE>
adjustments generally limit the increase or decrease in the amount of interest
received on the debt instruments. The floating- and variable-rate instruments
that the Fund may purchase include certificates of participation in such
instruments. Floating- and variable-rate instruments are subject to interest-
rate risk and credit risk.
Repurchase Agreements
The Fund may enter into repurchase transactions in which the seller of a
security to the Fund agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. The Fund may enter into repurchase agreements only with respect to
securities that could otherwise be purchased by the Fund, and all repurchase
transactions must be collaterallized. The Fund may incur a loss on a repurchase
transaction if the seller defaults and the value of the underlying collateral
declines or is otherwise limited or if receipt of the security or collateral is
delayed. The Fund may participate in pooled repurchase agreement transactions
with other funds advised by Wells Fargo Bank.
Letters of Credit
Certain of the debt obligations, certificates of participation, commercial
paper and other short-term obligations which the Fund is permitted to purchase
may be backed by an unconditional and irrevocable letter of credit of a bank,
savings and loan association or insurance company which assumes the obligation
for payment of principal and interest in the event of default by the issuer.
Letter of credit-backed investments must, in the opinion of Wells Fargo Bank,
be of investment quality comparable to other permitted investments of the Fund.
Foreign Obligations
The Fund may invest up to 25% of its assets in high-quality, short-term debt
obligations of foreign branches of U.S. banks or U.S. branches of foreign banks
that are denominated in and pay interest in U.S. dollars. Investments in
foreign obligations involve certain considerations that are not typically
associated with investing in domestic obligations. There may be less publicly
available information about a foreign issuer than about a domestic issuer.
Foreign issuers also are not subject to the same uniform accounting, auditing
and financial reporting standards or governmental supervision as domestic
issuers. In addition, with respect to certain foreign countries, taxes may be
withheld at the source under foreign income tax laws, and there is a
possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect investments
in, the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries.
A-3 PROSPECTUS
<PAGE>
PROSPECTUS
Taxable Investments
Pending the investment of proceeds from the sale of shares of the Fund or
proceeds from sales of portfolio securities or in anticipation of redemptions
or to maintain a "defensive" posture when, in the opinion of Wells Fargo Bank,
as investment adviser, it is advisable to do so because of market conditions,
the Fund may elect to invest temporarily up to 20% of the current value of its
net assets in cash reserves, including the following taxable high-quality money
market instruments: (i) U.S. Government Obligations; (ii) negotiable
certificates of deposit, bankers' acceptances and fixed time deposits and other
obligations of domestic banks (including foreign branches) that have more than
$1 billion in total assets at the time of investment and are members of the
Federal Reserve System or are examined by the Comptroller of the Currency or
whose deposits are insured by the FDIC; (iii) commercial paper rated at the
date of purchase "P-1" by Moody's or "A-1+" or "A-1" by S&P; (iv) certain
repurchase agreements; and (v) high-quality municipal obligations, the income
from which may or may not be exempt from federal income taxes.
Moreover, the Fund may invest temporarily more than 20% of its total assets in
such securities and in high-quality, short-term municipal obligations the
interest on which is not exempt from federal income taxes to maintain a
temporary defensive posture or in an effort to improve after-tax yield to the
Fund's shareholders when, in the opinion of Wells Fargo Bank, as investment
adviser, it is advisable to do so because of unusual market conditions.
Illiquid Securities
Certain securities may be sold only pursuant to certain legal restrictions,
and may be difficult to sell. The Fund may not hold more than 10% of the value
of its net assets in securities that are illiquid or such lower percentage as
may be required by the states in which the Fund sells its shares. Repurchase
agreements and time deposits that do not provide for payment to the Fund within
seven days after notice, guaranteed investment contracts and some commercial
paper issued in reliance upon the exemption in Section 4(2) of the Securities
Act of 1933, as amended (the "1933 Act") (other than variable amount master
demand notes with maturities of nine months or less), are subject to the
limitation on illiquid securities. In addition, interests in privately arranged
loans may be subject to this limitation.
If otherwise consistent with its investment objective and policies, the Fund
may purchase securities which are not registered under the 1933 Act but which
can be sold to "qualified institutional buyers" in accordance with Rule 144A
under the 1933 Act. Any such security will not be considered illiquid so long
as it is determined by the Company's Board of Directors, acting under
guidelines approved and monitored by the Company's Board, that an adequate
trading market exists for that security.
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objective, as set forth in the "How the Fund Works --
Investment Objective and Policies" section, is fundamental. Accordingly, such
A-4
<PAGE>
investment objective and policies may not be changed without approval by the
vote of the holders of a majority of the Fund's outstanding voting securities,
as described under "Capital Stock" in the SAI. In addition, any fundamental
investment policy may not be changed without such shareholder approval. If the
Company's Board of Directors determines, however, that the Fund's investment
objective can best be achieved by a substantive change in a nonfundamental
investment policy or strategy, the Company's Board may make such a change
without shareholder approval and will disclose any such material changes in the
then-current prospectus. Additional information about the Fund's investment
policies and restrictions is contained in the SAI under "Investment
Restrictions."
As matters of fundamental policy, the Fund may: (i) borrow from banks up to
10% of the current value of its net assets only for temporary purposes in order
to meet redemptions, and these borrowings may be secured by the pledge of up to
10% of the current value of its net assets (but investments by the Fund may not
be purchased while any such outstanding borrowing in excess of 5% of its net
assets exists); (ii) not make loans, except that the Fund may purchase or hold
debt instruments, lend its portfolio securities and enter into repurchase
agreement transactions in accordance with its investment policies; (iii) not
purchase the securities of issuers conducting their principal business activity
in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would be 25% or
more of the current value of the Fund's total assets, provided that there is no
limitation with respect to investments in (a) municipal securities (for the
purposes of this restriction, private activity bonds and notes shall not be
deemed municipal securities if the payments of principal and interest on such
bonds and notes is the ultimate responsibility of non-governmental entities),
(b) U.S. Government obligations, and (c) certain obligations of domestic banks;
and (iv) not purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities,
including government-sponsored enterprises) if, as a result, with respect to
75% of its total assets, more than 5% of the value of the Fund's total assets
would be invested in the securities of any one issuer or, with respect to 100%
of its total assets the Fund's ownership would be more than 10% of the
outstanding voting securities of such issuer.
As matters of non-fundamental policy the Fund may: (i) invest up to 10% of the
current value of its net assets in securities that are illiquid by virtue of
the absence of a readily available market or the existence of legal or
contractual restrictions on resale and fixed time deposits that are subject to
withdrawal penalties and that have maturities of more than seven days; and (ii)
invest up to 10% of the current value of its net assets in repurchase
agreements having maturities of more than seven days, and restricted securities
(which include securities that must be registered under the 1933 Act before
they may be offered to the public).
A-5 PROSPECTUS
<PAGE>
Advised by WELLS FARGO BANK, N.A.
Sponsored/Distributed by
Stephens Inc., Member NYSE/SIPC
NOT FDIC INSURED SCF175 (10/97)
<PAGE>
[LOGO]
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH FUNDS:
--------------------------------------------------------------------------
. are NOT FDIC INSURED
. are NOT deposits or obligations of Wells Fargo Bank
. are NOT guaranteed by Wells Fargo Bank
. involve investment risk, including possible loss of principal.
. seek to maintain a stable net asset value of $1.00 per share, however,
there can be no assurance that a Fund will meet this goal. Yields will vary
with market conditions.
LOGO
Printed on Recycled Paper SCF175 (10/97)
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated October 6, 1997
CALIFORNIA TAX-FREE BOND FUND
NATIONAL TAX-FREE FUND
Class C
------------------------------------------------------------
Stagecoach Funds, Inc. (the "Company") is an open-end, series investment
company. This Statement of Additional Information ("SAI") contains additional
information about Class C shares offered in the California Tax-Free Bond Fund
and National Tax-Free Fund of the Stagecoach Family of Funds (each, a "Fund" and
together, the "Funds"). The investment objective of each Fund is described in
the Prospectus under "How the Funds Work -- Investment Objective(s) and
Policies."
This SAI is not a Prospectus and should be read in conjunction with the
Prospectus for the Funds dated October 6, 1997. All terms used in this SAI that
are defined in the Prospectus have the meanings assigned in the Funds'
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
Company's 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......................... 5
Special Considerations Affecting California Municipal Obligations.. 15
Management......................................................... 18
Performance Calculations........................................... 27
Determination of Net Asset Value................................... 31
Additional Purchase and Redemption Information..................... 31
Portfolio Transactions............................................. 32
Fund Expenses...................................................... 34
Taxes.............................................................. 35
Capital Stock...................................................... 40
Other Information.................................................. 41
Independent Auditors............................................... 41
Financial Information.............................................. 42
Appendix........................................................... A-1
Financial Statements............................................... F-1
</TABLE>
i
<PAGE>
GENERAL
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company offering shares in separately managed investment portfolios. The
California Tax-Free Bond Fund was originally organized as a fund of Stagecoach.
The National Tax-Free Fund was originally organized as an investment portfolio
of Westcore Trust ("Westcore") as the Quality Tax-Exempt Income Fund. On
October 1, 1995, the Fund was reorganized as an investment portfolio of Pacifica
Funds Trust ("Pacifica"). An Agreement and Plan of Reorganization by and
between Pacifica and the Company was approved by the Company's Board of
Directors on April 25, 1996, and was approved by Pacifica's Board of Trustees on
May 17, 1996. The reorganization became effective on September 6, 1996 (the
"Reorganization") and the Pacifica National Tax-Exempt Fund was reorganized as
the National Tax-Free Fund.
INVESTMENT RESTRICTIONS
The Funds are subject to the investment restrictions indicated below which
may be changed with respect to a Fund only by a vote of a majority of the
holders of such Fund's outstanding shares (see "Capital Stock" below).
The National Tax-Free Fund may not:
-----------------------------------
1. Purchase or sell commodity contracts (including futures contracts) or
invest in oil, gas or mineral exploration or development programs, except that
the Fund, to the extent appropriate to its investment objective, may purchase
publicly traded securities of companies engaging in whole or in part in such
activities.
2. Purchase or sell real estate, except that the Fund may purchase
securities of issuers that deal in real estate and may purchase securities that
are secured by interests in real estate.
3. Purchase securities of companies for the purpose of exercising control.
4. Acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or acquisition
of assets or where otherwise permitted by the 1940 Act.
5. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as the Fund may be deemed to be an
underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
Fund's investment objective, policies and limitations, may be deemed to be
underwriting.
1
<PAGE>
6. Write or sell put options, call options, straddles, spreads, or any
combination thereof.
7. Borrow money or issue senior securities, except that the Fund may
borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts of up to 10% of the value of the total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of its total assets at the time
of such borrowing. The Fund will not purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total assets
are outstanding. Securities held in escrow or separate accounts in connection
with the Fund's investment practices as described in this SAI or in its
Prospectus are not deemed to be pledged for purposes of this limitation.
8. Purchase securities on margin, make short sales of securities or
maintain a short position, except that the Fund may obtain short-term credit as
may be necessary for the clearance of purchases and sales of portfolio
securities.
9. Invest less than 80% of its net assets in securities the interest on
which is exempt from federal income tax, except during periods of unusual market
conditions. For purposes of this investment limitation, securities the interest
on which is treated as a specific tax preference item under the federal
alternative minimum tax are considered taxable.
10. Make loans, except that the Fund may purchase and hold debt instruments
and enter into repurchase agreements in accordance with its investment objective
and policies.
11. Purchase securities of any one issuer if, immediately after such
purchase, more than 5% of the value of the Fund's total assets would be invested
in the securities of such issuer, or more than 10% of the issuer's outstanding
voting securities would be owned by the Fund, except that (a) up to 50% of the
value of the Fund's total assets may be invested without regard to these
limitations provided that no more than 25% of the value of the Fund's total
assets are invested in the securities of any one issuer and (b) these
limitations do not apply to securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. For purposes of these
limitations, a security is considered to be issued by the governmental entity
(or entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
nongovernmental user, such nongovernmental user. In certain circumstances, the
guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee, except that a guarantee of a security shall not
be deemed to be a security issued by the guarantor when the value of all
securities issued and guaranteed by the guarantor, and owned by the Fund, does
not exceed 10% of the value of the Fund's total assets.
12. Purchase any securities that would cause 25% or more of the value of
its total assets at the time of purchase to be invested in municipal obligations
with similar characteristics (such as private activity bonds where the payment
of principal and interest is the ultimate responsibility of issuers in the same
industry, pollution control revenue bonds, housing finance agency bonds or
hospital bonds) or the securities of issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to obligations issued or guaranteed
2
<PAGE>
by the U.S. Government, the District of Columbia, and their respective agencies,
authorities, instrumentalities or political subdivisions.
The California Tax-Free Bond Fund may not:
-----------------------------------------
(1) Purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and as
a result thereof, the value of the Fund's investments in that industry would be
25% or more of the current value of the Fund's total assets, provided that there
is no limitation with respect to investments in (i) municipal securities (for
the purpose of this restriction, private activity bonds and notes shall not be
deemed municipal securities if the payments of principal and interest on such
bonds or notes is the ultimate responsibility of non-governmental issuers) and
(ii) obligations of the United States Government, its agencies or
instrumentalities;
(2) Purchase or sell real estate or real estate limited partnerships
(other than municipal obligations or other securities secured by real estate or
interests therein or securities issued by companies that invest in real estate
or interests therein), commodities or commodity contracts (including futures
contracts);
(3) Purchase securities on margin (except for short-term credits
necessary for the clearance of transactions with regard to the Fund and except
for margin payments in connection with options, futures and options on futures
or make short sales of securities;
(4) Underwrite securities of other issuers, except to the extent that
the purchase of municipal securities or other permitted investments directly
from the issuer thereof or from an underwriter for an issuer and the later
disposition of such securities in accordance with the Fund's investment program
may be deemed to be an underwriting;
(5) 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 its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowings exceed 5% of its net assets); or
(7) Write, purchase or sell puts, calls, options or any combination
thereof, except that the Fund may purchase securities with put rights in order
to maintain liquidity.
The California Tax-Free Bond Fund is subject to the following non-
fundamental policies (which may be changed without shareholder vote):
(1) The Fund may not purchase or retain securities of any issuer if the
officers or Directors of the Company or the investment adviser owning
beneficially more than one-half of one
3
<PAGE>
percent (0.5%) of the securities of the issuer together owned beneficially more
than 5% of such securities.
(2) The Fund may not purchase interests, leases, or limited partnership
interests in oil, gas, or other mineral exploration or development programs.
(3) The Fund may not purchase securities of issuers who, with their
predecessors, have been in existence less than three years, unless the
securities are fully guaranteed or insured by the U.S. Government, a state,
commonwealth, possession, territory, the District of Columbia or by an entity in
existence at least three years, or the securities are backed by the assets and
revenues of any of the foregoing if, by reason thereof, the value of its
aggregate investments in such securities will exceed 5% of its total assets.
(4) The Fund may not purchase securities of unseasoned issuers, including
their predecessors, which have been in operation for less than three years, and
equity securities of issuers which are not readily marketable if by reason
thereof the value of the Fund's aggregate investment in such classes of
securities will exceed 5% of its total assets.
(6) The Fund may not invest more than 10% of the current value of its net
assets in repurchase agreements maturing in more than seven days or other
illiquid securities (including restricted securities).
In addition, the California Tax-Free Bond Fund may invest in shares of
other open-end, management investment companies, subject to the limitations of
Section 12(d)(1) of the 1940 Act, provided that any such purchases will be
limited to temporary investments in shares of unaffiliated investment companies.
However, the Fund's investment adviser will waive its advisory fees for that
portion of the Fund's assets so invested, except when such purchase is part of a
plan of merger, consolidation, reorganization or acquisition. These
unaffiliated investment companies must have a fundamental investment policy of
investing at least 80% of their net assets in obligations that are exempt from
federal income taxes and are not subject to the federal alternative minimum tax.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
a Fund's investments will not constitute a violation of such limitation, except
that any borrowing by a Fund that exceeds the fundamental investment limitations
stated above must be reduced to meet such limitations within the period required
by the 1940 Act (currently three days) and the Funds will not at any time hold
more than 15% of their net assets in illiquid securities. Otherwise, a Fund may
continue to hold a security even though it causes the Fund to exceed a
percentage limitation because of fluctuation in the value of the Fund's assets.
The Company may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Fund shares in certain states. Should
the Company determine that such a commitment is no longer in the best interests
of the Fund involved and its shareholders, the
4
<PAGE>
Company reserves the right to revoke the commitment by terminating the sale of
Fund shares in the state involved.
For purposes of determining industry classifications of issuers, wholly-
owned finance companies will be considered to be in the industries of their
parents if their activities are primarily related to financing the activities of
the parents, and utilities will be classified according to their services (for
example, gas, gas transmission, electric and gas, and electric and telephone
each will be considered a separate industry). In accordance with the current
views of the staff of the SEC and as a matter of nonfundamental policy that may
be changed without a vote of shareholders, a Fund will treat all supranational
organizations as a single industry and each foreign government (and all of its
agencies) as a separate industry.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
The Prospectus discusses the investment objectives of the Funds and the
policies to be employed to achieve those objectives. This section contains
supplemental information concerning certain types of securities and other
instruments in which the Funds may invest, the investment policies and portfolio
strategies that the Funds may utilize, and certain risks attendant to such
investments, policies and strategies.
U.S. Government Obligations. The Funds may invest in various types of U.S.
----------------------------
Government obligations in accordance with the policies described in its
Prospectus. U.S. Government obligations include securities issued or guaranteed
as to principal and interest by the U.S. Government and supported by the full
faith and credit of the U.S. Treasury. U.S. Treasury obligations differ mainly
in the length of their maturity. Treasury bills, the most frequently issued
marketable government securities, have a maturity of up to one year and are
issued on a discount basis. U.S. Government obligations also include securities
issued or guaranteed by federal agencies or instrumentalities, including
government-sponsored enterprises. Some obligations of such agencies or
instrumentalities of the U.S. Government are supported by the full faith and
credit of the United States or U.S. Treasury guarantees; others, by the right of
the issuer or guarantor to borrow from the U.S. Treasury; still others by the
discretionary authority of the U.S. Government to purchase certain obligations
of the agency or instrumentality; and others, only by the credit of the agency
or instrumentality issuing the obligation. In the case of obligations not
backed by the full faith and credit of the United States, the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government would
provide financial support to its agencies or instrumentalities (including
government-sponsored enterprises) where it is not obligated to do so. In
addition, U.S. Government obligations are subject to fluctuations in market
value due to fluctuations in market interest rates. As a general matter, the
value of debt instruments, including U.S. Government obligations, declines when
market interest rates increase and rises when market interest rates decrease.
Certain types of U.S. Government obligations are subject to fluctuations in
yield or value due to their structure or contract terms. The Funds may invest in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Examples of the types of
5
<PAGE>
U.S. Government obligations that may be held by the Funds include U.S. Treasury
bonds, notes and bills and the obligations of Federal Home Loan Banks, Federal
Farm Credit Banks, Federal Land Banks, the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, Government National Mortgage Association, Federal
National Mortgage Association, General Services Administration, Student Loan
Marketing Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks and Maritime Administration.
Repurchase Agreements. The California Tax-Free Bond Fund may enter into
---------------------
repurchase agreements wherein the seller of a security to the Fund agrees to
repurchase that security from the Fund at a mutually agreed-upon time and price
that involves the acquisition by the Fund of an underlying debt instrument,
subject to the seller's obligation to repurchase, and the Fund's obligation to
resell, the instrument at a fixed price usually not more than one week after its
purchase. The Fund's custodian has custody of, and holds in a segregated
account, securities acquired as collateral by the Fund under a repurchase
agreement. Repurchase agreements are considered by the staff of the Securities
and Exchange Commission to be loans by the Fund. The Fund may enter into
repurchase agreements only with respect to securities of the type in which it
may invest, including government securities and mortgage-related securities,
regardless of their remaining maturities, and requires that additional
securities be deposited with the custodian if the value of the securities
purchased should decrease below resale price. Wells Fargo Bank monitors on an
ongoing basis the value of the collateral to assure that it always equals or
exceeds the repurchase price. Certain costs may be incurred by a Fund in
connection with the sale of the underlying securities if the seller does not
repurchase them in accordance with the repurchase agreement. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the
securities, disposition of the securities by a Fund may be delayed or limited.
While it does not presently appear possible to eliminate all risks from these
transactions (particularly the possibility of a decline in the market value of
the underlying securities, as well as delay and costs to a Fund in connection
with insolvency proceedings), it is the policy of the Fund to limit repurchase
agreements to selected creditworthy securities dealers or domestic banks or
other recognized financial institutions. The Fund considers on an ongoing basis
the creditworthiness of the institutions with which it enters into repurchase
agreements.
Bank Obligations. The National Tax-Free Fund may invest in bank
-----------------
obligations, including certificates of deposit, time deposits, bankers'
acceptances and other short-term obligations of domestic banks, foreign
subsidiaries of domestic banks, foreign branches of domestic banks, and domestic
and foreign branches of foreign banks, domestic savings and loan associations
and other banking institutions. With respect to such securities issued by
foreign branches of domestic banks, foreign subsidiaries of domestic banks, and
domestic and foreign branches of foreign banks, the Fund may be subject to
additional investment risks that are different in some respects from those
incurred by a fund which invests only in debt obligations of U.S. domestic
issuers. Such risks include possible future political and economic
developments, the possible imposition of foreign withholding taxes on interest
income payable on the securities, the possible establishment of exchange
controls or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on these securities and
the possible seizure or nationalization of foreign deposits. In addition,
foreign branches of U.S. banks and foreign
6
<PAGE>
banks may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by the National Tax-Free Fund will not benefit from
insurance from the Bank Insurance Fund or the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation. Bankers' acceptances
are credit instruments evidencing the obligation of a bank to pay a draft drawn
on it by a customer. These instruments reflect the obligation both of the bank
and of the drawer to pay the face amount of the instrument upon maturity. The
other short-term obligations may include uninsured, direct obligations, bearing
fixed, floating- or variable-interest rates.
Commercial Paper. Each Fund may invest in commercial paper. Commercial
-----------------
paper includes short-term unsecured promissory notes, variable rate demand notes
and variable rate master demand notes issued by domestic and foreign bank
holding companies, corporations and financial institutions as well as similar
taxable instruments issued by government agencies and instrumentalities.
Investment Company Securities. Each Fund may invest in securities issued
------------------------------
by other open-end management investment companies which principally invest in
securities of the type in which such Fund invests. Under the 1940 Act, a Fund's
investment in such securities currently is limited to, subject to certain
exceptions, (i) 3% of the total voting stock of any one investment company, (ii)
5% of such Fund's net assets with respect to any one investment company and
(iii) 10% of such Fund's net assets in the aggregate. Investments in the
securities of other investment companies generally will involve duplication of
advisory fees and certain other expenses and the investment adviser will waive
its advisory fees for that portion of the Fund's assets so invested, except when
such purchase is part of a plan of merger, consolidation, reorganization or
acquisition. The California Tax-Free Bond Fund may invest in such securities in
accordance with its investment policies.
Floating- and Variable-Rate Obligations. Each Fund may purchase floating-
----------------------------------------
and variable-rate obligations as described in the Prospectus. Each Fund may
purchase floating- and variable-rate demand notes and bonds. Variable-rate
demand notes include master demand notes that are obligations that permit a Fund
to invest fluctuating amounts, which may change daily without penalty, pursuant
to direct arrangements between the Fund, as lender, and the borrower. The
interest rates on these notes may fluctuate from time to time. The issuer of
such obligations ordinarily has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal amount of the obligations
plus accrued interest upon a specified number of days' notice to the holders of
such obligations. The interest rate on a floating-rate demand obligation is
based on a known lending rate, such as a bank's prime rate, and is adjusted
automatically each time such rate is adjusted. The interest rate on a variable-
rate demand obligation is adjusted automatically at specified intervals.
Frequently, such obligations are secured by letters of credit or other credit
support arrangements provided by banks. Because
7
<PAGE>
these obligations are direct lending arrangements between the lender and
borrower, it is not contemplated that such instruments generally will be traded,
and there generally is no established secondary market for these obligations,
although they are redeemable at face value. Accordingly, where these obligations
are not secured by letters of credit or other credit support arrangements, a
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and the Funds may invest in obligations which are not so
rated only if Wells Fargo Bank determines that at the time of investment the
obligations are of comparable quality to the other obligations in which the Fund
may invest. Wells Fargo Bank, on behalf of the Funds, considers on an ongoing
basis the creditworthiness of the issuers of the floating- and variable-rate
demand obligations in such Fund's portfolio. No Fund will invest more than 15%
of the value of its total net assets in floating- or variable-rate demand
obligations whose demand feature is not exercisable within seven days. Such
obligations may be treated as liquid, provided that an active secondary market
exists.
Floating- and variable-rate demand instruments acquired by the National
Tax-Free Fund may include participations in municipal obligations purchased from
and owned by financial institutions, primarily banks. Participation interests
provide the Fund with a specified undivided interest (up to 100%) in the
underlying obligation and the right to demand payment of the unpaid principal
balance plus accrued interest on the participation interest from the institution
upon a specified number of days' notice, not to exceed thirty days. Each
participation interest is backed by an irrevocable letter of credit or guarantee
of a bank that the adviser has determined meets the prescribed quality standards
for the Fund. The bank typically retains fees out of the interest paid on the
obligation for servicing the obligation, providing the letter of credit and
issuing the repurchase commitment.
Loans of Portfolio Securities. In accordance with the policies described in
------------------------------
its Prospectus, the California Tax-Free Bond Fund may lend its portfolio
securities to brokers, dealers and financial institutions, provided: (1) the
loan is secured continuously by collateral consisting of U.S. Government
securities or cash or letters of credit maintained on a daily marked-to-market
basis in an amount at least equal to the current market value of the securities
loaned; (2) the Fund may at any time call the loan and obtain the return of the
securities loaned within five business days; (3) the Fund will receive any
interest or dividends paid on the loaned securities; and (4) the aggregate
market value of securities loaned will not at any time exceed one third of the
total assets of a Fund.
The California Tax-Free Bond Fund will earn income for lending its
securities because cash collateral pursuant to these loans will be invested in
short-term money market instruments. In connection with lending securities, the
Fund may pay reasonable finders, administrative and custodial fees. Loans of
securities involve a risk that the borrower may fail to return the securities or
may fail to provide additional collateral. In either case, the Fund could
experience delays in recovering securities or collateral or could lose all or
part of the value of the loaned securities. When the Fund lends its securities,
it continues to receive interest or dividends on the securities loaned and may
simultaneously earn interest on the collateral received from the borrower or
from the investment of cash collateral in readily marketable, high-quality,
short-term obligations.
8
<PAGE>
Although voting rights, or rights to consent, attendant to securities on loan
pass to the borrower, such loans may be called at any time and will be called so
that the securities may be voted by the Fund if a material event affecting the
investment is to occur.
Forward Commitments, When-Issued Purchases and Delayed-Delivery
---------------------------------------------------------------
Transactions. Each Fund may purchase securities on a when-issued or forward
- ------------
commitment (sometimes called a delayed-delivery) basis, which means that the
price is fixed at the time of commitment, but delivery and payment ordinarily
take place a number of days after the date of the commitment to purchase. A
Fund will make commitments to purchase such securities only with the intention
of actually acquiring the securities, but the Fund may sell these securities
before the settlement date if it is deemed advisable. The Funds will not accrue
income in respect of a security purchased on a forward commitment basis prior to
its stated delivery date.
Securities purchased on a when-issued or forward commitment basis and
certain other securities held in a Fund's investment portfolio are subject to
changes in value (both generally changing in the same way, i.e., appreciating
- -
when interest rates decline and depreciating when interest rates rise) based
upon the public's perception of the creditworthiness of the issuer and changes,
real or anticipated, in the level of interest rates. Securities purchased on a
when-issued or forward commitment basis may expose the relevant Fund to risk
because they may experience such fluctuations prior to their actual delivery.
Purchasing securities on a when-issued or forward commitment basis can involve
the additional risk that the yield available in the market when the delivery
takes place actually may be higher than that obtained in the transaction itself.
A segregated account of each Fund consisting of cash or U.S. Government
securities or other high quality liquid debt securities at least equal at all
times to the amount of the when-issued or forward commitments will be
established and maintained at the Funds' custodian bank. Purchasing securities
on a forward commitment basis when a Fund is fully or almost fully invested may
result in greater potential fluctuation in the value of such Fund's total net
assets and its net asset value per share. In addition, because a Fund will set
aside cash and other high quality liquid debt securities as described above the
liquidity of the Fund's investment portfolio may decrease as the proportion of
securities in the Fund's portfolio purchased on a when-issued or forward
commitment basis increases.
The value of the securities underlying a when-issued purchase or a forward
commitment to purchase securities, and any subsequent fluctuations in their
value, is taken into account when determining a Fund's net asset value starting
on the day the Fund agrees to purchase the securities. A Fund does not earn
interest on the securities it has committed to purchase until they are paid for
and delivered on the settlement date. When a Fund makes a forward commitment to
sell securities it owns, the proceeds to be received upon settlement are
included in the Fund's assets, and fluctuations in the value of the underlying
securities are not reflected in the Fund's net asset value as long as the
commitment remains in effect. The California Tax-Free Bond Fund does not intend
to invest more than 5% of its net assets in such securities during the coming
year.
Unrated Investments. The California Tax-Free Bond Fund may purchase
-------------------
instruments that are not rated if, in the opinion of Wells Fargo Bank, such
obligations are of comparable quality to other rated investments that are
permitted to be purchased by the Fund. After purchase, a
9
<PAGE>
security may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Fund. Neither event will require a sale of such
security by the Fund. To the extent the ratings given by Moody's Investors
Service, Inc. ("Moody's") or Standard & 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 Fund's Prospectus and
in this SAI. The ratings of Moody's and S&P are more fully described in the SAI
Appendix.
Letters of Credit. Certain of the debt obligations (including municipal
-----------------
securities, certificates of participation, commercial paper and other short-term
obligations) which the California Tax-Free Bond Fund may purchase may be backed
by an unconditional and irrevocable letter of credit of a bank, savings and loan
association or insurance company which assumes the obligation for payment of
principal and interest in the event of default by the issuer. Only banks,
savings and loan associations and insurance companies which, in the opinion of
Wells Fargo Bank, are of comparable quality to issuers of other permitted
investments of the Fund may be used for letter of credit-backed investments.
Pass-Through Obligations. Certain of the debt obligations which the
------------------------
California Tax-Free Bond Fund may purchase may be pass-through obligations that
represent an ownership interest in a pool of mortgages and the resultant cash
flow from those mortgages. Payments by homeowners on the loans in the pool flow
through to certificate holders in amounts sufficient to repay principal and to
pay interest at the pass-through rate. The stated maturities of pass-through
obligations may be shortened by unscheduled prepayments of principal on the
underlying mortgages. Therefore, it is not possible to predict accurately the
average maturity of a particular pass-through obligation. Variations in the
maturities of pass-through obligations will affect the yield of the Fund.
Furthermore, as with any debt obligation, fluctuations in interest rates will
inversely affect the market value of pass-through obligations. The Fund may
invest in pass-through obligations that are supported by the full faith and
credit of the U.S. Government (such as those issued by the Government National
Mortgage Association) or those that are guaranteed by an agency or
instrumentality of the U.S. Government (such as the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation) or bonds
collateralized by any of the foregoing.
Municipal Obligations. Municipal obligations in which a Fund may invest
----------------------
subject to the investment policies disclosed in its Prospectus include debt
obligations issued by governmental entities to obtain funds for various public
purposes, including the construction of a wide range of public facilities, the
refunding of outstanding obligations, the payment of general operating expenses
and the extension of loans to public institutions and facilities.
The two principal classifications of municipal obligations that may be held
by a Fund are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source such as the issuer of the facility being
financed. A Fund's portfolio may also include "moral obligation" securities,
which are issued normally by special purpose public
10
<PAGE>
authorities. If the issuer of moral obligation securities is unable to meet its
debt service obligations from current revenues, it may draw on a reserve fund,
the restoration of which is a moral commitment but not a legal obligation of the
state or municipality that created the issuer.
There are, of course, variations in the quality of municipal obligations
both within a particular classification and between classifications, and the
yields on municipal obligations depend upon a variety of factors, including
general money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue.
Private activity bonds are issued to obtain funds to provide privately
operated housing facilities, pollution control facilities, convention or trade
show facilities, mass transit, airport, port or parking facilities and certain
local facilities for water supply, gas, electricity or sewage or solid waste
disposal. State and local governments are authorized in most states to issue
private activity bonds for such purposes in order to encourage corporations to
locate within their communities. Private activity bonds are in most cases
revenue securities and are not payable from the unrestricted revenues of the
issuer. Private activity bonds include industrial development bonds, which are a
specific type of revenue bond backed by the credit and security of a private
user. The credit quality of such bonds is usually directly related to the credit
standing of the corporate user of the facility involved. Private activity bonds
issued by or on behalf of public authorities to finance various privately
operated facilities are considered municipal obligations if the interest
received thereon is exempt from federal income tax but nevertheless subject to
the federal alternative minimum tax. The California Tax-Free Bond Fund may
invest up to 25% of its assets in industrial development bonds. Assessment
bonds, wherein a specially created district or project area levies a tax
(generally on its taxable property) to pay for an improvement or project may be
considered a variant of either category. There are, of course, other variations
in the types of municipal bonds, both within a particular classification and
between classifications, depending on numerous factors. Some or all of these
bonds may be considered "private activity bonds" for federal income tax
purposes.
The Funds may also purchase short-term General Obligation Notes, Tax
Anticipation Notes ("TANS"), Bond Anticipation Notes ("BANs"), Revenue
Anticipation Notes ("RANs"), Tax-Exempt Commercial Paper, Construction Loan
Notes and other forms of short-term tax-exempt loans. Such instruments are
issued with a short-term maturity in anticipation of the receipt of tax funds,
the proceeds of bond placements or other revenues, and are usually general
obligations of the issuer.
TANs. An uncertainty in a municipal issuer's capacity to raise taxes as a
----
result of such things as a decline in its tax base or a rise in delinquencies
could adversely affect the issuer's ability to meet its obligations on
outstanding TANs. Furthermore, some municipal issuers mix various tax proceeds
into a general fund that is used to meet obligations other than those of the
outstanding TANs. Use of such a general fund to meet various obligations could
affect the likelihood of making payments on TANs.
11
<PAGE>
BANs. The ability of a municipal issuer to meet its obligations on its
----
BANs is primarily dependent on the issuer's adequate access to the longer term
municipal bond market and the likelihood that the proceeds of such bond sales
will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as anticipated
----
revenues from another level of government, could adversely affect an issuer's
ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
As stated in the Prospectus, the adviser, under the supervision of the
Company's Board of Directors, makes determinations concerning the liquidity of a
municipal lease obligation based on all relevant factors. These factors may
include, among others: (1) the frequency of trades and quotes for the
obligation; (2) the number of dealers willing to purchase or sell the security
and the number of other potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer. In addition, the
general credit quality of the municipality and the essentiality to the
municipality of the property covered by the lease may be considered. In
evaluating the credit quality of a municipal lease obligation, the factors to be
considered might include: (1) whether the lease can be canceled; (2) what
assurance there is that the assets represented by the lease can be sold; (3) the
strength of the lessee's general credit (e.g., its debt, administrative,
economic, and financial characteristics); (4) the likelihood that the
municipality will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to the operations of the
municipality (e.g., the potential for an "event of the nonappropriation"); and
(5) the legal recourse in the event of failure to appropriate.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal obligations. For example, under federal tax legislation
enacted in 1986, interest on certain private activity bonds must be included in
an investor's alternative minimum taxable income, and corporate investors must
treat all tax-exempt interest as an item of tax preference. Moreover, with
respect to California obligations, the California Tax-Free Bond Fund cannot
predict what legislation, if any, may be proposed in the state legislature
regarding the state income tax status of interest on such obligations, or which
proposals, if any, might be enacted. Such proposals, while pending or if
enacted, might materially and adversely affect the availability of municipal
obligations generally, or California obligations, specifically, for investment
by the Fund and the liquidity and value of the Fund's portfolio. In such an
event, the California Tax-Free Bond Fund would re-evaluate its investment
objective and policies and consider possible changes in its structure or
possible dissolution.
Opinions relating to the validity of municipal obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time
12
<PAGE>
of issuance. Neither the Funds nor the adviser will review the proceedings
relating to the issuance of municipal obligations or the basis for such
opinions.
Certain of the municipal obligations held by a Fund may be insured as to
the timely payment of principal and interest. The insurance policies usually are
obtained by the issuer of the municipal obligation at the time of its original
issuance. In the event that the issuer defaults on interest or principal
payment, the insurer will be notified and will be required to make payment to
the bondholders. There is, however, no guarantee that the insurer will meet its
obligations. In addition, such insurance does not protect against market
fluctuations caused by changes in interest rates and other factors. The Funds
may, from time to time, invest more than 25% of its assets in municipal
obligations covered by insurance policies.
The values of outstanding municipal securities will vary as a result of
changing market evaluations of the ability of their issuers to meet the interest
and principal payments (i.e., credit risk). Such values also will change in
- -
response to changes in the interest rates payable on new issues of municipal
securities (i.e., market risk). Should such interest rates rise, the values of
- -
outstanding securities, including those held in a Fund's portfolio, will decline
and (if purchased at par value) sell at a discount. If interests rates fall,
the values of outstanding securities will generally increase and (if purchased
at par value) sell at a premium. Changes in the value of municipal securities
held in the Fund's portfolio arising from these or other factors will cause
changes in the net asset value per share of the Fund.
Investments in Warrants. Although it has no present intention to do so,
-----------------------
the California Tax-Free Bond Fund may invest up to 5% of its net assets at the
time of purchase in warrants (other than those that have been acquired in units
or attached to other securities), and not more than 2% of its net assets in
warrants which are not listed on the New York or American Stock Exchange.
Warrants represent rights to purchase securities at a specific price valid for a
specific period of time. The prices of warrants do not necessarily correlate
with the prices of the underlying securities. The Fund may only purchase
warrants on securities in which it may invest directly.
Stand-By Commitments. The National Tax-Free Fund may acquire stand-by
---------------------
commitments with respect to municipal obligations. Under a stand-by commitment,
a dealer or bank agrees to purchase from the Fund, at the Fund's option,
specified municipal obligations at a specified price. The amount payable to the
Fund upon its exercise of a stand-by commitment is normally (i) the Fund's
acquisition cost of the municipal obligations (excluding any accrued interest
that the Fund paid on their acquisition), less any amortized market premium plus
any amortized market or original issue discount during the period the Fund owned
the securities, plus (ii) all interest accrued on the securities since the last
interest payment date during that period. Stand-by commitments may be sold,
transferred or assigned by the Fund only with the underlying instrument.
The National Tax-Free Fund expects that stand-by commitments will generally
be available without the payment of any direct or indirect consideration.
However, if necessary or advisable, the Fund may pay for a stand-by commitment
either separately in cash or by paying a
13
<PAGE>
higher price for portfolio securities which are acquired subject to the
commitment (thus reducing the yield to maturity otherwise available for the same
securities). Where the Fund pays any consideration directly or indirectly for a
stand-by commitment, its cost would be reflected as unrealized depreciation for
the period during which the commitment was held by the Fund.
The National Tax-Free Fund intends to enter into stand-by commitments only
with dealers, banks and broker-dealers which, in the adviser's opinion, present
minimal credit risks. The Fund's reliance upon the credit of these dealers,
banks and broker-dealers will be secured by the value of the underlying
municipal obligations that are subject to the commitment. In evaluating the
creditworthiness of the issuer of a stand-by commitment, the adviser will review
periodically the issuer's assets, liabilities, contingent claims and other
relevant financial information.
The National Tax-Free Fund intends to acquire stand-by commitments solely
to facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. The acquisition of a stand-by commitment will
not affect the valuation or assumed maturity of the underlying municipal
obligations, which will continue to be valued in accordance with the ordinary
method of valuation employed by the Fund. Stand-by commitments acquired by a
Fund will be valued at zero in determining net asset value.
[Foreign Securities]. Because certain Funds may invest in securities
-------------------
denominated in currencies other than the U.S. dollar and may temporarily hold
funds in bank deposits or other money market investments denominated in foreign
currencies, they may be affected favorably or unfavorably by exchange control
regulations or changes in the exchange rate between such currencies and the
dollar. Changes in foreign currency exchange rates influence values within a
Fund from the perspective of U.S. investors. Changes in foreign currency
exchange rates may also affect the value of dividends and interest earned, gains
and losses realized on the sale of securities, and any net investment income and
gains to be distributed to shareholders by a Fund. The rate of exchange between
the U.S. dollar and other currencies is determined by the forces of supply and
demand in the foreign exchange markets. These forces are affected by the
international balance of payments and other economic and financial conditions,
government intervention, speculation and other factors.
Nationally Recognized Statistical Ratings Organizations. The ratings of
--------------------------------------------------------
Moody's, S&P, Duff & Phelps Credit Rating Co., Fitch Investors Service, Inc.
Thomson Bank Watch and IBCA Inc. represent their opinions as to the quality of
debt securities. It should be emphasized, however, that ratings are general and
not absolute standards of quality, and debt securities with the same maturity,
interest rate and rating may have different yields while debt securities of the
same maturity and interest rate with different ratings may have the same yield.
Subsequent to purchase by a Fund, an issue of debt securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by a Fund. The adviser will consider such an event in determining
whether the Fund involved should continue to hold the obligation.
The payment of principal and interest on debt securities purchased by the
Funds depends upon the ability of the issuers to meet their obligations. An
issuer's obligations under its debt securities are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the
14
<PAGE>
rights and remedies of creditors, such as the Federal Bankruptcy Code, and laws,
if any, which may be enacted by federal or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations or, in the case of governmental entities,
upon the ability of such entities to levy taxes. The power or ability of an
issuer to meet its obligations for the payment of interest and principal of its
debt securities may be materially adversely affected by litigation or other
conditions. Further, it should also be, noted with respect to all municipal
obligations issued after August 15, 1986 (August 31, 1986 in the case of certain
bonds), the issuer must comply with certain rules formerly applicable only to
"industrial development bonds" which, if the issuer fails to observe them, could
cause interest on the municipal obligations to become taxable retroactive to the
date of issue.
SPECIAL CONSIDERATIONS AFFECTING CALIFORNIA MUNICIPAL OBLIGATIONS
Certain California constitutional amendments, legislative measures,
executive orders, civil actions and voter initiatives, as well as the general
financial condition of the state, could adversely affect the ability of issuers
of California municipal obligations to pay interest and principal on such
obligations. The following information constitutes only a brief summary, does
not purport to be a complete description, and is based on information drawn from
official statements relating to securities offerings of the State of California
and various local agencies, available as of the date of this SAI. While the
Company has not independently verified such information, it has no reason to
believe that such information is incorrect in any material respect.
The California Economy and General Information. From mid-1990 to late
1993, the State suffered a recession with the worst economic, fiscal and budget
conditions since the 1930s. Construction, manufacturing (particularly related to
defense), exports and financial services, among others, were all severely
affected. Job losses had been the worst of any post-war recession.
Unemployment reached 10.1% in January 1994, but fell sharply to 7.7% in October
and November 1994, reflecting the state's recovery from the recession.
The recession seriously affected California tax revenues, which basically
mirror economic conditions. It also caused increased expenditures for health
and welfare programs. In addition, the state has been facing a structural
imbalance in its budget with the largest programs supported by the General Fund
(e.g., K-12 schools and community colleges--also known as "K-14 schools," health
and welfare, and corrections) growing at rates higher than the growth rates for
the principal revenue sources of the General Fund. As a result, the state
experienced recurring budget deficits in the late 1980s and early 1990s. The
state's Controller reported that expenditures exceeded revenues for four of the
five fiscal years ending with 1991-92. Moreover, California accumulated and
sustained a budget deficit in its Special Fund for Economic Uncertainties
("SFEU") approaching $2.8 billion at its peak at June 30, 1993.
The accumulated budget deficits during the early 1990's, together with
expenditures for school funding which are not reflected in the state's budget,
and reduction of available internal borrowable funds, combined to significantly
deplete the state's cash resources to pay its ongoing expenses. In order to
meet its cash needs, the state has had to rely for several years on a series of
external borrowings, including borrowings past the end of a fiscal year. Such
borrowings are expected to continue in future fiscal years. To meet its cash
flow needs in the 1995-96 fiscal year,
15
<PAGE>
California issued $2 billion of revenue anticipation warrants which matured on
June 28, 1996. Because of the state's deteriorating budget and cash situation,
the rating agencies reduced the state's credit ratings between October 1991 and
July 1994. Moody's lowered its rating from "Aa" to "A1," S&P lowered its rating
from "AAA" to "A" and termed its outlook as "stable," and Fitch Investors
Service lowered its rating from "AA" to "A."
However, since the start of 1994, California's economy has been recovering
steadily. Employment has grown in excess of 500,000 during 1994 and 1995, and
is expected to continue to grow in 1996. Because of the improving economy and
the California's fiscal austerity, the state has had operating surpluses for its
past four consecutive fiscal years through 1996-97 and has forecast a balanced
1996-97 fiscal year budget. In addition, the SFEU was projected to have a small
negative balance of approximately $70 million as of June 30, 1996, all but
eliminating the accumulated budget deficit of the early 1990's, and a modest
reserve of $305 million, as of June 30, 1997. For these and other reasons,
Standard & Poor's upgraded its rating of California municipal obligations back
to "A+" on July 30, 1996.
Local Governments. On December 6, 1994, Orange County, California became
the largest municipality in the United States to file for protection under the
Federal Bankruptcy laws. The filing stemmed from approximately $1.7 billion in
losses suffered by the county's investment pool because of investments in high
risk "derivative" securities. In September 1995, California's legislature
approved legislation permitting the county to use for bankruptcy recovery $820
million over 20 years in sales taxes previously earmarked for highways, transit,
and development. In June 1996, the county completed an $880 million bond
offering secured by real property owned by the county. In June 1996, the county
emerged from bankruptcy.
On January 17, 1994, an earthquake of the magnitude of an estimated 6.8 on
the Richter Scale struck Los Angeles County, California causing significant
damage to public and private structures and facilities. While county residents
and businesses suffered losses totaling in the billions of dollars, the overall
effect of the earthquake on the county's and California's economy is not
expected to be serious. However, Los Angeles County is experiencing financial
difficulty due in part to the severe operating deficits for the county's health
care system. In August 1995, the credit rating of the county's long term bonds
was downgraded for the third time since 1992. Although the county has received
federal and state assistance, it is still facing a potential budget gap of
approximately $1 billion in the 1996-97 fiscal year. Even though the state has
no existing obligations with respect to either Orange County or Los Angeles
County, the state may be required to intervene and provide funding if the
counties cannot maintain certain programs because of insufficient resources.
State Finances. The moneys of California are segregated into the General
Fund and approximately 600 Special Funds. The General Fund consists of the
revenues received by the state's Treasury and not required by law to be
credited to any other fund, as well as earnings from state moneys not allocable
to another fund. The General Fund is the principal operating fund for the
majority of governmental activities and is the depository of most major revenue
sources of the state. The General Fund may be expended as the result of
appropriation measures by California's Legislature and approved by the Governor,
as well as appropriations pursuant to various constitutional authorizations and
initiative statutes.
16
<PAGE>
The SFEU is funded with General Fund revenues and was established to
protect California from unforeseen revenue reductions and/or unanticipated
expenditure increases. Amounts in the SFEU may be transferred by the state's
Controller to meet cash needs of the General Fund. The Controller is required
to return moneys so transferred without payment of interest as soon as there are
sufficient moneys in the General Fund. Any appropriation made from the SFEU is
deemed an appropriation from the General Fund, for budgeting and accounting
purposes. For year-end reporting purposes, the Controller is required to add
the balance in the SFEU to the balance in the General Fund so as to show the
total moneys then available for General Fund purposes.
Inter-fund borrowing has been used for several years to meet temporary
imbalances of receipts and disbursements in the General Fund. As of June 30,
1996, the General Fund had outstanding loans from the SFEU and other Special
Funds of approximately $1.5 billion.
Changes in California Constitutional and Other Laws. In 1978, California
voters approved an amendment to the California Constitution known as
"Proposition 13," which added Article XIIIA to the California Constitution.
Article XIIIA limits ad volorem taxes on real property and restricts the ability
of taxing authorities to increase real property taxes. However, legislation
passed subsequent to Proposition 13 provided for the redistribution of
California's General Fund surplus to local agencies, the reallocation of
revenues to local agencies and the assumption of certain local obligations by
the state so as to assist California municipal issuers to raise revenue to pay
their bond obligations. It is unknown whether additional revenue redistribution
legislation will be enacted in the future and whether, if enacted, such
legislation will provide sufficient revenue for such California issuers to pay
their obligations. California is also subject to another Constitutional
Amendment, Article XIIIB, which may have an adverse impact on California state
and municipal issuers. Article XIIIB restricts the state from spending certain
appropriations in excess of an appropriation's limit imposed for each state and
local government entity. If revenues exceed such appropriation's limit, such
revenues must be returned either as revisions in the tax rates or fee schedules.
In 1988, California voters approved "Proposition 98," which amended Article
XIIIB and Article XVI of the state's Constitution. Proposition 98 (as modified
by "Proposition 111," which was enacted in 1990), changed state funding of
public education below the university level and the operation of the state's
appropriations limit, primarily by guaranteeing K-14 schools a minimum share of
General Fund revenues. In 1986, California voters approved "Proposition 62,"
which provided in part that any tax for general governmental purposes imposed by
a local government be approved by a two-thirds vote of the governmental entity's
legislative body and by a majority of its electorate and that any special tax
imposed by a local government be approved by a two-thirds vote of the
electorate. In September 1995, the California Supreme Court upheld the
constitutionality of Proposition 62, creating uncertainty as to the legality of
certain local taxes enacted by nonchartered cities in California without voter
approval.
Other Information. Certain debt obligations held by the California Tax-
Free Bond Fund may be obligations payable solely from lease payments on real or
personal property leased to the state, cities, counties or their various public
entities. California law provides that a lessor may not be required to make
payments during any period that it is denied use and occupancy of the
17
<PAGE>
property in proportion to such loss. Moreover, the lessor only agrees to
appropriate funding for lease payments in its annual budget for each fiscal
year. In case of a default under the lease, the only remedy available against
the lessor is that of reletting the property; no acceleration of lease payments
is permitted. Each of these factors presents a risk that the lease financing
obligations held by the California Tax-Free Bond Fund would not be paid in a
timely manner.
Certain debt obligations held by the California Tax-Free Bond Fund may be
obligations payable solely from the revenues of health care institutions. The
method of reimbursement for indigent care, California's selective contracting
with health care providers for such care and selective contracting by health
insurers for care of its beneficiaries now in effect under California and
federal law may adversely affect these revenues and, consequently, payment on
those debt obligations.
There can be no assurance that general economic difficulties or the
financial circumstances of California or its towns and cities will not adversely
affect the market value of California municipal securities or the ability of
obligors to continue to make payments on such securities.
* * *
The taxable securities market is a broader and more liquid market with a
greater number of investors, issuers and market makers than the market for
municipal securities. The more limited marketability of municipal securities
may make it difficult in certain circumstances to dispose of large investments
advantageously.
MANAGEMENT
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "The Funds and Management." The
principal occupations during the past five years of the Directors and principal
executive Officer of the Company are listed below. The address of each, unless
otherwise indicated, is 111 Center Street, Little Rock, Arkansas 72201.
Directors deemed to be "interested persons" of the Company for purposes of the
1940 Act are indicated by an asterisk.
18
<PAGE>
<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
Chairman and of Stephens; Manager
President of Financial Services
Group; President of Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of
321 Beechcliff Court Finance of the School of
Winston-Salem, NC 27104 Business and Accounting at
Wake Forest University since
1982.
Joseph N. Hankin, 57 Director President of Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; Adjunct Professor of
(appointed as of September 6, 1996) Columbia University
Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 79 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor; Chairman of
4 Beaufain Street Home Account Network, Inc.;
Charleston, SC 29401 Real Estate Developer; Chairman
of Renaissance Properties Ltd.;
President of Morse
Investment Corporation; and
Co-Managing Partner of in
Street Ventures.
Richard H. Blank, Jr., 41 Chief Associate of Financial Services
Operating Group of Stephens; Director or
Officer, Stephens Sports Management
Secretary and Inc.; and Director of Capo Inc.
Treasurer
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
Year Ended March 31, 1997
-------------------------
Total Compensation
Aggregate Compensation from Registrant
from Registrant and Fund Complex
--------------- ----------------
Name and Position
-----------------
<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>
Directors of the Company are compensated annually by the Company and by all
the registrants in each fund complex they serve as indicated above and also are
reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company, Overland Express Funds, Inc., Stagecoach Trust, Life &
Annuity Trust and Master Investment Trust are considered to be members of the
same fund complex as such term is defined in Form N-1A under the 1940 Act (the
"Wells Fargo Fund Complex"). MasterWorks Funds Inc., Master Investment
Portfolio, and Managed Series Investment Trust together form a separate fund
complex (the "BGFA Fund Complex"). Each of the Directors and Officers of the
Company serves in the identical capacity as directors and officers or as
trustees and/or officers of each registered open-end management investment
company in both the Wells Fargo and BGFA Fund Complexes, except for Joseph N.
Hankin, who only serves the aforementioned members of the Wells Fargo Fund
Complex, and Zoe Ann Hines who, after September 6, 1996, only serves the
aforementioned members of the BGFA Fund Complex. The Directors are compensated
by other companies and trusts within a
20
<PAGE>
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 Funds are advised by Wells Fargo Bank pursuant to
-------------------
an advisory contract for each Fund under which Wells Fargo Bank has agreed to
furnish investment guidance and policy direction in connection with the daily
portfolio management of the Funds. Wells Fargo Bank furnishes to the Board of
Directors periodic reports on the investment strategy and performance of each
Fund. Wells Fargo Bank also has agreed to provide to the Funds, among other
things, money market and fixed-income research, analysis and statistical and
economic data and information concerning interest-rate and security market
trends, portfolio composition, credit conditions and, average maturities of each
Fund. As compensation for its advisory services, Well Fargo Bank is entitled to
receive a monthly fee at the annual rate of 0.50% of each Fund's average daily
net assets.
Each advisory contract will continue in effect for more than two years
provided the continuance is approved annually (i) by the holders of a majority
of the respective Fund's outstanding voting securities or (ii) by the Company's
Board of Directors and by a majority of the Directors of the Company who are not
parties to the advisory contracts or "interested persons" (as defined in the
1940 Act) of any such party. The advisory contracts may be terminated on 60
days' written notice by either party and will terminate automatically if
assigned.
For the fiscal period ended September 30, 1996, and for the years ended
December 31, 1995, 1994 and 1993, the California Tax-Free Bond Fund paid the
following advisory fees to Wells Fargo Bank:
<TABLE>
<CAPTION>
Sept. 30, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
-------------- ------------- ------------- -------------
Fees Fees Fees Fees Fees Fees Fees Fees
Fund Paid Waived Paid Waived Paid Waived Paid Waived
---- ---- ------ ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California Tax- $1,202,280 $-0- $1,542,893 -0- $368,134 $1,728,107 $2,157,487 -0-
Free Bond
</TABLE>
Prior to the Reorganization on September 6, 1996, Wells Fargo Investment
Management, Inc. ("WFIM") and its predecessor, First Interstate Capital
Management, Inc. ("FICM") served as adviser to the predecessor portfolio of the
National Tax-Free Bond Fund. As of the date of the Reorganization, Wells Fargo
Bank became the adviser to the Fund. For the fiscal year ended September 30,
1996 the Fund paid the advisory fees indicated below and the indicated amounts
were waived. These amounts include advisory fees paid by the predecessor
portfolios to FICM/WFIM prior to September 6, 1996.
<TABLE>
<CAPTION>
Fiscal Year Ended Sept. 30, 1996
--------------------------------
Fund Fees Paid Fees Waived
---- --------- -----------
<S> <C> <C>
National Tax-Free $- 0- $67,463
</TABLE>
21
<PAGE>
Prior to October 1, 1995, First Interstate Bank of Oregon, N.A. and First
Interstate Bank of Washington, N.A. served as co-advisers to the predecessor
portfolio of the National Tax-Free Fund. For the periods ended September 30,
1995, May 31, 1995 and May 31, 1994, the advisers were entitled to receive
advisory fees from the Fund at the same annual rate as those that were in effect
for WFIM. For these periods, the advisers were entitled to receive the indicated
amounts in advisory fees and the advisers waived additional advisory fees and
reimbursed expenses as follows:
<TABLE>
<CAPTION>
Period Ended Period Ended Period Ended
Fund Sept. 30, 1995* May 31, 1995 May 31, 1994
- ---- -------------- ------------ ------------
Fees Paid Fees Waived Fees Paid Fees Waived Fees Paid Fees Waived
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
National Tax-Free $24,173 $68,667 $67,845 $145,244 $57,059 $141,590
</TABLE>
* The Fund changed its fiscal year-end from May 31 to September 30.
Administrator and Co-Administrator . The Company has retained Wells Fargo
-----------------------------------
Bank as Administrator and Stephens as Co-Administrator on behalf of each Fund.
The Administration Agreement between Wells Fargo Bank and the Company on behalf
of each Fund, and the Co-Administration Agreement among Wells Fargo Bank,
Stephens and the Company on behalf of each Fund, state that Wells Fargo Bank and
Stephens shall provide as administrative services, among other things: (i)
general supervision of the operation of each Fund, including coordination of the
services performed by the Fund's investment adviser, transfer agent, custodian,
shareholder servicing agent(s), independent auditors and legal counsel,
regulatory compliance, including the compilation of information for documents
such as reports to, and filings with, the SEC and state securities commissions;
and preparation of proxy statements and shareholder reports for the Fund; and
(ii) general supervision relative to the compilation of data required for the
preparation of periodic reports distributed to the Company's officers and Board
of Directors. Wells Fargo Bank and Stephens also furnish office space and
certain facilities required for conducting the business of each Fund together
with ordinary clerical and bookkeeping services. Stephens pays the compensation
of the Company's Directors, officers and employees who are affiliated with
Stephens. The Administrator and Co-Administrator are entitled to receive a
monthly fee of 0.04% and 0.02%, respectively, of the average daily net assets of
each Fund.
Prior to February 1, 1997, Stephens served as sole administrator to the
Funds and was entitled to receive 0.03% and 0.05% of the average daily net
assets of the California Tax-Free Bond and National Tax-Free Funds,
respectively.
For the fiscal period ended September 30, 1996, and for the years ended
December 31, 1995, 1994 and 1993, the California Tax-Free Bond Fund paid the
following dollar amounts of administration fees to Stephens.
<TABLE>
<CAPTION>
Fund Sept. 30, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
---- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
California Tax-Free Bond $73,687 $93,013 $126,570 $130,939
</TABLE>
22
<PAGE>
Prior to September 6, 1996, the administrator to the predecessor portfolio
of the National Tax-Free Fund, Furman Selz LLC ("Furman Selz"), provided
management and administrative services necessary for the operation of the Fund
pursuant to an Administrative Services Contract. For these services, Furman Selz
was entitled to receive a fee, payable monthly, at the annual rate of 0.15% of
the average daily net assets of the predecessor portfolio. The following table
reflects the net (after waivers) administration fees paid for services to
Stephens as sole administrator to the Fund for the period beginning September 6,
1996 and ended September 30, 1996 and net (after waivers) administration fees
paid to Furman Selz during the period beginning October 1, 1995 and ended
September 5, 1996.
<TABLE>
<CAPTION>
Year Ended
Fund Sept. 30, 1996
---- --------------
<S> <C>
National Tax-Free $ 14,138
</TABLE>
Prior to October 1, 1995, ALPS Mutual Funds Service, Inc. ("ALPS") served
as administrator to the predecessor portfolio of the National Tax-Free Fund. For
the fiscal periods ended September 30, 1995, May 31, 1995 and May 31, 1994, ALPS
was entitled to receive the indicated amounts in administration fees and ALPS
waived administration fees as follows:
<TABLE>
<CAPTION>
Period Ended Period Ended Period Ended
Fund Sept. 30, 1995* May 31, 1995 May 31, 1994
- ---- -------------- ------------ -------------
Fees Paid Fees Waived Fees Paid Fees Waived Fees Paid Fees Waived
<S> <C> <C> <C> <C> <C> <C>
National Tax-Free $2,417 $-0- $6,785 $2,018 $5,706 $4,210
</TABLE>
* The Fund changed its fiscal year-end from May 31 to September 30.
Sponsor and Distributor. As discussed in the Funds' Prospectus under the
-----------------------
heading "Management, Distribution and Servicing Fees," Stephens (the
"Distributor"), 111 Center Street, Little Rock, Arkansas 72201, serves as
sponsor and distributor for the Funds.
Distribution Plan. The following information supplements and should be
-----------------
read in conjunction with the Prospectus section entitled "Distribution Plan."
As indicated in the Prospectus, each Fund has adopted a distribution plan (a
"Plan") under Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the
"Rule") for each class of its shares. The Plan for the Class C shares of the
Funds was adopted by the Company's Board of Directors, including a majority of
the Directors who were not "interested persons" (as defined in the 1940 Act) of
the Funds and who had no direct or indirect financial interest in the operation
of the Plan or in any agreement related to the Plan (the "Qualified Directors").
Under the Plan for the Class C shares and pursuant to the Distribution
Agreement, the Funds may pay the Distributor as compensation for distribution-
related activities and services provided, or reimbursement for distribution-
related expenses incurred, a monthly fee at an annual rate of up to 0.50% of the
average daily net assets attributable to Class C shares of each Fund.
The actual fee payable to the Distributor shall be determined, within such
limits, from time to time by mutual agreement between the Company and the
Distributor and will not exceed the
23
<PAGE>
maximum sales charges payable by mutual funds sold by members of the NASD under
the NASD Rules of Fair Practice. The Distributor may enter into selling
agreements with one or more selling agents (which may include Wells Fargo Bank
and its affiliates) under which such agents may receive compensation for
distribution-related services from the Distributor, including, but not limited
to, commissions or other payments to such agents based on the average daily net
assets of Fund shares attributable to their customers. The Distributor may
retain any portion of the total distribution fee payable thereunder to
compensate it for distribution-related services provided by it or to reimburse
it for other distribution-related expenses.
Pursuant to Rule 12b-1, a distribution plan must be initially approved (and
reapproved annually thereafter) by the Board of Directors, including a majority
of the Qualified Directors of the Company. Agreements related to the Plan also
must be approved by such vote of the Directors and Qualified Directors. Selling
agreements will terminate automatically if assigned and may be terminated at any
time, without payment of any penalty, by a vote of a majority of the outstanding
voting securities of the relevant class of a Fund or by vote of a majority of
the Qualified Directors on not more than 60 days' written notice. The Class C
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
relevant class of a 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 the Company to provide the Directors, and the Directors
to review, at least quarterly, a written report of the amounts expended (and
purposes therefor) under such Plan. The Rule also requires that the selection
and nomination the Qualified Directors of the Company be made by such non-
interested directors.
Wells Fargo Bank, an interested person (as that term is defined in Section
2(a)(19) of the 1940 Act) of the Company, acts as a selling agent for the Funds'
Class C shares pursuant to selling agreements with Stephens authorized under the
Plan. As a selling agent, Wells Fargo Bank has an indirect financial interest
in the operation of the Plan. The Board of Directors has concluded that the
Plan is reasonably likely to benefit the Fund and its shareholders because the
Plan authorize the relationships with selling agents, including Wells Fargo
Bank, that have previously developed distribution channels and relationships
with the retail customers that the Class C shares of the Funds are designed to
serve. These relationships and distribution channels are believed by the Board
to provide potential for increased Fund assets and ultimately corresponding
economic efficiencies (i.e., lower per-share transaction costs and fixed
expenses) that are generated by increased assets under management.
Shareholder Servicing Agent. As discussed in the Funds' Prospectus under
----------------------------
the heading "Shareholder Servicing Agent," the Funds have approved Servicing
Plans for each class of its shares and have entered into related shareholder
servicing agreements with financial institutions, including Wells Fargo Bank.
For providing these services, a Servicing Agent is entitled to a fee from the
applicable Fund, not to exceed 0.25%, on an annualized basis, of the average
daily net asset value of the Class C shares owned by or attributable to such
customers of the Shareholder Servicing Agent.
24
<PAGE>
Servicing Plan. The Class C Servicing Plan and related shareholder
--------------
servicing agreements were approved by the Company's Board of Directors,
including a majority of the Directors who were not "interested persons" (as
defined in the Act) of each Fund and who had no direct or indirect financial
interest in the operation of the Servicing Plan or in any agreement related to
the Servicing Plan (the "Servicing Plan Qualified Directors"). The actual fee
payable to servicing agents under the Class C Servicing Plan is determined,
within such limits, from time to time by mutual agreement between the Company
and each servicing agent and will not exceed the maximum service fees payable by
mutual funds sold by members of the NASD under Article III, Section 28 of the
NASD Rules of Fair Practice.
The Class C Servicing Plan continues in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Servicing Plan Qualified Directors. Any form of servicing agreement
related to the Servicing Plan also must be approved by such vote of the
Directors and the Servicing Plan Qualified Directors. Servicing agreements may
be terminated at any time, without payment of any penalty, by vote of a majority
of the Servicing Plan Qualified Directors. No material amendment to the
Servicing Plans may be made except by a majority of both the Directors of the
Company and the Servicing Plan Qualified Directors.
The Class C Servicing Plan requires that the administrator shall provide to
the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under the Servicing Plan.
Custodian And Transfer And Dividend Disbursing Agent. Wells Fargo Bank
-----------------------------------------------------
has been retained to act as custodian and transfer and dividend disbursing agent
for the Funds, pursuant to a Custody Agreement and an Agency Agreement with the
Company on behalf of the Funds. The custodian, among other things, maintains a
custody account or accounts in the name of a Fund, receives and delivers all
assets for the Funds upon purchase and upon sale or maturity, collects and
receives all income and other payments and distributions on account of the
assets of a Fund and pays all expenses of the Funds. 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 a
Fund's average daily net assets, 0.045% of the next $50,000,000, and 0.020% of
the average daily net assets in excess of $100,000,000.
For its services as transfer and dividend disbursing agent, Wells Fargo
Bank is entitled to receive monthly payments at the annual rate of 0.14% of the
average daily net assets attributable to the Class C shares of the Funds.
Prior to February 1, 1997, under an agreement with the California Tax-Free
Bond Fund, Wells Fargo Bank was entitled to receive a per account fee plus
transaction fees and out-of-pocket related costs with a minimum of $3,000 per
month, unless net assets of the Fund were
25
<PAGE>
under $20 million. For as long as a California Tax-Free Bond Fund's assets
remained under $20 million, the Fund was not charged any transfer agency fees.
For the year ended December 31, 1995 and the period ended September 30,
1996, the California Tax-Free Bond Fund did not pay any custody or transfer and
dividend disbursing agency fees to Wells Fargo Bank.
Prior to February 1, 1997, under an agreement with the National Tax-Free
Fund, Wells Fargo Bank was entitled to receive monthly payments at the annual
rate of 0.07% of the average daily net assets of each Class of the Fund as well
as reimbursement for all reasonable out-of-pocket expenses. Furman Selz acted
as transfer agent for the predecessor portfolio of the National Tax-Free Fund.
Pacifica compensated Furman Selz for providing personnel and facilities to
perform transfer agency related services for Pacifica at a rate intended to
represent the cost of providing such services.
FICAL, located at 707 Wilshire Blvd., Los Angeles, California 90017, acted
as custodian of the predecessor portfolio of the National Tax-Free Fund. FICAL
was entitled to receive a fee from Pacifica, computed daily and payable monthly,
at the annual rate of 0.021% of the first $5 billion in aggregate average daily
net assets; 0.0175% of the next $5 billion in aggregate average daily net
assets; and 0.015% of the aggregate average daily net assets of the Fund in
excess of $10 billion.
For the period beginning October 1, 1995 and ended September 5, 1996 and
for the period beginning September 6, 1996 and ended September 30, 1996 the
National Tax-Free Fund did not pay any fees to FICAL or Wells Fargo Bank.
Underwriting Commissions. For the years ended December 31, 1993 and 1994,
------------------------
the Company's distributor retained $26,215,173 and $5,415,227, respectively in
underwriting commissions (front-end sales loads and CDSCs, if any) in connection
with the purchase and redemption of Company shares. For the years ended
December 31, 1993 and 1994, Wells Fargo Securities Inc. ("WFSI"), an affiliated
broker-dealer of the Company, and its registered representatives received
$378,895 and $904,274, respectively, in underwriting commissions in connection
with the purchase and redemption of Company shares.
For the year ended December 31, 1995, the aggregate amount of underwriting
commissions on sales/redemptions of the Company's shares was $1,584,545.
Stephens and WFSI retained $1,251,311 and $333,234 of such commissions,
respectively.
For the period ended September 30, 1996, the aggregate amount of underwriting
commissions 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 period beginning October 1, 1995 and ended September 5, 1996 with
respect to the predecessor portfolio of the National Tax-Free Fund, the
aggregate amount of underwriting
26
<PAGE>
commissions on sales/redemptions of Pacifica's shares was $150,771. Pacifica
Funds Distributor Inc. and its registered representatives retained $18,139 and
$132,632 of such commissions, respectively.
PERFORMANCE CALCULATIONS
The following information supplements and should be read in conjunction
with the sections in each Prospectus entitled "Determination of Net Asset Value"
and "Performance Data." Performance figures for each class of shares of the
Funds will vary due to different expense levels and front-end or contingent
deferred sales charges.
Total Return. The Funds may advertise certain total return information
------------
computed in the manner described in the Prospectus. As and to the extent
required by the SEC, an average annual compound rate of return ("T") is computed
by using the redeemable value at the end of a specified period ("ERV") of a
hypothetical initial investment ("P") over a period of years ("n") according to
the following formula: P(1+T)n = ERV. In addition, as indicated in the
Prospectus, the Funds also may, at times, calculate total return based on net
asset value per share (rather than the public offering price), in which case the
figures would not reflect the effect of any sales charges that would have been
paid by an investor, or based on the assumption that a sales charge other than
the maximum sales charge (reflecting a Volume Discount) was assessed, provided
that total return data derived pursuant to the calculation described above also
are presented.
Cumulative Total Return. The Funds may advertise cumulative total return.
-----------------------
Cumulative total return of shares is computed on a per share basis and assumes
the reinvestment of dividends and distributions. Cumulative total return of
shares generally is expressed as a percentage rate which is calculated by
combining the income and principal changes for a specified period and dividing
by the net asset value per share at the beginning of the period. Advertisements
may include the percentage rate of total return of shares or may include the
value of a hypothetical investment in shares at the end of the period which
assumes the application of the percentage rate of total return.
Yield Calculations. The Funds may, from time to time, include their
-------------------
yields, tax-equivalent yields (if applicable) and average annual total returns
in advertisements or reports to shareholders or prospective investors. Yield
quotations for the Funds are based on the investment income per share earned
during a particular 30-day period, less expenses accrued during a period ("net
investment income") and is computed by dividing net investment income by the
maximum offering price per share on the last day of the period, according to the
following formula:
YIELD - 2[(a - b + 1)/6/ -1]
-----
cd
where a = dividends and interest earned during the period, b = expenses
accrued for the period (net of any reimbursements), c = the average daily number
of shares outstanding during the period that were entitled to receive dividends,
and d = the maximum offering price per share on
27
<PAGE>
the last day of the period. The net investment income of the California Tax-Free
Bond Fund includes actual interest income, plus or minus amortized purchase
discount (which may include original issue discount) or premium, less accrued
expenses. Realized and unrealized gains and losses on portfolio securities are
not included in the California Tax-Free Bond Fund's net investment income.
Tax-equivalent yield quotations for the Funds are calculated according to
the following formula:
Tax Equivalent Yield = ( E ) + t
-----
1 - p
E = tax-exempt yield
p = stated income tax rate
t = taxable yield
The tax-equivalent yield for the California Tax-Free Bond Fund also is
computed by dividing that portion of the yield of the Fund which is tax-exempt
by one minus a stated income tax rate and adding the product to that portion, if
any, of the yield of the Fund that is not tax-exempt.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in a Fund or class of shares during the particular time
period shown. Yield and total return vary based on changes in the market
conditions and the level of a Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
In connection with communicating its yields or total return to current or
prospective shareholders, these figures may also be compared to the performance
of other mutual funds tracked by mutual fund rating services or to unmanaged
indices which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
From time to time and only to the extent the comparison is appropriate for
a Fund or a class of shares, the Company may quote performance or price-earning
ratios in advertising and other types of literature as compared with the
performance of the Lehman Brothers Municipal Bond Index, 1-Year Treasury Bill
Rate, S&P Index, the Dow Jones Industrial Average, the Lehman Brothers 20+ Years
Treasury Index, the Lehman Brothers 5-7 Year Treasury Index, IBC/Donoghue's
Money Fund Averages, Real Estate Investment Averages (as reported by the
National Association of Real Estate Investment Trusts), Gold Investment Averages
(provided by the World Gold Council), Bank Averages (which is calculated from
figures supplied by the U.S. League of Savings Institutions based on effective
annual rates of interest on both passbook and certificate accounts), average
annualized certificate of deposit rates (from the federal Reserve G-13
Statistical Releases or the Bank Rate Monitor), the Salomon One Year Treasury
Benchmark Index, the Consumer Price Index (as published by the U.S. Bureau of
Labor Statistics), Ten Year U.S. Government Bond Average, S&P's Corporate Bond
Yield Averages, Schabacter Investment Management Indices, Salomon Brothers High
Grade Bond Index, Lehman Brothers Long-Term
28
<PAGE>
High Quality Government/Corporate Bond Index, other managed or unmanaged indices
or performance data of bonds, stocks or government securities (including data
provided by Ibbotson Associates), or by other services, companies, publications
or persons who monitor mutual funds on overall performance or other criteria.
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stock prices.
The performance of a Fund or a class of shares also may be compared to the
performance of other mutual funds having similar objectives. This comparative
performance could be expressed as a ranking prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc., Bloomberg Financial Markets
or Morningstar, Inc., independent services that monitor the performance of
mutual funds. Any such comparisons may be useful to investors who wish to
compare a Fund's past performance with that of its competitors. Of course, past
performance cannot be a guarantee of future results. The Company also may
include, from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
In addition, the Company also may use, in advertisements and other types of
literature, information and statements showing that bank savings accounts offer
a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth. The Company also may include in advertising and
other types of literature information and other data from reports and studies
prepared by the Tax Foundation, including information regarding federal and
state tax levels and the related "Tax Freedom Day."
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
a class of shares of a Fund: (i) the Consumer Price Index may be used to assess
the real rate of return from an investment in a class of shares of a Fund; (ii)
other government statistics, including, but not limited to, The Survey of
Current Business, may be used to illustrate investment attributes of a Fund or a
class of shares or the general economic, business, investment, or financial
environment in which the Fund operates; (iii) the effect of tax-deferred
compounding on the investment returns of a Fund or a class of shares, or on
returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in a Fund or a class of shares (or returns in general) on a tax-
deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and (iv) the
sectors or industries in which a Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate the
historical performance of the Fund or a class or current or potential value with
respect to the particular industry or sector.
The Company also may discuss in advertising and other types of literature
that a Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as S&P or Moody's. Such rating would assess
the creditworthiness of the investments held by a Fund. The assigned rating
would not be a recommendation to purchase, sell or hold any class of a Fund's
shares since the rating would not comment on the market price of a Fund's shares
or the suitability of a Fund for a particular investor. In addition, the
assigned rating would be subject to
29
<PAGE>
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to a Fund or its investments. The Company may compare a
Fund's performance with other investments that are assigned ratings by NRSROs.
Any such comparisons may be useful to investors who wish to compare a Fund's
past performance with other rated investments.
From time to time the Company may reprint, reference or otherwise use
material from magazines, newsletters, newspapers and books including, but not
limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.
The Company also may disclose in sales literature, the distribution rate on a
Fund or a class of shares of a Fund. Distribution rate, which may be
annualized, is the amount determined by dividing the dollar amount per share of
the most recent dividend by the most recent NAV or maximum offering price per
share as of a date specified in the sales literature. Distribution rate will be
accompanied by the standard 30-day yield as required by the SEC.
The Company also may disclose, in advertising and other types of literature,
information and statements that Wells Fargo Investment Management ("WFIM"), a
division of Wells Fargo Bank, is listed in the top 100 by Institutional Investor
magazine in its July 1996 survey "America's Top 300 Money Managers." This
survey ranks money managers in several asset categories. The Company also may
disclose in advertising and other types of sales literature the assets and
categories of assets under management by the Company's investment adviser and
the total amount of assets and mutual fund assets managed by Wells Fargo Bank.
As of April 1, 1997, Wells Fargo Bank and its affiliates provided investment
advisory services for approximately $57 billion of assets of individuals,
trusts, estates and institutions.
The Company may disclose in advertising and other types of literature that
investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of
30
<PAGE>
locations where product demonstrations may occur. The Company may also disclose
the ranking of Wells Fargo Bank as one of the largest money managers in the
United States.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction with
the Prospectus section under "Purchase of shares." Net asset value per class of
shares of a Fund is determined by the Funds' Custodian on each day the Exchange
is open for trading as of the close of regular trading on the Exchange, which is
currently 1:00 p.m. Pacific time.
Securities of a Fund for which market quotations are available are valued at
latest prices. Any security for which the primary market is an exchange is
valued at the last sale price on such exchange on the day of valuation or, if
there was no sale on such day, the latest bid price quoted on such day. In the
case of other securities, including U.S. Government securities but excluding
money market instruments maturing in 60 days or less, the valuations are based
on latest quoted bid prices. Money market instruments maturing in 60 days or
less are valued at amortized cost. The assets of a Fund, other than money
market instruments or debt securities maturing in 60 days or less, are valued at
latest quoted bid prices. Prices may be furnished by a reputable independent
pricing service approved by the Company's Board of Directors. Prices provided
by an independent pricing service may be determined without exclusive reliance
on quoted prices and may take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data. All other securities and other assets of a Fund for which current market
quotations are not readily available are valued at fair value as determined in
good faith by the Company's Board of Directors and in accordance with procedures
adopted by the Directors.
Expenses and fees, including advisory fees, are accrued daily and are taken
into account for the purpose of determining the net asset value of a Fund's
shares.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds may be purchased on any day the Funds are open for
business. The Funds are open for business each day the NYSE is open for trading
(a "Business Day"). Currently, the NYSE is closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any
Holiday falls on a weekend, the NYSE typically is closed on the weekday
immediately before or after such Holiday.
Payment for shares may, in the discretion of the adviser, be made in the
form of securities that are permissible investments for the Funds as described
in the Prospectuses. For further information about this form of payment please
contact Stephens. In connection with an in-kind securities payment, the Funds
will require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by a Fund and that such
Fund
31
<PAGE>
receives satisfactory assurances that (i) it will have good and marketable title
to the securities received by it; (ii) that the securities are in proper form
for transfer to the Fund; and (iii) adequate information will be provided
concerning the basis and other matters relating to the securities.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit.
The Company may suspend redemption rights or postpone redemption payments
for such periods as are permitted under the 1940 Act. The Company may also
redeem shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to reimburse the
Funds for any losses sustained by reason of the failure of a shareholders to
make full payment for shares purchased or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
shares of a Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policies
established by the Company's Board of Directors, Wells Fargo Bank is responsible
for the Funds' portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Company to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo Bank generally seeks
reasonably competitive spreads or commissions, the Funds do not necessarily pay
the lowest spread or commission available.
Purchase and sale orders of the securities held by the Funds may be
combined with those of other accounts that Wells Fargo Bank manages, and for
which it has brokerage placement authority, in the interest of seeking the most
favorable overall net results. When Wells Fargo Bank determines that a
particular security should be bought or sold for a Fund and other accounts
managed by Wells Fargo Bank, Wells Fargo Bank undertakes to allocate those
transactions among the participants equitably.
Purchases and sales of securities usually are principal transactions.
Portfolio securities normally are purchased or sold from or to dealers serving
as market makers for the securities at a net price. The Funds also purchase
portfolio securities in underwritten offerings and may purchase securities
directly from the issuer. Generally, money market securities, ARMs and
32
<PAGE>
CMOs are traded on a net basis and do not involve brokerage commissions. The
cost of executing a Fund's portfolio securities transactions consists primarily
of dealer spreads and underwriting commissions. Under the 1940 Act, persons
affiliated with the Company are prohibited from dealing with the Company as a
principal in the purchase and sale of securities unless an exemptive order
allowing such transactions is obtained from the SEC or an exemption is otherwise
available.
The Funds may purchase municipal obligations from underwriting syndicates
of which Stephens, Wells Fargo Bank or their affiliates 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.
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.
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 a 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 a Fund's investment programs. Research services received
from brokers supplement Wells Fargo Bank's own research and may include the
following types of information: statistical and background information on
industry groups and individual companies; forecasts and interpretations with
respect to U.S. and foreign economies, securities, markets, specific industry
groups and individual companies; information on political developments;
portfolio management strategies; performance information on securities and
information concerning prices of securities; and information supplied by
specialized services to Wells Fargo Bank and to the Company's Directors with
respect to the performance, investment activities and fees and expenses of other
mutual funds. Such information may be communicated electronically, orally or in
written form. Research services may also include the providing of equipment
used to communicate research information, the arranging of meetings with
management of companies and the providing of access to consultants who supply
research information.
33
<PAGE>
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 Funds by improving the quality of Wells Fargo
Bank's investment advice. The advisory fees paid by the Funds are not reduced
because Wells Fargo Bank receives such services.
Brokerage Commissions. During the years ended December 31, 1993, 1994
----------------------
and 1995 and the fiscal period ended September 30, 1996, the California Tax-Free
Bond Fund did not pay any brokerage commissions on portfolio transactions.
During the fiscal periods ended May 31, 1994, May 31, 1995, September 30, 1995
and September 30, 1996, the National Tax-Free Fund and its predecessor portfolio
did not pay any brokerage commissions, because all of their portfolio
transactions occurred in the over-the-counter market.
Securities of Regular Broker/Dealers. The Funds may from time to time
------------------------------------
purchase securities issued by their regular broker/dealers. As of September 30,
1996, the Funds did not own any securities of their "regular brokers or dealers"
or their parents, as defined in the Act.
As of December 31, 1995, the California Tax-Free Bond Fund did not own
any securities of its regular brokers or dealers or their parents, as defined in
the Act. Furman Selz, the administrator to the predecessor portfolio, did not
report in their N-SAR for the fiscal year ended September 30, 1995, that the
National Tax-Free Fund held securities of its regular broker/dealers or their
parents .
Portfolio Turnover Rate. Changes may be made in the portfolios
-----------------------
consistent with the investment objectives and policies of the Funds whenever
such changes are believed to be in the best interests of the Funds and their
shareholders. The portfolio turnover rate is calculated by dividing the lesser
of purchases or sales of portfolio securities by the average monthly value of
the Fund's portfolio securities. For purposes of this calculation, portfolio
securities exclude all securities having a maturity when purchased of one year
or less. Portfolio turnover generally involves some expenses to the Funds,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and the reinvestment in other securities. Portfolio
turnover also can generate short-term capital gain tax consequences. Portfolio
turnover rate is not a limiting factor when Wells Fargo Bank deems portfolio
changes appropriate.
FUND EXPENSES
Except for the expenses borne by Wells Fargo Bank and Stephens, the
Company bears all costs of its operations, including the compensation of its
Directors who are not affiliated with Stephens or Wells Fargo Bank or any of
their affiliates; advisory, shareholder servicing and
34
<PAGE>
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 a Fund; expenses of shareholders' meetings;
expenses relating to the issuance, registration and qualification of a Fund's
shares; pricing services, and any extraordinary expenses. Expenses attributable
to a Fund are charged against such Fund assets. General expenses of the Company
are allocated among all of the funds of the Company, including a Fund, in a
manner proportionate to the net assets of each Fund, on a transactional basis,
or on such other basis as the Company's Board of Directors deems equitable.
TAXES
In General. The following information supplements and should be read in
----------
conjunction with Prospectus sections entitled "Dividend and Capital Gain
Distributions" and "Taxes." The Prospectus describes generally the tax
treatment of distributions by the Funds. This section of the SAI includes
additional information concerning federal income taxes.
The Company intends to qualify each Fund as a regulated investment company
under Subchapter M of the Code as long as such qualification is in the best
interest of the Fund's shareholders. Each Fund will be treated as a separate
entity for tax purposes and thus the provisions of the Code applicable to
regulated investment companies will generally be applied to 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 each Fund.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) each Fund derive at least 90% of its annual gross
income from interest, payments with respect to securities loans, dividends and
gains from the sale or other disposition of securities or options thereon; (b)
each Fund derive less than 30% of its gross income from gains from the sale or
other disposition of securities or options thereon held for less than three
months; and (c) each 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 each Fund's
assets is represented by cash, government securities and other securities
limited in respect of any one issuer to an amount not greater than 5% of the
Fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government obligations and the securities of
other regulated investment companies), or in two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades or
businesses. As a regulated investment company, each Fund will not be subject to
federal income tax on its net investment income and net capital gains
distributed to its shareholders, provided that it distributes to its
shareholders at least 90% of its net investment income, including net tax-exempt
35
<PAGE>
income, earned in each year. Each Fund intends to pay out substantially all of
its net investment income and net realized capital gains (if any) for each year.
A 4% nondeductible excise tax will be imposed on each Fund (other than to
the extent of the Fund's tax-exempt income) to the extent it does not meet
certain minimum distribution requirements by the end of each calendar year.
Each Fund will either actually or be deemed to distribute all of its net
investment income and net capital gains by the end of each calendar year and,
thus, expects not to be subject to the excise tax.
Income and dividends received by each Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Although in some circumstances a regulated
investment company can elect to "pass through" foreign tax credits to its
shareholders, each Fund does not expect to be eligible to make such an election.
Corporate shareholders of a 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 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.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual marginal tax rate applicable to ordinary income is 39.60% (marginal
rates may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual marginal tax rate applicable
to net capital gains is 28.00%; the maximum corporate tax rate applicable to
ordinary income and net capital gains is 35.00% (except that to eliminate the
benefit of lower marginal corporate income tax rates, corporations which have
taxable income in excess of $100,000 for a taxable year will be required to pay
an additional amount of income tax of up to $11,750 and corporations which have
taxable income in excess of $15,000,000 for a taxable year will be required to
pay an additional amount of tax of up to $100,000). Naturally, the amount of
tax payable by an individual or corporation will be affected by a combination of
tax laws covering, for example, deductions, credits, deferrals, exemptions,
sources of income and other matters.
Capital Gain Distributions. To the extent that a Fund recognizes long-term
--------------------------
capital gains, such gains will be distributed at least annually and these
distributions will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held Fund shares. Such distributions
will be designated as capital gain distributions in a written notice mailed by
the Fund to the shareholders not later than 60 days after the close of the
Fund's taxable year.
Disposition of Fund Shares. If a shareholder receives a designated capital
--------------------------
gain distribution (to be treated by the shareholder as a long-term capital gain)
with respect to any Fund share and such Fund share is held for six months or
less, then (unless otherwise disallowed) any loss on the
36
<PAGE>
sale or exchange of that Fund share will be treated as a long-term capital loss
to the extent of the designated capital gain distribution. In addition, any loss
realized by a shareholder upon the sale or redemption of Fund shares held less
than six months is disallowed to the extent of any exempt-interest dividends
received thereon by the shareholder. These rules shall not apply, however, to
losses incurred under a periodic redemption plan.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or of a different regulated investment company,
the sales charge previously incurred acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are reacquired within the 61-day
period beginning 30 days before and ending 30 days after the shares are disposed
of.
Taxation of Fund Investments. Gains or losses on sales of portfolio
----------------------------
securities by a Fund will generally be long-term capital gains or losses if the
securities have been held by it for more than one year, except in certain cases
such as where the Fund acquires a put or writes a call thereon. Gains
recognized on the disposition of a debt obligation (including tax-exempt
obligations purchased after April 30, 1993) purchased by the Fund at a market
discount (generally at a price less than its principal amount) will be treated
as ordinary income to the extent of the portion of market discount which accrued
during the period of time the Fund held the debt obligation. Other gains or
losses on the sale of portfolio securities will be short-term capital gains or
losses.
If an option written by a Fund lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder, the
Fund will realize a short-term capital gain or loss, depending on whether the
premium income is greater or less than the amount paid by the Fund in the
closing transaction. Some realized capital losses may be deferred if they
result from a position which is part of a "straddle," discussed below. If
securities are sold by a Fund pursuant to the exercise of a call option written
by it, the Fund will add the premium received to the sale price of the
securities delivered in determining the amount of gain or loss on the sale. If
securities are purchased by a Fund pursuant to the exercise of a put option
written by it, the Fund will subtract the premium received from its cost basis
in the securities purchased. The requirement that a Fund derive less than 30%
of its gross income from gains from the sale of securities held for less than
three months may limit the Fund's ability to write options.
The amount of any gain or loss realized by a Fund on closing out a futures
contract will generally result in a realized capital gain or loss for tax
purposes. Futures contracts held at the end of each fiscal year will be
required to be "marked to market" for federal income tax purposes pursuant to
Section 1256 of the Code. In this regard, they will be deemed to have been sold
at market value. Sixty percent (60%) of any net gain or loss recognized on
these deemed sales and sixty percent (60%) of any net realized gain or loss from
any actual sales, generally will be treated
37
<PAGE>
as long-term capital gain or loss, and the remaining forty percent (40%) will be
treated as short-term capital gain or loss. Transactions that qualify as
designated hedges are excepted from the "marked to market" and "60%/40%" rules.
Currency transactions may be subject to Section 988 of the Code, under which
foreign currency gains or losses would generally be computed separately and
treated as ordinary income or losses. The Funds will attempt to monitor Section
988 transactions to avoid an adverse tax impact.
Offsetting positions held by a regulated investment company involving
certain financial forward, futures or options contracts may be considered, for
tax purposes, to constitute "straddles." "Straddles" are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of "straddles" is governed by Section 1092 of the Code which, in certain
circumstances, overrides or modifies the provisions of Section 1256. If a
regulated investment company were treated as entering into "straddles" by reason
of its engaging in certain financial forward, futures or option contracts, such
straddles could be characterized as "mixed straddles" if the futures, forwards,
or options comprising a part of such straddles were governed by Section 1256 of
the Code. The regulated investment company may make one or more elections with
respect to "mixed straddles." Depending upon which election is made, if any,
the results with respect to the regulated investment company may differ.
Generally, to the extent the straddle rules apply to positions established by
the regulated investment company, losses realized by the regulated investment
company may be deferred to the extent of unrealized gain in any offsetting
positions. Moreover, as a result of the straddle and the conversion transaction
rules, short-term capital loss on straddle positions may be recharacterized as
long-term capital loss, and long-term capital gain may be characterized as
short-term capital gain or ordinary income.
If a Fund purchases shares in a "passive foreign investment company"
("PFIC"), the Fund may be subject to federal income tax and an interest charge
imposed by the IRS upon certain distributions from the PFIC or the Fund's
disposition of PFIC shares. If the Fund invests in a PFIC, the Fund intends to
make an available election to mark-to-market its interest in PFIC shares. Under
the election, the Fund will be treated as recognizing at the end of each taxable
year the excess, if any, of the fair market value of its interest in PFIC shares
over its basis in such shares. Although such excess will be taxable to the Fund
as ordinary income notwithstanding any distributions by the PFIC, the Fund will
not be subject to federal income tax or the interest charge with respect to its
interest in the PFIC.
Foreign Shareholders. Under the Code, distributions of net investment
--------------------
income by a Fund to a nonresident alien individual, nonresident alien fiduciary
of a trust or estate, foreign corporation, or foreign partnership (a "foreign
shareholder") will be subject to U.S. withholding tax (at a rate of 30% or a
lower treaty rate). Withholding will not apply if a dividend paid by a Fund to
a foreign shareholder is "effectively connected" with a U.S. trade or business,
in which case the reporting and withholding requirements applicable to U.S.
citizens, U.S. residents or domestic corporations will apply. Distributions of
net long-term capital gains are not subject to tax withholding, but in the case
of a foreign shareholder who is a nonresident alien individual, such
distributions ordinarily will be subject to U.S. income tax at a rate of 30% if
the individual is physically present in the U.S. for more than 182 days during
the taxable year.
38
<PAGE>
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 redemptions in
kind and 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.
Special Tax Considerations. The Funds intend that at least 50% of the
--------------------------
value of their total assets at the close of each quarter of their taxable years
will consist of obligations the interest on which is exempt from federal income
tax, so that they will qualify under the Code to pay "exempt-interest
dividends." The portion of total dividends paid by a Fund with respect to any
taxable year that constitutes exempt-interest dividends will be the same for all
shareholders receiving dividends during such year. Long-term and/or short-term
capital gain distributions will not constitute exempt-interest dividends and
will be taxed as capital gain or ordinary income dividends, respectively. The
exemption of interest income derived from investments in tax-exempt obligations
for federal income tax purposes may not result in a similar exemption under the
laws of a particular state or local taxing authority.
Not later than 60 days after the close of its taxable year, a Fund will
notify its shareholders of the portion of the dividends paid with respect to
such taxable year which constitutes exempt-interest dividends. The aggregate
amount of dividends so designated cannot exceed the excess of the amount of
interest excludable from gross income under Section 103 of the Code received by
the Fund during the taxable year over any amounts disallowed as deductions under
Sections 265 and 171(a)(2) of the Code. Finally, interest on indebtedness
incurred to purchase or carry shares of a Fund will not be deductible to the
extent that the Fund's distributions are exempt from federal income tax.
In addition, the federal alternative minimum tax ("AMT") rules ensure that
at least a minimum amount of tax is paid by taxpayers who obtain significant
benefit from certain tax deductions and exemptions. Some of these deductions
and exemptions have been designated "tax preference items" which must be added
back to taxable income for purposes of calculating AMT. Among the tax
preference items is tax-exempt interest from "private activity bonds" issued
after August 7, 1986. To the extent that a Fund invests in private activity
bonds, its shareholders who pay AMT will be required to report that portion of
Fund dividends attributable to income from the bonds as a tax preference item in
determining their AMT. Shareholders will be notified of the tax status of
distributions made by the Fund. Persons who may be "substantial users" (or
"related persons" of substantial users) of facilities financed by private
activity bonds should consult their tax advisors before purchasing Fund shares.
Furthermore, shareholders will not be permitted to deduct any of their share of
a Fund's expenses in computing their AMT. With respect to a corporate
shareholder of such Funds, exempt-interest dividends paid by a Fund is included
in the
39
<PAGE>
corporate shareholder's "adjusted current earnings" as part of its AMT
calculation, and may also affect its federal "environmental tax" liability. As
of the printing of this SAI, individuals are subject to an AMT at a maximum rate
of 28% and corporations at a maximum rate of 20%. Shareholders with questions or
concerns about AMT should consult their tax advisors.
Shares of the Funds would not be suitable for tax-exempt institutions and
may not be suitable for retirement plans qualified under Section 401 of the
Code, H.R. 10 plans and IRAs since such plans and accounts are generally tax-
exempt and, therefore, would not benefit from the exempt status of dividends
from such Funds. Such dividends would be ultimately taxable to the
beneficiaries when distributed to them.
Other Matters. Investors should be aware that the investments to be made
-------------
by the Funds may involve sophisticated tax rules that may result in income or
gain recognition by the Funds without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Funds, in which case the Funds may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus address only
some of the federal tax considerations generally affecting investments in a
Fund. Each investor is urged to consult his or her tax advisor regarding
specific questions as to federal, state or local taxes and foreign taxes.
CAPITAL STOCK
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "The Funds and Management."
The Funds are two of the funds in the Stagecoach Family of Funds. The
Company was organized as a Maryland corporation on September 9, 1991 and
currently offers shares of over twenty-five funds.
With respect to matters that affect one class of a Fund's shares but not
another, shareholders vote as a class; for example, the approval of a Plan.
Subject to the foregoing, on any matter submitted to a vote of shareholders, all
shares then entitled to vote are voted separately by series unless otherwise
required by the Act, in which case all shares are voted in the aggregate. For
example, a change in a series' fundamental investment policy affects only one
series and are voted upon only by shareholders of the series and not by
shareholders of the Company's other series. Additionally, approval of an
advisory contract is a matter to be determined separately by each series.
Approval by the shareholders of one series is effective as to that series
whether or not sufficient votes are received from the shareholders of the other
series to approve the proposal as to those series. As used in the Prospectus
and in this SAI, the term "majority" when referring to approvals to be obtained
from shareholders of a class of a Fund, means the vote of the lesser of (i) 67%
of the shares of such class of the Fund represented at a meeting if the holders
of more
40
<PAGE>
than 50% of the outstanding shares of such class of the Fund are present in
person or by proxy, or (ii) more than 50% of the outstanding shares of such
class of the Fund. The term "majority," when referring to the approvals to be
obtained from shareholders of the Company as a whole, means the vote of the
lesser of (i) 67% of the Company's shares represented at a meeting if the
holders of more than 50% of the Company's outstanding shares are present in
person or by proxy, or (ii) more than 50% of the Company's outstanding shares.
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held.
The Company may dispense with an annual meeting of shareholders in any year
in which it is not required to elect directors under the 1940 Act.
Each share of a class of a Fund represents an equal proportional interest
in the Fund with each other share in the same class and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
the Fund as are declared in the discretion of the Directors. In the event of
the liquidation or dissolution of the Company, shareholders of a Fund or class
are entitled to receive the assets attributable to the Fund or class that are
available for distribution, and a distribution of any general assets not
attributable to a particular investment portfolio that are available for
distribution in such manner and on such basis as the Directors in their sole
discretion may determine.
Shares have no preemptive rights or subscription. All shares, when issued
for the consideration described in the Prospectus, are fully paid and non-
assessable by the Company.
As of July 31, 1997, no shareholders were known by the Company to own 5% or
more of the outstanding Class C shares of the Funds.
OTHER INFORMATION
The Company's Registration Statement, including the Prospectus and SAI for
the Funds, and the exhibits filed therewith, may be examined at the office of
the SEC in Washington, D.C. Statements contained in a Prospectus or the SAI as
to the contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP serves as the independent auditor for the Company.
KPMG Peat Marwick LLP provides audit services, tax return preparation and
assistance and consultation in connection with review of certain SEC filings.
KPMG Peat Marwick LLP's address is Three Embarcadero Center, San Francisco,
California 94111.
41
<PAGE>
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and independent
auditors' report for the Funds for the fiscal year ended September 30, 1996 are
hereby incorporated by reference to the Company's Annual Reports as filed with
the SEC on December 9, 1996. The portfolio of investments, audited financial
statements and independent auditors' report for the Funds for the fiscal period
ended March 31, 1997 are hereby incorporated by reference to the Company's
Annual Report as filed with the SEC on June 4, 1997. The portfolio of
investments, audited financial statements and independent auditors' report are
attached to all SAIs delivered to current or prospective shareholders. Annual
Reports may be obtained by calling 1-800-222-8222.
42
<PAGE>
SAI APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate and Municipal Bonds
Moody's: The four highest ratings for corporate and municipal bonds
are "Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest amount of investment risk. Bonds rated "Aa" are
of "high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds
rated "A" possess many favorable investment attributes and are considered to be
upper medium grade obligations. Bonds rated "Baa" are considered to be medium
grade obligations; interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1, 2
and 3 in each rating category from "Aa" through "Baa" in its rating system. The
modifier 1 indicates that the security ranks in the higher end of its category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are
"AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned
by S&P and have an extremely strong capacity to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity to pay interest and
repay principal" and differ "from the highest rated issued only in small
degree." Bonds rated "A" have a "strong capacity" to pay interest and repay
principal, but are "somewhat more susceptible" to adverse effects of changes in
economic conditions or other circumstances than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having an "adequate capacity" to
pay interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of a
plus or minus sign to show relative standing within the category.
Municipal Notes
Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG 2"
or "VMIG 2" are of "high quality," with margins of protections "ample although
not as large as in the preceding group." Notes rated "MIG 3" or "VMIG 3" are of
"favorable quality," with all security elements accounted for, but lacking the
strength of the preceding grades.
A-1
<PAGE>
S&P: The "SP-1" rating reflects a "very strong or strong capacity to pay
principal and interest." Notes issued with "overwhelming safety characteristics"
will be rated "SP-1+." The "SP-2" rating reflects a "satisfactory capacity" to
pay principal and interest.
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate and municipal commercial paper is
"P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for repayment of
short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a strong
capacity for repayment of short-term promissory obligations," but earnings
trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate and municipal commercial paper
indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
A-2
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: (800) 222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated October 6, 1997
SMALL CAP FUND
Class C
__________________________________
Stagecoach Funds, Inc. (the "Company") is an open-end, series investment
company. This Statement of Additional Information ("SAI") contains additional
information about Class C shares offered in the Small Cap Fund of the Stagecoach
Family of Funds (the "Fund"). The Fund also offers Class A, Class B and
Institutional Class shares. The investment objective of the Fund is described
in the Prospectus under the heading "Investment Objective and Policies."
The Fund seeks to achieve its investment objective by investing all of
its assets in the Small Cap Master Portfolio (the "Master Portfolio") of Master
Investment Trust ("MIT"), which has the same investment objective as the Fund.
On July 23, 1997, the Company's Board of Directors approved an agreement and
plan of consolidation to reorganize the funds of another investment company,
Overland Express Funds, Inc., with and into certain funds of the Company (the
"Consolidation"). If the Consolidation is completed as anticipated, .the Master
Portfolio will be dissolved in December of 1997. The Fund will no longer invest
its assets in the Master Portfolio, but instead will invest directly in a
portfolio of securities. The Fund will retain Wells Fargo Bank, the Master
Portfolio's current investment adviser to manage the Fund's assets in
substantially the same manner as Wells Fargo Bank currently manages the Master
Portfolio's assets and for the same level of advisory fees.
This SAI is not a prospectus and should be read in conjunction with the
Fund's Prospectus dated October 6, 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>
Investment Restrictions............................................... 1
Management............................................................ 3
Performance Calculations.............................................. 11
Determination of Net Asset Value...................................... 14
Additional Purchase and Redemption Information........................ 15
Portfolio Transactions................................................ 16
Fund Expenses......................................................... 18
Federal Income Taxes.................................................. 19
Capital Stock......................................................... 23
Other................................................................. 26
Independent Auditors.................................................. 26
Financial Information................................................. 26
Appendix.............................................................. A-1
Financial Statements.................................................. F-1
</TABLE>
i
<PAGE>
INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Fund and the Master Portfolio are
-------------------------------
subject to the following investment restrictions, all of which are fundamental
policies. These restrictions cannot be changed, as to either the Fund or the
Master Portfolio, without approval by the holders of a majority (as defined by
the 1940 Act) of the outstanding voting securities of the Fund or the Master
Portfolio, as appropriate. Whenever the Fund is requested to vote on a
fundamental policy of the Master Portfolio, the Fund will hold a meeting of its
shareholders and cast its votes as instructed by such shareholders.
References to the investments, investment policies and restrictions of
the Fund, unless otherwise indicated, should be understood as references to the
investments, investment policies and restrictions of the Master Portfolio.
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
equal or exceed 25% of the current value of the Fund's total assets, provided
that there is no limitation with respect to investments in securities issued or
guaranteed by the United States Government, its agencies or instrumentalities;
and provided further, that the Fund may invest all its assets in a diversified,
open-end management investment company, or a series thereof, with substantially
the same investment objective, policies and restrictions as such Fund, without
regard to the limitations set forth in this paragraph (1);
(2) purchase or sell real estate (other than securities secured by real
estate or interests therein or securities issued by companies that invest in
real estate or interests therein, including mortgage pass through securities),
commodities or commodity contracts or interests in oil, gas, or other mineral
exploration or development programs;
(3) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting; and provided further, that the purchase by the Fund of securities
issued by a diversified, open-end management investment company, or a series
thereof, with substantially the same investment objective, policies and
restrictions as such Fund shall not constitute an underwriting for purposes of
this paragraph (4);
(5) make investments for the purpose of exercising control or management;
provided that the Fund may invest all its assets in a diversified, open-end
management company, or a series thereof, with substantially the same investment
objective, policies and restrictions as such Fund, without regard to the
limitations set forth in this paragraph (5);
1
<PAGE>
(6) issue senior securities, except that the Fund may borrow from banks
up to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowings exceed 5% of its net assets);
(7) make loans of portfolio securities having a value that exceeds 33
1/3% of the current value of its total assets, provided that, this restriction
does not apply to the purchase of fixed time deposits, repurchase agreements,
commercial paper and other types of debt instruments commonly sold in a public
or private offering; nor
(8) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if, as a
result, with respect to 75% of its total assets, more than 5% of the value of
its total assets would be invested in the securities of any one issuer or, with
respect to 100% of its total assets, the Fund's ownership would be more than 10%
of the outstanding voting securities of such issuer, provided that the Fund may
invest all of its assets in a diversified, open-end management investment
company, or a series thereof, with substantially the same investment objective,
policies and restrictions as such Fund, without regard to the limitations set
forth in this paragraph (8).
Non-Fundamental Investment Policies. The Fund is subject to the
-----------------------------------
following investment restrictions, all of which are non-fundamental policies.
These restrictions may be changed by a vote of a majority of the Directors of
the Company at any time.
The Fund may not:
----------------
(1) purchase or retain securities of any issuer if the officers or
directors of the Fund or its Investment Adviser owning beneficially more than
one-half of one percent (0.5%) of the securities of the issuer together own
beneficially more than 5% of such securities;
(2) purchase or sell real estate limited partnership interests;
(3) invest in securities of issuers who, with their predecessors, have
been in existence less than three years, unless the securities are fully
guaranteed or insured by the U.S. Government if, by reason thereof, the value of
its aggregate investment in such securities will exceed 5% of its total assets;
(4) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if, as a
result, more than 5% of the value of the Fund's total assets would be invested
in the securities of any one issuer;
(5) invest more than 15% of its net assets in illiquid securities. For
this purpose, illiquid securities include, among others, (a) securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale, (b) fixed time deposits that
2
<PAGE>
are subject to withdrawal penalties and that have maturities of more than seven
days, and (c) repurchase agreements not terminable within seven days;
(6) In addition, as a matter of non-fundamental policy, the Fund may
invest in shares of other open-end, management investment companies, subject to
the limitations of Section 12(d)(1) of the Act, provided that any such purchases
will be limited to temporary investments in shares of unaffiliated investment
companies and the Investment Adviser will waive its advisory fees for that
portion of the Fund's assets so invested, except when such purchase is part of a
plan of merger, consolidation, reorganization or acquisition; nor
(7) Invest more than 25% of their respective net assets in securities of
foreign governmental and foreign private issues that are denominated in and pay
interest in U.S. dollars.
Notwithstanding any other investment policy or limitation (whether or not
fundamental), the Fund may invest all of its assets in the securities of a
single open-end management investment company with substantially the same
fundamental investment objective, policies and limitations as the Fund. A
decision to so invest all of its assets may, depending on the circumstances
applicable at the time, require approval of shareholders.
MANAGEMENT
The following information supplements and should be read in conjunction
with the section in the prospectus entitled "The Funds and Management." The
principal occupations during the past five years of the Directors and principal
executive Officer of the Company are listed below. The address of each, unless
otherwise indicated, is 111 Center Street, Little Rock, Arkansas 72201.
Directors deemed to be "interested persons" of the Company for purposes of the
1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 46 Director, Executive Vice President
Chairman and of Stephens; Manager of
President Financial Services Group
President of Stephens
Insurance Services Inc.;
Senior Vice President of
Stephens Sports
Management Inc.; and
President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of
321 Beechcliff Court Finance of the School of
Winston-Salem, NC 27104 Business and Accounting
at Wake Forest University
since 1982.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Joseph N. Hankin, 57 Director President of Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; Adjunct Professor
(appointed as of September of Columbia University
6, 1996) Teachers College since
1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 79 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor;
4 Beaufain Street Chairman of Home Account
Charleston, SC 29401 Network, Inc. Real Estate
Developer; 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
Officer, Secretary Services Group of
and Treasurer Stephens; Director of
Stephens Sports
Management Inc.; and
Director of Capo Inc.
</TABLE>
4
<PAGE>
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>
Directors of the Company are compensated annually by the Company and by
all the registrants in each fund complex they serve as indicated above and also
are reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company, Overland Express Funds, Inc., Stagecoach Trust, Life &
Annuity Trust and MIT are considered to be members of the same fund complex as
such term is defined in Form N-1A under the 1940 Act (the "Wells Fargo Fund
Complex"). MasterWorks Funds Inc., Master Investment Portfolio, and Managed
Series Investment Trust together form a separate fund complex (the "BGFA Fund
Complex"). Each of the Directors and Officers of the Company serves in the
identical capacity as directors and officers or as trustees and/or officers of
each registered open-end management investment company in both the Wells Fargo
and BGFA Fund Complexes, except for Joseph N. Hankin, who only serves the
aforementioned members of the Wells Fargo Fund Complex, and Zoe Ann Hines who,
after September 6, 1996, only serves the aforementioned members of the BGFA Fund
Complex. The Directors are compensated by other companies and trusts within a
fund complex for their services as directors/trustees to such companies and
trusts. Currently the Directors do not receive any retirement benefits or
deferred compensation from the Company or any other
5
<PAGE>
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.
Master/Feeder Structure. The Fund currently seeks to achieve its
-------------------------
investment objective by investing all of its assets into the Small Cap Master
Portfolio of MIT. Upon completion of the anticipated Consolidation and the
dissolution of the Master Portfolio, the Fund will invest directly in a
portfolio of securities and will no longer invest in the Master Portfolio. The
Fund will retain the Master Portfolio's investment adviser for the daily
portfolio management of it's assets, in accordance with its investment
objectives and policies. Information regarding any other investment options in
the Master Portfolio may be obtained by calling Stephens at 1-800-643-9691.
The Fund and other entities investing in the Master Portfolio are each
liable for all obligations of the Master Portfolio. However, the risk of the
Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and MIT itself is
unable to meet its obligations. Accordingly, the Company's Board of Directors
believes that neither the Fund nor its shareholders will be adversely affected
by investing Fund assets in the Master Portfolio. However, if a mutual fund or
other investor withdraws its investment from the Master Portfolio, the economic
efficiencies (e.g., spreading fixed expenses among a larger asset base) that the
Company's Board believes may be available through investment in the Master
Portfolio may not be fully achieved. In addition, given the relative novelty of
the master/feeder structure, accounting or operational difficulties, although
unlikely, could arise.
The Fund may withdraw its investment in the Master Portfolio only if the
Company's Board of Directors determines that such action is in the best
interests of the Fund and its shareholders. Upon any such withdrawal, the
Company's Board would consider alternative investments, including investing all
of the Fund's assets in another investment company with the same investment
objective as the Fund or hiring an investment adviser to manage the Fund's
assets in accordance with the investment policies described below with respect
to the Master Portfolio.
The investment objective and other fundamental policies of the Master
Portfolio cannot be changed without approval by the holders of a majority (as
defined in the 1940 Act) of the Master Portfolio's outstanding interests. See
"Investment Objectives and Policies." Whenever the Fund, as an interestholder of
the Master Portfolio, is requested to vote on any matter submitted to
interestholders of the Master Portfolio, the Fund will hold a meeting of its
shareholders to consider such matters. The Fund will cast its votes in
proportion to the votes received from its shareholders. Shares for which the
Fund receives no voting instructions will be voted in the same proportion as the
votes received from the other Fund shareholders.
Certain policies of the Master Portfolio which are non-fundamental may be
changed by vote of a majority of MIT's Trustees without interestholder approval.
If the Master Portfolio's investment objective or fundamental or non-fundamental
policies are changed, the Fund may elect to change its objective or policies to
correspond to those of the Master Portfolio. The Fund may also elect to redeem
its interests in the Master Portfolio and either seek a new investment company
with a matching objective in which to invest or retain its own investment
adviser to
6
<PAGE>
manage the Fund's portfolio in accordance with its objective. In the latter
case, the Fund's inability to find a substitute investment company in which to
invest or equivalent management services could adversely affect shareholders'
investments in the Fund. The Fund will provide shareholders with 30 days'
written notice prior to the implementation of any change in the investment
objective of the Fund or the Master Portfolio, to the extent possible. See
"Investment Objective and Policies" for additional information regarding the
Fund's and the Master Portfolio's investment objectives and policies.
Investment Adviser. The Fund has not engaged an investment adviser. The
------------------
Master Portfolio (which has the same investment objective as the Fund, and in
which the Fund invests all its assets) is advised by Wells Fargo Bank. Upon
completion of the anticipated Consolidation and the dissolution of the Master
Portfolio, the Fund will retain Wells Fargo Bank, the Master Portfolio's current
investment adviser, to manage it's assets under an advisory contract providing
for substantially the same services being provided to the Master Portfolio.
The current Advisory Contract provides that Wells Fargo Bank shall
furnish investment guidance and policy direction in connection with the daily
portfolio management of the Master Portfolio. Pursuant to the Advisory
Contract, Wells Fargo Bank furnishes to the Board of Trustees of MIT periodic
reports on the investment strategy and performance of the Master Portfolio. For
its services as investment adviser to the Master Portfolio, Wells Fargo Bank is
entitled to receive a monthly fee at the annual rate of 0.60% of the Master
Portfolio's average daily net assets.
For the period beginning September 16, 1996 (the Fund's commencement of
operations) and ended September 30, 1996, the Master Portfolio paid Wells Fargo
Bank $6,129 in advisory fees. No fees were waived.
Wells Fargo Bank has agreed to provide to the Master Portfolio, among
other things, money market security and fixed-income research, analysis and
statistical and economic data and information concerning interest rate and
security market trends, portfolio composition, credit conditions and average
maturities of the Master Portfolio.
The Advisory Contract will continue in effect for more than two years
provided the continuance is approved annually (i) by the holders of a majority
of the Master Portfolio's outstanding voting securities or by MIT's Board of
Trustees and (ii) by a majority of the Trustees of MIT who are not parties to
the Advisory Contract or "interested persons" (as defined in the 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 respective Administration and Co-Administration Agreements among Wells
Fargo Bank, Stephens and the Company, Wells Fargo Bank and Stephens shall
provide as administrative 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
7
<PAGE>
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 and
Officers and employees who are affiliated with Stephens. The Administrator and
Co-Administrator are entitled to receive a monthly fee of 0.04% and 0.02%,
respectively, of the average daily net assets of the Fund. Prior to February 1,
1997, Stephens served as sole administrator to the Fund and was entitled to
receive a monthly fee at the annual rate of 0.05% of the Fund's average daily
net assets. For the period beginning September 16, 1996 and ended September 30,
1996, Stephens received $492 in administrative fees.
Sponsor and Distributor. As discussed in the Fund's Prospectus under
-----------------------
the heading "Management, Distribution and Servicing Fees," Stephens (the
"Distributor"), 111 Center Street, Little Rock, Arkansas 72201, serves as
sponsor and distributor for the Fund.
Distribution Plan. The following information supplements and should be
-----------------
read in conjunction with the Prospectus section entitled "Distribution Plan."
As indicated in the Prospectus, the Fund, on behalf of each class of its shares,
has adopted a Plan under Section 12(b) of the Act and Rule 12b-1 thereunder (the
"Rule"). The Plan for the Class C shares of the Fund was adopted by the
Company's Board of Directors including a majority of the directors who were not
"interested persons" (as defined in the Act) of the Fund and who had no direct
or indirect financial interest in the operation of the Plan or in any agreement
related to the Plan (the "Qualified Directors").
Under the Plan for the Class C shares of the Fund and pursuant to the
Distribution Agreement, the Fund may pay the Distributor as compensation for
distribution-related activities and services provided, or reimbursement for
distribution-related expenses incurred, a monthly fee at an annual rate of up to
0.50% of the average daily net assets attributable to Class C shares of the
Fund.
The actual fee payable to the Distributor shall be determined, within
such limits, from time to time by mutual agreement between the Company and the
Distributor and will not exceed the maximum sales charges payable by mutual
funds sold by members of the NASD under the NASD Rules of Fair Practice. The
Distributor may enter into selling agreements with one or more selling agents
(which may include Wells Fargo Bank and its affiliates) under which such agents
may receive compensation for distribution-related services from the Distributor,
including, but not limited to, commissions or other payments to such agents
based on the average daily net assets of Fund shares attributable to their
customers. The Distributor may retain any portion of the total distribution fee
payable thereunder to compensate it for distribution-related services provided
by it or to reimburse it for other distribution-related expenses.
8
<PAGE>
Pursuant to Rule 12b-1, a distribution plan must be initially approved
(and reapproved annually thereafter) by the Board of Directors, including a
majority of the Qualified Directors of the Company. Agreements related to the
Plan also must be approved by such vote of the Directors and Qualified
Directors. Selling agreements will terminate automatically if assigned and may
be terminated at any time, without payment of any penalty, by a vote of a
majority of the outstanding voting securities of the relevant class of a Fund or
by vote of a majority of the Qualified Directors on not more than 60 days'
written notice. The Class C 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 relevant class of a 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 the Company to provide the Directors, and the
Directors to review, at least quarterly, a written report of the amounts
expended (and purposes therefor) under such Plan. The Rule also requires that
the selection and nomination the Non-Interested Directors of the Company be made
by such Qualified Directors.
Wells Fargo Bank, an interested person (as that term is defined in
Section 2(a)(19) of the 1940 Act) of the Company, acts as a selling agent for
the Fund's Class C shares pursuant to selling agreements with Stephens
authorized under the Plan. As a selling agent, Wells Fargo Bank has an indirect
financial interest in the operation of the Plan. The Board of Directors has
concluded that the Plan is reasonably likely to benefit the Fund and its
shareholders because the Plan authorize the relationships with selling agents,
including Wells Fargo Bank, that have previously developed distribution channels
and relationships with the retail customers that the Class C shares of the Fund
are designed to serve. These relationships and distribution channels are
believed by the Board to provide potential for increased Fund assets and
ultimately corresponding economic efficiencies (i.e., lower per-share
transaction costs and fixed expenses) that are generated by increased assets
under management.
Shareholder Servicing Agent. As discussed in the Fund's Prospectus under
---------------------------
the heading "Shareholder Servicing Agent," the Fund has approved Servicing Plans
for each class of its shares and has entered into related shareholder servicing
agreements with financial institutions, including Wells Fargo Bank. For
providing these services, a shareholder servicing agent is entitled to a fee
from the Fund of up to 0.25%, on an annualized basis, of the average daily net
asset value of the Class C shares owned by or attributable to such customers of
the Shareholder Servicing Agent.
Servicing Plan. The Servicing Plan for the Class C shares of the Fund
--------------
and related shareholder servicing agreements were approved by the Company's
Board of Directors including a majority of the Directors who were not
"interested persons" (as defined in the Act) of the Fund and who had no direct
or indirect financial interest in the operation of the Servicing Plan or in any
agreement related to the Servicing Plan (the "Servicing Plan Qualified
Directors").
The actual fee payable to servicing agents under the Servicing Plan for
the Class C shares is determined, within such limits, from time to time by
mutual agreement between the
9
<PAGE>
Company and each servicing agent and will not exceed the maximum amounts payable
by mutual funds sold by members of the NASD under Article III, Section 26 of the
NASD Rules of Fair Practice.
The Servicing Plan for the Class C shares continues in effect from year
to year if such continuance is approved by a majority vote of both the Directors
of the Company and the Servicing Plan Qualified Directors. Any form of
servicing agreement related to the Servicing Plan also must be approved by such
vote of the Directors and the Servicing Plan Qualified Directors. Servicing
agreements may be terminated at any time, without payment of any penalty, by
vote of a majority of the Servicing Plan Qualified Directors. No material
amendment to the Servicing Plan may be made except by a majority of both the
Directors of the Company and the Servicing Plan Qualified Directors.
The Servicing Plan for the Class C shares requires that the administrator
shall provide to the Directors, and the Directors shall review, at least
quarterly, a written report of the amounts expended (and purposes therefor)
under the Servicing Plan.
Custodian and Transfer and Dividend Disbursing Agent. Wells Fargo Bank
----------------------------------------------------
has been retained to act as custodian and transfer and dividend disbursing agent
for the Fund. The custodian, among other things, maintains a custody account or
accounts in the name of the Fund receives and delivers all assets for the Fund
upon purchase and upon sale or maturity, collects and receives all income and
other payments and distributions on account of the assets of the Fund and pays
all expenses of the Fund. For its services as custodian, Wells Fargo Bank 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.
For the period beginning September 16, 1996 and ended September 30, 1996,
the Fund did not pay any custody fees to Wells Fargo Bank.
For its services as transfer and dividend disbursing agent for the Class
C shares of the Fund, Wells Fargo Bank is entitled to receive monthly payments
at the annual rate of 0.14% of the average daily net assets of the Fund's Class
C shares. Under the prior transfer agency agreement for the Fund, Wells Fargo
Bank was entitled to receive monthly payments at the annual rate of 0.07% of the
Fund's average daily net assets, regardless of class, as well as reimbursement
for all reasonable out-of-pocket expenses.
For the period beginning September 16, 1996 and ended September 30, 1996,
the Fund paid Wells Fargo Bank $617 (after waivers) in transfer and dividend
disbursing agency fees.
Underwriting Commissions. For the years ended December 31, 1993 and
------------------------
1994, the Company's distributor retained $26,215,173 and $5,415,227,
respectively in underwriting commissions (front-end sales loads and CDSCs, if
any) in connection with the purchase or
10
<PAGE>
redemption of Company shares. For the years ended December 31, 1993 and 1994,
Wells Fargo Securities Inc. ("WFSI"), an affiliated broker-dealer of the
Company, and its registered representatives received $378,895 and $904,274,
respectively, in underwriting commissions in connection with the purchase or
redemption of Company shares.
For the year ended December 31, 1995, the aggregate amount of
underwriting commissions on sales/redemptions of the Company's shares was
$1,584,545. Stephens retained $1,251,311 of such commissions. WFSI and its
registered representatives retained $333,234 of such commissions.
For the fiscal period ended September 30, 1996, the aggregate amount of
underwriting commissions 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.
Collective Investment Fund Management Fees. Prior to September 16, 1996,
------------------------------------------
Wells Fargo Bank provided management and administrative services to the
Collective Investment Fund. For these services Wells Fargo Bank charged fees at
an annual rate of 0.75% of the Collective Investment Fund's average daily net
assets. Wells Fargo Bank was also entitled to be reimbursed by the Collective
Investment Fund for expenses incurred on its behalf, excluding costs incurred in
establishing and organizing the Fund. The Collective Investment Fund was
entitled to pay up to 0.10% of its net assets for "Audit Expenses." There were
no sales charges. The Collective Investment Fund paid all brokerage commissions
incurred on its portfolio transactions.
PERFORMANCE CALCULATIONS
The following information supplements and should be read in conjunction
with the Prospectus sections entitled "Investing in the Fund -- Share Value" and
"How the Fund Works -- Performance." Performance figures for each class of
shares of the Fund will vary due to different expense levels and front-end or
contingent-deferred sales charges.
As indicated in the Prospectus, the Fund may advertise certain total
return information for a class of shares, computed in the manner described in
the Prospectus. As and to the extent required by the Commission, an average
annual compound rate of return ("T") will be computed by using the redeemable
value at the end of a specified period ("ERV") of a hypothetical initial
investment in a class of shares ("P") over a period of years ("n") according to
the following formula: P(1+T)/n/ = ERV. In addition, as indicated in the
Prospectus, the Fund also may, at times, calculate total return for a class of
shares based on net asset value per share (rather than the public offering
price), in which case the figures would not reflect the effect of any sales
charges that would have been paid by an investor, or would be based on the
assumption that a sales charge other than the maximum sales charge (reflecting a
Volume Discount) was assessed, provided that total return data derived pursuant
to the calculation described above also are presented.
11
<PAGE>
In addition to the above performance information, the Fund may also
advertise the cumulative total return of a class. The cumulative total return
for such periods is based on the overall percentage change in value of a
hypothetical investment in a class of shares, assuming all dividends and capital
gain distributions are reinvested in shares of that class, without reflecting
the effect of any sales charge that would be paid by an investor, and is not
annualized.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year.
From time to time and only to the extent the comparison is appropriate
for a class of shares of the Fund, the Company may quote the performance or
price-earning ratio of a class of shares of the Fund in advertising and other
types of literature as compared to the performance of the 1-Year Treasury Bill
Rate, the S&P Index, the Dow Jones Industrial Average, the Lehman Brothers 20+
Years Treasury Index, the Lehman Brothers 5-7 Year Treasury Index, Donoghue's
Money Fund Averages, Real Estate Investment Averages (as reported by the
National Association of Real Estate Investment Trusts), Gold Investment Averages
(provided by the World Gold Council), Bank Averages (which is calculated from
figures supplied by the U.S. League of Savings Institutions based on effective
annual rates of interest on both passbook and certificate accounts), average
annualized certificate of deposit rates (from the Federal Reserve G-13
Statistical Releases or the Bank Rate Monitor), the Salomon One Year Treasury
Benchmark Index, the Consumer Price Index (as published by the U.S. Bureau of
Labor Statistics), Ten Year U.S. Government Bond Average, S&P's Corporate Bond
Yield Averages, Schabacter Investment Management Indices, Salomon Brothers High
Grade Bond Index, Lehman Brothers Long-Term High Quality Government/Corporate
Bond Index, other managed or unmanaged indices or performance data of bonds,
stocks or government securities (including data provided by Ibbotson
Associates), or by other services, companies, publications or persons who
monitor mutual funds on overall performance or other criteria. The S&P Index
and the Dow Jones Industrial Average are unmanaged indices of selected common
stock prices.
The performance of a class of shares of the Fund also may be compared to
the performance of other mutual funds having similar objectives. This
comparative performance could be expressed as a ranking prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Bloomberg
Financial Markets or Morningstar, Inc., independent services which monitor the
performance of mutual funds. The performance of a class of shares of the Fund
will be calculated by relating net asset value per share at the beginning of a
stated period to the net asset value of the investment, assuming reinvestment of
all gains distributions and dividends paid, at the end of the period. Any such
comparisons may be useful to investors who wish to compare the class' past
performance with that of its competitors. Of course, past performance cannot be
a guarantee of future results. The Company also may include, from time to time,
a reference to certain marketing approaches of the Distributor, including, for
example, a reference to a potential shareholder being contacted by a selected
broker or dealer. General mutual fund statistics provided by the Investment
Company Institute may also be used.
In addition, the Company also may use, in advertisements and other types
of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of
12
<PAGE>
principal and a fixed rate of interest, but no opportunity for capital growth;
and (2) describing Wells Fargo Bank, and its affiliates and predecessors, as one
of the first investment managers to advise investment accounts using asset
allocation and index strategies. The Company also may include in advertising and
other types of literature information and other data from reports and studies
prepared by the Tax Foundation, including information regarding federal and
state tax levels and the related "Tax Freedom Day."
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
a class of shares of the Fund: (i) the Consumer Price Index may be used to
assess the real rate of return from an investment in a class of shares of the
Fund; (ii) other government statistics, including, but not limited to, The
Survey of Current Business, may be used to illustrate investment attributes of a
class of shares of the Fund or the general economic, business, investment, or
financial environment in which the Fund operates; (iii) the effect of tax-
deferred compounding on the investment returns of a class of shares of the Fund,
or on returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in a class of shares of the Fund (or returns in general) on a tax-
deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and (iv) the
sectors or industries in which the Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate the
- -
historical performance or current or potential value of a class of shares of the
Fund with respect to the particular industry or sector.
From time to time the Company may reprint, reference or otherwise use
material from magazines, newsletters, newspapers and books including, but not
limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.
The Company may also disclose in advertising and other types of
literature, information and statements the distribution rate on the shares of
each class of the Fund. Distribution rate is the amount determined by dividing
the dollar amount per share of the most recent dividend by the most recent NAV
per share.
The Company also may discuss in advertising and other types of literature
that the Fund has been assigned a rating by an NRSRO, such as S&P or Moody's.
Such rating would assess the creditworthiness of the investments held by the
Fund. The assigned rating would not be a recommendation to purchase, sell or
hold the Fund's shares since the rating would not comment on the market price of
the Fund's shares or the suitability of the Fund for a particular investor. In
addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or the unavailability of, information
relating to the Fund or its investments. The Company may compare the
performance of the Fund with other investments that are assigned
13
<PAGE>
ratings by the NRSROs. Any such comparisons may be useful to investors who wish
to compare the Fund's past performance with other rated investments.
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Fargo Investment Management
("WFIM"), a division of Wells Fargo Bank, is listed in the top 100 by
Institutional Investor magazine in its July 1996 survey "America's Top 300 Money
Managers." This survey ranks money managers in several asset categories.
The Company may also disclose in advertising and other types of sales
literature the assets and categories of assets under management by the Company's
investment adviser and the total amount of assets and mutual fund assets managed
by Wells Fargo Bank. As of April 1, 1997, Wells Fargo Bank and its affiliates
provided investment advisory services for approximately $57 billion of assets of
individuals, trusts, estates and institutions.
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 account and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Investing in the Fund." Net asset value
per share for each class of the Fund and net asset value per unit of the Master
Portfolio are each determined by Wells Fargo Bank on each day the Exchange is
open for trading as of the close of regular trading on the Exchange, which is
currently 1:00 p.m. Pacific time.
Securities of the Master Portfolio for which market quotations are
available are valued at latest prices. Any security for which the primary
market is an exchange is valued at the last sale price on such exchange on the
day of valuation or, if there was no sale on such day, the latest bid
14
<PAGE>
price quoted on such day. In the case of other securities, including U.S.
Government securities but excluding money market instruments maturing in 60 days
or less, the valuations are based on latest quoted bid prices. Money market
instruments maturing in 60 days or less are valued at amortized cost. The assets
of the Master Portfolio other than money market instruments maturing in 60 days
or less are valued at latest quoted bid prices. Prices may be furnished by a
reputable independent pricing service approved by the Board of Trustees. Prices
provided by an independent pricing service may be determined without exclusive
reliance on quoted prices and may take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data. All other securities and other assets of the Master Portfolio for which
current market quotations are not readily available are valued at fair value as
determined in good faith by MIT's Trustees and in accordance with procedures
adopted by the Trustees.
Expenses and fees, including advisory fees are accrued daily and are
taken into account for the purpose of determining the net asset value of the
Master Portfolio's interests and the Fund's shares.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
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 Prospectus. 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.
15
<PAGE>
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 securities by the Master Portfolio are usually
principal transactions. Portfolio securities normally are purchased or sold
from or to dealers serving as market makers for the securities at a net price.
The Master Portfolio also may purchase portfolio securities in underwritten
offerings and may purchase securities directly from the issuer. The cost of
executing the Master Portfolio's portfolio securities transactions consists
primarily of dealer spreads and underwriting commissions. Under the 1940 Act,
persons affiliated with MIT are prohibited from dealing with MIT as a principal
in the purchase and sale of securities unless an exemptive order or other relief
allowing such transactions is obtained from the SEC or an exemption is otherwise
available. The Master Portfolio may purchase securities from underwriting
syndicates of which Stephens or Wells Fargo Bank is a member under certain
conditions in accordance with the provisions of a rule adopted under the 1940
Act and in compliance with procedures adopted by the Board of Trustees.
MIT 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 MIT's Board of Trustees, Wells Fargo Bank is responsible for the
Master Portfolio's decisions and the placing of portfolio transactions. In
placing orders, it is the policy of MIT 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 Master Portfolio will not
necessarily be paying the lowest spread or commission available.
In assessing the best overall terms available for any transaction, Wells
Fargo Bank considers factors deemed relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
Wells Fargo Bank may cause the Master Portfolio to pay a broker/dealer which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker/dealer for effecting the same transaction,
provided that Wells Fargo Bank determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker/dealer, viewed in terms of either the particular
16
<PAGE>
transaction or the overall responsibilities of Wells Fargo Bank. Such brokerage
and research services might consist of reports and statistics relating to
specific companies or industries, general summaries of groups of stocks or bonds
and their comparative earnings and yields, or broad overviews of the stock,
bond, and government securities markets and the economy.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by Wells Fargo Bank and does not
reduce the advisory fees payable by the Master Portfolio. The Board of Trustees
will periodically review the commissions paid by the Master Portfolio to
consider whether the commissions paid over representative periods of time appear
to be reasonable in relation to the benefits inuring to the Master Portfolio.
It is possible that certain of the supplementary research or other services
received will primarily benefit one or more other investment companies or other
accounts for which investment discretion is exercised. Conversely, the Master
Portfolio may be the primary beneficiary of the research or services received as
a result of portfolio transactions effected for such other account or investment
company.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Master Portfolio in any transaction may be less favorable than
that available from another broker/dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.
Broker/dealers utilized by Wells Fargo Bank may furnish statistical,
research and other information or services which are deemed by Wells Fargo Bank
to be beneficial to the Master Portfolio's investment programs. Research
services received from brokers supplement Wells Fargo Bank's own research and
may include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities, markets,
specific industry groups and individual companies; information on political
developments; portfolio management strategies; performance information on
securities and information concerning prices of securities; and information
supplied by specialized services to Wells Fargo Bank and to MIT's Board of
Trustees with respect to the performance, investment activities and fees and
expenses of other mutual Funds. Such information may be communicated
electronically, orally or in written form. Research 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
17
<PAGE>
matters than the staff of Wells Fargo Bank can follow. In addition, this
research provides Wells Fargo Bank with a diverse perspective on financial
markets. Research services which are provided to Wells Fargo Bank by brokers are
available for the benefit of all accounts managed or advised by Wells Fargo
Bank. It is the opinion of Wells Fargo Bank that this material is beneficial in
supplementing their research and analysis; and, therefore, it may benefit the
Master Portfolio by improving the quality of Wells Fargo Bank's investment
advice. The advisory fees paid by the Master Portfolio are not reduced because
Wells Fargo Bank receives such services.
Brokerage Commissions. For the period ended September 30, 1996, the Fund
---------------------
paid $1,856 in brokerage commissions.
Securities of Regular Broker/Dealers. As of September 30, 1996, the Fund
------------------------------------
did not own any securities of its "regular brokers or dealers" or their parents
as defined in the Act.
Portfolio Turnover. Portfolio turnover generally involves some expenses
------------------
to the Fund, including brokerage commissions or dealer mark-ups and other
transactions costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gains tax
consequences. The portfolio turnover rate will not be a limiting factor when
Wells Fargo Bank deems portfolio changes appropriate.
FUND EXPENSES
Except for the expenses borne by Wells Fargo Bank and Stephens, the
Company bears all costs of its operations, including the compensation of its
Directors who are not affiliated with Stephens or Wells Fargo Bank or any of
their affiliates; advisory, shareholder servicing and administration fees;
payments pursuant to any Plan; interest charges; taxes; fees and expenses of its
independent accountants, legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming shares; expenses of preparing and printing
prospectuses (except the expense of printing and mailing prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of its
custodian, including those for keeping books and accounts and calculating the
NAV per share of the Fund; expenses of shareholders' meetings; expenses relating
to the issuance, registration and qualification of the Fund's shares; pricing
services, and any extraordinary expenses. Expenses attributable to the Fund are
charged against Fund assets. General expenses of the Company are allocated
among all of the funds of the Company, including the Fund, in a manner
proportionate to the net assets of the Fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.
18
<PAGE>
FEDERAL INCOME TAXES
In General. The following information supplements and should be read in
----------
conjunction with the Prospectus sections entitled "Dividend and Capital Gain
Distributions" and "Taxes." The Prospectus describes generally the tax
treatment of distributions by the Fund. This section of the SAI includes
additional information concerning federal income taxes.
The Company intends to qualify the Fund as a regulated investment company
under Subchapter M of the Code as long as such qualification is in the best
interest of the Fund's shareholders. The Fund will be treated as a separate
entity for tax purposes and thus the provisions of the Code applicable to
regulated investment companies will generally be applied to the Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for the Fund.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) the Fund derive at least 90% of its annual gross
income from interest, payments with respect to securities loans, dividends and
gains from the sale or other disposition of securities or options thereon; (b)
the Fund derive less than 30% of its gross income from gains from the sale or
other disposition of securities or options thereon held for less than three
months; and (c) the Fund diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash, government securities and other securities
limited in respect of any one issuer to an amount not greater than 5% of the
Fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government securities and the securities of
other regulated investment companies), or in two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades or
businesses. For purposes of complying with these qualification requirements,
the Fund will be deemed to own a proportionate share of the Master Portfolio's
assets. As a regulated investment company, the Fund will not be subject to
federal income tax on its net investment income and net capital gains
distributed to its shareholders, provided that it distributes to its
shareholders at least 90% its net investment income, including net tax-exempt
income, earned in each year. The Fund intends to pay out substantially all of
its net investment income and net realized capital gains (if any) for each year.
A 4% nondeductible excise tax will be imposed on the Fund to the extent
it does not meet certain minimum distribution requirements by the end of each
calendar year. The Fund will either actually or be deemed to distribute all of
its net investment income and net capital gains by the end of each calendar year
and, thus, expects not to be subject to the excise tax.
Income and dividends received by the Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Although in some circumstances a regulated
investment company can elect to "pass through" foreign tax credits to its
shareholders, the Fund does not expect to be eligible to make such an election.
19
<PAGE>
The Fund seeks to qualify as a regulated investment company by investing
substantially all of its assets in the Master Portfolio. The Master Portfolio
will be treated as a non-publicly traded partnership rather than as a regulated
investment company or a corporation under the Code. As a non-publicly traded
partnership, any interest, dividends, gains and losses of the Master Portfolio
shall be deemed to have been "passed through" to the Fund (and the Master
Portfolio's other investors) in proportion to the Fund's ownership interest in
the Master Portfolio. Therefore, to the extent the Master Portfolio were to
accrue but not distribute any interest, dividends or gains, the Fund would be
deemed to have realized and recognized its proportionate share of interest,
dividends or gains without receipt of any corresponding distribution. However,
the Master Portfolio will seek to minimize recognition by investors of interest,
dividends, gains or losses without a corresponding distribution.
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 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.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.60% (marginal rates may
be higher for some individuals due to phase out of exemptions and elimination of
deductions); the maximum individual tax rate applicable to net capital gains is
28.00%; and the maximum corporate tax rate applicable to ordinary income and net
capital gains is 35.00% (except that to eliminate the benefit of lower marginal
corporate income tax rates, corporations which have taxable income in excess of
$100,000 for a taxable year will be required to pay an additional amount of
income tax of up to $11,750 and corporations which have taxable income in excess
of $15,000,000 for a taxable year will be required to pay an additional amount
of tax of up to $100,000). Naturally, the amount of tax payable by an
individual or corporation will be affected by a combination of tax laws
covering, for example, deductions, credits, deferrals, exemptions, sources of
income and other matters.
Capital Gain Distributions. To the extent that the Fund recognizes long-
--------------------------
term capital gains, such gains will be distributed at least annually and these
distributions will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held Fund shares. Such distributions
will be designated as capital gain distributions in a written notice mailed by
the Fund to shareholders not later than 60 days after the close of the Fund's
taxable year.
Disposition of Fund Shares. If a shareholder receives a designated
--------------------------
capital gain distribution (to be treated by the shareholder as a long-term
capital gain) with respect to any Fund share and such Fund share is held for six
months or less, then (unless otherwise disallowed) any loss on the sale or
exchange of that Fund share will be treated as a long-term capital loss to the
extent of the designated capital gain distribution.
20
<PAGE>
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or of a different regulated investment company,
the sales charge previously incurred acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are reacquired within the 61-day
period beginning 30 days before and ending 30 days after the shares are disposed
of.
Taxation of Investments. Gains or losses on sales of portfolio
-----------------------
securities held by the Master Portfolio will generally be long-term capital
gains or losses if the securities have been held by it for more than one year,
except in certain cases such as where the Master Portfolio acquires a put or
writes a call thereon. Gains recognized on the disposition of a debt obligation
(including tax-exempt obligations purchased after April 30, 1993) purchased by
the Master Portfolio at a market discount (generally at a price less than its
principal amount) will be treated as ordinary income to the extent of the
portion of market discount which accrued during the period of time the Master
Portfolio held the debt obligation. Other gains or losses on the sale of
portfolio securities will be short-term capital gains or losses.
If an option written by the Master Portfolio lapses or is terminated
through a closing transaction, such as a repurchase by the Master Portfolio of
the option from its holder, the Master Portfolio will realize a short-term
capital gain or loss, depending on whether the premium income is greater or less
than the amount paid by the Master Portfolio in the closing transaction. Some
realized capital losses may be deferred if they result from a position which is
part of a "straddle," discussed below. If securities are sold by the Master
Portfolio pursuant to the exercise of a call option written by it, the Master
Portfolio will add the premium received to the sale price of the securities
delivered in determining the amount of gain or loss on the sale. If securities
are purchased by the Master Portfolio pursuant to the exercise of a put option
written by it, the Master Portfolio will subtract the premium received from its
cost basis in the securities purchased. The requirement that the Fund derive
less than 30% of its gross income from gains from the sale of securities held
for less than three months may limit the Master Portfolio's ability to write
options.
The amount of any gain or loss realized by a Fund on closing out a
futures contract will generally result in a realized capital gain or loss for
tax purposes. Futures contracts held at the end of each fiscal year will be
required to be "marked to market" for federal income tax purposes pursuant to
Section 1256 of the Code. In this regard, they will be deemed to have been sold
at market value. Sixty percent (60%) of any net gain or loss recognized on
these deemed sales and sixty percent (60%) of any net realized gain or loss from
any actual sales, generally will be treated as long-term capital gain or loss,
and the remaining forty percent (40%) will be treated as short-term capital gain
or loss. Transactions that qualify as designated hedges are excepted from the
"marked to market" and "60%/40%" rules. Currency transactions may be subject to
Section 988 of the Code, under which foreign currency gains or losses would
generally be
21
<PAGE>
computed separately and treated as ordinary income or losses. The Fund will
attempt to monitor Section 988 transactions to avoid an adverse tax impact.
Offsetting positions held by a regulated investment company involving
certain financial forward, futures or options contracts may be considered, for
tax purposes, to constitute "straddles." "Straddles" are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of "straddles" is governed by Section 1092 of the Code which, in certain
circumstances, overrides or modifies the provisions of Section 1256.
If a regulated investment company were treated as entering into
"straddles" by reason of its engaging in certain financial forward, futures or
option contracts, such straddles could be characterized as "mixed straddles" if
the futures, forwards, or options comprising a part of such straddles were
governed by Section 1256 of the Code. The regulated investment company may make
one or more elections with respect to "mixed straddles." Depending upon which
election is made, if any, the results with respect to the regulated investment
company may differ. Generally, to the extent the straddle rules apply to
positions established by the regulated investment company, losses realized by
the regulated investment company may be deferred to the extent of unrealized
gain in any offsetting positions. Moreover, as a result of the straddle and the
conversion transaction rules, short-term capital loss on straddle positions may
be recharacterized as long-term capital loss, and long-term capital gain may be
characterized as short-term capital gain or ordinary income.
If the Master Portfolio purchases shares in a "passive foreign investment
company" ("PFIC"), the Fund may be subject to federal income tax and an interest
charge imposed by the IRS upon certain distributions from the PFIC or the Master
Portfolio's disposition of its PFIC shares. If the Master Portfolio invests in
a PFIC, the Fund intends to make an available election to mark-to-market its
interest in PFIC shares (through the Master Portfolio). Under the election, the
Fund will be treated as recognizing at the end of each taxable year the excess,
if any, of the fair market value of its interest in PFIC shares over its basis
in such shares. Although such excess will be taxable to the Fund as ordinary
income notwithstanding any distributions by the PFIC, the Fund will not be
subject to federal income tax or the interest charge with respect to its
interest in the PFIC.
Foreign Shareholders. Under the Code, distributions of net investment
--------------------
income by the Fund to a nonresident alien individual, nonresident alien
fiduciary of a trust or estate, foreign corporation, or foreign partnership (a
"foreign shareholder") will be subject to U.S. withholding tax (at a rate of 30%
or a lower treaty rate). Withholding will not apply if a dividend paid by the
Fund to a foreign shareholder is "effectively connected" with a U.S. trade or
business, in which case the reporting and withholding requirements applicable to
U.S. citizens, U.S. residents or domestic corporations will apply.
Distributions of net long-term capital gains are not subject to tax withholding,
but in the case of a foreign shareholder who is a nonresident alien individual,
such distributions ordinarily will be subject to U.S. income tax at a rate of
30% if the individual is physically present in the U.S. for more than 182 days
during the taxable year.
22
<PAGE>
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 Master Portfolio may involve sophisticated tax rules that may result in
income or gain recognition by the Fund without corresponding current cash
receipts. Although the Master Portfolio will seek to avoid significant noncash
income, such noncash income could be recognized by the Master Portfolio, in
which case the Fund may distribute cash derived from other sources in order to
meet the minimum distribution requirements described above.
The foregoing discussion and the discussions in the Prospectus address
only some of the federal tax considerations generally affecting investments in a
Fund. Each investor is urged to consult his or her tax advisor regarding
specific questions as to federal, state or local taxes and foreign taxes.
CAPITAL STOCK
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "The Fund and Management."
The Fund is one of the funds of the Stagecoach Family of Funds. The
Company was organized as a Maryland corporation on September 9, 1991 and
currently offers shares of more than twenty-five funds.
Most of the Company's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, a class subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Company's funds also are authorized to
issue other classes of shares, which are sold primarily to institutional
investors. Each class of shares in 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.
23
<PAGE>
The Fund is comprised of four classes of shares: Class A, Class B, Class
C and Institutional Class shares. With respect to matters that affect one class
but not another, shareholders vote as a class; for example, the approval of a
Plan. Subject to the foregoing, on any matter submitted to a vote of
shareholders, all shares then entitled to vote will be voted separately by
portfolio unless otherwise required by the Act, in which case all shares will be
voted in the aggregate. For example, a change in the Fund's fundamental
investment policies would be voted upon only by shareholders of the Fund and not
shareholders of the Company's other investment portfolios. Additionally,
approval of an advisory contract is a matter to be determined separately by the
Fund. Approval by the shareholders of one portfolio is effective as to that
portfolio whether or not sufficient votes are received from the shareholders of
the other portfolios to approve the proposal as to those portfolios.
As used in the Prospectus and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of a class of the Fund,
means the vote of the lesser of (i) 67% of the shares of such class of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of such class of the Fund are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of such class of the Fund. The term
"majority," when referring to the approvals to be obtained from shareholders of
the Company as a whole, means the vote of the lesser of (i) 67% of the Company's
shares represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held.
The Company may dispense with annual meetings of shareholders in any year
in which it is not required to elect directors under the Act. However, the
Company undertakes to hold a special meeting of its shareholders for the purpose
of voting on the question of removal of a director or directors if requested in
writing of the holders of at least 10% of the Company's outstanding voting
securities, and to assist in communicating with other shareholders as required
by Section 16(c) of the Act.
Each share of a class of the Fund represents an equal proportional
interest in the Fund with each other share of the same class and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to the Fund as are declared in the discretion of the Directors. In
the event of the liquidation or dissolution of the Company, shareholders of the
Fund are entitled to receive the assets attributable to the Fund that are
available for distribution, and a distribution of any general assets not
attributable to the Fund that are available for distribution in such manner and
on such basis as the Directors in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares, when
issued for the consideration described in the Prospectus, will be fully paid and
non-assessable by the Company.
MIT is a business trust organized under the laws of Delaware. In
accordance with Delaware law and in connection with the tax treatment sought by
MIT, MIT's Declaration of Trust provides that its investors would be personally
responsible for Trust liabilities and obligations, but only to the extent MIT
property is insufficient to satisfy such liabilities and
24
<PAGE>
obligations. The Declaration of Trust also provides that MIT shall maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of MIT, its investors, Trustees, officers,
employees and agents covering possible tort and other liabilities, and that
investors will be indemnified to the extent they are held liable for a
disproportionate share of Trust obligations. Thus, the risk of an investor
incurring financial loss on account of investor liability is limited to
circumstances in which both inadequate insurance existed and MIT itself was
unable to meet its obligations.
The Declaration of Trust further provides that obligations of MIT are not
binding upon the Trustees individually but only upon the property of MIT and
that Trustees will not be liable for any action or failure to act. However,
nothing in the Declaration of Trust protects a Trustee against any liability to
which the Trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of the Trustee's office.
The interests in the Master Portfolio have substantially identical voting
and other rights as those rights enumerated above for Fund shares. MIT also
intends to dispense with annual meetings, but will hold a special meeting and
assist investor communications under the circumstances described above with
respect to the Company in accord with provisions under Section 16(c) of the Act.
Whenever the Fund is requested to vote on a matter with respect to the Master
Portfolio, the Fund will hold a meeting of Fund shareholders and will cast its
votes as instructed by such shareholders. In a situation where the Fund does
not receive instruction from certain of its shareholders on how to vote the
corresponding shares of the Master Portfolio, the Fund will vote such shares in
the same proportion as the shares for which the Fund does receive voting
instructions.
As of July 31, 1997, no shareholders were known by the Company to own
5% or more of the outstanding Class C shares of the Fund. Set forth below is
the name, address and share ownership of each person known by the Company to
have beneficial or record ownership of 5% or more of a class of the Fund or 5%
or more of the voting securities of the Fund as a whole.
5% OWNERSHIP AS OF JANUARY 2, 1997
<TABLE>
<CAPTION>
Name and Class; Type Percentage Percentage
Fund Address of Ownership of Class of Fund
---- ------- ------------ -------- -------
<S> <C> <C> <C> <C>
SMALL CAP Wells Fargo Bank Institutional Class 93.49% 86.30%
420 Montgomery Street Record Holder
San Francisco, CA 94104
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
-------------------------------
holder of more than 25% of a class (or Fund), or is identified as the holder of
- --------------------------------------------
record of more than 25% of a class (or Fund) and has voting and/or investment
-----------------
powers, it may be presumed to control such class (or Fund).
25
<PAGE>
OTHER
The Company's Registration Statement, including the Fund's Prospectus and
SAI, and the exhibits filed therewith, may be examined at the office of the
Commission in Washington, D.C. Statements contained in the Prospectus or the
SAI as to the contents of any contract or other document referred to herein or
in the Prospectus are not necessarily complete, and, in each instance, reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as independent auditor for the
Company and MIT. KPMG Peat Marwick LLP provides audit services, tax return
preparation and assistance and consultation in connection with review of certain
Securities & Exchange Commission filings. KPMG Peat Marwick LLP's address is
Three Embarcadero Center, San Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and
independent auditors' report for the Fund and the Master Portfolio for the
fiscal period ended September 30, 1996 are hereby incorporated by reference to
the Company's Annual Report as filed with the SEC on December 9, 1996. The
portfolio of investments, audited financial statements and independent auditors'
report for the Fund and the Master Portfolio for the fiscal period ended March
31, 1997 are hereby incorporated by reference to the Company's Annual Report as
filed with the SEC on June 4, 1997. The portfolio of investments, audited
financial statements and independent auditors' report for the Fund are attached
to all SAIs delivered to current or prospective shareholders.
26
<PAGE>
SAI APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate bonds and commercial paper.
Corporate Bonds
- ---------------
Moody's: The four highest ratings for corporate bonds are "Aaa," "Aa," "A"
-------
and "Baa." Bonds rated "Aaa" are judged to be the "best quality" and carry the
smallest amount of investment risk. Bonds rated "Aa" are of "high quality by all
standards," but margins of protection or other elements make long-term risks
appear somewhat greater than "Aaa" rated bonds. Bonds rated "A" possess many
favorable investment attributes and are considered to be upper medium grade
obligations. Bonds rated "Baa" are considered to be medium grade obligations;
interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds have speculative
characteristics as well. Moody's applies numerical modifiers: 1, 2 and 3 in each
rating category from "Aa" through "Baa" in its rating system. The modifier 1
indicates that the security ranks in the higher end of its category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end.
S&P: The four highest ratings for corporate bonds are "AAA," "AA," "A" and
---
"BBB." Bonds rated "AAA" have the highest ratings assigned by S&P and have an
extremely strong capacity to pay interest and repay principal. Bonds rated "AA"
have a "very strong capacity to pay interest and repay principal" and differ
"from the highest rated issued only in small degree." Bonds rated "A" have a
"strong capacity" to pay interest and repay principal, but are "somewhat more
susceptible" to adverse effects of changes in economic conditions or other
circumstances than bonds in higher rated categories. Bonds rated "BBB" are
regarded as having an "adequate capacity" to pay interest and repay principal,
but changes in economic conditions or other circumstances are more likely to
lead to a "weakened capacity" to make such repayments. The ratings from "AA" to
"BBB" may be modified by the addition of a plus or minus sign to show relative
standing within the category.
Corporate Commercial Paper
- --------------------------
Moody's: The highest rating for corporate commercial paper is "P-1"
-------
(Prime-1). Issuers rated "P-1" have a "superior capacity for repayment of
short-term promissory obligations." Issuers rated "P-2" (Prime-2)" have a strong
capacity for repayment of short-term promissory obligations," but earnings
trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate commercial paper indicates that the
---
"degree of safety regarding timely payment is either overwhelming or very
strong." Commercial paper with "overwhelming safety characteristics" will be
rated "A-1+." Commercial paper with a strong capacity for timely payments on
issues will be rated "A-2."
A-1
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated October 6, 1997
AGGRESSIVE GROWTH FUND
Class C
-------------------------------
Stagecoach Funds, Inc. (the "Company") is an open-end, series investment
company. This Statement of Additional Information ("SAI") contains additional
information about Class C shares offered in the Aggressive Growth Fund (the
"Fund") of the Stagecoach Family of Funds. The Fund also offers Class A and
Class B shares. The investment objective of the Fund is described in its
Prospectus under the section entitled "How the Fund Works -- Investment
Objectives and Policies."
The Fund seeks to achieve its investment objective by investing all of
its assets in the Capital Appreciation Master Portfolio (the "Master Portfolio")
of Master Investment Trust ("MIT"), which has the same investment objective as
the Fund. On July 23, 1997, the Company's Board of Directors approved an
agreement and plan of consolidation to reorganize the funds of another
investment company, Overland Express Funds, Inc., with and into certain funds of
the Company (the "Consolidation"). If the Consolidation is completed as
anticipated, the Master Portfolio will be dissolved in December of 1997. The
Fund will no longer invest its assets in the Master Portfolio, but instead will
invest directly in a portfolio of securities. The Fund will retain Wells Fargo
Bank, the Master Portfolio's current investment adviser to manage the Fund's
assets in substantially the same manner as Wells Fargo Bank currently manages
the Master Portfolio's assets and for the same level of advisory fees.
This SAI is not a prospectus and should be read in conjunction with the
Fund's Prospectus dated October 6, 1997. All terms used in this SAI that are
defined in the Prospectus have the meanings assigned in the Prospectus. A copy
of the Prospectus for the Fund may be obtained without charge by writing
Stephens Inc. ("Stephens"), the Company's sponsor, co-administrator and
distributor, at 111 Center Street, Little Rock, Arkansas 72201 or by calling the
Transfer Agent at the telephone number indicated above.
----------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Restrictions............................................... 1
Management............................................................ 3
Performance Calculations.............................................. 11
Determination of Net Asset Value...................................... 15
Additional Purchase and Redemption Information........................ 15
Portfolio Transactions................................................ 16
Fund Expenses......................................................... 19
Federal Income Taxes.................................................. 19
Capital Stock......................................................... 24
Other................................................................. 27
Independent Auditors.................................................. 27
Financial Information................................................. 27
Appendix.............................................................. A-1
Financial Statements.................................................. F-1
</TABLE>
i
<PAGE>
INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Fund and the Master Portfolio are
--------------------------------
subject to the following investment restrictions, all of which are fundamental
policies. These restrictions cannot be changed, as to either the Fund or the
Master Portfolio without approval by the holders of a majority (as defined by
the 1940 Act) of the outstanding voting securities of the Fund or the Master
Portfolio, as appropriate. Whenever the Fund is requested to vote on a
fundamental policy of the Master Portfolio, the Fund will hold a meeting of its
shareholders and cast its votes as instructed by such shareholders.
References to the investments, investment policies and restrictions of
the Fund, unless otherwise indicated, should be understood as references to the
investments, investment policies and restrictions of the Master Portfolio.
The Fund may not:
--------
(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and as
a result thereof, the value of the Fund's investments in that industry would be
25% or more of the current value of the Fund's total assets, provided that there
is no limitation with respect to investments in securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; and provided further,
that the Fund may invest all its assets in a diversified, open-end management
investment company, or a series thereof, with substantially the same investment
objective, policies and restrictions as such Fund, without regard to the
limitations set forth in this paragraph (1);
(2) purchase or sell real estate or real estate limited partnerships
(other than securities secured by real estate or interests therein or securities
issued by companies that invest in real estate or interests therein),
commodities or commodity contracts, or interests in oil, gas, or other mineral
exploration or development programs;
(3) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that
the purchase of permitted investments directly from the issuer thereof or from
an underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting; and provided further, that the purchase by the Fund of securities
issued by a diversified, open-end management investment company, or a series
thereof, with substantially the same investment objective, policies and
restrictions as such Fund shall not constitute an underwriting for purposes of
this paragraph (4);
(5) make investments for the purpose of exercising control or
management; provided that the Fund may invest all its assets in a diversified
open-end management
1
<PAGE>
company, or a series thereof, with substantially the same investment objective,
policies and restrictions as such Fund, without regard to the limitations set
forth in this paragraph (5);
(6) issue senior securities except that the Fund may borrow from banks
up to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowings exceed 5% of its net assets);
(7) make loans of portfolio securities having a value that exceeds 50%
of the current value of its total assets, provided that, this restriction does
not apply to the purchase of fixed time deposits, repurchase agreements,
commercial paper and other types of debt instruments commonly sold in a public
or private offering; nor
(8) purchase securities of any issuer (except securities issued by the
U.S. Government, its agencies or instrumentalities ) if, as a result, with
respect to 75% of its total assets, more than 5% of the value of its total
assets would be invested in the securities of any one issuer or, with respect to
100% of its total assets the Fund's ownership would be more than 10% of the
outstanding voting securities of such issuer; provided that the Fund may invest
all of its assets in a diversified, open-end management investment company, or a
series thereof, with substantially the same investment objective, policies and
restrictions as such Fund, without regard to the limitations set forth in this
paragraph (8).
With respect to fundamental investment policy (7), the Fund does not
intend to loan its portfolio securities during the coming year.
Non-Fundamental Investment Policies. The Fund is subject to the
------------------------------------
following non-fundamental policies. These restrictions may be changed by a vote
of a majority of the Directors of the Company at any time.
The Fund may not:
----------------
(1) purchase or retain securities of any issuer if the officers or
directors of the Fund or its investment adviser owning beneficially more than
one-half of one percent (0.5%) of the securities of the issuer together owned
beneficially more than 5% of such securities;
(2) purchase or sell real estate limited partnership interests;
(3) write, purchase or sell puts, calls or options or any combination
thereof, except to the extent described in the Prospectus and except that the
Fund may purchase securities with put rights in order to maintain liquidity;
(4) invest in securities of issuers who, with their predecessors, have
been in existence less than three years, unless the securities are fully
guaranteed or insured by the
2
<PAGE>
U.S. Government if, by reason thereof, the value of its aggregate investment in
such securities will exceed 5% of its total assets;
(5) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if, as a
result, more than 5% of the value of the Fund's total assets would be invested
in the securities of any one issuer; nor
(6) invest more than 15% of its net assets in illiquid securities. For
this purpose, illiquid securities include, among others, (a) securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale, (b) fixed time deposits that are subject to
withdrawal penalties and that have maturities of more than seven days, and (c)
repurchase agreements not terminable within seven days.
In addition, as a matter of non-fundamental policy, the Fund may invest
in shares of other open-end, management investment companies, subject to the
limitations of Section 12(d)(1) of the Act, provided that any such purchases
will be limited to temporary investments in shares of unaffiliated investment
companies and the investment adviser will waive its advisory fees for that
portion of the Fund's assets so invested, except when such purchase is part of a
plan of merger, consolidation, reorganization or acquisition. The Fund does not
intend to invest more than 5% of its net assets in such securities during the
coming year. Notwithstanding any other investment policy or limitation (whether
or not fundamental), as a matter of fundamental policy, the Fund may invest all
of its assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective, policies
and limitations as the Fund.
As a matter of non-fundamental policy, the Fund may invest up to 25% of
its net assets in securities of foreign governmental issues that are denominated
in and pay interest in U.S. dollars.
MANAGEMENT
The following information supplements and should be read in conjunction
with the section in the prospectus entitled "The Funds and Management." The
principal occupations during the past five years of the Directors and principal
executive Officer of the Company are listed below. The address of each, unless
otherwise indicated, is 111 Center Street, Little Rock, Arkansas 72201.
Directors deemed to be "interested persons" of the Company for purposes of the
1940 Act are indicated by an asterisk.
3
<PAGE>
<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
75 Grasslands Road
Valhalla, N.Y. 10595
(appointed as of September 6, 1996)
Community College since 1971; Adjunct
Professor of Columbia University Teachers
College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 79 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home
4 Beautain Street Account Network, Inc. Real Estate
Charleston, SC 29401 Developer; 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, Secretary Stephens; Director of Stephens Sports
and Treasurer Management Inc.; and Director of Capo Inc.
</TABLE>
4
<PAGE>
COMPENSATION TABLE
Year Ended March 31, 1997
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
from Registrant and Fund Complex
--------------- ----------------
Name and Position
-----------------
<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>
Directors of the Company are compensated annually by the Company and by
all the registrants in each fund complex they serve as indicated above and also
are reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company, Overland Express Funds, Inc., Stagecoach Trust, Life &
Annuity Trust and MIT are considered to be members of the same fund complex as
such term is defined in Form N-1A under the 1940 Act (the "Wells Fargo Fund
Complex"). MasterWorks Funds Inc., Master Investment Portfolio, and Managed
Series Investment Trust together form a separate fund complex (the "BGFA Fund
Complex"). Each of the Directors and Officers of the Company serves in the
identical capacity as directors and officers or as trustees and/or officers of
each registered open-end management investment company in both the Wells Fargo
and BGFA Fund Complexes, except for Joseph N. Hankin, who only serves the
aforementioned members of the Wells Fargo Fund Complex, and Zoe Ann Hines who,
after September 6, 1996, only serves the aforementioned members of the BGFA Fund
Complex. The Directors are compensated by other companies and trusts within a
fund complex for their services as directors/trustees to such companies and
trusts. Currently the Directors do not receive any retirement benefits or
deferred compensation from the Company or any
5
<PAGE>
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.
Master/Feeder Structure. The Fund currently seeks to achieve its
------------------------
investment objective by investing all of its assets into the Capital
Appreciation Master Portfolio of MIT. Upon completion of the anticipated
Consolidation and the dissolution of the Master Portfolio, the Fund will invest
directly in a portfolio of securities and will no longer invest in the Master
Portfolio. The Fund will retain the Master Portfolio's investment adviser for
the daily portfolio management of it's assets, in accordance with its investment
objectives and policies. Information regarding any other investment options in
the Master Portfolio may be obtained by calling Stephens at 1-800-643-9691.
The Fund and other entities investing in the Master Portfolio are each
liable for all obligations of the Master Portfolio. However, the risk of the
Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and MIT itself is
unable to meet its obligations. Accordingly, the Company's Board of Directors
believes that neither the Fund nor its shareholders will be adversely affected
by investing Fund assets in the Master Portfolio. However, if a mutual fund or
other investor withdraws its investment from the Master Portfolio, the economic
efficiencies (e.g., spreading fixed expenses among a larger asset base) that the
Company's Board believes may be available through investment in the Master
Portfolio may not be fully achieved. In addition, given the relative novelty of
the master/feeder structure, accounting or operational difficulties, although
unlikely, could arise.
The Fund may withdraw its investment in the Master Portfolio only if the
Company's Board of Directors determines that such action is in the best
interests of the Fund and its shareholders. Upon any such withdrawal, the
Company's Board would consider alternative investments, including investing all
of the Fund's assets in another investment company with the same investment
objective as the Fund or hiring an investment adviser to manage the Fund's
assets in accordance with the investment policies described below with respect
to the Master Portfolio.
The investment objective and other fundamental policies of the Master
Portfolio cannot be changed without approval by the holders of a majority (as
defined in the 1940 Act) of the Master Portfolio's outstanding interests. See
"Investment Objectives and Policies." Whenever the Fund, as an interestholder of
the Master Portfolio, is requested to vote on any matter submitted to
interestholders of the Master Portfolio, the Fund will hold a meeting of its
shareholders to consider such matters. The Fund will cast its votes in
proportion to the votes received from its shareholders. Shares for which the
Fund receives no voting instructions will be voted in the same proportion as the
votes received from the other Fund shareholders.
Certain policies of the Master Portfolio which are non-fundamental may be
changed by vote of a majority of MIT's Trustees without interestholder approval.
If the
6
<PAGE>
Master Portfolio's investment objective or fundamental or non-fundamental
policies are changed, the Fund may elect to change its objective or policies to
correspond to those of the Master Portfolio. The Fund may also elect to redeem
its interests in the Master Portfolio and either seek a new investment company
with a matching objective in which to invest or retain its own investment
adviser to manage the Fund's portfolio in accordance with its objective. In the
latter case, the Fund's inability to find a substitute investment company in
which to invest or equivalent management services could adversely affect
shareholders' investments in the Fund. The Fund will provide shareholders with
30 days' written notice prior to the implementation of any change in the
investment objective of the Fund or the Master Portfolio, to the extent
possible. See "Investment Objective and Policies" for additional information
regarding the Fund's and the Master Portfolio's investment objectives and
policies. Additional information regarding the officers and Directors/Trustees
of the Company and MIT is located in the Fund's SAI under "Management."
Investment Adviser. The Fund has not engaged an investment adviser. The
------------------
Master Portfolio (which has the same investment objective as the Fund, and in
which the Fund invests all its assets) is advised by Wells Fargo Bank. Upon
completion of the anticipated Consolidation and the dissolution of the Master
Portfolio, the Fund will retain Wells Fargo Bank, the Master Portfolio's current
investment adviser, to manage it's assets under an advisory contract providing
for substantially the same services being provided to the Master Portfolio.
The current Advisory Contract provides that Wells Fargo Bank shall
furnish investment guidance and policy direction in connection with the daily
portfolio management of the Master Portfolio. Pursuant to the Advisory Contract,
Wells Fargo Bank furnishes to the Board of Trustees periodic reports on the
investment strategy and performance of the Master Portfolio. For its services to
the Master Portfolio, Wells Fargo Bank is entitled to receive a monthly fee at
the annual rate of 0.50% of the Master Portfolios average daily net assets.
For the period beginning February 21, 1996 (commencement of operations)
and ended September 30, 1996, the Master Portfolio paid Wells Fargo Bank
$453,282 in advisory fees. No fees were waived.
Wells Fargo Bank has agreed to provide to the Master Portfolio, among
other things, money market and fixed-income research, analysis and statistical
and economic data and information concerning interest rate and security market
trends, portfolio composition, credit conditions and average maturities of the
portfolio of the Master Portfolio.
The Advisory Contract will continue in effect for more than two years
provided the continuance is approved annually (i) by the holders of a majority
of the Master Portfolio's outstanding voting securities or by MIT's Board of
Trustees and (ii) by a majority of the Trustees of MIT who are not parties to
the Advisory Contract or "interested persons" (as defined in the 1940 Act) of
any such party. The Advisory Contract
7
<PAGE>
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 respective Administration and Co-Administration Agreements among Wells
Fargo Bank, Stephens and the Company, Wells Fargo Bank and Stephens shall
provide as administrative 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 Company's Directors, Officers and
employees who are affiliated with Stephens. The Administrator and Co-
Administrator are entitled to receive a monthly fee of 0.04% and 0.02%,
respectively, of the average daily net assets of the Fund. Prior to February 1,
1997, Stephens served as sole administrator to the Fund and was entitled to
receive a fee, payable monthly, at the annual rate of 0.03% of the Fund's
average daily net assets.
For the period beginning February 21, 1996 and ended September 30, 1996,
the Fund paid to Stephens, the sole administrator during this period, $3,829 in
administration fees.
Sponsor and Distributor. As discussed in the Fund's Prospectus under the
-----------------------
heading "Management, Distribution and Servicing Fees," Stephens (the
"Distributor") serves as sponsor and distributor for the Fund.
Distribution Plan. The following information supplements and should be
-----------------
read in conjunction with the Prospectus section entitled "Distribution Plan." As
indicated in the Prospectus, the Fund has adopted a distribution plan on behalf
of each class of its shares under Section 12(b) of the 1940 Act and Rule 12b-1
thereunder (the "Rule"). The Plan for the Class C shares and the Fund was
adopted by the Company's Board of Directors including a majority of the
Directors who were not "interested persons" (as defined in the 1940 Act) of the
Fund and who had no direct or indirect financial interest in the operation of
the Plan or in any agreement related to the Plan (the "Qualified Directors").
Under the Plan for Class C shares of the Fund and pursuant to the
Distribution Agreement, the Fund may pay the Distributor as compensation for
distribution-related activities and services provided, or reimbursement for
distribution-related expenses
8
<PAGE>
incurred, a monthly fee at an annual rate of up to 0.50% of the average daily
net assets attributable to Class C shares of the Fund.
The actual fee payable to the Distributor shall be determined, within
such limits, from time to time by mutual agreement between the Company and the
Distributor and will not exceed the maximum sales charges payable by mutual
funds sold by members of the NASD under the NASD Rules of Fair Practice. The
Distributor may enter into selling agreements with one or more selling agents
(which may include Wells Fargo Bank and its affiliates) under which such agents
may receive compensation for distribution-related services from the Distributor,
including, but not limited to, commissions or other payments to such agents
based on the average daily net assets of Fund shares attributable to their
customers. The Distributor may retain any portion of the total distribution fee
payable thereunder to compensate it for distribution-related services provided
by it or to reimburse it for other distribution-related expenses.
Pursuant to Rule 12b-1, a distribution plan must be initially approved
(and reapproved annually thereafter) by the Board of Directors, including a
majority of the Qualified Directors of the Company. Agreements related to the
Plan also must be approved by such vote of the Directors and Qualified
Directors. Selling agreements will terminate automatically if assigned and may
be terminated at any time, without payment of any penalty, by a vote of a
majority of the outstanding voting securities of the relevant class of a Fund or
by vote of a majority of the Qualified Directors on not more than 60 days'
written notice. The Class C 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 relevant class of a 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 the Company to provide the Directors, and the Directors
to review, at least quarterly, a written report of the amounts expended (and
purposes therefor) under such Plan. The Rule also requires that the selection
and nomination the Non-Interested Directors of the Company be made by such
Qualified Directors.
Wells Fargo Bank, an interested person (as that term is defined in
Section 2(a)(19) of the 1940 Act) of the Company, acts as a selling agent for
the Fund's Class C shares pursuant to selling agreements with Stephens
authorized under the Plan. As a selling agent, Wells Fargo Bank has an indirect
financial interest in the operation of the Plan. The Board of Directors has
concluded that the Plan is reasonably likely to benefit the Fund and its
shareholders because the Plan authorize the relationships with selling agents,
including Wells Fargo Bank, that have previously developed distribution channels
and relationships with the retail customers that the Class C shares of the Fund
are designed to serve. These relationships and distribution channels are
believed by the Board to provide potential for increased Fund assets and
ultimately corresponding economic efficiencies (i.e., lower per-share
transaction costs and fixed expenses) that are generated by increased assets
under management.
9
<PAGE>
Shareholder Servicing Agent. As discussed in the Fund's Prospectus under
---------------------------
the heading "Shareholder Servicing Agent", the Fund has approved Servicing Plans
for each class of its shares and has entered into related shareholder servicing
agreements with financial institutions, including Wells Fargo Bank. For
providing these services, a shareholder servicing agent is entitled to a fee
from the Fund of up to 0.25%, on an annualized basis, of the average daily net
asset value of the Class C shares owned by or attributable to such customers of
the Shareholder Servicing Agent.
Servicing Plan. The Servicing Plan for the Class C shares of the Fund
--------------
and related shareholder servicing agreements were approved by the Company's
Board of Directors including a majority of the Directors who were not
"interested persons" (as defined in the Act) of the Fund and who had no direct
or indirect financial interest in the operation of the Servicing Plan or in any
agreement related to the Servicing Plan (the "Servicing Plan Qualified
Directors").
The actual fee payable to servicing agents under the Servicing Plan for
the Class C shares is determined, within such limits, from time to time by
mutual agreement between the Company and each servicing agent and will not
exceed the maximum amounts payable by mutual funds sold by members of the NASD
under Article III, Section 26 of the NASD Rules of Fair Practice.
The Servicing Plan for the Class C shares continues in effect from year
to year if such continuance is approved by a majority vote of both the Directors
of the Company and the Servicing Plan Qualified Directors. Any form of servicing
agreement related to the Servicing Plan also must be approved by such vote of
the Directors and the Servicing Plan Qualified Directors. Servicing agreements
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Servicing Plan Qualified Directors. No material amendment to the
Servicing Plan may be made except by a majority of both the Directors of the
Company and the Servicing Plan Qualified Directors.
The Servicing Plan for the Class C shares requires that the administrator
shall provide to the Directors, and the Directors shall review, at least
quarterly, a written report of the amounts expended (and purposes therefor)
under the Servicing Plan.
Custodian and Transfer and Dividend Disbursing Agent. Wells Fargo Bank
----------------------------------------------------
has been retained to act as custodian and transfer and dividend disbursing agent
for the Fund. The custodian, among other things, maintains a custody account or
accounts in the name of the Fund, receives and delivers all assets for the Fund
upon purchase and upon sale or maturity, collects and receives all income and
other payments and distributions on account of the assets of the Fund and pays
all expenses of the Fund. For its services as custodian, Wells Fargo Bank 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
10
<PAGE>
the first $50,000,000 of the Fund's average daily net assets, 0.045% of the next
$50,000,000, and 0.020% of the average daily net assets in excess of
$100,000,000.
For its services as transfer and dividend disbursing agent for the Class
C shares of the Fund, Wells Fargo Bank is entitled to receive monthly payments
at the annual rate of 0.14% of the average daily net assets of the Fund's Class
C shares. Under the prior transfer agency agreement for the Fund, Wells Fargo
Bank was entitled to receive monthly payments at the annual rate of 0.10% of the
Fund's average daily net assets, regardless of Class, as well as reimbursement
for all reasonable out-of-pocket expenses.
For the period beginning February 21, 1996 and ended September 30, 1996,
the Fund did not pay custodial fees or transfer and dividend disbursing agency
fees to Wells Fargo Bank.
Underwriting Commissions. For the years ended December 31, 1993 and
------------------------
1994, the Company's distributor retained $26,215,173 and $5,415,227,
respectively in underwriting commissions (front-end sales loads and CDSCs, if
any) in connection with the purchase or redemption of Company shares. For the
years ended December 31, 1993 and 1994, Wells Fargo Securities Inc. ("WFSI"), an
affiliated broker-dealer of the Company, and its registered representatives
received $378,895 and $904,274, respectively, in underwriting commissions in
connection with the purchase or redemption of Company shares.
For the year ended December 31, 1995, the aggregate amount of
underwriting commissions on sales/redemptions of the Company's shares was
$1,584,545. Stephens retained $1,251,311 of such commissions. WFSI and its
registered representatives retained $333,234 of such commissions.
For the period ended September 30, 1996, the aggregate amount of
underwriting commissions 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.
PERFORMANCE CALCULATIONS
The following information supplements and should be read in conjunction
with the Prospectus sections entitled "Determination of Net Asset Value" and
"Performance Data." Performance figures for each class of shares of the Fund
will vary due to different expense levels and front-end or contingent-deferred
sales charges.
As indicated in the Prospectus, the Fund may advertise certain total
return information computed in the manner described in the Prospectus. As and
to the extent required by the SEC, an average annual compound rate of return
("T") will be computed by using the redeemable value at the end of a specified
period ("ERV") of a hypothetical initial investment ("P") over a period of years
("n") according to the following formula:
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<PAGE>
P(1+T)n = ERV. In addition, as indicated in the Prospectus, the Fund also may,
at times, calculate total return based on net asset value per share (rather than
the public offering price), in which case the figures would not reflect the
effect of any sales charges that would have been paid by an investor, or based
on the assumption that a sales charge other than the maximum sales charge
(reflecting a Volume Discount) was assessed, provided that total return data
derived pursuant to the calculation described above also are presented.
The Fund may also advertise the cumulative total return of the Fund.
Cumulative total return is based on the overall percentage change in value of a
hypothetical investment in the Fund, assuming all Fund dividends and capital
gain distributions are reinvested, without reflecting the effect of any sales
charge that would be paid by an investor, and is not annualized.
From time to time and only to the extent the comparison is appropriate
for a class of Shares of the Fund, the Company may quote performance or price-
earning ratios of a class of Shares of the Fund in advertising and other types
of literature as compared to the performance of the Lehman Brothers Municipal
Bond Index, 1-Year Treasury Bill Rate, S&P Index, the Dow Jones Industrial
Average, the Lehman Brothers 20+ Years Treasury Index, the Lehman Brothers 5-7
Year Treasury Index, IBC/Donoghue's Money Fund Averages, Real Estate Investment
Averages (as reported by the National Association of Real Estate Investment
Trusts), Gold Investment Averages (provided by the World Gold Council), Bank
Averages (which is calculated from figures supplied by the U.S. League of
Savings Institutions based on effective annual rates of interest on both
passbook and certificate accounts), average annualized certificate of deposit
rates (from the Federal Reserve G-13 Statistical Releases or the Bank Rate
Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics), Ten Year U.S.
Government Bond Average, S&P's Corporate Bond Yield Averages, Schabacter
Investment Management Indices, Salomon Brothers High Grade Bond Index, Lehman
Brothers Long-Term High Quality Government/Corporate Bond Index, other managed
or unmanaged indices or performance data of bonds, stocks or government
securities (including data provided by Ibbotson Associates), or by other
services, companies, publications or persons who monitor mutual funds on overall
performance or other criteria. The S&P Index and the Dow Jones Industrial
Average are unmanaged indices of selected common stock prices.
The performance of a class of shares of the Fund also may be compared to
the performance of other mutual funds having similar objectives. This
comparative performance could be expressed as a ranking prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Bloomberg
Financial Markets or Morningstar, Inc., independent services which monitor the
performance of mutual funds. The performance of a class of shares the Fund is
calculated by relating net asset value per share at the beginning of a stated
period to the net asset value of the investment, assuming reinvestment of all
gains distributions and dividends paid, at the end of the period. Any such
comparisons may be useful to investors who wish to compare the Fund's past
performance with that of its competitors. Of course, past performance cannot be
a guarantee of future results. The
12
<PAGE>
Company also may include, from time to time, a reference to certain marketing
approaches of the Distributor, including, for example, a reference to a
potential shareholder being contacted by a selected broker or dealer. General
mutual fund statistics provided by the Investment Company Institute may also be
used.
In addition, the Company also may use, in advertisements and other types
of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank, and
its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and the
related "Tax Freedom Day."
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
a class of shares of the Fund: (i) the Consumer Price Index may be used to
assess the real rate of return from an investment in a class of shares of the
Fund; (ii) other government statistics, including, but not limited to, The
Survey of Current Business, may be used to illustrate investment attributes of a
class of shares of the Fund or the general economic, business, investment, or
financial environment in which the Fund operates; (iii) the effect of tax-
deferred compounding on the investment returns of a class of shares of the Fund,
or on returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in a class of shares of the Fund (or returns in general) on a tax-
deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and (iv) the
sectors or industries in which the Fund or the Master Portfolio invests may be
compared to relevant indices of stocks or surveys (e.g., S&P Industry Surveys)
- -
to evaluate the historical performance of the Fund or the Master Portfolio or
current or potential value with respect to the particular industry or sector.
The Company also may discuss in advertising and other types of literature
that the Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as S&P or Moody's. Such rating would assess
the creditworthiness of the investments held by the Fund. The assigned rating
would not be a recommendation to purchase, sell or hold any class of the Fund's
shares since the rating would not comment on the market price of the Fund's
shares or the suitability of the Fund for a particular investor. In addition,
the assigned rating would be subject to change, suspension or withdrawal as a
result of changes in, or unavailability of, information relating to the Fund or
its investments. The Company may compare the Fund's performance with other
investments which are assigned ratings by NRSROs. Any such comparisons may be
useful to investors who wish to compare the Fund's past performance with other
rated investments.
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<PAGE>
From time to time the Company may reprint, reference or otherwise use
material from magazines, newsletters, newspapers and books including, but not
limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.
The Company also may disclose in advertising and other types of
literature, information and statements the distribution rate on the shares of
each class of the Fund. Distribution rate, which may be annualized, is the
amount determined by dividing the dollar amount per share of the most recent
dividend by the most recent NAV or maximum offering price per share as of a date
specified in the sales literature. Distribution rate will be accompanied by the
standard 30-day yield as required by the SEC.
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Fargo Investment Management
("WFIM"), a division of Wells Fargo Bank, is listed in the top 100 by
Institutional Investor magazine in its July 1996 survey "America's Top 300 Money
Managers." This survey ranks money managers in several asset categories. The
Company may also disclose in advertising and other types of sales literature the
assets and categories of assets under management by the Company's investment
adviser and the total amount of assets and mutual fund assets managed by Wells
Fargo Bank. As of December 31, 1996, Wells Fargo Bank and its affiliates
provided investment advisory services for approximately $54 billion of assets of
individuals, trusts, estates and institutions and $20 billion of mutual fund
assets.
The Company may disclose in advertising and other types of literature
that investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
14
<PAGE>
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Purchase of Shares." Net asset value per
share for each class of the Fund and net asset value per unit of the Master
Portfolio are each determined by Wells Fargo Bank on each day the Exchange is
open for trading as of the close of regular trading on the Exchange, which is
currently 1:00 p.m. Pacific time.
Securities of the Master Portfolio for which market quotations are
available are valued at latest prices. Any security for which the primary
market is an exchange is valued at the last sale price on such exchange on the
day of valuation or, if there was no sale on such day, the latest bid price
quoted on such day. In the case of other securities, including U.S. Government
securities but excluding money market instruments maturing in 60 days or less,
the valuations are based on latest quoted bid prices. Money market instruments
maturing in 60 days or less are valued at amortized cost. Prices may be
furnished by a reputable independent pricing service approved by the Board of
Trustees. Prices provided by an independent pricing service may be determined
without exclusive reliance on quoted prices and may take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. All other securities and other assets of
the Master Portfolio for which current market quotations are not readily
available are valued at fair value as determined in good faith by MIT's Trustees
and in accordance with procedures adopted by the Trustees.
Expenses and fees, including advisory fees, are accrued daily and are
taken into account for the purpose of determining the net asset value of the
Master Portfolio's interests and the Fund's shares.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day the Fund is open for business. 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 Prospectus. 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
15
<PAGE>
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 securities by the Master Portfolio are usually
principal transactions. Portfolio securities normally are purchased or sold
from or to dealers serving as market makers for the securities at a net price.
The Master Portfolio also may purchase portfolio securities in underwritten
offerings and may purchase securities directly from the issuer. The cost of
executing the Master Portfolio's portfolio securities transactions consists
primarily of dealer spreads and underwriting commissions. Under the 1940 Act,
persons affiliated with MIT are prohibited from dealing with MIT as a principal
in the purchase and sale of securities unless an exemptive order or other relief
allowing such transactions is obtained from the SEC or an exemption is otherwise
available. The Master Portfolio may purchase securities from underwriting
syndicates of which Stephens or Wells Fargo Bank is a member under certain
conditions in accordance with the provisions of a rule adopted under the 1940
Act and in compliance with procedures adopted by the Board of Trustees.
MIT 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 MIT's Board of Trustees, Wells Fargo Bank is responsible for the
Master Portfolio's decisions
16
<PAGE>
and the placing of portfolio transactions. In placing orders, it is the policy
of MIT 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 Master Portfolio will not necessarily be paying the lowest spread or
commission available.
In assessing the best overall terms available for any transaction, Wells
Fargo Bank considers factors deemed relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
Wells Fargo Bank may cause the Master Portfolio to pay a broker/dealer which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker/dealer for effecting the same transaction,
provided that Wells Fargo Bank determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker/dealer, viewed in terms of either the particular
transaction or the overall responsibilities of Wells Fargo Bank. Such brokerage
and research services might consist of reports and statistics relating to
specific companies or industries, general summaries of groups of stocks or bonds
and their comparative earnings and yields, or broad overviews of the stock,
bond, and government securities markets and the economy.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by Wells Fargo Bank and does not
reduce the advisory fees payable by the Master Portfolio. The Board of Trustees
will periodically review the commissions paid by the Master Portfolio to
consider whether the commissions paid over representative periods of time appear
to be reasonable in relation to the benefits inuring to the Master Portfolio.
It is possible that certain of the supplementary research or other services
received will primarily benefit one or more other investment companies or other
accounts for which investment discretion is exercised. Conversely, the Master
Portfolio may be the primary beneficiary of the research or services received as
a result of portfolio transactions effected for such other account or investment
company.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Master Portfolio in any transaction may be less favorable than
that available from another broker/dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.
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<PAGE>
Broker/dealers utilized by Wells Fargo Bank may furnish statistical,
research and other information or services which are deemed by Wells Fargo Bank
to be beneficial to the Master Portfolio's investment programs. Research
services received from brokers supplement Wells Fargo Bank's own research and
may include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities, markets,
specific industry groups and individual companies; information on political
developments; portfolio management strategies; performance information on
securities and information concerning prices of securities; and information
supplied by specialized services to Wells Fargo Bank and to MIT's Board of
Trustees with respect to the performance, investment activities and fees and
expenses of other mutual Funds. Such information may be communicated
electronically, orally or in written form. Research services may also include
the providing of equipment used to communicate research information, the
arranging of meetings with management of companies and the providing of access
to consultants who supply research information.
The outside research assistance is useful to Wells Fargo Bank since the
brokers utilized by Wells Fargo Bank as a group tend to follow a broader
universe of securities and other matters than the staff of Wells Fargo Bank can
follow. In addition, this research provides Wells Fargo Bank with a diverse
perspective on financial markets. Research services which are provided to Wells
Fargo Bank by brokers are available for the benefit of all accounts managed or
advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank that this
material is beneficial in supplementing their research and analysis; and,
therefore, it may benefit the Master Portfolio by improving the quality of Wells
Fargo Bank's investment advice. The advisory fees paid by the Master Portfolio
are not reduced because Wells Fargo Bank receives such services.
Securities of Regular Brokers or Dealers. As of September 30, 1996, the
----------------------------------------
Fund did not own any securities of its "regular brokers or dealers" or their
parents as defined in the Act.
On December 31, 1995, the Predecessor Fund to the Master Portfolio owned
securities of its "regular brokers or dealers or their parents", as defined in
the 1940 Act, as follows: $1,638,000 of Goldman Sachs & Co. Government
Repurchase Agreement.
Brokerage Commissions. For the period beginning February 21, 1996 and
---------------------
ended September 30, 1996, the Fund paid $194,498 in brokerage commissions.
Portfolio Turnover. Portfolio turnover generally involves some expenses
------------------
to the Master Portfolio, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. A high portfolio turnover rate should not result in the Master
Portfolio paying substantially more brokerage commissions, since most
transactions in government securities and municipal securities are effected on a
principal basis. Portfolio turnover also can generate short-term capital gain
tax consequences. The portfolio turnover rate will not be a limiting factor
when Wells Fargo Bank deems portfolio changes appropriate.
18
<PAGE>
FUND EXPENSES
Except for the expenses borne by Wells Fargo Bank and Stephens, the
Company bears all costs of its operations, including the compensation of its
Directors who are not affiliated with Stephens or Wells Fargo Bank or any of
their affiliates; advisory, shareholder servicing and administration fees;
payments pursuant to any Plan; interest charges; taxes; fees and expenses of its
independent accountants, legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming shares; expenses of preparing and printing
prospectuses (except the expense of printing and mailing prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of its
custodian, including those for keeping books and accounts and calculating the
NAV per share of the Fund; expenses of shareholders' meetings; expenses relating
to the issuance, registration and qualification of the Fund's shares; pricing
services, and any extraordinary expenses. Expenses attributable to the Fund are
charged against Fund assets. General expenses of the Company are allocated
among all of the funds of the Company, including the Fund, in a manner
proportionate to the net assets of the Fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.
FEDERAL INCOME TAXES
In General. The following information supplements and should be read in
----------
conjunction with the Prospectus sections entitled "Dividend and Capital Gain
Distributions" and "Taxes." The Prospectus describes generally the tax
treatment of distributions by the Master Portfolio and the Fund. This section
of the SAI includes additional information concerning federal income taxes.
The Company intends to qualify the Fund as a regulated investment company
under Subchapter M of the Code as long as such qualification is in the best
interest of the Fund's shareholders. The Fund will be treated as a separate
entity for tax purposes and thus the provisions of the Code applicable to
regulated investment companies will generally be applied to the Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for the Fund.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) the Fund derive at least 90% of its annual gross
income from interest, payments with respect to securities loans, dividends and
gains from the sale or other disposition of securities or options thereon; (b)
the Fund derive less than 30% of its gross income from gains from the sale or
other disposition of securities or options thereon held for less than three
months; and (c) the Fund diversify its holdings so that, at the end of
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<PAGE>
each quarter of the taxable year, (i) at least 50% of the market value of the
Fund's assets is represented by cash, government securities and other securities
limited in respect of any one issuer to an amount not greater than 5% of the
Fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government securities and the securities of
other regulated investment companies), or in two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades or
businesses. For purposes of complying with these qualification requirements, the
Fund will be deemed to own a proportionate share of the Master Portfolio's
assets. As a regulated investment company, the Fund will not be subject to
federal income tax on its net investment income and net capital gains
distributed to its shareholders, provided that it distributes to its
shareholders at least 90% its net investment income, including net tax-exempt
income, earned in each year. The Fund intends to pay out substantially all of
its net investment income and net realized capital gains (if any) for each year.
A 4% nondeductible excise tax will be imposed on the Fund to the extent
it does not meet certain minimum distribution requirements by the end of each
calendar year. The Fund will either actually or be deemed to distribute all of
its net investment income and net capital gains by the end of each calendar year
and, thus, expects not to be subject to the excise tax.
Income and dividends received by the Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Although in some circumstances a regulated
investment company can elect to "pass through" foreign tax credits to its
shareholders, the Fund does not expect to be eligible to make such an election.
The Fund seeks to qualify as a regulated investment company by investing
substantially all of its assets in the Master Portfolio. The Master Portfolio
will be treated as a non-publicly traded partnership rather than as a regulated
investment company or a corporation under the Code. As a non-publicly traded
partnership, any interest, dividends, gains and losses of the Master Portfolio
shall be deemed to have been "passed through" to the Fund (and the Master
Portfolio's other investors) in proportion to the Fund's ownership interest in
the Master Portfolio. Therefore, to the extent the Master Portfolio were to
accrue but not distribute any interest, dividends or gains, the Fund would be
deemed to have realized and recognized its proportionate share of interest,
dividends or gains without receipt of any corresponding distribution. However,
the Master Portfolio will seek to minimize recognition by investors of interest,
dividends, gains or losses without a corresponding distribution.
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 dividends-
20
<PAGE>
received deduction, a corporate shareholder must hold the Fund shares paying the
dividends upon which the deduction is based for at least 46 days.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.60% (marginal rates may
be higher for some individuals due to phase out of exemptions and elimination of
deductions); the maximum individual tax rate applicable to net capital gains is
28.00%; and the maximum corporate tax rate applicable to ordinary income and net
capital gains is 35.00% (except that to eliminate the benefit of lower marginal
corporate income tax rates, corporations which have taxable income in excess of
$100,000 for a taxable year will be required to pay an additional amount of
income tax of up to $11,750 and corporations which have taxable income in excess
of $15,000,000 for a taxable year will be required to pay an additional amount
of tax of up to $100,000). Naturally, the amount of tax payable by an
individual or corporation will be affected by a combination of tax laws
covering, for example, deductions, credits, deferrals, exemptions, sources of
income and other matters.
Capital Gain Distributions. To the extent that the Fund recognizes long-
--------------------------
term capital gains, such gains will be distributed at least annually and these
distributions will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held Fund shares. Such distributions
will be designated as capital gain distributions in a written notice mailed by
the Fund to shareholders not later than 60 days after the close of the Fund's
taxable year.
Disposition of Fund Shares. If a shareholder receives a designated
--------------------------
capital gain distribution (to be treated by the shareholder as a long-term
capital gain) with respect to any Fund share and such Fund share is held for six
months or less, then (unless otherwise disallowed) any loss on the sale or
exchange of that Fund share will be treated as a long-term capital loss to the
extent of the designated capital gain distribution.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or of a different regulated investment company,
the sales charge previously incurred acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are reacquired within the 61-day
period beginning 30 days before and ending 30 days after the shares are disposed
of.
Taxation of Investments. Gains or losses on sales of portfolio
-----------------------
securities held by the Master Portfolio will generally be long-term capital
gains or losses if the securities have been held by it for more than one year,
except in certain cases such as where the Master Portfolio acquires a put or
writes a call thereon. Gains recognized on the disposition of a
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<PAGE>
debt obligation (including tax-exempt obligations purchased after April 30,
1993) purchased by the Master Portfolio at a market discount (generally at a
price less than its principal amount) will be treated as ordinary income to the
extent of the portion of market discount which accrued during the period of time
the Master Portfolio held the debt obligation. Other gains or losses on the sale
of portfolio securities will be short-term capital gains or losses.
If an option written by the Master Portfolio lapses or is terminated
through a closing transaction, such as a repurchase by the Master Portfolio of
the option from its holder, the Master Portfolio will realize a short-term
capital gain or loss, depending on whether the premium income is greater or less
than the amount paid by the Master Portfolio in the closing transaction. Some
realized capital losses may be deferred if they result from a position which is
part of a "straddle," discussed below. If securities are sold by the Master
Portfolio pursuant to the exercise of a call option written by it, the Master
Portfolio will add the premium received to the sale price of the securities
delivered in determining the amount of gain or loss on the sale. If securities
are purchased by the Master Portfolio pursuant to the exercise of a put option
written by it, the Master Portfolio will subtract the premium received from its
cost basis in the securities purchased. The requirement that the Fund derive
less than 30% of its gross income from gains from the sale of securities held
for less than three months may limit the Master Portfolio's ability to write
options.
The amount of any gain or loss realized by a Fund on closing out a
futures contract will generally result in a realized capital gain or loss for
tax purposes. Futures contracts held at the end of each fiscal year will be
required to be "marked to market" for federal income tax purposes pursuant to
Section 1256 of the Code. In this regard, they will be deemed to have been sold
at market value. Sixty percent (60%) of any net gain or loss recognized on
these deemed sales and sixty percent (60%) of any net realized gain or loss from
any actual sales, generally will be treated as long-term capital gain or loss,
and the remaining forty percent (40%) will be treated as short-term capital gain
or loss. Transactions that qualify as designated hedges are excepted from the
"marked to market" and "60%/40%" rules. Currency transactions may be subject to
Section 988 of the Code, under which foreign currency gains or losses would
generally be computed separately and treated as ordinary income or losses. The
Funds will attempt to monitor Section 988 transactions to avoid an adverse tax
impact.
Offsetting positions held by a regulated investment company involving
certain financial forward, futures or options contracts may be considered, for
tax purposes, to constitute "straddles." "Straddles" are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of "straddles" is governed by Section 1092 of the Code which, in certain
circumstances, overrides or modifies the provisions of Section 1256.
If a regulated investment company were treated as entering into
"straddles" by reason of its engaging in certain financial forward, futures or
option contracts, such
22
<PAGE>
straddles could be characterized as "mixed straddles" if the futures, forwards,
or options comprising a part of such straddles were governed by Section 1256 of
the Code. The regulated investment company may make one or more elections with
respect to "mixed straddles." Depending upon which election is made, if any, the
results with respect to the regulated investment company may differ. Generally,
to the extent the straddle rules apply to positions established by the regulated
investment company, losses realized by the regulated investment company may be
deferred to the extent of unrealized gain in any offsetting positions. Moreover,
as a result of the straddle and the conversion transaction rules, short-term
capital loss on straddle positions may be recharacterized as long-term capital
loss, and long-term capital gain may be characterized as short-term capital gain
or ordinary income.
If the Master Portfolio purchases shares in a "passive foreign investment
company" ("PFIC"), the Fund may be subject to federal income tax and an interest
charge imposed by the IRS upon certain distributions from the PFIC or the Master
Portfolio's disposition of its PFIC shares. If the Master Portfolio invests in
a PFIC, the Fund intends to make an available election to mark-to-market its
interest in PFIC shares (through the Master Portfolio). Under the election, the
Fund will be treated as recognizing at the end of each taxable year the excess,
if any, of the fair market value of its interest in PFIC shares over its basis
in such shares. Although such excess will be taxable to the Fund as ordinary
income notwithstanding any distributions by the PFIC, the Fund will not be
subject to federal income tax or the interest charge with respect to its
interest in the PFIC.
Foreign Shareholders. Under the Code, distributions of net investment
--------------------
income by the Fund to a nonresident alien individual, nonresident alien
fiduciary of a trust or estate, foreign corporation, or foreign partnership (a
"foreign shareholder") will be subject to U.S. withholding tax (at a rate of 30%
or a lower treaty rate). Withholding will not apply if a dividend paid by the
Fund to a foreign shareholder is "effectively connected" with a U.S. trade or
business, in which case the reporting and withholding requirements applicable to
U.S. citizens, U.S. residents or domestic corporations will apply.
Distributions of net long-term capital gains are not subject to tax withholding,
but in the case of a foreign shareholder who is a nonresident alien individual,
such distributions ordinarily will be subject to U.S. income tax at a rate of
30% if the individual is physically present in the U.S. for more than 182 days
during the taxable year.
Backup Withholding. The Company may be required to withhold, subject to
------------------
certain exemptions, at a rate of 31% ("backup withholding") on dividends,
capital gain distributions, and redemption proceeds (including proceeds from
exchanges) 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
23
<PAGE>
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 Master Portfolio may involve sophisticated tax rules that may result in
income or gain recognition by the Fund without corresponding current cash
receipts. Although the Master Portfolio will seek to avoid significant noncash
income, such noncash income could be recognized by the Master Portfolio, in
which case the Fund may distribute cash derived from other sources in order to
meet the minimum distribution requirements described above.
The foregoing discussion and the discussions in the Prospectus address
only some of the federal tax considerations generally affecting investments in a
Fund. Each investor is urged to consult his or her tax advisor regarding
specific questions as to federal, state or local taxes and foreign taxes.
CAPITAL STOCK
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "The Fund and Management."
The Fund is one of the funds of the Stagecoach Family of Funds. The
Company was organized as a Maryland corporation on September 9, 1991 and
currently offers more than twenty-five other funds.
Most of the Company's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, a class subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Company's funds also are authorized to
issue other classes of shares, which are sold primarily to institutional
investors. Each class of shares in 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.
The Fund is comprised of three classes of shares, Class A, Class B and
Class C shares. With respect to matters that affect one class but not another,
shareholders vote as a class; for example, the approval of a Plan. Subject to
the foregoing, on any matter submitted to a vote of shareholders, all shares
then entitled to vote will be voted separately by series unless otherwise
required by the Act, in which case all shares will be voted in the aggregate.
For example, a change in a series' fundamental investment policy affects only
one series and would be voted upon only by shareholders of the series and not by
24
<PAGE>
shareholders of the Company's other series. Additionally, approval of an
advisory contract is a matter to be determined separately by each series.
Approval by the shareholders of one series is effective as to that series
whether or not sufficient votes are received from the shareholders of the other
series to approve the proposal as to those series.
As used in the Prospectus and in this SAI, the term "majority" when
referring to approvals to be obtained from shareholders of a class of the Fund,
means the vote of the lesser of (i) 67% of the shares of such class the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares such class of the Fund are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of such class the Fund. The term "majority,"
when referring to the approvals to be obtained from shareholders of the Company
as a whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held.
The Company may dispense with an annual meeting of shareholders in any
year in which it is not required to elect directors under the 1940 Act.
Each share of a class of the Fund represents an equal proportional
interest in the Fund with each other share in the same class and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to the Fund as are declared in the discretion of the Directors. In
the event of the liquidation or dissolution of the Company, shareholders of the
Fund are entitled to receive the assets attributable to the relevant class of
shares of the Fund that are available for distribution, and a distribution of
any general assets not attributable to a particular investment portfolio that
are available for distribution in such manner and on such basis as the Directors
in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares, when
issued for the consideration described in the Prospectus, will be fully paid and
non-assessable by the Company.
MIT is a business trust organized under the laws of Delaware. In
accordance with Delaware law and in connection with the tax treatment sought by
MIT, MIT's Declaration of Trust provides that its investors would be personally
responsible for Trust liabilities and obligations, but only to the extent MIT
property is insufficient to satisfy such liabilities and obligations. The
Declaration of Trust also provides that MIT shall maintain appropriate insurance
(for example, fidelity bonding and errors and omissions insurance) for the
protection of MIT, its investors, Trustees, officers, employees and agents
covering possible tort and other liabilities, and that investors will be
indemnified to the extent they are held liable for a disproportionate share of
Trust obligations. Thus, the risk of an investor incurring financial loss on
account of investor liability is limited to circumstances in which both
inadequate insurance existed and MIT itself was unable to meet its obligations.
25
<PAGE>
The Declaration of Trust further provides that obligations of MIT are not
binding upon the Trustees individually but only upon the property of MIT and
that the Trustees will not be liable for any action or failure to act. However,
nothing in the Declaration of Trust protects a Trustee against any liability to
which the Trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of the Trustee's office.
The interests in the Master Portfolio have substantially identical voting
and other rights as those rights enumerated above for Fund shares. MIT also
intends to dispense with annual meetings, but will hold a special meeting and
assist investor communications under the circumstances described above with
respect to the Company in accord with provisions under Section 16(c) of the Act.
Whenever the Fund is requested to vote on a matter with respect to the Master
Portfolio, the Fund will hold a meeting of Fund shareholders and will cast its
votes as instructed by such shareholders. In a situation where the Fund does
not receive instruction from certain of its shareholders on how to vote the
corresponding shares of the Master Portfolio, the Fund will vote such shares in
the same proportion as the shares for which the Fund does receive voting
instructions.
As of July 31, 1997, no shareholders were known by the Company to own 5%
more of the outstanding Class C shares of the Fund. Set forth below is the name,
address and share ownership of each person known by the Company to have
beneficial or record ownership of 5% or more of a class of the Fund or 5% or
more of the voting securities of the Fund as a whole.
5% OWNERSHIP AS OF JANUARY 2, 1997
<TABLE>
<CAPTION>
Name and Class; Type Percentage Percentage
Fund Address of Ownership of Class of Fund
---- ------- ------------ -------- -------
<S> <C> <C> <C> <C>
AGGRESSIVE Wells Fargo Bank Class A 62.05% 43.90%
GROWTH FUND P.O. Box 63015 Beneficially Owned
San Francisco, CA 94163
Stephens Inc. Class A 9.57% 6.80%
111 Center Street Record Holder
Little Rock, AR 72201
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
-------------------------------
holder of more than 25% of a class (or Fund), or is identified as the holder of
- --------------------------------------------
record of more than 25% of a class (or Fund) and has voting and/or investment
-----------------
powers, it may be presumed to control such class (or Fund).
26
<PAGE>
OTHER
The Company's Registration Statement, including the Fund's Prospectus and
SAI, and the exhibits filed therewith, may be examined at the office of the SEC
in Washington, D.C. Statements contained in the Prospectus or the SAI as to the
contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as independent auditor for the
Company and MIT. KPMG Peat Marwick LLP provides audit services, tax return
preparation and assistance and consultation in connection with review of certain
SEC filings. KPMG Peat Marwick LLP's address is Three Embarcadero Center, San
Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and
independent auditors' reports for the Fund and Master Portfolio for the fiscal
period ended September 30, 1996 are hereby incorporated by reference to the
Company's Annual Report as filed with the SEC on December 9, 1996. The
portfolio of investments, audited financial statements and independent auditors'
report for the Fund and the Master Portfolio for the fiscal period ended March
31, 1997 are hereby incorporated by reference to the Company's Annual Report as
filed with the SEC on June 4, 1997. The portfolio of investments, audited
financial statements and independent auditors' report are attached to all SAIs
delivered to current or prospective shareholders.
27
<PAGE>
SAI APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate bonds and commercial paper.
Corporate Bonds
- ---------------
Moody's: The four highest ratings for corporate bonds are "Aaa," "Aa,"
-------
"A" and "Baa." Bonds rated "Aaa" are judged to be of the "best quality" and
carry the smallest amount of investment risk. Bonds rated "Aa" are of "high
quality by all standards," but margins of protection or other elements make
long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds rated "A"
possess many favorable investment attributes and are considered to be upper
medium grade obligations. Bonds rated "Baa" are considered to be medium grade
obligations; interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1, 2
and 3 in each rating category from "Aa" through "Baa" in its rating system. The
modifier 1 indicates that the security ranks in the higher end of its category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end.
S&P: The four highest ratings for corporate bonds are "AAA," "AA," "A"
---
and "BBB." Bonds rated "AAA" have the highest ratings assigned by S&P and have
an extremely strong capacity to pay interest and repay principal. Bonds rated
"AA" have a "very strong capacity to pay interest and repay principal" and
differ "from the highest rated issued only in small degree." Bonds rated "A"
have a "strong capacity" to pay interest and repay principal, but are "somewhat
more susceptible" to adverse effects of changes in economic conditions or other
circumstances than bonds in higher rated categories. Bonds rated "BBB" are
regarded as having an "adequate capacity" to pay interest and repay principal,
but changes in economic conditions or other circumstances are more likely to
lead to a "weakened capacity" to make such repayments. The ratings from "AA" to
"BBB" may be modified by the addition of a plus or minus sign to show relative
standing within the category.
Corporate Commercial Paper
- --------------------------
Moody's: The highest rating for corporate commercial paper is "P-1"
-------
(Prime-1). Issuers rated "P-1" have a "superior capacity for repayment of
short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
A-1
<PAGE>
S&P: The "A-1" rating for corporate commercial paper indicates that the
---
"degree of safety regarding timely payment is either overwhelming or very
strong." Commercial paper with "overwhelming safety characteristics" will be
rated "A-1+." Commercial paper with a strong capacity for timely payments on
issues will be rated "A-2."
A-2
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated October 6, 1997
GINNIE MAE FUND
Class C
------------------------------
Stagecoach Funds, Inc. is an open-end series investment company. This
Statement of Additional Information ("SAI") contains additional information
about Class C shares offered in the Ginnie Mae Fund (the "Fund") of the
Stagecoach Family of Funds. The Fund also offers Class A, Class B and
Institutional Class shares. The investment objective of the Fund is described in
its Prospectus under "How the Fund Works -- Investment Objectives and Policies."
This SAI is not a prospectus and should be read in conjunction with the
Fund's Prospectus dated October 6, 1997. All terms used in this SAI that are
defined in the Fund's Prospectus will have the meaning assigned in such
Prospectus. A copy of the Prospectus may be obtained without charge by writing
Stephens Inc., 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>
Investment Restrictions................................................. 1
Additional Permitted Investment Activities.............................. 3
Management.............................................................. 5
Performance Calculations................................................ 11
Determination of Net Asset Value........................................ 16
Additional Purchase and Redemption Information.......................... 16
Portfolio Transactions.................................................. 17
Fund Expenses........................................................... 19
Federal Income Taxes.................................................... 19
Capital Stock........................................................... 23
Other................................................................... 24
Independent Auditors.................................................... 25
Financial Information................................................... 25
SAI Appendix............................................................ A-1
Financial Statements.................................................... F-1
</TABLE>
i
<PAGE>
INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Fund is subject to the following
-------------------------------
investment restrictions, all of which are fundamental policies; that is, they
may not be changed without approval by the vote of the holders of a majority of
the Fund's outstanding voting securities, as described under "Capital Stock":
The Fund may not:
-----------------
(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and as
a result thereof, the value of the Fund's investments in that industry would be
25% or more of the current value of its total assets, provided that there is no
limitation with respect to investments in obligations of the United States
Government, its agencies or instrumentalities;
(2) purchase or sell real estate or real estate limited partnerships
(other than securities secured by real estate or interests therein or securities
issued by companies that invest in real estate or interests therein);
(3) purchase commodities or commodity contracts (including futures
contracts), except that the Fund may purchase securities of an issuer which
invests or deals in commodities or commodity contracts;
(4) purchase interests, leases, or limited partnership interests in oil,
gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions and except for margin payments in
connection with options, futures and options on futures) or make short sales of
securities;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting;
(7) make investments for the purpose of exercising control or management;
(8) issue senior securities, except that the Fund may borrow up to 20% of
the current value of its net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 20% of
the current value of the Fund's net assets (but investments may not be purchased
by the Fund while any such outstanding borrowings exceed 5% of the Fund's net
assets);
1
<PAGE>
(9) write, purchase or sell puts, calls, straddles, spreads, warrants,
options or any combination thereof; or
(10) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities) if, as a
result, more than 5% of the value of the Fund's total assets would be invested
in the securities of any one issuer or the Fund's ownership would be more than
10% of the outstanding voting securities of such issuer.
The Fund may make loans in accordance with its investment policies.
Non-Fundamental Investment Policies. The Fund is subject to the
-----------------------------------
following non-fundamental policies which may be changed by a majority vote of
the Board of Directors without shareholder approval:
The Fund may not:
----------------
(1) purchase or retain securities of any issuer if the officers or
Directors of the Company or its Investment Adviser owning beneficially more than
one-half of one percent (0.50%) of the securities of the issuer together owned
beneficially more than 5% of such securities;
(2) purchase securities of issuers who, with their predecessors, have
been in existence less than three years, unless the securities are fully
guaranteed or insured by the U.S. Government, a state, commonwealth, possession,
territory, the District of Columbia or by an entity in existence at least three
years, or the securities are backed by the assets and revenues of any of the
foregoing if, by reason thereof, the value of its aggregate investments in such
securities will exceed 5% of its total assets;
(3) purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, and equity
securities of issuers which are not readily marketable if by reason thereof the
value of the Fund's aggregate investment in such Classes of securities will
exceed 5% of its total assets; or
(4) invest more than 10% of the current value of its net assets in
repurchase agreements maturing in more than seven days or other illiquid
securities (including restricted securities).
In addition, the Fund may invest in shares of other open-end, management
investment companies, subject to the limitations of Section 12(d)(1) of the 1940
Act, provided that any such purchases will be limited to temporary investments
in shares of unaffiliated investment companies and the Investment Adviser will
waive its advisory fees for that portion of the Fund's assets so invested,
except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition.
2
<PAGE>
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Unrated Investments. The Fund may purchase instruments that are not
-------------------
rated if, in the opinion of Wells Fargo Bank, such obligations are of investment
quality comparable to other rated investments that are permitted to be purchased
by the Fund. After purchase by the Fund, a security may cease to be rated or
its rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require a sale of such security by the Fund. To the extent
the ratings given by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poors 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 its Prospectus and in this SAI. The ratings of Moody's and S&P are
more fully described in the SAI Appendix.
Letters of Credit. Certain of the debt obligations (including
-----------------
certificates of participation, commercial paper and other short-term
obligations) which the Fund may purchase may be backed by an unconditional and
irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of Wells Fargo Bank,
are of comparable quality to issuers of other permitted investments of the Fund
may be used for letter of credit-backed investments.
Pass-Through Obligations. Certain of the debt obligations in which the
------------------------
Fund may invest may be pass-through obligations that represent an ownership
interest in a pool of mortgages and the resultant cash flow from those
mortgages. Payments by homeowners on the loans in the pool flow through to
certificate holders in amounts sufficient to repay principal and to pay interest
at the pass-through rate. The stated maturities of pass-through obligations may
be shortened by unscheduled prepayments of principal on the underlying
mortgages. Therefore, it is not possible to predict accurately the average
maturity of a particular pass-through obligation. Variations in the maturities
of pass-through obligations will affect the yield of the Fund. Furthermore, as
with any debt obligation, fluctuations in interest rates will inversely affect
the market value of pass-through obligations. The Fund may invest in pass-
through obligations that are supported by the full faith and credit of the U.S.
Government (such as those issued by the Government National Mortgage
Association) or those that are guaranteed by an agency or instrumentality of the
U.S. Government or government-sponsored enterprise (such as the Federal National
Mortgage Association or the Federal Home Loan Mortgage Corporation) or bonds
collateralized by any of the foregoing.
When-Issued Securities. Certain of the securities in which the Fund may
----------------------
invest will be purchased on a when-issued basis, in which case delivery and
payment normally take place within 120 days after the date of the commitment to
purchase. The Fund only will make commitments to purchase securities on a when-
issued basis with the intention of actually acquiring the securities, but may
sell them before the settlement date if it is deemed advisable. When-issued
securities are subject to market fluctuation, and no income accrues to the
purchaser during the period prior to issuance. The purchase price and the
interest rate that will be received on debt securities are fixed
3
<PAGE>
at the time the purchaser enters into the commitment. Purchasing a security on a
when-issued basis can involve a risk that the market price at the time of
delivery may be lower than the agreed-upon purchase price, in which case there
could be an unrealized loss at the time of delivery.
The Fund will segregate cash, U.S. Government obligations or other high-
quality debt instruments in an amount at least equal in value to the Fund's
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will segregate additional liquid assets on a daily basis so
that the value of the segregated assets is equal to the amount of such
commitments.
Loans of Portfolio Securities. The Fund may lend securities from their
-----------------------------
portfolios to brokers, dealers and financial institutions (but not individuals)
if cash, U.S. Government securities or other high-quality debt obligations equal
to at least 100% of the current market value of the securities loan (including
accrued interest thereon) plus the interest payable to the Fund with respect to
the loan is maintained with the Fund. In determining whether to lend a security
to a particular broker, dealer or financial institution, the Fund's Investment
Adviser will consider all relevant facts and circumstances, including the
creditworthiness of the broker, dealer, or financial institution. Any loans of
portfolio securities will be fully collateralized based on values that are
marked to market daily. The Fund will not enter into any portfolio security
lending arrangement having a duration of longer than one year. Any securities
that the Fund may receive as collateral will not become part of the Fund's
portfolio at the time of the loan and, in the event of a default by the
borrower, the Fund will, if permitted by law, dispose of such collateral except
for such part thereof that is a security in which the Fund is permitted to
invest. During the time securities are on loan, the borrower will pay the Fund
any accrued income on those securities, and the Fund may invest the cash
collateral and earn additional income or receive an agreed-upon fee from a
borrower that has delivered cash-equivalent collateral. The Fund will not lend
securities having a value that exceeds 33 1/3% of the current value of its total
assets. Loans of securities will be subject to termination at the Fund's or the
borrower's option. The Fund may pay reasonable administrative and custodial
fees in connection with a securities loan and may pay a negotiated portion of
the interest or fee earned with respect to the collateral to the borrower or the
placing broker. Borrowers and placing brokers may not be affiliated, directly
or indirectly, with Stagecoach, its Investment Adviser, or its Distributor. The
Fund currently intends to limit the practice of lending portfolio securities to
no more than 5% of its net assets during the coming year.
Foreign Obligations. Investments in foreign obligations involve certain
-------------------
considerations that are not typically associated with investing in domestic
obligations. There may be less publicly available information about a foreign
issuer than about a domestic issuer. Foreign issuers also are not generally
subject to uniform accounting, auditing and financial reporting standards or
governmental supervision comparable to those applicable to domestic issuers. In
addition, with respect to certain foreign countries, 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
4
<PAGE>
those countries. The Ginnie Mae Fund does not intend to invest in foreign
obligations during the coming year. The Fund may not invest 25% or more of its
assets in foreign obligations.
MANAGEMENT
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "The Funds and Management." The
principal occupations during the past five years of the Directors and principal
executive Officer of the Company are listed below. The address of each, unless
otherwise indicated, is 111 Center Street, Little Rock, Arkansas 72201.
Directors deemed to be "interested persons" of the Company for purposes of the
1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027
*R. Greg Feltus, 46 Director, Chairman and Executive Vice President
President of Stephens; Manager of
Financial Services Group;
President of Stephens
Insurance Services Inc.;
Senior Vice President of
Stephens Sports
Management Inc.; and
President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of
321 Beechcliff Court Finance of the School of
Winston-Salem, NC 27104 Business and Accounting
at Wake Forest University
since 1982.
Joseph N. Hankin, 57 Director President of Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; Adjunct Professor
(appointed as of September of Columbia University
6, 1996) Teachers College since
1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 79 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor;
4 Beaufain Street Chairman of Home Account
Charleston, SC 29401 Network, Inc.; Real
Estate Developer;
Chairman of Renaissance
Properties Ltd.;
President of Morse
Investment Corporation;
and Co-Managing Partner
of Main Street Ventures.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Richard H. Blank, Jr., 41 Chief Operating Associate of Financial
Officer, Secretary and Services Group of
Treasurer Stephens; Director of
Stephens Sports
Management Inc.; and
Director of Capo Inc.
<CAPTION>
COMPENSATION TABLE
Year Ended March 31, 1997
-------------------------
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>
Directors of the Company are compensated annually by the Company and by
all the registrants in each fund complex they serve as indicated above and also
are reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company, Overland Express Funds, Inc., Stagecoach Trust, Life &
Annuity Trust and Master Investment Trust are considered to be members of the
same fund complex as such term is defined in Form N-1A under the 1940 Act (the
"Wells Fargo Fund Complex"). MasterWorks Funds Inc., Master Investment
Portfolio, and Managed Series Investment Trust together form a separate fund
complex (the "BGFA Fund
6
<PAGE>
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 pursuant to
------------------
an Advisory Contract. The Advisory Contract provides that Wells Fargo Bank
shall furnish investment guidance and policy direction in connection with the
daily portfolio management of the Fund. Pursuant to the Advisory Contracts,
Wells Fargo Bank furnishes to the Board of Directors periodic reports on the
investment strategy and performance of each Fund. Wells Fargo Bank has agreed
to provide to the 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 the average maturities of its portfolios. As compensation
for its advisory services, Wells Fargo Bank is entitled to receive a monthly fee
at the annual rate of 0.50% of the Fund's average daily net assets.
The Advisory Contract will continue in effect for more than two years
provided the continuance is approved annually (i) by the holders of a majority
of the Fund's outstanding voting securities or by the Company's Board of
Directors and (ii) by a majority of the Directors of the Company who are not
parties to the Advisory Contract or "interested persons" (as defined in the 1940
Act) of any such party. The Advisory Contract may be terminated on 60 days'
written notice by either party and will terminate automatically if assigned.
For the years ended December 31, 1993, 1994 and 1995, and the period
ended September 30, 1996, the Fund paid to Wells Fargo Bank the advisory fees
indicated below and Wells Fargo Bank waived the following amounts:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1994 December 31, 1995 September 30, 1996
------------------ ------------------ ----------------- ------------------
Fees Fees Fees Fees Fees Fees Fees Fees
Fund Paid Waived Paid Waived Paid Waived Paid Waived
- ----------- -------- -------- ---------- ------ --------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ginnie Mae $888,174 $437,110 $1,185,036 -0- $840,112 -0- $679,123 $-0-
</TABLE>
Administrator and Co-Administrator . The Company has retained Wells
-----------------------------------
Fargo Bank as Administrator and Stephens as Co-Administrator on behalf of the
Fund. The Administration Agreement between Wells Fargo Bank and the Company on
behalf of the Fund, and the Co-Administration Agreement among Wells Fargo Bank,
Stephens and the Company on behalf of the Fund, state that Wells Fargo Bank and
Stephens shall provide as administrative
7
<PAGE>
services, among other things: (i) general supervision of the operation of the
Fund, including coordination of the services performed by the Fund's investment
adviser, transfer agent, custodian, shareholder servicing agent(s), independent
auditor 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 each Fund; and (ii) general supervision relative to the
compilation of data required for the preparation of periodic reports distributed
to the Company's officers and Board of Directors. Wells Fargo Bank and Stephens
also furnish office space and certain facilities required for conducting the
business of the Fund together with ordinary clerical and bookkeeping services.
Stephens pays the compensation of the Company's Directors, officers and
employees who are affiliated with Stephens. The Administrator and Co-
Administrator are entitled to receive a monthly fee of 0.04% and 0.02%,
respectively, of the average daily net assets of the Fund.
Prior to February 1, 1997, Stephens served as sole administrator to the
Fund and was entitled to receive 0.03% of the Fund's average daily net assets.
For the years ended December 31, 1993, 1994 and 1995, and the fiscal
period ended September 30, 1996, the Fund paid the following dollar amounts of
administration fees to Stephens:
<TABLE>
<CAPTION>
Dec. 31, Dec. 31, Dec. 31, Sept. 30,
Fund 1993 1994 1995 1996
-------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Ginnie Mae $81,058 $71,842 $50,407 $40,747
</TABLE>
Sponsor and Distributor. As discussed in the Fund's Prospectus under
-----------------------
the heading "Management, Distribution and Servicing Fees," Stephens (the
"Distributor") serves as the Fund's sponsor and distributor.
Distribution Plan. The following information supplements and should be
-----------------
read in conjunction with the Prospectus section entitled "Distribution Plan".
As indicated in the Prospectus, the Fund has adopted a distribution plan on
behalf of each class of its shares under Section 12(b) of the 1940 Act and Rule
12b-1 thereunder (the "Rule"). The Plan for the Class C shares of the Fund was
adopted by the Company's Board of Directors, including a majority of the
Directors who were not "interested persons" (as defined in the 1940 Act) of the
Fund and who had no direct or indirect financial interest in the operation of
the Plan or in any agreement related to the Plan (the "Qualified Directors"),
Under the Plan for Class C shares of the Fund and pursuant to the
Distribution Agreement, the Fund may pay the Distributor as compensation for
distribution-related activities and services provided, or reimbursement for
distribution-related expenses incurred, a monthly fee at an annual rate of up to
0.50% of the average daily net assets attributable to Class C shares of the
Fund.
The actual fee payable to the Distributor shall be determined, within
such limits, from time to time by mutual agreement between the Company and the
Distributor and will not exceed the maximum sales charges payable by mutual
funds sold by members of the NASD under the
8
<PAGE>
NASD Rules of Fair Practice. The Distributor may enter into selling agreements
with one or more selling agents (which may include Wells Fargo Bank and its
affiliates) under which such agents may receive compensation for distribution-
related services from the Distributor, including, but not limited to,
commissions or other payments to such agents based on the average daily net
assets of Fund shares attributable to their customers. The Distributor may
retain any portion of the total distribution fee payable thereunder to
compensate it for distribution-related services provided by it or to reimburse
it for other distribution-related expenses.
Pursuant to Rule 12b-1, a distribution plan must be initially approved
(and reapproved annually thereafter) by the Board of Directors, including a
majority of the Qualified Directors of the Company. Agreements related to the
Plan also must be approved by such vote of the Directors and Qualified
Directors. Selling agreements will terminate automatically if assigned and may
be terminated at any time, without payment of any penalty, by a vote of a
majority of the outstanding voting securities of the relevant class of a Fund or
by vote of a majority of the Qualified Directors on not more than 60 days'
written notice. The Class C 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 relevant class of a 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 the Company to provide the Directors, and the Directors
to review, at least quarterly, a written report of the amounts expended (and
purposes therefor) under such Plan. The Rule also requires that the selection
and nomination the Non-Interested Directors of the Company be made by such
Qualified Directors.
Wells Fargo Bank, an interested person (as that term is defined in
Section 2(a)(19) of the 1940 Act) of the Company, acts as a selling agent for
the Fund's Class C shares pursuant to selling agreements with Stephens
authorized under the Plan. As a selling agent, Wells Fargo Bank has an indirect
financial interest in the operation of the Plan. The Board of Directors has
concluded that the Plan is reasonably likely to benefit the Fund and its
shareholders because the Plan authorize the relationships with selling agents,
including Wells Fargo Bank, that have previously developed distribution channels
and relationships with the retail customers that the Class C shares of the Fund
is designed to serve. These relationships and distribution channels are
believed by the Board to provide potential for increased Fund assets and
ultimately corresponding economic efficiencies (i.e., lower per-share
transaction costs and fixed expenses) that are generated by increased assets
under management.
Shareholder Servicing Agent. As discussed in the Fund's Prospectus under
---------------------------
the heading "Shareholder Servicing Agent," the Fund has approved Servicing Plans
for each class of its shares and has entered into shareholder servicing
agreements with financial institutions, including Wells Fargo Bank. For
providing these services, a shareholder servicing agent is entitled to a fee
from the Fund of up to 0.25%, on an annualized basis, of the average daily net
asset value of the Class C shares owned by or attributable to such customers of
the Shareholder Servicing Agent. The dollar amounts of shareholder servicing
fees paid by the Fund to Wells
9
<PAGE>
Fargo Bank or its affiliates for the year ended December 31, 1995 and the period
ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
Fund December 31, 1995 September 30, 1996
---- ----------------- ------------------
<S> <C> <C>
Ginnie Mae $255,060 $214,996/1/
- ------------
</TABLE>
/1/This amount includes shareholder servicing fees paid by other classes of the
Fund and reflects fee waivers.
Servicing Plan. The Servicing Plan for the Class C shares of the Fund
--------------
and related shareholder servicing agreements were approved by the Company's
Board of Directors including a majority of the Directors who were not
"interested persons" (as defined in the Act) of the Fund and who had no direct
or indirect financial interest in the operation of the Servicing Plan or in any
agreement related to the Servicing Plan (the "Servicing Plan Qualified
Directors").
The actual fee payable to servicing agents under the Servicing Plan for
the Class C shares is determined, within such limits, from time to time by
mutual agreement between the Company and each servicing agent and will not
exceed the maximum amounts payable by mutual funds sold by members of the NASD
under Article III, Section 26 of the NASD Rules of Fair Practice.
The Servicing Plan for the Class C shares continues in effect from year
to year if such continuance is approved by a majority vote of both the Directors
of the Company and the Servicing Plan Qualified Directors. Any form of
servicing agreement related to the Servicing Plan also must be approved by such
vote of the Directors and the Servicing Plan Qualified Directors. Servicing
agreements may be terminated at any time, without payment of any penalty, by
vote of a majority of the Servicing Plan Qualified Directors. No material
amendment to the Servicing Plan may be made except by a majority of both the
Directors of the Company and the Servicing Plan Qualified Directors.
The Servicing Plan for the Class C shares requires that the administrator
shall provide to the Directors, and the Directors shall review, at least
quarterly, a written report of the amounts expended (and purposes therefor)
under the Servicing Plan.
Custodian and Transfer and Dividend Disbursing Agent. Wells Fargo Bank
----------------------------------------------------
has been retained to act as custodian and transfer and dividend disbursing agent
for the Fund. The custodian, among other things, maintains a custody account or
accounts in the name of the Fund; receives and delivers all assets for the Fund
upon purchase and upon sale or maturity; collects and receives all income and
other payments and distributions on account of the assets of each Fund and pays
all expenses of each Fund. For its services as custodian, Wells Fargo Bank
receives an asset-based fee and transaction charges from the Fund.
For its services as transfer and dividend disbursing agent for the Class
C shares of the Fund, Wells Fargo Bank is entitled to receive monthly payments
at the annual rate of 0.14% of
10
<PAGE>
the average daily net assets of the Fund's Class C shares. Under the prior
transfer agency agreement, Wells Fargo Bank was entitled to receive a per
account fee plus transaction fees and out-of-pocket related costs with a minimum
of $3,000 per month per Fund, unless net assets of the Fund were under $20
million. For as long as a Fund's assets remained under $20 million, the Fund was
not charged any transfer agency fees.
For the year ended December 31, 1995 and the fiscal period ended
September 30, 1996, the Fund did not pay any custodial fees or transfer and
dividend disbursing agency fees to Wells Fargo Bank.
Underwriting Commissions. For the years ended December 31, 1993 and
------------------------
1994, the Company's distributor retained $26,215,173 and $5,415,227,
respectively in underwriting commissions (front-end sales loads and CDSCs, if
any) in connection with the purchase or redemption of Company shares. For the
years ended December 31, 1993 and 1994, Wells Fargo Securities Inc. ("WFSI"), an
affiliated broker-dealer of the Company, and its registered representatives
received $378,895 and $904,274, respectively, in underwriting commissions in
connection with the purchase or redemption of Company shares.
For the year ended December 31, 1995, the aggregate amount of
underwriting commissions on sales/redemptions of the Company's shares was
$1,584,545. Stephens retained $1,251,311 of such commissions. WFSI and its
registered representatives retained $333,234 of such commissions.
For the period ended September 30, 1996, the aggregate amount of
underwriting commissions 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.
PERFORMANCE CALCULATIONS
The following information supplements and should be read in conjunction
with the Prospectus sections entitled "Determination of Net Asset Value" and
"Performance Data". Performance figures for each class of shares of the Fund
will vary due to different expense levels and front-end or contingent-deferred
sales charges.
Total Return. The Fund may advertise certain total return information
------------
computed in the manner described in its Prospectus. As and to the extent
required by the SEC, an average annual compound rate of return ("T") will be
computed by using the redeemable value at the end of a specified period ("ERV")
of a hypothetical initial investment in a Class of shares ("P") over a period of
years ("n") according to the following formula: P(1+T)n = ERV. In addition, a
Fund that assesses a sales charge, at times, also may calculate total return
based on net asset value per share of each Class (rather than the public
offering price), in which case the figures would not reflect the effect of any
sales charges that would have been paid by an investor, or based on the
assumption that a sales charge other than the maximum sales charge (reflecting a
Volume
11
<PAGE>
Discount) was assessed, provided that total return data derived pursuant
to the calculation described above also are presented.
Cumulative Total Return. The Fund may advertise cumulative total return
-----------------------
on each class of shares. Cumulative total return of shares is computed on a per
share basis and assumes the reinvestment of dividends and distributions.
Cumulative total return of shares generally is expressed as a percentage rate
which is calculated by combining the income and principal changes for a
specified period and dividing by the net asset value per share at the beginning
of the period. Advertisements may include the percentage rate of total return
of shares or may include the value of a hypothetical investment in shares at the
end of the period which assumes the application of the percentage rate of total
return.
In addition to the above performance information, the Fund may also
advertise the cumulative total return of the Fund for one-month, three-month,
six-month, and year-to-date periods. The cumulative total return for such
periods is based on the overall percentage change in value of a hypothetical
investment in the Fund, assuming all Fund dividends and capital gain
distributions are reinvested, without reflecting the effect of any sales charge
that would be paid by an investor, and is not annualized.
Yield Calculations. The Fund may advertise certain yield information on
------------------
its shares. As and to the extent required by the SEC, yield on each class of
shares will be calculated based on a 30-day (or one month) period, computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula: YIELD = 2[((a-b/cd)+1)6-1], where a = dividends and interest
earned during the period; b = expenses accrued for the period (net of
reimbursements); c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and d = the maximum offering
price per share on the last day of the period. The net investment income of a
Fund includes actual interest income, plus or minus amortized purchase discount
(which may include original issue discount) or premium, less accrued expenses.
Realized and unrealized gains and losses on portfolio securities are not
included in a Fund's net investment income. For purposes of sales literature,
yield also may be calculated on the basis of the net asset value per share
rather than the public offering price, provided that the yield data derived
pursuant to the calculation described above also are presented.
The yield on each class of the Fund will fluctuate from time to time,
unlike bank deposits or other investments that pay a fixed yield for a stated
period of time, and does not provide a basis for determining future yields since
it is based on historical data. Yield is a function of portfolio quality,
composition, maturity and market conditions as well as the expenses allocated to
the Fund.
In addition, investors should recognize that changes in the net asset
values of shares of each class of shares of the Fund will affect the yield of
each such class for any specified period, and such changes should be considered
together with the yield of each Class in ascertaining the total return for the
period to shareholders. Yield information for each Class of shares of the Fund
may be useful in reviewing the Fund's performance and for providing a basis for
comparison with
12
<PAGE>
investment alternatives. The yield of each class of the Fund, however, may not
be comparable to the yields from investment alternatives because of differences
in the foregoing variables and differences in the methods used to value
portfolio securities, compute expenses and calculate yield.
From time to time and only to the extent the comparison is appropriate
for a Class of shares of a Fund, the Company may quote the performance or price-
earning ratio of a Class of shares in advertising and other types of literature
as compared to the performance of the Lehman Brothers Municipal Bond Index, the
1-Year Treasury Bill Rate, the S&P Index, the Dow Jones Industrial Average, the
Lehman Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year Treasury Index,
Donoghue's Money Fund Averages, Real Estate Investment Averages (as reported by
the National Association of Real Estate Investment Trusts), Gold Investment
Averages (provided by the World Gold Council), Bank Averages (which is
calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the Federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), Ten Year U.S. Government Bond Average, S&P's
Corporate Bond Yield Averages, Schabacter Investment Management Indices, Salomon
Brothers High Grade Bond Index, Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, other managed or unmanaged indices or
performance data of bonds, stocks or government securities (including data
provided by Ibbotson Associates), or by other services, companies, publications
or persons who monitor mutual funds on overall performance or other criteria.
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stock prices.
The performance of a class of shares of the Fund also may be compared to
those of other mutual funds having similar objectives. This comparative
performance could be expressed as a ranking prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc., Bloomberg Financial Markets
or Morningstar, Inc., independent services which monitor the performance of
mutual funds. The performance of a class of shares of the Fund will be
calculated by relating net asset value per share at the beginning of a stated
period to the net asset value of the investment, assuming reinvestment of all
gains, distributions and dividends paid, at the end of the period. Any such
comparisons may be useful to investors who wish to compare the past performance
of a Class of shares of a Fund with that of its competitors. Of course, past
performance cannot be a guarantee of future results. The Company also may
include, from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
In addition, the Company also may use, in advertisements and other types
of literature, information and statements showing that bank savings accounts
offer a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth. The Company also may include in advertising and
other types of literature information and other data from reports and studies
prepared by the Tax Foundation, including information regarding federal and
state tax levels and the related "Tax Freedom Day."
13
<PAGE>
From time to time the Company may reprint, reference or otherwise use
material from magazines, newsletters, newspapers and books including, but not
limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.
The Company also may disclose in sales literature, information and
statements the distribution rate on the shares of each class of the Funds.
Distribution rate, which may be annualized, is the amount determined by dividing
the dollar amount per share of the most recent dividend by the most recent NAV
or maximum offering price per share as of a date specified in the sales
literature. Distribution rate will be accompanied by the standard 30-day yield
as required by the SEC.
The Company may also disclose in advertising and other types of
literature, information and statements the average credit quality of the Fund's
portfolio, or categories of investments therein, as of a specified date or
period. Average credit quality is calculated on a dollar weighted average basis
based on ratings assigned each issue or issuer, as the case may be, by S&P
and/or Moody's. In the event one rating agency does not rate the issue or
issuer, as the case may be, in the same tier as the other agency, the highest
rating is used in the calculation.
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
a Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in a Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of a Fund or the general economic, business,
investment, or financial environment in which a Fund operates; (iii) the effect
of tax-deferred compounding on the investment returns of a Class of Fund shares,
or on returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in a Class of Fund shares (or returns in general) on a tax-deferred
basis (assuming reinvestment of capital gains and dividends and assuming one or
more tax rates) with the return on a taxable basis; and (iv) the sectors or
industries in which a Fund invests may be compared to relevant indices of stocks
or surveys (e.g., S&P Industry Surveys) to evaluate a Fund's historical
- -
performance or current or potential value with respect to the particular
industry or sector.
The Company also may include, from time to time, a reference to certain
marketing approaches of the Distributor, including, for example, a reference to
a potential shareholder being contacted by a selected broker or dealer.
The Company also may discuss in advertising and other types of literature
that a Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as S&P or Moody's. Such rating would assess
the creditworthiness of the investments held
14
<PAGE>
by a Fund. The assigned rating would not be a recommendation to purchase, sell
or hold a Fund's shares since the rating would not comment on the market price
of the Fund's shares or the suitability of the Fund for a particular investor.
In addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or unavailability of, information relating
to the Fund or its investments. The Company may compare a Fund's performance
with other investments which are assigned ratings by NRSROs. Any such
comparisons may be useful to investors who wish to compare the Fund's past
performance with other rated investments.
From time to time, the Fund may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Stagecoach Funds, provides
various services to its customers that are also shareholders of the Funds.
These services may include access to Stagecoach Funds' account information
through Automated Teller Machines (ATMs), the placement of purchase and
redemption requests for shares of the Funds through ATMs and the availability of
combined Wells Fargo Bank and Stagecoach Funds account statements."
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Fargo Investment Management
("WFIM"), a division of Wells Fargo Bank, is listed in the top 100 by
Institutional Investor magazine in its July 1996 survey "America's Top 300 Money
Managers." This survey ranks money managers in several asset categories. The
Company also may disclose in advertising and other types of sales literature the
assets and categories of assets under management by the Company's investment
adviser. The Company may also disclose in advertising and other types of sales
literature the assets and categories of assets and mutual fund assets managed
by Wells Fargo Bank. As of April 1, 1997, Wells Fargo Bank and its affiliates
provided investment advisory services for approximately $57 billion of assets of
individuals, trusts, estates and institutions.
The Company may disclose in advertising and other types of literature
that investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
15
<PAGE>
DETERMINATION OF NET ASSET VALUE
Net asset value per class of shares of the Fund is determined by the
Custodian of the Fund on each day the New York Stock Exchange ("NYSE") is open
for trading as of the close of regular trading on the NYSE, which is currently
1:00 p.m. Pacific time.
Securities of the Fund for which market quotations are available are
valued at latest prices. Securities of the Fund for which the primary market is
a national securities exchange or the National Association of Securities Dealers
Automated Quotations National Market System are valued at last sale prices. In
the absence of any sale of such securities on the valuation date and in the case
of other securities, including U.S. Government securities but excluding money
market instruments maturing in 60 days or less, the valuations are based on
latest quoted bid prices. Money market instruments maturing in 60 days or less
are valued at amortized cost. Futures contracts will be marked to market daily
at their respective settlement prices determined by the relevant exchange.
These prices are not necessarily final closing prices, but are intended to
represent prices prevailing during the final 30 seconds of the trading day.
Options listed on a national exchange are valued at the last sale price on the
exchange on which they are traded at the close of the NYSE, or, in the absence
of any sale on the valuation date, at latest quoted bid prices. Options not
listed on a national exchange are valued at latest quoted bid prices. Debt
securities maturing in 60 days or less are valued at amortized cost. In all
cases, bid prices will be furnished by a reputable independent pricing service
approved by the Board of Directors. Prices provided by an independent pricing
service may be determined without exclusive reliance on quoted prices and may
take into account appropriate factors such as institutional-size trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data. All other securities and
other assets of the Fund for which current market quotations are not readily
available are valued at fair value as determined in good faith by the Company's
Board of Directors and in accordance with procedures adopted by the Directors.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund may be purchased on any day the Fund is open for
business. The Fund is open for business each day the NYSE is open for trading
(a "Business Day"). Currently, the NYSE is closed on New Year's Day, Martin
Luther King, Jr., Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any
Holiday falls on a weekend, the NYSE typically is closed on the weekday
immediately before or after such Holiday.
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 Prospectus. 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)
16
<PAGE>
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 a Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policies
established by the Company's Board of Directors, Wells Fargo Bank is responsible
for the Fund's portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Company to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo Bank generally seeks
reasonably competitive spreads or commissions, the Fund will not necessarily be
paying the lowest spread or commission available.
Purchases and sales of securities usually will be principal transactions.
Portfolio securities normally will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. The Fund also will
purchase portfolio securities in underwritten offerings and may purchase
securities directly from the issuer. Generally, money market securities, ARMS
and CMOs are traded on a net basis and do not involve brokerage commissions.
The cost of executing the Fund's portfolio securities transactions will consist
primarily of dealer spreads and underwriting commissions. Under the 1940 Act,
persons affiliated with the Company are prohibited from dealing with the Company
as a principal in the purchase and sale of securities unless an exemptive order
allowing such transactions is obtained from the SEC or an exemption is otherwise
available.
17
<PAGE>
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 a 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 a Fund's investment programs. Research services received
from brokers supplement Wells Fargo Bank's own research and may include the
following types of information: statistical and background information on
industry groups and individual companies; forecasts and interpretations with
respect to U.S. and foreign economies, securities, markets, specific industry
groups and individual companies; information on political developments;
portfolio management strategies; performance information on securities and
information concerning prices of securities; and information supplied by
specialized services to Wells Fargo Bank and to the Company's Directors with
respect to the performance, investment activities and fees and expenses of other
mutual funds. Such information may be communicated electronically, orally or in
written form. Research services may also include the providing of equipment
used to communicate research information, the arranging of meetings with
management of companies and the providing of access to consultants who supply
research information.
The outside research assistance is useful to Wells Fargo Bank since the
brokers utilized by Wells Fargo Bank as a group tend to follow a broader
universe of securities and other matters than the staff of Wells Fargo Bank can
follow. In addition, this research provides Wells Fargo Bank with a diverse
perspective on financial markets. Research services which are provided to Wells
Fargo Bank by brokers are available for the benefit of all accounts managed or
advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank that this
material is beneficial in supplementing their research and analysis; and,
therefore, it may benefit the Fund by improving the quality of Wells Fargo
Bank's investment advice. The advisory fees paid by the Fund is not reduced
because Wells Fargo Bank receives such services.
Brokerage Commissions. For the years ended December 31, 1993, 1994 and
---------------------
1995, and the period ended September 30, 1996, the Fund did not pay any
brokerage commissions.
Securities of Regular Broker/Dealers. As of September 30, 1996, the Fund
------------------------------------
owned securities of its "regular brokers or dealers" or their parents as defined
in the Act, as follows:
18
<PAGE>
<TABLE>
<CAPTION>
Fund Amount Regular Broker/Dealer
- ---- ------ ---------------------
<S> <C> <C>
Ginnie Mae $4,475,000 Goldman Sachs & Co.
</TABLE>
Portfolio Turnover Rate. The higher portfolio turnover rates for the
-----------------------
Fund should not adversely affect it because portfolio transactions ordinarily
are made directly with principals on a net basis and, consequently, the Fund
usually does not incur brokerage expenses. Portfolio turnover rate is not a
limiting factor when Wells Fargo Bank deems portfolio changes appropriate.
FUND EXPENSES
Except for the expenses borne by Wells Fargo Bank and Stephens, the
Company bears all costs of its operations, including the compensation of its
Directors who are not affiliated with Stephens or Wells Fargo Bank or any of
their affiliates; advisory, shareholder servicing and administration fees;
payments pursuant to any Plan; interest charges; taxes; fees and expenses of its
independent accountants, legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming shares; expenses of preparing and printing
prospectuses (except the expense of printing and mailing prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of its
custodian, including those for keeping books and accounts and calculating the
NAV per share of a Fund; expenses of shareholders' meetings; expenses relating
to the issuance, registration and qualification of Fund shares; pricing
services, and any extraordinary expenses. Expenses attributable to a Fund are
charged against a Fund's assets. General expenses of the Company are allocated
among all of the funds of the Company, including a Fund, in a manner
proportionate to the net assets of the Fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.
FEDERAL INCOME TAXES
In General. The following information supplements and should be read in
----------
conjunction with Prospectus sections entitled "Dividend and Capital Gain
Distributions" and "Taxes." The Prospectus generally describe the tax treatment
of distributions by the Fund. This section of the SAI includes additional
information concerning federal income taxes.
The Company intends to qualify the Fund as a regulated investment company
under Subchapter M of the Code as long as such qualification is in the best
interest of the Fund's shareholders. The Fund will be treated as a separate
entity for tax purposes and thus the provisions of the Code applicable to
regulated investment companies will generally be applied to the Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for the Fund.
19
<PAGE>
Qualification as a regulated investment company under the Code requires,
among other things, that (a) the Fund derive at least 90% of its annual gross
income from interest, payments with respect to securities loans, dividends and
gains from the sale or other disposition of securities or options thereon; (b)
the Fund derive less than 30% of its gross income from gains from the sale or
other disposition of securities or options thereon held for less than three
months; and (c) the Fund diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash, government securities and other securities
limited in respect of any one issuer to an amount not greater than 5% of each
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 obligation and the securities of
other regulated investment companies), or in two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades or
businesses. As a regulated investment company, the Fund will not be subject to
federal income tax on its net investment income and net capital gains
distributed to its shareholders, provided that it distributes to its
shareholders at least 90% of its net investment income, including net tax-exempt
income, earned in each year. The Fund intends to pay out substantially all of
its net investment income and net realized capital gains (if any) for each year.
A 4% nondeductible excise tax will be imposed on the Fund to the extent
it does not meet certain minimum distribution requirements by the end of each
calendar year. The Fund will either actually or be deemed to distribute all of
its net investment income and net capital gains by the end of each calendar year
and, thus, expects not to be subject to the excise tax.
Income and dividends received by the Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Although in some circumstances a regulated
investment company can elect to "pass through" foreign tax credits to its
shareholders, the Fund does not expect to be eligible to make such an election.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.60% (marginal rates may
be higher for some individuals due to phase out of exemptions and elimination of
deductions); the maximum individual tax rate applicable to net capital gains is
28.00%; and the maximum corporate tax rate applicable to ordinary income and net
capital gains is 35.00% (except that to eliminate the benefit of lower marginal
corporate income tax rates, corporations which have taxable income in excess of
$100,000 for a taxable year will be required to pay an additional amount of
income tax of up to $11,750 and corporations which have taxable income in excess
of $15,000,000 for a taxable year will be required to pay an additional amount
of tax of up to $100,000). Naturally, the amount of tax payable by an
individual or corporation will be affected by a combination of tax laws
covering, for example, deductions, credits, deferrals, exemptions, sources of
income and other matters.
Capital Gain Distributions. To the extent that the Fund recognizes long-
--------------------------
term capital gains, such gains will be distributed at least annually and these
distributions will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held Fund shares. Such distributions
will be designated as capital gain distributions in a written notice
20
<PAGE>
mailed by the Fund to shareholders not later than 60 days after the close of the
Fund's taxable year.
Other Distributions. Although dividends by the Fund 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.
Disposition of Fund Shares. If a shareholder receives a designated
--------------------------
capital gain distribution (to be treated by the shareholder as a long-term
capital gain) and such Fund share is held for six months or less, then (unless
otherwise disallowed) any loss on the sale or exchange of that Fund share will
be treated as a long-term capital loss to the extent of the designated capital
gain distribution.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or of a different regulated investment company,
the sales charge previously incurred acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are reacquired within the 61-day
period beginning 30 days before and ending 30 days after the shares are disposed
of.
Taxation of Fund Investments. Gains or losses on sales of portfolio
----------------------------
securities by the Fund will generally be long-term capital gains or losses if
the securities have been held by it for more than one year, except in certain
cases such as where the Fund acquires a put or writes a call thereon. Gains
recognized on the disposition of a debt obligation (including tax-exempt
obligations purchased after April 30, 1993) purchased by a Fund at a market
discount (generally at a price less than its principal amount) will be treated
as ordinary income to the extent of the portion of market discount which accrued
during the period of time the Fund held the debt obligation. Other gains or
losses on the sale of portfolio securities will be short-term capital gains or
losses.
If the Fund purchases shares in a "passive foreign investment company"
("PFIC"), it may be subject to federal income tax and an interest charge imposed
by the IRS upon certain distributions from the PFIC or the Fund's disposition of
PFIC shares. If the Fund invests in a PFIC, the Fund intends to make an
available election to mark-to-market its interest in PFIC shares. Under the
election, the Fund will be treated as recognizing at the end of each taxable
year
21
<PAGE>
the excess, if any, of the fair market value of its interest in PFIC shares over
its basis in such shares. Although such excess will be taxable to the Fund as
ordinary income notwithstanding any distributions by the PFIC, the Fund will not
be subject to federal income tax or the interest charge with respect to its
interest in the PFIC.
Foreign Shareholders. Under the Code, distributions of net investment
--------------------
income by the Fund to a nonresident alien individual, nonresident alien
fiduciary of a trust or estate, foreign corporation, or foreign partnership (a
"foreign shareholder") will be subject to U.S. withholding tax (at a rate of 30%
or a lower treaty rate). Withholding will not apply if a dividend paid by each
Fund to a foreign shareholder is "effectively connected" with a U.S. trade or
business, in which case the reporting and withholding requirements applicable to
U.S. citizens, U.S. residents or domestic corporations will apply.
Distributions of net long-term capital gains are not subject to tax withholding,
but, in the case of a foreign shareholder who is a nonresident alien individual,
such distributions ordinarily will be subject to U.S. income tax at a rate of
30% if the individual is physically present in the U.S. for more than 182 days
during the taxable year.
Backup Withholding. The Company may be required to withhold, subject to
------------------
certain exemptions, at a rate of 31% ("backup withholding") on dividends,
capital gain distributions, and redemption proceeds (including proceeds from
exchanges and redemptions in kind) paid or credited to an individual Fund
shareholder, unless a shareholder certifies that the Taxpayer Identification
Number ("TIN") provided is correct and that the shareholder is not subject to
backup withholding, or the IRS notifies the Company that the shareholder's TIN
is incorrect or the shareholder is subject to backup withholding. Such tax
withheld does not constitute any additional tax imposed on the shareholder, and
may be claimed as a tax payment on the shareholder's federal income tax return.
An investor must provide a valid TIN upon opening or reopening an account.
Failure to furnish a valid TIN to the Company could subject the investor to
penalties imposed by the IRS.
Other Matters. Investors should be aware that the investments to be made
-------------
by the Fund may involve sophisticated tax rules that may result in income or
gain recognition by the Fund without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Fund, in which case the Fund may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the prospectus applicable
to each shareholder address only some of the federal tax considerations
generally affecting investments in the Fund. Each investor is urged to consult
his or her tax advisor regarding specific questions as to federal, state or
local taxes and foreign taxes.
22
<PAGE>
CAPITAL STOCK
The Fund is one of the funds of the Stagecoach Family of Funds. The
Company was organized as a Maryland corporation on September 9, 1991 and
currently offers shares of more than twenty-five funds.
Most of the Company's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, a class subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Company's funds also are authorized to
issue other classes of shares, which are sold primarily to institutional
investors. Each class of shares in 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 class of shares of a Fund,
means the vote of the lesser of (i) 67% of the shares of the class represented
at a meeting if the holders of more than 50% of the outstanding shares of the
class are present in person or by proxy, or (ii) more than 50% of the
outstanding shares of the class of the Fund. As used in the Prospectus and in
this SAI, the term "majority," when referring to approvals to be obtained from
shareholders of the Fund, means the vote of the lesser of (i) 67% of the shares
of the Fund represented at a meeting if the holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of the Fund. The term "majority," when
referring to the approvals to be obtained from shareholders of the Company as a
whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held.
The Company may dispense with an annual meeting of shareholders in any
year in which it is not required to elect Directors under the 1940 Act.
23
<PAGE>
Each share represents an equal proportional interest in the Fund with
each other share in the same class of shares and is entitled to such dividends
and distributions out of the income earned on the assets belonging to the Fund
as are declared in the discretion of the Directors. In the event of the
liquidation or dissolution of the Company, shareholders of a Fund are entitled
to receive the assets attributable to the Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular investment portfolio that are available for distribution in such
manner and on such basis as the Directors in their sole discretion may
determine.
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and non-assessable by the Company.
As of July 31, 1997, no shareholders were known by the Company to own 5%
or more of the outstanding Class C shares of the Fund. Set forth below is the
name, address and share ownership of each person known by the Company to have
beneficial or record ownership of 5% or more of a class of the Fund or 5% or
more of the voting securities of the Fund as a whole.
5% OWNERSHIP AS OF JANUARY 2, 1997
<TABLE>
<CAPTION>
Name and Class; Type Percentage Percentage
Fund Address of Ownership of Class of Fund
------ ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Ginnie Mae Wells Fargo Bank Class A 33.01% 27.52%
P.O. Box 63015 Beneficially
San Francisco, CA 94163 Owned
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
-------------------------------
holder of more than 25% of a class (or Fund), or is identified as the holder of
- --------------------------------------------
record of more than 25% of a class (or Fund) and has voting and/or investment
-----------------
powers, it may be presumed to control such class (or Fund).
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 a Prospectus or the SAI as
to the contents of any contract or other document referred to herein or in a
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
24
<PAGE>
SAI APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate bonds and commercial paper.
Corporate Bonds
- ---------------
Moody's: The four highest ratings for corporate bonds are "Aaa," "Aa,"
-------
"A" and "Baa." Bonds rated "Aaa" are judged to be of the "best quality" and
carry the smallest amount of investment risk. Bonds rated "Aa" are of "high
quality by all standards," but margins of protection or other elements make
long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds rated "A"
possess many favorable investment attributes and are considered to be upper
medium grade obligations. Bonds rated "Baa" are considered to be medium grade
obligations; interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1, 2
and 3 in each rating category from "Aa" through "Baa" in its rating system. The
modifier 1 indicates that the security ranks in the higher end of its category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end.
S&P: The four highest ratings for corporate bonds are "AAA," "AA," "A"
---
and "BBB." Bonds rated "AAA" have the highest ratings assigned by S&P and have
an extremely strong capacity to pay interest and repay principal. Bonds rated
"AA" have a "very strong capacity to pay interest and repay principal" and
differ "from the highest rated issued only in small degree." Bonds rated "A"
have a "strong capacity" to pay interest and repay principal, but are "somewhat
more susceptible" to adverse effects of changes in economic conditions or other
circumstances than bonds in higher rated categories. Bonds rated "BBB" are
regarded as having an "adequate capacity" to pay interest and repay principal,
but changes in economic conditions or other circumstances are more likely to
lead to a "weakened capacity" to make such repayments. The ratings from "AA" to
"BBB" may be modified by the addition of a plus or minus sign to show relative
standing within the category.
Corporate Commercial Paper
- --------------------------
Moody's: The highest rating for corporate commercial paper is "P-1"
-------
(Prime-1). Issuers rated "P-1" have a "superior capacity for repayment of
short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate commercial paper indicates that the
---
"degree of safety regarding timely payment is either overwhelming or very
strong." Commercial paper with "overwhelming safety characteristics" will be
rated "A-1+." Commercial paper with a strong capacity for timely payments on
issues will be rated "A-2."
A-1
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated October 6, 1997
PRIME MONEY MARKET MUTUAL FUND
TREASURY MONEY MARKET MUTUAL FUND
Administrative Class
---------------------------------------------------------------
Stagecoach Funds, Inc. (the "Company") is an open-end, series investment
company. This Statement of Additional Information ("SAI") contains additional
information Administrative Class shares offered in the Prime Money Market Mutual
Fund and the Treasury Money Market Mutual Fund (each a "Fund" and together, the
"Funds") of the Stagecoach Family of Funds. The Funds also offer Class A,
Institutional Class and Service Class shares. The investment objective of each
Fund is described in its Prospectus under the section entitled "How the Funds
Work -- Investment Objectives and Policies."
This SAI is not a prospectus and should be read in conjunction with each
Fund's Prospectus dated October 6, 1997. All terms used in this SAI that are
defined in the Prospectus for each Fund will have the meanings assigned in that
Fund's Prospectus. A copy of the Prospectus for each Fund may be obtained
without charge by writing Stephens Inc. ("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.............................. 5
Management.............................................................. 8
Performance Calculations................................................ 14
Determination of Net Asset Value........................................ 17
Additional Purchase and Redemption Information.......................... 18
Portfolio Transactions.................................................. 19
Fund Expenses........................................................... 21
Federal Income Tax...................................................... 22
Capital Stock........................................................... 25
Other................................................................... 26
Independent Auditors.................................................... 27
Financial Information................................................... 27
Appendix................................................................ A-1
Financial Statements.................................................... F-1
</TABLE>
i
<PAGE>
GENERAL
Stagecoach Funds, Inc. (the "Company" and, at times, "Stagecoach") is an
open-end management investment company offering shares in separately managed
investment portfolios.
The Prime Money Market Mutual Fund operated as Pacific American Liquid
Assets, Inc. from commencement of operations on April 30, 1981 until it was
reorganized as a portfolio of Pacific American Fund on October 1, 1985; on
October 1, 1994, it was reorganized as the Pacific American Money Market
Portfolio of Pacifica Funds Trust ("Pacifica"); and, in July of 1995, it was
renamed the Pacifica Prime Money Market Fund.
Prior to August 1, 1990, the Treasury Money Market Mutual Fund was known as
the Short-Term Government Fund and invested in obligations issued or guaranteed
by agencies and instrumentalities of the U.S. Government in accordance with
fundamental policies that were then effective for the Fund. The Fund operated
as a portfolio of Pacific American Fund through October 1, 1994, when it was
reorganized as the Pacific American U.S. Treasury Portfolio, a portfolio of
Pacifica. In July of 1995, the Fund was renamed the Pacifica Treasury Money
Market Fund.
An Agreement and Plan of Reorganization by and between Pacifica and the
Company was approved by the Company's Board of Directors on April 25, 1996, and
was approved by Pacifica's Board of Trustees on May 17, 1996. The
Reorganization became effective on September 6, 1996 (the "Reorganization").
Each of the following portfolios of Pacifica was reorganized as the specified
Stagecoach Fund:
<TABLE>
<CAPTION>
Pacifica Portfolio Name Stagecoach Fund Name
----------------------- --------------------
<S> <C>
Pacifica Prime Money Market Fund Prime Money Market Mutual Fund
Pacifica Treasury Money Market Fund Treasury Money Market Mutual Fund
</TABLE>
INVESTMENT RESTRICTIONS
The Prospectuses summarize certain fundamental investment restrictions of the
Funds. All of the Funds' restrictions are stated in full herein and cannot be
changed, with respect to a Fund, without approval by the holders of a majority,
as defined in the 1940 Act, of the Fund's outstanding voting shares.
Fundamental Investment Policies.
-------------------------------
The Funds are subject to the following investment restrictions, all of which
are fundamental policies, unless expressly indicated otherwise.
1
<PAGE>
The Funds may not:
------------------
1. Purchase common stocks, and with respect to the Treasury Money Market
Mutual Fund, voting securities, (with respect to the Prime Money Market Mutual
Fund including preferred stocks, warrants or other equity securities and, with
respect to the Treasury Money Market Mutual Fund, including state, municipal or
industrial revenue bonds) except for securities of other investment companies.
2. Borrow money or issue senior securities, except that a Fund may borrow
from banks or enter into reverse repurchase agreements for temporary purposes in
amounts of up to one-third of the value of its total assets at the time of such
borrowing. Neither Fund will purchase securities while its borrowings (including
reverse repurchase agreements) in excess of 5% of its total assets are
outstanding. As a matter of non-fundamental policy, each Fund intends to limit
its investments in reverse repurchase agreements to no more than 20% of its
total assets and will only engage in such transactions with primary reporting
dealers.
3. Mortgage, pledge, or hypothecate any assets, except in connection with
any such borrowing and in amounts not in excess of one-third of the value of a
Fund's total assets at the time of its borrowing. Securities held in escrow or
separate accounts in connection with a Fund's investment practices are not
deemed to be pledged for purposes of this investment restriction.
4. Purchase securities on margin, except for delayed delivery or when-issued
transactions or such short-term credits as are necessary for the clearance of
transactions; or make short sales of securities or, for the Treasury Money
Market Mutual Fund, maintain a short position.
5. Write put or call options.
6. Underwrite the securities of other issuers, except as a Fund may be
deemed to be an underwriter in connection with the purchase or sale of portfolio
instruments in accordance with its investment objective and portfolio management
policies.
7. Invest in companies for the purpose of exercising control.
8. Make loans, except that a Fund may purchase or hold debt instruments in
accordance with its investment objective and policies and may enter into loans
of portfolio securities and repurchase agreements.
9. Invest in securities of other investment companies, except as they may be
acquired as part of a merger, consolidation, acquisition of assets or where
otherwise permitted by the 1940 Act.
10. Lend its portfolio securities in excess of one-third of the value of its
total assets.
As a non-fundamental policy, any loans of portfolio securities will be made
according to guidelines established by the SEC and the Company's Board of
Directors, including maintenance
2
<PAGE>
of collateral of the borrower equal at all times to at least the current market
value of the securities loaned.
11. Purchase the securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities (with
respect to the Treasury Money Market Mutual Fund, such obligations only include
U.S. Treasury obligations) and repurchase agreements secured by such
obligations, if immediately after such purchase more than 5% of the value of a
Fund's total assets would be invested in such issuer, except that up to 25% of
the value of its total assets may be invested in any securities without regard
to this 5% limitation.
12. Purchase any securities that cause 25% or more of the value of a Fund's
total assets at the time of purchase to be invested in the securities of one or
more issuers conducting their principal business activities in the same
industry, provided that there is no limitation with respect to: (a) instruments
that are issued or guaranteed by the United States, any state, territory or
possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions; (b) with
respect to the Prime Money Market Mutual Fund, instruments issued or guaranteed
by U.S. banks and U.S. branches of foreign banks (provided that, with respect to
U.S. branches of foreign banks, such branches are subject to the same
regulations as domestic branches of U.S. banks and, with respect to foreign
branches of U.S. banks, the domestic parent is unconditionally liable in the
event that the foreign branch fails to pay on its instruments for any reason);
and (c) repurchase agreements secured by the instruments described in clause (a)
and, with respect to the Prime Money Market Mutual Fund, clause (b).
The Prime Money Market Mutual Fund may not:
-------------------------------------------
Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil or gas interests, but this
restriction shall not prevent the Fund from investing directly or indirectly in
instruments secured by real estate or interests therein.
The Treasury Money Market Mutual Fund may not:
---------------------------------------------
1. Purchase or sell real estate.
2. Purchase or sell commodity contracts, or invest in oil, gas or mineral
exploration or development programs.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
a Fund's investments will not constitute a violation of such limitation, except
that any borrowing by a Fund that exceeds the fundamental investment limitations
stated above must be reduced to meet such limitations within the period required
by the 1940 Act (currently three days) and the Funds will not at any time hold
more than 15% of their net assets in illiquid securities. Otherwise, a Fund may
continue to hold a security
3
<PAGE>
even though it causes the Fund to exceed a percentage limitation because of
fluctuation in the value of the Fund's assets.
In addition, in accordance with current SEC regulations, the Funds intend, as
a non-fundamental policy, to limit their respective investments in the
securities of any single issuer (other than securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agreements
collateralized by such securities) to not more than 5% of the value of their
respective total assets at the time of purchase, except for 25% of the value of
their respective total assets which may be invested in any one issuer for a
period of up to three business days.
The Company may make commitments more restrictive than the restrictions
listed above so as to permit the sale of Fund shares in certain states. Should
the Company determine that such a commitment is no longer in the best interests
of the Fund involved and its shareholders, the Company reserves the right to
revoke the commitment by terminating the sale of Fund shares in the state
involved.
Pursuant to state securities regulations, the Treasury Money Market Mutual
Fund has undertaken the following non-fundamental investment limitation: the
Fund will not purchase warrants, valued at the lower of cost or market, in
excess of 5% of the value of its net assets (included within that amount, but
not to exceed 2% of the value of the Fund's net assets, may be warrants that are
not listed on the New York or American Stock Exchanges) except that warrants
acquired by the Fund at any time in units or attached to securities are not
subject to this limitation. Investors should note, however, that neither Fund
currently intends to purchase any warrants whatsoever, or to acquire any put
option that may be sold, transferred or assigned separately from the underlying
security.
As a non-fundamental investment policy: each Fund currently intends to limit
its investments in securities issued by other investment companies so that, as
determined immediately after a purchase of such securities is made: (i) not more
than 5% of the value of the Fund's total assets will be invested in the
securities of any one investment company; (ii) not more than 10% of the value of
its total assets will be invested in the aggregate in securities of investment
companies as a group; and (iii) not more than 3% of the outstanding voting
securities of any one investment company will be owned by a Fund or by the
Company as a whole.
For purposes of determining industry classifications of issuers, wholly-owned
finance companies will be considered to be in the industries of their parents if
their activities are primarily related to financing the activities of the
parents, and utilities will be classified according to their services (for
example, gas, gas transmission, electric and gas, and electric and telephone
each will be considered a separate industry). In accordance with the current
views of the staff of the SEC and as a matter of non-fundamental policy that may
be changed without a vote of shareholders, a Fund will treat all supranational
organizations as a single industry and each foreign government (and all of its
agencies) as a separate industry.
4
<PAGE>
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
A description of the securities in which each of the Funds may invest is set
forth in their Prospectuses, to which reference is hereby made. Additional
information about these instruments follows.
Loans of Portfolio Securities. The Prime Money Market Mutual Fund may lend
------------------------------
its securities to brokers, dealers and financial institutions, provided (1) the
loan is secured continuously by collateral consisting of cash, U.S. Treasury
securities, or other U.S. Government securities or a letter of credit which is
marked to market daily to ensure that each loan is fully collateralized at all
times; (2) the Fund may at any time call the loan and obtain the return of the
securities loaned within five business days; (3) the Fund will receive any
interest or dividends paid on the securities loaned; and (4) the aggregate
market value of securities loaned will not at any time exceed one-third of the
total assets of the Fund. The Fund may earn income in connection with securities
loans either through the reinvestment of the cash collateral or the payment of
fees by the borrower. The Treasury Money Market Mutual Fund does not currently
intend to lend its portfolio securities.
Repurchase Agreements. Each Fund may engage in repurchase agreements with
----------------------
respect to any security in which that Fund is authorized to invest, including
U.S. Treasury STRIPS, although the underlying security may mature in more than
thirteen months. Each Fund may enter into repurchase agreements wherein the
seller of a security to the Fund agrees to repurchase that security from the
Fund at a mutually agreed-upon time and price that involves the acquisition by a
Fund of an underlying debt instrument, subject to the seller's obligation to
repurchase, and such Fund's obligation to resell, the instrument at a fixed
price usually not more than one week after its purchase. The Fund's custodian
has custody of, and holds in a segregated account, securities acquired as
collateral by a Fund under a repurchase agreement. Repurchase agreements are
considered by the staff of the SEC to be loans by the Fund. The Funds may enter
into repurchase agreements only with respect to securities of the type in which
such Fund may invest, including government securities and mortgage-related
securities, regardless of their remaining maturities, and requires that
additional securities be deposited with the custodian if the value of the
securities purchased should decrease below resale price. Wells Fargo Bank
monitors on an ongoing basis the value of the collateral to assure that it
always equals or exceeds the repurchase price. Certain costs may be incurred by
a Fund in connection with the sale of the underlying securities if the seller
does not repurchase them in accordance with the repurchase agreement. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the securities, disposition of the securities by a Fund may be delayed or
limited. While it does not presently appear possible to eliminate all risks
from these transactions (particularly the possibility of a decline in the market
value of the underlying securities, as well as delay and costs to a Fund in
connection with insolvency proceedings), it is the policy of each Fund to limit
repurchase agreements to selected creditworthy securities dealers or domestic
banks or other recognized financial institutions. Each Fund considers on an
ongoing basis the creditworthiness of the institutions with which it enters into
repurchase agreements. Repurchase agreements are considered to be loans by a
Fund under the Investment Company Act of 1940 (the "1940 Act").
5
<PAGE>
Floating- and Variable-Rate Obligations. The Funds may purchase floating- and
----------------------------------------
variable-rate obligations as described in the prospectuses. Each Fund may
purchase floating- and variable-rate demand notes and bonds, which are
obligations ordinarily having stated maturities in excess of thirteen months,
but which permit the holder to demand payment of principal at any time, or at
specified intervals not exceeding thirteen months. Variable-rate demand notes
include master demand notes that are obligations that permit a Fund to invest
fluctuating amounts, which may change daily without penalty, pursuant to direct
arrangements between the Fund, as lender, and the borrower. The interest rates
on these notes fluctuate from time to time. The issuer of such obligations
ordinarily has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the obligations plus accrued
interest upon a specified number of days' notice to the holders of such
obligations. The interest rate on a floating-rate demand obligation is based on
a known lending rate, such as a bank's prime rate, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable-rate demand
obligation is adjusted automatically at specified intervals. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no established
secondary market for these obligations, although they are redeemable at face
value. Accordingly, where these obligations are not secured by letters of
credit or other credit support arrangements, a Fund's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand. Such obligations frequently are not rated by credit rating agencies and
each Fund may invest in obligations which are not so rated only if Wells Fargo
Bank determines that at the time of investment the obligations are of comparable
quality to the other obligations in which such Fund may invest. Wells Fargo
Bank, on behalf of each Fund, considers on an ongoing basis the creditworthiness
of the issuers of the floating- and variable-rate demand obligations in such
Fund's portfolio. No Fund will invest more than 10% of the value of its total
net assets in floating- or variable-rate demand obligations whose demand feature
is not exercisable within seven days. Such obligations may be treated as liquid,
provided that an active secondary market exists.
Forward Commitments, When-Issued Purchases and Delayed-Delivery Transactions.
----------------------------------------------------------------------------
Each Fund may purchase securities on a when-issued or forward commitment
(sometimes called a delayed-delivery) basis, which means that the price is fixed
at the time of commitment, but delivery and payment ordinarily take place a
number of days after the date of the commitment to purchase. A Fund will make
commitments to purchase such securities only with the intention of actually
acquiring the securities, but the Fund may sell these securities before the
settlement date if it is deemed advisable. The Funds will not accrue income in
respect of a security purchased on a forward commitment basis prior to its
stated delivery date.
Securities purchased on a when-issued or forward commitment basis and certain
other securities held in a Fund's investment portfolio are subject to changes in
value (both generally changing in the same way, i.e., appreciating when interest
rates decline and depreciating when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Securities purchased on a when-
issued or forward commitment basis may expose the relevant Fund to risk because
they may experience
6
<PAGE>
such fluctuations prior to their actual delivery. Purchasing securities on a
when-issued or forward commitment basis can involve the additional risk that the
yield available in the market when the delivery takes place actually may be
higher than that obtained in the transaction itself. A segregated account of
each Fund consisting of cash or U.S. Government obligations or other high
quality liquid debt securities at least equal at all times to the amount of the
when-issued or forward commitments will be established and maintained at the
Funds' custodian bank. Purchasing securities on a forward commitment basis when
a Fund is fully or almost fully invested may result in greater potential
fluctuation in the value of such Fund's total net assets and its net asset value
per share. In addition, because a Fund will set aside cash and other high
quality liquid debt securities as described above the liquidity of the Fund's
investment portfolio may decrease as the proportion of securities in the Fund's
portfolio purchased on a when-issued or forward commitment basis increases.
The value of the securities underlying a when-issued purchase or a forward
commitment to purchase securities, and any subsequent fluctuations in their
value, is taken into account when determining a Fund's net asset value starting
on the day the Fund agrees to purchase the securities. A Fund does not earn
interest on the securities it has committed to purchase until they are paid for
and delivered on the settlement date. When a Fund makes a forward commitment to
sell securities it owns, the proceeds to be received upon settlement are
included in the Fund's assets, and fluctuations in the value of the underlying
securities are not reflected in the Fund's net asset value as long as the
commitment remains in effect.
Rule 144A. It is possible that unregistered securities, purchased by the
----------
Prime Money Market Mutual Fund in reliance upon Rule 144A under the Securities
Act of 1933, could have the effect of increasing the level of the Fund's
illiquidity to the extent that qualified institutional buyers become, for a
period, uninterested in purchasing these securities.
General. The assets of each of the Funds consist only of obligations
--------
maturing within thirteen months from the date of acquisition (as determined in
accordance with the regulations of the SEC), and the dollar-weighted average
maturity of each Fund may not exceed 90 days.
The securities in which each Fund may invest will not yield as high a level
of current income as may be achieved from securities with less liquidity and
less safety. There can be no assurance that each Fund's investment objective
will be realized as described in its Prospectuses.
Subsequent to its purchase by a Fund, a rated security may cease to be rated
or its rating may be reduced below the minimum rating required for purchase by
the Fund. The Board of Directors or the Investment Adviser, pursuant to
guidelines established by the Board, will consider such an event in determining
whether the Fund involved should continue to hold the security in accordance
with the interests of the Fund and applicable regulations of the SEC.
7
<PAGE>
MANAGEMENT
The following information supplements and should be read in conjunction with
the Prospectus section entitled "The Funds and Management." The principal
occupations during the past five years of the Directors and principal executive
Officer of the Company are listed below. The address of each, unless otherwise
indicated, is 111 Center Street, Little Rock, Arkansas 72201. Directors deemed
to be "interested persons" of the Company for purposes of the 1940 Act are
indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 46 Director, Chairman and Executive Vice President
President of Stephens; Manager of
Financial Services Group;
President of Stephens
Insurance Services Inc.;
Senior Vice President of
Stephens Sports
Management Inc.; and
President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of
321 Beechcliff Court Finance of the School of
Winston-Salem, NC 27104 Business and Accounting
at Wake Forest University
since 1982.
Joseph N. Hankin, 57 Director President of Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; Adjunct Professor
(appointed as of September of Columbia University
6, 1996) Teachers College since
1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 79 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor;
4 Beaufain Street Chairman of Home Account
Charleston, SC 29401 Network, Inc.; Real
Estate Developer;
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
Officer, Secretary and Services Group of
Treasurer Stephens; Director of
Stephens Sports
Management Inc.; and
Director of Capo Inc.
</TABLE>
8
<PAGE>
COMPENSATION TABLE
Year Ended March 31, 1997
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
from Registrant and Fund Complex
--------------- ----------------
Name and Position
- -----------------
<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>
Directors of the Company are compensated annually by the Company and by all
the registrants in each fund complex they serve as indicated above and also are
reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company, Overland Express Funds, Inc., Stagecoach Trust, Life &
Annuity Trust and Master Investment Trust are considered to be members of the
same fund complex as such term is defined in Form N-1A under the 1940 Act (the
"Wells Fargo Fund Complex"). MasterWorks Funds Inc., Master Investment
Portfolio, and Managed Series Investment Trust together form a separate fund
complex (the "BGFA Fund Complex"). Each of the Directors and Officers of the
Company serves in the identical capacity as directors and officers or as
trustees and/or officers of each registered open-end management investment
company in both the Wells Fargo and BGFA Fund Complexes, except for Joseph N.
Hankin, who only serves the aforementioned members of the Wells Fargo Fund
Complex, and Zoe Ann Hines who, after September 6, 1996, only serves the
aforementioned members of the BGFA Fund Complex. The Directors are compensated
by other companies and trusts within a fund complex for their services as
directors/trustees to such companies and trusts. Currently the
9
<PAGE>
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 Funds are advised by Wells Fargo Bank pursuant to an
-------------------
advisory contract for each Fund under which Wells Fargo Bank has agreed to
furnish investment guidance and policy direction in connection with the daily
portfolio management of the Funds. Pursuant to the advisory contracts, Wells
Fargo Bank also has agreed to furnish to the Board of Directors periodic reports
on the investment strategy and performance of each Fund. Wells Fargo Bank has
agreed to provide to the Funds, among other things, money market and fixed-
income research, analysis and statistical and economic data and information
concerning interest-rate and security market trends, portfolio composition,
credit conditions and, average maturities of each Fund. As compensation for its
advisory services, Well Fargo Bank is entitled to receive a monthly fee at the
annual rate of 0.25% of the average daily value of each Fund's average daily net
assets during the preceding month.
The advisory contracts will continue in effect for more than two years
provided the continuance is approved annually (i) by the holders of a majority
of a Fund's outstanding voting securities or (ii) by the Company's Board of
Directors and by a majority of the Directors of the Company who are not parties
to the advisory contracts or "interested persons" (as defined in the 1940 Act)
of any such party. The advisory contracts may be terminated on 60 days' written
notice by either party and will terminate automatically if assigned.
Prior to the Reorganization on September 6, 1996, Wells Fargo Investment
Management, Inc. ("WFIM") and its predecessor, First Interstate Capital
Management, Inc. ("FICM") served as investment adviser to the predecessor
portfolios of the Funds. As of the date of the Reorganization, Wells Fargo Bank
became the investment adviser to the Funds. For the period beginning April 1,
1996 and ended September 5, 1996 the predecessor portfolios paid to WFIM, and
for the period beginning September 6, 1996 and ended September 30, 1996 the
Funds paid to Wells Fargo Bank, the advisory fees indicated below and the
following amounts were waived:
<TABLE>
<CAPTION>
Period Ended
Sept. 30, 1996
--------------
Fund Fees Paid Fees Waived
---- ---------- -----------
<S> <C> <C>
Prime Money Market Mutual $1,845,269 $1,553,968
Treasury Money Market Mutual $2,442,922 $2,073,426
</TABLE>
During the fiscal year ended September 30, 1995, the six-month period ended
September 30, 1994 and the fiscal year ended March 31, 1994, the advisory fees
paid by the predecessor portfolios of the Prime Money Market Mutual and Treasury
Money Market Mutual Funds were as shown below. These amounts reflect voluntary
fee waivers and expense reimbursements by the adviser. Prior to October 1,
1994, all of these fees were, in turn, paid by the adviser to its affiliates
which served as investment sub-advisers during the periods indicated.
10
<PAGE>
<TABLE>
<CAPTION>
Year Ended Period Ended Year Ended
Fund Sept. 30, 1995 Sept. 30, 1994 March 31, 1994
---- -------------- -------------- --------------
<S> <C> <C> <C>
Prime Money Market Mutual $ 693,315 $330,715 $737,811
Treasury Money Market Mutual $1,160,424 $454,029 $900,919
</TABLE>
Administrator and Co-Administrator. The Company has retained Wells Fargo
----------------------------------
Bank as Administrator and Stephens as Co-Administrator on behalf of each Fund.
The Administration Agreement between Wells Fargo Bank and the Company on behalf
of each Fund, and the Co-Administration Agreement among Wells Fargo Bank,
Stephens and the Company on behalf of each Fund, state that Wells Fargo Bank and
Stephens shall provide as administrative services, among other things: (i)
general supervision of the operation of each Fund, including coordination of the
services performed by the Fund's investment adviser, transfer agent, custodian,
shareholder servicing agent(s), independent auditors and legal counsel,
regulatory compliance, including the compilation of information for documents
such as reports to, and filings with, the SEC and state securities commissions;
and preparation of proxy statements and shareholder reports for each Fund; and
(ii) general supervision relative to the compilation of data required for the
preparation of periodic reports distributed to the Company's officers and Board
of Directors. Wells Fargo Bank and Stephens also furnish office space and
certain facilities required for conducting the business of each Fund together
with ordinary clerical and bookkeeping services. Stephens pays the compensation
of the Company's Directors, officers and employees who are affiliated with
Stephens. The Administrator and Co-Administrator are entitled to receive a
monthly fee of 0.04% and 0.02%, respectively, of the average daily net assets of
each Fund.
Prior to September 6, 1996, the administrator of the predecessor portfolios
of the Funds, Furman Selz LLC ("Furman Selz"), provided management and
administrative services necessary for the operation of the predecessor
portfolios, pursuant to an Administrative Services Contract. For these
services, Furman Selz was entitled to receive a fee, payable monthly, at the
annual rate of 0.15% of the average daily net assets of the predecessor
portfolios. The predecessor portfolios of the Funds were administered through
April 21, 1996 and April 14, 1996, respectively, by The Dreyfus Corporation
("Dreyfus"), at the annual rate of 0.10% of each such Fund's average daily net
assets. For the period from September 6, 1996 to September 30, 1996, Stephens
served as each such Fund's sole administrator and was entitled to receive a fee,
payable monthly, at the annual rate of 0.05% of each Fund's average daily net
assets. The following table reflects the administration fees which the
respective administrators of the Funds and their predecessor portfolios were
paid during the fiscal year ended September 30, 1996:
<TABLE>
<CAPTION>
Year Ended
Fund Sept. 30, 1996
---- --------------
<S> <C>
Prime Money Market Mutual $1,230,872
Treasury Money Market Mutual $1,745,759
</TABLE>
During the fiscal year ended September 30, 1995, the six-month period ended
September 30, 1994 and the fiscal year ended March 31, 1994, the administration
fees paid to Dreyfus by the
11
<PAGE>
predecessor portfolios of the Prime Money Market Mutual and Treasury Money
Market Mutual Funds were as follows:
<TABLE>
<CAPTION>
Year Ended Period Ended Year Ended
Fund Sept. 30, 1995 Sept. 30, 1994 March 31, 1994
---- -------------- -------------- --------------
<S> <C> <C> <C>
Prime Money Market Mutual $577,763 $275,596 $614,901
Treasury Money Market Mutual $921,886 $347,499 $690,137
</TABLE>
Sponsor and Distributor. As discussed in each Fund's prospectus under the
-----------------------
heading "Management and Servicing Fees," Stephens, 111 Center Street, Little
Rock, Arkansas 72201, serves as each Fund's sponsor and distributor.
Shareholder Servicing Agent. As discussed in each Fund's Prospectus under
----------------------------
the heading "Shareholder Servicing Agent," the Funds have approved Servicing
Plans for each class of its shares and have entered into related shareholder
servicing agreements with financial institutions, including Wells Fargo Bank.
For providing these services, a Servicing Agent is entitled to a fee from the
applicable Fund, not to exceed 0.15%, on an annualized basis, of the average
daily net assets of the Administrative Class shares owned of record or
beneficially by the customers of the Servicing Agent.
Servicing Plans. The Administrative Class Servicing Plan and related
---------------
shareholder servicing agreements were approved by the Company's Board of
Directors included a majority of the Directors who were not "interested persons"
(as defined in the Act) of each Fund and who had no direct or indirect financial
interest in the operation of the Servicing Plan or in any agreement related to
the Servicing Plan (the "Servicing Plan Qualified Directors").
The actual fee payable to servicing agents is determined, within such limits,
from time to time by mutual agreement between the Company and each servicing
agent and will not exceed the maximum service fees payable by mutual funds sold
by members of the NASD under Article III, Section 26 of the Conduct Rules of the
NASD.
The Administrative Class Servicing Plan continues in effect from year to year
if such continuance is approved by a majority vote of both the Directors of the
Company and the Servicing Plan Qualified Directors. Any form of servicing
agreement related to the Servicing Plan also must be approved by such vote of
the Directors and the Servicing Plan Qualified Directors. Servicing agreements
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Servicing Plan Qualified Directors. No material amendment to
the Servicing Plan may be made except by a majority of both the Directors of the
Company and the Servicing Plan Qualified Directors.
Each Servicing Plan requires that the administrator shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Servicing Plan.
12
<PAGE>
Custodian And Transfer And Dividend Disbursing Agent. Wells Fargo Bank has
-----------------------------------------------------
been retained to act as custodian and transfer and dividend disbursing agent for
the Funds, pursuant to a Custody Agreement and an Agency Agreement with the
Company on behalf of the Funds. The custodian, among other things, maintains a
custody account or accounts in the name of a Fund, receives and delivers all
assets for the Fund upon purchase and upon sale or maturity, collects and
receives all income and other payments and distributions on account of the
assets of the Fund and pays all expenses of the Fund. For its services as
custodian, Wells Fargo Bank is entitled to receive fees as follows: a net asset
charge at the annual rate of 0.0167%, payable monthly, plus specified
transaction charges. Wells Fargo Bank also will provide portfolio accounting
services under the Custody Agreement as follows: a monthly base fee of $2,000
plus a net asset fee at the annual rate of 0.070% of the first $50,000,000 of a
Fund's average daily net assets, 0.045% of the next $50,000,000, and 0.020% of
the average daily net assets in excess of $100,000,000.
FICAL, located at 707 Wilshire Blvd., Los Angeles, California 90017, acted as
custodian of the predecessor portfolios of the Funds, but played no role in
making decisions as to the purchase or sale of portfolio securities for the
predecessor portfolios. FICAL was entitled to receive a fee from Pacifica,
computed daily and payable monthly, at the annual rate of 0.021% of the first $5
billion in aggregate average daily net assets; 0.0175% of the next $5 billion in
aggregate average daily net assets; and 0.015% of the aggregate average daily
net assets of the predecessor portfolios in excess of $10 billion.
For the period beginning October 1, 1995 and ended September 5, 1996 the
custody fees paid to FICAL, and for the period beginning September 6, 1996 and
ended September 30, 1996 the custody fees paid to Wells Fargo Bank were as
follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
Fund Sept. 30, 1996
---- -----------------
<S> <C>
Prime Money Market Mutual $73,023/1/
Treasury Money Market Mutual $252,183
</TABLE>
- -----------------------------
/1/ This amount reflects fee waivers.
For its services as transfer and dividend disbursing agent for the
Administrative Class shares of the Funds, Wells Fargo Bank is entitled to
receive monthly payments at the annual rate of 0.02% of the average daily net
assets of each Fund. Furman Selz acted as transfer agent for the predecessor
portfolios. Pacifica compensated Furman Selz for providing personnel and
facilities to perform transfer agency related services for Pacifica at a rate
intended to represent the cost of providing such services.
Underwriting Commissions. The Funds do not charge any front-end or
------------------------
contingent-deferred sales charges in connection with the purchase and redemption
of its shares, and therefore pay no underwriting commissions to the Distributor.
13
<PAGE>
PERFORMANCE CALCULATIONS
The following information supplements and should be read in conjunction with
the sections in each Prospectus entitled "Determination of Net Asset Value" and
"Performance Data." Performance figures for each class of shares of the Funds
will vary due to different expense levels.
The "yields" and "effective yields" of each Fund described in the
Prospectuses are calculated according to formulas prescribed by the SEC. The
standardized seven-day yields for the respective classes of shares of a Fund are
computed separately for each class by determining the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account in the Fund
having a balance of one share at the beginning of the period, dividing the net
change in account value by the value of the account at the beginning of the base
period to obtain the base period return, and multiplying the base period return
by (365/7). The net change in the value of an account in each Fund includes the
value of additional shares purchased with dividends from the original share, and
dividends declared on both the original share and any such additional shares,
and all fees, other than non-recurring account or sales charges, that are
charged to all shareholder accounts in proportion to the length of the base
period and the Fund's average account size. The capital changes to be excluded
from the calculation of the net change in account value are realized gains and
losses from the sale of securities and unrealized appreciation and depreciation.
The effective annualized yields for a Fund are also computed separately for
each class by compounding the unannualized base period return (calculated as
above) by adding 1 to the base period return, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result. The fees which may be
imposed by banks for cash management services in connection with investments in
shares of the Funds are not reflected in the Funds' yields, and any such fees,
if charged, will reduce the actual return received by customers for their
investments.
Yield information may be useful in reviewing the Funds' performance and for
providing a basis for comparison with other investment alternatives. However,
yields fluctuate, unlike investments which pay a fixed yield for a stated period
of time. Yields for the Funds are calculated on the same basis as other money
market funds as required by applicable regulations. Investors should give
consideration to the quality and maturity of the portfolio securities of the
respective investment companies when comparing investment alternatives.
Investors should recognize that in periods of declining interest rates, the
Funds' yields will tend to be somewhat higher than prevailing market rates, and
in periods of rising interest rates, the Funds' yields will tend to be somewhat
lower. Also, when interest rates are falling, the inflow of net new money to the
Funds from the continuous sale of their shares will likely be invested in
instruments producing lower yields than the balance of the Funds, thereby
reducing the current yields of the Funds. In periods of rising interest rates,
the opposite can be expected to occur.
From time to time and only to the extent the comparison is appropriate for a
Fund or a class of shares, the Company may quote performance or price-earning
ratios in advertising and other types of literature as compared with the
performance of the Lehman Brothers Municipal Bond Index, 1-Year Treasury Bill
Rate, S&P Index, the Dow Jones Industrial Average, the Lehman
14
<PAGE>
Brothers 20+ Years Treasury Index, the Lehman Brothers 5-7 Year Treasury Index,
IBC/Donoghue's Money Fund Averages, Real Estate Investment Averages (as reported
by the National Association of Real Estate Investment Trusts), Gold Investment
Averages (provided by the World Gold Council), Bank Averages (which is
calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), Ten Year U.S. Government Bond Average, S&P's
Corporate Bond Yield Averages, Schabacter Investment Management Indices, Salomon
Brothers High Grade Bond Index, Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, other managed or unmanaged indices or
performance data of bonds, stocks or government securities (including data
provided by Ibbotson Associates), or by other services, companies, publications
or persons who monitor mutual funds on overall performance or other criteria.
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stock prices.
The performance of a Fund or a class of shares also may be compared to the
performance of other mutual funds having similar objectives. This comparative
performance could be expressed as a ranking prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc., Bloomberg Financial Markets
or Morningstar, Inc., independent services that monitor the performance of
mutual funds. Any such comparisons may be useful to investors who wish to
compare a Fund's past performance with that of its competitors. Of course, past
performance cannot be a guarantee of future results. The Company also may
include, from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
In addition, the Company also may use, in advertisements and other types of
literature, information and statements showing that bank savings accounts offer
a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth. The Company also may include in advertising and
other types of literature information and other data from reports and studies
prepared by the Tax Foundation, including information regarding federal and
state tax levels and the related "Tax Freedom Day."
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
a class of shares of a Fund: (i) the Consumer Price Index may be used to assess
the real rate of return from an investment in a class of shares of a Fund; (ii)
other government statistics, including, but not limited to, The Survey of
Current Business, may be used to illustrate investment attributes of a Fund or a
class of shares or the general economic, business, investment, or financial
environment in which the Fund operates; (iii) the effect of tax-deferred
compounding on the investment returns of a Fund or a class of shares, or on
returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in a Fund or a class of shares (or returns in general) on a tax-
deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and
15
<PAGE>
(iv) the sectors or industries in which a Fund invests may be compared to
relevant indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate
the historical performance of the Fund or a class or current or potential value
with respect to the particular industry or sector.
The Company also may discuss in advertising and other types of literature
that a Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as S&P or Moody's. Such rating would assess
the creditworthiness of the investments held by a Fund. The assigned rating
would not be a recommendation to purchase, sell or hold any class of a Fund's
shares since the rating would not comment on the market price of a Fund's shares
or the suitability of a Fund for a particular investor. In addition, the
assigned rating would be subject to change, suspension or withdrawal as a result
of changes in, or unavailability of, information relating to a Fund or its
investments. The Company may compare a Fund's performance with other
investments that are assigned ratings by NRSROs. Any such comparisons may be
useful to investors who wish to compare a Fund's past performance with other
rated investments.
From time to time the Company may reprint, reference or otherwise use
material from magazines, newsletters, newspapers and books including, but not
limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.
The Company also may disclose in sales literature, the distribution rate on
the shares of a Fund or a class of shares. Distribution rate, which may be
annualized, is the amount determined by dividing the dollar amount per share of
the most recent dividend by the most recent NAV or maximum offering price per
share as of a date specified in the sales literature. Distribution rate will be
accompanied by the standard 30-day yield as required by the SEC.
The Company also may disclose, in advertising and other types of literature,
information and statements that Wells Fargo Investment Management ("WFIM"), a
division of Wells Fargo Bank, is listed in the top 100 by Institutional Investor
magazine in its July 1996 survey "America's Top 300 Money Managers." This
survey ranks money managers in several asset categories.
The Company also may disclose in advertising and other types of sales
literature the assets and categories of assets under management by the Company's
investment adviser and the total amount of assets and mutual fund assets managed
by Wells Fargo Bank. As of April 1, 1997, Wells Fargo Bank and its affiliates
provided investment advisory services for approximately $57 billion of assets of
individuals, trusts, estates and institutions.
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
16
<PAGE>
offer an on-line application for a mutual fund account that can be filled out
completely through Electronic Channels. Advertising and other literature may
disclose that Wells Fargo Bank may maintain Web sites, pages or other
information sites accessible through Electronic Channels (an "Information Site")
and may describe the contents and features of the Information Site and instruct
investors on how to access the Information Site and open a Sweep Account.
Advertising and other literature may also disclose the procedures employed by
Wells Fargo Bank to secure information provided by investors, including
disclosure and discussion of the tools and services for accessing Electronic
Channels. Such advertising or other literature may include discussions of the
advantages of establishing and maintaining a Sweep Account through Electronic
Channels and testimonials from Wells Fargo Bank customers or employees and may
also include descriptions of locations where product demonstrations may occur.
The Company may also disclose the ranking of Wells Fargo Bank as one of the
largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction with
the Prospectus section "Purchase of Shares."
Expenses and fees, including advisory fees, are accrued daily and are taken
into account for the purpose of determining the net asset value of a Fund's
shares. Net asset value per share for a class of shares is determined as of
12:00 noon Pacific time and 1:00 p.m. Pacific time on each Business Day as
described in the Prospectus.
The Funds' instruments are valued on the basis of amortized cost. This
technique involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price a Fund would receive if it sold the instrument. During periods of
declining interest rates, the daily yield on shares of a Fund computed as
described above may tend to be higher than a like computation made by a fund
with identical investments utilizing a method of valuation based upon market
prices and estimates of market prices for all of its instruments. Thus, if the
use of amortized cost by a Fund resulted in a lower aggregate portfolio value on
a particular day, a prospective investor would be able to obtain a somewhat
higher yield than would result from investment in a fund utilizing solely market
values and existing investors in a Fund would receive less investment income.
The converse would apply in a period of rising interest rates.
The valuation of each Funds' instruments, based upon their amortized cost and
the concomitant maintenance by each Fund of a net asset value of $1.00, is
permitted in accordance with Rule 2a-7 under the Act, pursuant to which a Fund
must adhere to certain conditions. Each Fund must maintain a dollar-weighted
average maturity of 90 days or less, purchase only instruments having remaining
maturities of 397 days (thirteen months) or less, and invest only in securities
that are determined to present minimal credit risks pursuant to guidelines
adopted by the Board of Directors or the investment adviser, under guidelines
approved by the Board.
17
<PAGE>
Instruments having variable or floating interest rates or demand features may be
deemed to have remaining maturities as follows: (a) a government security with a
variable rate of interest readjusted no less frequently than every thirteen
months may be deemed to have a maturity equal to the period remaining until the
next readjustment of the interest rate; (b) an instrument with a variable rate
of interest, the principal amount of which is scheduled on the face of the
instrument to be paid in thirteen months or less, may be deemed to have a
maturity equal to the period remaining until the next readjustment of the
interest rate; (c) an instrument with a variable rate of interest that is
subject to a demand feature may be deemed to have a maturity equal to the longer
of the period remaining until the next readjustment of the interest rate or the
period remaining until the principal amount can be recovered through demand; (d)
an instrument with a floating rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be deemed to have a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur or,
where no date is specified but the agreement is subject to demand, the notice
period applicable to a demand for the repurchase of the securities.
The Company's Board of Directors has established valuation procedures
designed to stabilize, to the extent reasonably possible, each Fund's price per
share as computed for the purpose of sales and redemptions. Such procedures
include the determination, at such intervals as the Directors deem appropriate,
of the extent to which each such Fund's NAV as calculated by using available
market quotations deviates from $1.00 per share, such deviation may result in
material dilution or other unfair results to existing shareholders or investors.
In the event the Directors determine that such a material deviation exists, they
have agreed to take such corrective action as they regard as necessary and
appropriate, which may include selling portfolio instruments prior to maturity
to realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends; redeeming shares in kind or without monetary or other
consideration; or establishing a net asset value per share by using available
market quotations. It is the intention of the Funds to maintain a per share net
asset value of $1.00, but there can be no assurance that each Fund will do so.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds may be purchased on any day the Funds are open for
business, provided Wells Fargo Bank also is open for business (a "Business
Day"). Currently, Wells Fargo Bank is closed on New Year's Day, President's Day,
Martin Luther King Jr. Day, Memorial Day, Independence Day, Labor Day, Columbus
Day, Veterans Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When
any Holiday falls on a weekend, the Funds are typically 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 Funds as described in the
Prospectuses. For further information about this form of payment please contact
Stephens. In connection with an in-kind securities payment, the Funds will
require, among other things, that the securities be valued on the
18
<PAGE>
day of purchase in accordance with the pricing methods used by a Fund and that
such Fund receives satisfactory assurances that (i) it will have good and
marketable title to the securities received by it; (ii) that the securities are
in proper form for transfer to the Fund; and (iii) adequate information will be
provided concerning the basis and other matters relating to the securities.
Under the 1940 Act, the Funds may suspend the right of redemption or postpone
the date of payment upon redemption for any period during which the NYSE is
closed (other than customary weekend and holiday closings, or during which
trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit.
The Company may suspend redemption rights or postpone redemption payments for
such periods as are permitted under the 1940 Act. The Company may also redeem
shares involuntarily or make payment for redemption in securities or other
property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to reimburse the
Funds for any losses sustained by reason of the failure of a shareholders to
make full payment for shares purchased or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
shares of a Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policies
established by the Company's Board of Directors, Wells Fargo Bank is responsible
for the Funds' portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Company to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo Bank generally seeks
reasonably competitive spreads or commissions, the Funds will not necessarily be
paying the lowest spread or commission available.
Purchase and sale orders of the securities held by the Funds may be combined
with those of other accounts that Wells Fargo Bank manages, and for which it has
brokerage placement authority, in the interest of seeking the most favorable
overall net results. When Wells Fargo Bank determines that a particular security
should be bought or sold for a Fund and other accounts managed by Wells Fargo
Bank, Wells Fargo Bank undertakes to allocate those transactions among the
participants equitably.
Purchases and sales of securities usually will be principal transactions.
Portfolio securities normally will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. The Funds also will
purchase portfolio securities in underwritten offerings and may
19
<PAGE>
purchase securities directly from the issuer. Generally, municipal obligations
and taxable money market securities are traded on a net basis and do not involve
brokerage commissions. The cost of executing a Fund's portfolio securities
transactions will consist primarily of dealer spreads and underwriting
commissions. Under the 1940 Act, persons affiliated with the Company are
prohibited from dealing with the Company as a principal in the purchase and sale
of securities unless an exemptive order allowing such transactions is obtained
from the SEC or an exemption is otherwise available.
The Funds may purchase municipal obligations from underwriting syndicates
of which Stephens or Wells Fargo Bank is a member under certain conditions in
accordance with the provisions of a rule adopted under the 1940 Act and in
compliance with procedures adopted by the Board of Directors.
Wells Fargo Bank, as the investment adviser of each Fund, may, in
circumstances in which two or more dealers are in a position to offer comparable
results for a Fund portfolio transaction, give preference to a dealer that has
provided statistical or other research services to Wells Fargo Bank. By
allocating transactions in this manner, Wells Fargo Bank is able to supplement
its research and analysis with the views and information of securities firms.
Information so received will be in addition to, and not in lieu of, the services
required to be performed by Wells Fargo Bank under the Advisory Contracts, and
the expenses of Wells Fargo Bank will not necessarily be reduced as a result of
the receipt of this supplemental research information. Furthermore, research
services furnished by dealers through which Wells Fargo Bank places securities
transactions for each Fund may be used by Wells Fargo Bank in servicing its
other accounts, and not all of these services may be used by Wells Fargo Bank in
connection with advising such Fund.
Consistent with the Rules of Fair Practice of the NASD, and subject to
seeking the most favorable price and execution available and such other policies
as the Directors may determine, the adviser may consider sales of shares of the
Funds as a factor in the selection of broker-dealers to execute portfolio
transactions for the Funds.
Brokerage Commissions. Subject to the general supervision and approval of
----------------------
the Board of Directors, the adviser makes decisions with respect to and places
orders for all purchases and sales of securities for the Funds. Securities are
generally purchased and sold either directly from the issuer or from dealers who
specialize in money market instruments. Such purchases are usually effected as
principal transactions and therefore do not involve the payment of brokerage
commissions.
Securities of Regular Broker Dealers. The Funds may from time to time
-------------------------------------
purchase securities issued by their regular brokers or dealers. As of September
30, 1996, the Funds owned securities of their "regular brokers or dealers" or
their parents as defined in the Act, as follows:
20
<PAGE>
<TABLE>
<CAPTION>
Fund Amount Regular Broker/Dealer
---- ------ ---------------------
<S> <C> <C>
Prime Money Market Mutual $166,369,000 Goldman Sachs & Co.
Treasury Money Market Mutual $225,975,000 Goldman Sachs & Co.
Treasury Money Market Mutual $230,000,000 HSBC Securities
Treasury Money Market Mutual $225,000,000 JP Morgan Securities
Treasury Money Market Mutual $230,000,000 Morgan Stanley
</TABLE>
At September 30, 1995, the predecessor funds held securities issued by
Goldman Sachs & Co., J.P. Morgan Securities, Inc., Salomon Brothers Inc., and
HSBC Securities Inc., valued at $159,111,345, $200,000,000, $126,043,763 and
$160,000,000, respectively.
Portfolio Turnover. The portfolio turnover rate is not a limiting factor
------------------
when Wells Fargo Bank deems portfolio changes appropriate. Because the Funds'
portfolios consist of securities with relatively short-term maturities, the
Funds can expect to experience high portfolio turnovers. A high portfolio
turnover rate should not adversely affect such Funds, however, because portfolio
transactions ordinarily will be made directly with principals on a net basis
and, consequently, the Funds usually will not incur brokerage expenses.
FUND EXPENSES
Except for the expenses borne by Wells Fargo Bank and Stephens, the Company
bears all costs of its operations, including the compensation of its Directors
who are not affiliated with Stephens or Wells Fargo Bank or any of their
affiliates; advisory, shareholder servicing and administration fees; payments
pursuant to any Plan; interest charges; taxes; fees and expenses of its
independent 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 a Fund; expenses of shareholders' meetings; expenses relating
to the issuance, registration and qualification of a Fund's shares; pricing
services, and any extraordinary expenses. Expenses attributable to a Fund are
charged against Fund assets. General expenses of the Company are allocated
among all of the funds of the Company, including the Funds, in a manner
proportionate to the net assets of each Fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.
21
<PAGE>
FEDERAL INCOME TAX
In General. The following information supplements and should be read in
----------
conjunction with the applicable Prospectus sections entitled "Dividend and
Capital Gain Distributions" and "Taxes." The applicable Prospectus of the Funds
describes generally the tax treatment of distributions by the Funds. This
section of the SAI includes additional information concerning federal income
taxes.
The Company intends to qualify each Fund as a regulated investment company
under Subchapter M of the Code as long as such qualification is in the best
interest of the Funds' shareholders. Each Fund will be treated as a separate
entity for tax purposes and thus the provisions of the Code applicable to
regulated investment companies will generally be applied to each Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for each Fund.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) each Fund derive at least 90% of its annual gross
income from interest, payments with respect to securities loans, dividends and
gains from the sale or other disposition of securities or options thereon; (b)
each Fund derive less than 30% of its gross income from gains from the sale or
other disposition of securities or options thereon held for less than three
months; and (c) each Fund diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash, government securities and other securities
limited in respect of any one issuer to an amount not greater than 5% of the
Fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government securities and the securities of
other regulated investment companies), or in two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades or
businesses. As a regulated investment company, each Fund will not be subject to
federal income tax on its net investment income and net capital gains
distributed to its shareholders, provided that it distributes to its
shareholders at least 90% of its net investment income, including net tax-exempt
income, earned in each year. Each Fund intends to pay out substantially all of
its net investment income and net realized capital gains (if any) for each year.
A 4% nondeductible excise tax will be imposed on each Fund (other than to
the extent of the Fund's tax-exempt income) to the extent it does not meet
certain minimum distribution requirements by the end of each calendar year.
Each Fund will either actually or be deemed to distribute all of its net
investment income and net capital gains by the end of each calendar year and,
thus, expects not to be subject to the excise tax.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.60% (marginal rates may
be higher for some individuals due to phase out of exemptions and elimination of
deductions); the maximum individual marginal tax rate applicable to net capital
gains is 28.00%; the maximum corporate tax rate applicable to ordinary income
and net capital gains is 35.00% (except that to eliminate the benefit of lower
marginal corporate income tax rates, corporations which have taxable income in
excess of
22
<PAGE>
$100,000 for a taxable year will be required to pay an additional amount of
income tax of up to $11,750 and corporations which have taxable income in excess
of $15,000,000 for a taxable year will be required to pay an additional amount
of tax of up to $100,000). Naturally, the amount of tax payable by an individual
or corporation will be affected by a combination of tax laws covering, for
example, deductions, credits, deferrals, exemptions, sources of income and other
matters.
Capital Gain Distributions. To the extent that each Fund recognizes long-
--------------------------
term capital gains, such gains will be distributed at least annually and these
distributions will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held Fund shares. Such distributions
will be designated as capital gain distributions in a written notice mailed by
the Fund to the shareholders not later than 60 days after the close of the
Fund's taxable year.
Other Distributions. Although dividends will be declared daily based on
-------------------
each 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.
Disposition of Fund Shares. If a shareholder receives a designated capital
--------------------------
gain distribution (to be treated by the shareholder as a long-term capital gain)
with respect to any Fund share and such Fund share is held for six months or
less, then (unless otherwise disallowed) any loss on the sale or exchange of
that Fund share will be treated as a long-term capital loss to the extent of the
designated capital gain distribution. In addition, any loss realized by a
shareholder upon the sale or redemption of Fund shares held less than six months
is disallowed to the extent of any exempt-interest dividends received thereon by
the shareholder. These rules shall not apply, however, to losses incurred under
a periodic redemption plan.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or of a different regulated investment company,
the sales charge previously incurred acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of a Fund will be disallowed to the extent
that substantially identical shares are reacquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
Taxation of Fund Investments. Gains or losses on sales of portfolio
----------------------------
securities by each Fund will generally be long-term capital gains or losses if
the securities have been held by it for
23
<PAGE>
more than one year, except in certain cases such as where the Fund acquires a
put or writes a call thereon. Gains recognized on the disposition of a debt
obligation (including tax-exempt obligations purchased after April 30, 1993)
purchased by a Fund at a market discount (generally at a price less than its
principal amount) will be treated as ordinary income to the extent of the
portion of market discount which accrued during the period of time the Fund held
the debt obligation. Other gains or losses on the sale of portfolio securities
will be short-term capital gains or losses.
Foreign Shareholders. Under the Code, distributions of net investment
--------------------
income by a Fund to a nonresident alien individual, nonresident alien fiduciary
of a trust or estate, foreign corporation, or foreign partnership (a "foreign
shareholder") will be subject to U.S. withholding tax (at a rate of 30% or a
lower treaty rate). Withholding will not apply if a dividend paid by a Fund to
a foreign shareholder is "effectively connected" with a U.S. trade or business,
in which case the reporting and withholding requirements applicable to U.S.
citizens, U.S. residents or domestic corporations will apply. Distributions of
net long-term capital gains are not subject to tax withholding, but in the case
of a foreign shareholder who is a nonresident alien individual, such
distributions ordinarily will be subject to U.S. income tax at a rate of 30% if
the individual is physically present in the U.S. for more than 182 days during
the taxable year.
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 a Fund may involve sophisticated tax rules that may result in income or gain
recognition by the Fund without corresponding current cash receipts. Although
each 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 Prospectuses address
only some of the federal tax considerations generally affecting investments in a
Fund. Each investor is urged to consult his or her tax advisor regarding
specific questions as to federal, state or local taxes and foreign taxes.
24
<PAGE>
CAPITAL STOCK
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "The Funds and Management."
The Funds are two of the funds of the Stagecoach Family of Funds. The
Company was organized as a Maryland corporation on September 9, 1991 and
currently offers shares of more than twenty-five funds.
Most of the Company's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, a class subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Company's funds also are authorized to
issue other classes of shares, which are sold primarily to institutional
investors. Each class of shares in a fund represents an equal, proportionate
interest in a fund with other shares of the same class. Shareholders of each
class bear their pro rata portion of the fund's operating expenses, except for
certain class-specific expenses (e.g., any state securities registration fees,
shareholder servicing fees or distribution fees that may be paid under Rule 12b-
1) that are allocated to a particular class. Please contact Stagecoach
Shareholder Services at 1-800-260-5969 if you would like additional information
about other funds or classes of shares offered.
Voting Rights. With respect to matters that affect one class of a Fund's
--------------
shares but not another, shareholders vote as a class; for example, the approval
of a Plan. Subject to the foregoing, on any matter submitted to a vote of
shareholders, all shares then entitled to vote are voted separately by series
unless otherwise required by the Act, in which case all shares are voted in the
aggregate. For example, a change in a series' fundamental investment policy
affects only one series and are voted upon only by shareholders of the series
and not by shareholders of the Company's other series. Additionally, approval
of an advisory contract is a matter to be determined separately by each series.
Approval by the shareholders of one series is effective as to that series
whether or not sufficient votes are received from the shareholders of the other
series to approve the proposal as to those series.
As used in the Prospectus and in this SAI, the term "majority" when
referring to approvals to be obtained from shareholders of a class of a Fund,
means the vote of the lesser of (i) 67% of the shares of such class of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of such class of the Fund are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of such class of the Fund. The term
"majority," when referring to the approvals to be obtained from shareholders of
the Company as a whole, means the vote of the lesser of (i) 67% of the Company's
shares represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held. The
Company may dispense with an annual meeting of shareholders in any year in which
it is not required to elect directors under the 1940 Act.
25
<PAGE>
Each share of a class of a Fund represents an equal proportional interest
in the Fund with each other share in the same class and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
the Fund as are declared in the discretion of the Directors. In the event of
the liquidation or dissolution of the Company, shareholders of a Fund or class
are entitled to receive the assets attributable to the Fund or class that are
available for distribution, and a distribution of any general assets not
attributable to a particular investment portfolio that are available for
distribution in such manner and on such basis as the Directors in their sole
discretion may determine.
Shares have no preemptive rights or subscription. All shares, when issued
for the consideration described in the Prospectus, are fully paid and non-
assessable by the Company.
As of July 31, 1997, no shareholders were known by the Company to own 5% or
more of the outstanding Administrative Class shares of the Fund. Set forth
below is the name, address and share ownership of each person known by the
Company to have beneficial or record ownership of 5% or more of a class of each
Fund or 5% or more of the voting securities of each Fund as a whole
5% OWNERSHIP AS OF JANUARY 2, 1997
----------------------------------
<TABLE>
<CAPTION>
Class; Percentage
Type of Percentage of
Fund Name and Address Ownership of Class Portfolio
- ---- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C>
PRIME MONEY Virg & Co. Service Class 99.48% 49.10%
MARKET Attn: MF Dept. A88-4 Record Holder
MUTUAL FUND P.O. Box 9800
Calabasas, CA 91372
TREASURY Virg & Co. Service Class 98.91% 65.90%
MONEY Attn: MF Dept. A88-4 Record Holder
MARKET P.O. Box 9800
MUTUAL FUND Calabasas, CA 91372
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
-------------------------------
holder of more than 25% of a class (or Fund), or is identified as the holder of
- --------------------------------------------
record of more than 25% of a class (or Fund) and has voting and/or investment
-----------------
powers, it may be presumed to control such class (or Fund).
OTHER
The Company's Registration Statement, including the Prospectus and SAI for
the Funds and the exhibits filed therewith, may be examined at the office of the
SEC in Washington, D.C. Statements contained in a Prospectus or the SAI as to
the contents of any contract or other
26
<PAGE>
document referred to herein or in the Prospectus are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditors for the
Company. KPMG Peat Marwick LLP provides audit services, tax return preparation
and assistance and consultation in connection with review of certain SEC
filings. KPMG Peat Marwick LLP's address is Three Embarcadero Center, San
Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and independent
auditors' report for the year ended September 30, 1996 are incorporated by
reference to the Company's Annual Report as filed with the SEC on December 9,
1996. The portfolio of investments, audited financial statements and
independent auditors' report for the Fund and the Master Portfolio for the
fiscal period ended March 31, 1997 are hereby incorporated by reference to the
Company's Annual Report as filed with the SEC on June 4, 1997. The Company's
Annual Report may be obtained by calling 1-800-260-5969. The portfolio of
investments, audited financial statements and independent auditors' report are
attached to all SAIs delivered to current or prospective shareholders.
27
<PAGE>
SAI APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate and Municipal Bonds
Moody's: The four highest ratings for corporate and municipal bonds are
"Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest amount of investment risk. Bonds rated "Aa" are
of "high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds
rated "A" possess many favorable investment attributes and are considered to be
upper medium grade obligations. Bonds rated "Baa" are considered to be medium
grade obligations; interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1, 2
and 3 in each rating category from "Aa" through "Baa" in its rating system. The
modifier 1 indicates that the security ranks in the higher end of its category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are "AAA,"
"AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned by S&P
and have an extremely strong capacity to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity to pay interest and repay
principal" and differ "from the highest rated issued only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having an "adequate capacity" to pay interest and
repay principal, but changes in economic conditions or other circumstances are
more likely to lead to a "weakened capacity" to make such repayments. The
ratings from "AA" to "BBB" may be modified by the addition of a plus or minus
sign to show relative standing within the category.
Municipal Notes
Moody's: The highest ratings for state and municipal short-term obligations
are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG 3" in the
case of an issue having a variable rate demand feature). Notes rated "MIG 1" or
"VMIG 1" are judged to be of the "best quality." Notes rated "MIG 2" or "VMIG 2"
are of "high quality," with margins of protections "ample although not as large
as in the preceding group." Notes rated "MIG 3" or "VMIG 3" are of "favorable
quality," with all security elements accounted for, but lacking the strength of
the preceding grades.
A-1
<PAGE>
S&P: The "SP-1" rating reflects a "very strong or strong capacity to pay
principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate and municipal commercial paper is
"P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for repayment of
short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a strong
capacity for repayment of short-term promissory obligations," but earnings
trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate and municipal commercial paper
indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
A-2
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated October 6, 1997
NATIONAL TAX-FREE MONEY MARKET MUTUAL FUND
Institutional Class
__________________________________
Stagecoach Funds, Inc. (the "Company") is an open-end, series investment
company. This Statement of Additional Information ("SAI") contains information
about Institutional Class shares offered in the National Tax-Free Money Market
Mutual Fund (the "Fund") of the Stagecoach Family of Funds. The investment
objective of the Fund is described in the Prospectus under the heading
"Investment Objective and Policies".
The Fund seeks to achieve its investment objective by investing all of
its assets in the Tax-Free Money Market Master Portfolio (the "Master
Portfolio") of Master Investment Trust ("MIT"). The Master Portfolio has the
same investment objective as the Fund. On July 23, 1997, the Company's Board of
Directors approved an agreement and plan of consolidation to reorganize the
funds of another investment company, Overland Express Funds, Inc., with and into
certain funds of the Company (the "Consolidation"). If the Consolidation is
completed as anticipated, the Master Portfolio will be dissolved in December of
1997. The Fund will no longer invest its assets in the Master Portfolio, but
instead will invest directly in a portfolio of securities. The Fund will retain
Wells Fargo Bank, the Master Portfolio's current investment adviser to manage
the Fund's assets in substantially the same manner as Wells Fargo Bank currently
manages the Master Portfolio's assets and for the same level of advisory fees.
This SAI is not a prospectus and should be read in conjunction with the
Fund's Prospectus dated October 6, 1997. All terms used in this SAI that are
defined in the Fund's Prospectus have the meanings assigned in such 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 by calling the transfer agent at
the telephone number indicated above.
<PAGE>
TABLE OF CONTENTS
----------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Restrictions............................................ 1
Additional Permitted Investment Activities......................... 4
Management......................................................... 6
Performance Calculations........................................... 12
Determination of Net Asset Value................................... 16
Additional Purchase and Redemption Information..................... 17
Portfolio Transactions............................................. 18
Fund Expenses...................................................... 19
Federal Income Taxes............................................... 20
Capital Stock...................................................... 23
Other.............................................................. 25
Independent Auditors............................................... 25
Financial Information.............................................. 26
SAI Appendix....................................................... A-1
Financial Statements............................................... F-1
</TABLE>
i
<PAGE>
INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Fund and the Master Portfolio are
--------------------------------
subject to the following investment restrictions, all of which are fundamental
policies. These restrictions cannot be changed, as to either the Fund or the
Master Portfolio, without approval by the holders of a majority (as defined by
the 1940 Act) of the outstanding voting securities of the Fund or the Master
Portfolio, as appropriate. Whenever the Fund is requested to vote on a
fundamental policy of the Master Portfolio, the Fund will hold a meeting of its
shareholders and cast its votes as instructed by such shareholders.
References to the investments, investment policies and restrictions of
the Fund, unless otherwise indicated, should be understood as references to the
investments, investment policies and restrictions of the Master Portfolio.
The Fund may not:
----------------
(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and as
a result thereof, the value of the Fund's investments in that industry would be
25% or more of the current value of the Fund's total assets, provided that there
is no limitation with respect to investments in (i) municipal securities (for
the purpose of this restriction, private activity bonds and notes shall not be
deemed municipal securities if the payment of principal and interest on such
bonds or notes is the ultimate responsibility of non-governmental entities);
(ii) obligations of the U.S. Government, its agencies or instrumentalities
(including government-sponsored enterprises); and (iii) the obligations of
domestic banks (for the purpose of this restriction, domestic bank obligations
do not include obligations of U.S. branches of foreign banks or obligations of
foreign branches of U.S. banks); and further provided that this investment
restriction does not affect the Fund's ability to invest all or a portion of its
assets in the Master Portfolio;
(2) purchase or sell real estate or real estate limited partnerships
(other than municipal obligations or other securities secured by real estate or
interests therein or securities issued by companies that invest in real estate
or interests therein), commodities or commodity contracts (including futures
contracts) except that the Fund may purchase securities of an issuer which
invests or deals in commodities and commodity contracts and except that the Fund
may enter into futures and options contracts in accordance with its investment
policies;
(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 municipal securities or other permitted investments directly
from the issuer thereof or from an underwriter for an issuer and the later
disposition of such securities in accordance with the Fund's investment program
(including the Fund's investments in the Master Portfolio) may be deemed to be
an underwriting;
1
<PAGE>
(5) make investments for the purpose of exercising control or
management, provided that this restriction does not affect the Fund's ability to
invest all or a portion of its assets in the Master Portfolio;
(6) issue senior securities, except that the Fund may borrow from banks
up to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowing in excess of 5% of its net assets
exists);
(7) write, purchase or sell puts, calls, warrants, options or any
combination thereof, except that the Fund may purchase securities with put
rights in order to maintain liquidity;
(8) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities, including
government-sponsored enterprises) if, as a result, with respect to 75% of its
total assets, more than 5% of the value of the Fund's total assets would be
invested in the securities of any one issuer or, with respect to 100% of its
total assets the Fund's ownership would be more than 10% of the outstanding
voting securities of such issuer, provided that this restriction does not affect
the Fund's ability to invest all or a portion of its assets in the Master
Portfolio; or
(9) make loans, except that the Fund may purchase or hold debt
instruments, lend its portfolio securities or enter into repurchase agreement
transactions in accordance with its investment policies; loans for purposes of
this restriction will not include the Fund's purchase of interests in the Master
Portfolio.
With regard to fundamental investment restriction number (1) above, the
Fund intends to reserve freedom of action to have in excess of 25% of the value
of the respective total assets invested in obligations of the banking industry.
Regarding this fundamental concentration policy, the Fund may hold in excess of
25% of the value of the assets in obligations of the banking industry to the
extent that the Fund holds obligations with such credit enhancements as letters
of credit issued by domestic bank issuers, which will be considered to be
obligations of domestic banks. The SEC staff's position is that the exclusion
with respect to banks may only be applied to domestic banks. For this purpose,
the staff also takes the position that U.S. branches of foreign banks and
foreign branches of domestic banks may, if certain conditions are met, be
treated as "domestic banks". The Company and MIT currently intend to consider
only obligations of "domestic banks" to be within the exclusion with respect to
bank obligations.
Fundamental investment restriction number (8), above, is less restrictive
than Rule 2a-7 of the 1940 Act. Nonetheless, it is the operating policy of the
Fund to comply with Rule 2a-7's diversification requirements.
2
<PAGE>
Non-Fundamental Investment Policies. The Fund is 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 own
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) purchase securities of issuers who, with their predecessors, have
been in existence less than three years, unless the securities are fully
guaranteed or insured by the U.S. Government, a state, commonwealth, possession,
territory, the District of Columbia or by an entity in existence at least three
years, or the securities are backed by the assets and revenues of any of the
foregoing if, by reason thereof, the value of its aggregate investments in such
securities will exceed 5% of its total assets, provided that this restriction
does not affect the Fund's ability to invest all or a portion of its assets in
the Master Portfolio; and
(4) purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, and equity
securities of issuers which are not readily marketable if, by reason thereof,
the value of the Fund's aggregate investment in such classes of securities will
exceed 5% of its total assets.
The Fund may invest in shares of other open-end, management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act,
provided that any such purchases will be limited to temporary investments in
shares of unaffiliated investment companies. However, the investment adviser
will waive its advisory fees for that portion of the Fund's assets so invested,
except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition. In addition, these unaffiliated investment
companies must have a fundamental investment policy of investing at least 80% of
their net assets in obligations that are exempt from federal income taxes and
are not subject to the federal alternative minimum tax. However, the above
restrictions do not affect the Fund's ability to invest all or a portion of its
assets in the Master Portfolio.
In addition, the Fund reserves the right to invest up to 10% of the
current value of its net assets in fixed time deposits that are subject to
withdrawal penalties and that have maturities of more than seven days,
repurchase agreements maturing in more than seven days, illiquid securities and
restricted securities. However, as long as the Fund's shares are registered for
sale in a state that imposes a lower limit on the percentage of a fund's assets
that may be so invested, the Fund will comply with such lower limit. The Fund
presently is limited to investing 10% of its net assets in such securities due
to limits applicable in several states.
3
<PAGE>
Furthermore, the Fund may not purchase or sell real estate limited
partnership interests. The Fund does not currently intend to make loans of
their portfolio securities.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Unrated and Downgraded Investments. The Fund may purchase instruments
----------------------------------
that are not rated if, in the opinion of Wells Fargo Bank the investment
adviser, such obligations are of comparable quality to other rated investments
that are permitted to be purchased by the Fund. The Fund may purchase unrated
instruments only if they are purchased in accordance with the Fund's procedures
adopted by the Company's Board of Directors in accordance with Rule 2a-7 under
the 1940 Act. After purchase by the Fund, a security may cease to be rated or
its rating may be reduced below the minimum required for purchase by the Fund.
In the event that a portfolio security ceases to be an "Eligible Security" or no
longer "presents minimal credit risks", immediate sale of such security is not
required, provided that the Board of Directors has determined that disposal of
the portfolio security would not be in the best interests of the Fund. To the
extent the ratings given by Moody's or S&P may change as a result of changes in
such organizations or their rating systems, the Fund will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in its Prospectus and in this SAI. The ratings of
Moody's and S&P are more fully described in the SAI Appendix.
Letters of Credit. Certain of the debt obligations (including municipal
-----------------
securities, certificates of participation, commercial paper and other short-term
obligations) which the Fund may purchase may be backed by an unconditional and
irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of Wells Fargo Bank,
are of comparable quality to issuers of other permitted investments of the Fund
may be used for letter of credit-backed investments, provided that Company's
Board of Directors approves or ratifies such investments.
Loans of Portfolio Securities. The Fund may lend securities from its
-----------------------------
portfolio to brokers, dealers and financial institutions (but not individuals)
if cash, U.S. Government obligations or other high-quality debt obligations
equal to at least 100% of the current market value of the securities loaned
(including accrued interest thereon) plus the interest payable to the Fund with
respect to the loan is maintained with the Fund. In determining whether or not
to lend a security to a particular broker, dealer or financial institution, the
Fund's investment adviser considers all relevant facts and circumstances,
including the size, creditworthiness and reputation of the broker, dealer, or
financial institution. Any loans of portfolio securities are fully
collateralized based on values that are marked to market daily. The Fund will
not enter into any portfolio security lending arrangement having a duration
longer than one year. Any securities that the Fund receives as collateral do
not become part of the Fund's portfolio at the time of the loan and, in the
event of a default by the borrower, the Fund will, if permitted by law, dispose
of such collateral except for such part thereof that is a security in which the
Fund is permitted to invest. During the time securities are on loan, the
borrower will pay the Fund any accrued income on
4
<PAGE>
those securities, and the Fund may invest the cash collateral and earn
additional income or receive an agreed-upon fee from a borrower that has
delivered cash-equivalent collateral. The Fund will not lend securities having a
value that exceeds one-third of the current value of its total assets. Loans of
securities by the Fund are subject to termination at the Fund's or the
borrower's option. The Fund may pay reasonable administrative and custodial fees
in connection with a securities loan and may pay a negotiated portion of the
interest or fee earned with respect to the collateral to the borrower or the
placing broker. Borrowers and placing brokers are not permitted to be
affiliated, directly or indirectly, with the Company, the investment adviser, or
the distributor.
Foreign Obligations. Investments in foreign obligations involve certain
-------------------
considerations that are not typically associated with investing in domestic
obligations. There may be less publicly available information about a foreign
issuer than about a domestic issuer. Foreign issuers also are not generally
subject to uniform accounting, auditing and financial reporting standards or
governmental supervision comparable to those applicable to domestic issuers. In
addition, with respect to certain foreign countries, taxes may be withheld at
the source under foreign income tax laws, and there is a possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect investments in, the
liquidity of, and the ability to enforce contractual obligations with respect
to, securities of issuers located in those countries. The Fund may not invest
25% or more of its assets in foreign obligations.
Obligations of foreign banks and foreign branches of U.S. banks involve
somewhat different investment risks from those affecting obligations of U.S.
banks, including the possibilities that liquidity could be impaired because of
future political and economic developments, that the obligations may be less
marketable than comparable obligations of U.S. banks, that a foreign
jurisdiction might impose withholding taxes on interest income payable on those
obligations, that foreign deposits may be seized or nationalized, that foreign
governmental restrictions (such as foreign exchange controls) may be adopted
which might adversely affect the payment of principal and interest on those
obligations and that the selection of those obligations may be more difficult
because there may be less publicly available information concerning foreign
banks or the accounting, auditing and financial reporting standards, practices
and requirements applicable to foreign banks may differ from those applicable to
U.S. banks. In that connection, foreign banks are not subject to examination by
any U.S. Government agency or instrumentality.
Municipal Bonds. The Fund may invest in municipal bonds. The two
---------------
principal classifications of municipal bonds are "general obligation" and
"revenue" bonds. Municipal bonds are debt obligations issued to obtain funds
for various public purposes, including the construction of a wide range of
public facilities such as bridges, highways, housing, hospitals, mass
transportation, schools, streets, and water and sewer works. Other purposes for
which municipal bonds may be issued include the refunding of outstanding
obligations and obtaining funds for general operating expenses or to loan to
other public institutions and facilities. Industrial development bonds are a
specific type of revenue bond backed by the credit and security of a private
user. Certain types of industrial development bonds are issued by or on behalf
of public authorities to obtain funds to provide privately-operated housing
facilities, sports facilities, convention or trade show facilities, airport,
mass transit, port or parking facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity, or
sewage
5
<PAGE>
or solid waste disposal. The Fund may not invest 25% or more of its assets in
industrial development bonds. Assessment bonds, wherein a specially created
district or project area levies a tax (generally on its taxable property) to pay
for an improvement or project may be considered a variant of either category.
There are, of course, other variations in the types of municipal bonds, both
within a particular classification and between classifications, depending on
numerous factors.
Municipal Notes. Municipal notes include, but are not limited to, tax
---------------
anticipation notes ("TANs"), bond anticipation notes ("BANs"), revenue
anticipation notes ("RANs") and construction loan notes. Notes sold as interim
financing in anticipation of collection of taxes, a bond sale or receipt of
other revenues are usually general obligations of the issuer.
TANs. Uncertainty concerning a municipal issuer's capacity to raise
----
taxes as a result of such things as a decline in its tax base or a rise in
delinquencies could adversely affect the issuer's ability to meet its
obligations on outstanding TANs. Furthermore, some municipal issuers mix
various tax proceeds into a general fund that is used to meet obligations other
than those of the outstanding TANs. Use of such a general fund to meet various
obligations could affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations on its
----
BANs is primarily dependent on the issuer's adequate access to the longer term
municipal bond market and the likelihood that the proceeds of such bond sales
will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as anticipated
----
revenues from another level of government, could adversely affect an issuer's
ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
The values of outstanding municipal securities vary as a result of
changing market evaluations of the ability of their issuers to meet the interest
and principal payments (i.e., credit risk). Such values also change in response
- -
to changes in the interest rates payable on new issues of municipal securities
(i.e., market risk). Should such interest rates rise, the values of outstanding
- -- -
securities, including those held in the Fund's portfolio, will decline and (if
purchased at par value) sell at a discount. If interest rates fall, the values
of outstanding securities will generally increase and (if purchased at par
value) would sell at a premium. Changes in the value of municipal securities
held in the Fund's portfolio arising from these or other factors will cause
changes in the net asset value per share of the Fund.
MANAGEMENT
The following information supplements and should be read in conjunction
with the Prospectus section entitled "The Funds and Management." The principal
occupations during the past five years of the Directors and principal executive
Officer of the Company are listed below.
6
<PAGE>
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
Chairman and of Stephens; Manager of
President Financial Services Group;
President of Stephens
Insurance Services Inc.;
Senior Vice President of
Stephens Sports
Management Inc.; and
President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of
321 Beechcliff Court Finance of the School of
Winston-Salem, NC 27104 Business and Accounting
at Wake Forest University
since 1982.
Joseph N. Hankin, 57 Director President of Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; Adjunct Professor
(appointed as of September of Columbia University
6, 1996) Teachers College since
1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 79 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor;
4 Beaufain Street Chairman of Home Account
Charleston, SC 29401 Network, Inc.; Real
Estate Developer;
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
Officer, Secretary Services Group of
and Treasurer Stephens; Director of
Stephens Sports
Management Inc.; and
Director of Capo Inc.
</TABLE>
7
<PAGE>
COMPENSATION TABLE
Year Ended March 31, 1997
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
from Registrant and Fund Complex
---------------------- ------------------
Name and Position
-----------------
<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>
Directors of the Company are compensated annually by the Company and by
all the registrants in each fund complex they serve as indicated above and also
are reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. The Company, Overland Express Funds, Inc., Stagecoach Trust, Life &
Annuity Trust and MIT are considered to be members of the same fund complex as
such term is defined in Form N-1A under the 1940 Act (the "Wells Fargo Fund
Complex"). MasterWorks Funds Inc., Master Investment Portfolio, and Managed
Series Investment Trust together form a separate fund complex (the "BGFA Fund
Complex"). Each of the Directors and Officers of the Company serves in the
identical capacity as directors and officers or as trustees and/or officers of
each registered open-end management investment company in both the Wells Fargo
and BGFA Fund Complexes, except for Joseph N. Hankin, who only serves the
aforementioned members of the Wells Fargo Fund Complex, and Zoe Ann Hines who,
after September 6, 1996, only serves the aforementioned members of the BGFA Fund
Complex. The Directors are compensated by other companies and trusts within a
fund complex for their services as directors/trustees to such companies and
trusts. Currently the Directors do not receive any retirement benefits or
deferred compensation from the Company or any other
8
<PAGE>
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.
Master/Feeder Structure. The Fund currently seeks to achieve its
------------------------
investment objective by investing all of its assets in the Tax-Free Money Market
Master Portfolio of MIT. Upon completion of the anticipated Consolidation and
the dissolution of the Master Portfolio, the Fund will invest directly in a
portfolio of securities and will no longer invest in the Master Portfolio. The
Fund will retain the Master Portfolio's investment adviser for the daily
portfolio management of it's assets, in accordance with its investment
objectives and policies.
The Fund and other entities investing in the Master Portfolio are each
liable for all obligations of the Master Portfolio. However, the risk of the
Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and MIT itself is
unable to meet its obligations. Accordingly, the Company's Board of Directors
believes that neither the Fund nor its shareholders will be adversely affected
by investing Fund assets in the Master Portfolio. However, if a mutual fund or
other investor withdraws its investment from the Master Portfolio, the economic
efficiencies (e.g., spreading fixed expenses among a larger asset base) that the
Company's Board believes may be available through investment in the Master
Portfolio may not be fully achieved. In addition, given the relative novelty of
the master/feeder structure, accounting or operational difficulties, although
unlikely, could arise.
The Fund may withdraw its investment in the Master Portfolio only if the
Company's Board of Directors determines that such action is in the best
interests of the Fund and its shareholders. Upon any such withdrawal, the
Company's Board would consider alternative investments, including investing all
of the Fund's assets in another investment company with the same investment
objective as the Fund or hiring an investment adviser to manage the Fund's
assets in accordance with the investment policies described below with respect
to the Master Portfolio.
The investment objective and other fundamental policies of the Master
Portfolio cannot be changed without approval by the holders of a majority (as
defined in the 1940 Act) of the Master Portfolio's outstanding interests. See
"Investment Objectives and Policies." Whenever the Fund, as an interestholder of
the Master Portfolio, is requested to vote on any matter submitted to
interestholders of the Master Portfolio, the Fund will hold a meeting of its
shareholders to consider such matters. The Fund will cast its votes in
proportion to the votes received from its shareholders. Shares for which the
Fund receives no voting instructions will be voted in the same proportion as the
votes received from the other Fund shareholders.
Certain policies of the Master Portfolio which are non-fundamental may be
changed by vote of a majority of MIT's Trustees without interestholder approval.
If the Master Portfolio's investment objective or fundamental or non-fundamental
policies are changed, the Fund may elect to change its objective or policies to
correspond to those of the Master Portfolio. The Fund may also elect to redeem
its interests in the Master Portfolio and either seek a new investment company
with a matching objective in which to invest or retain its own investment
adviser to manage the Fund's portfolio in accordance with its objective. In the
latter case, the Fund's inability
9
<PAGE>
to find a substitute investment company in which to invest or equivalent
management services could adversely affect shareholders' investments in the
Fund. The Fund will provide shareholders with 30 days' written notice prior to
the implementation of any change in the investment objective of the Fund or the
Master Portfolio, to the extent possible. See "Investment Objective and
Policies" for additional information regarding the Fund's and the Master
Portfolio's investment objectives and policies.
Investment Adviser. The Fund has not engaged an investment adviser. The
------------------
Master Portfolio is advised by Wells Fargo Bank. Upon completion of the
anticipated Consolidation and the dissolution of the Master Portfolio, the Fund
will retain Wells Fargo Bank, the Master Portfolio's current investment adviser,
to manage it's assets under an advisory contract providing for substantially the
same services being provided to the Master Portfolio.
The current Advisory Contract for the Master Portfolio provides that
Wells Fargo Bank shall furnish to the Master Portfolio investment guidance and
policy direction in connection with the daily portfolio management of the Master
Portfolio. Pursuant to the Investment Advisory Contract, Wells Fargo Bank also
furnishes to MIT's Board of Trustees periodic reports on the investment strategy
and performance of the Master Portfolio. For its services as investment adviser
to the Master Portfolio, Wells Fargo Bank is entitled to receive a monthly fee
at the annual rate of 0.30% of the Master Portfolio's average daily net assets.
Wells Fargo Bank has agreed to provide to the Master Portfolio, among
other things, money market security and fixed-income research, analysis, and
statistical and economic data, and information concerning interest rate and
security market trends, portfolio composition, credit conditions and average
maturities of the Master Portfolio's portfolio.
For the period beginning April 2, 1996 (commencement of operations) and
ended September 30, 1996, the Master Portfolio paid Wells Fargo Bank $76,987 in
advisory fees and Wells Fargo Bank waived $10,704 in advisory fees.
The Advisory Contract will continue in effect for more than two years
provided the continuance is approved annually (i) by the holders of a majority
of the Master Portfolio's outstanding voting securities or by MIT's Board of
Trustees and (ii) by a majority of the Trustees of MIT 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 respective Administration and Co-Administration Agreements among Wells
Fargo Bank, Stephens and the Company, Wells Fargo Bank and Stephens shall
provide as administrative 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
10
<PAGE>
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 a
monthly fee of 0.04% and 0.02%, respectively, of the average daily net assets of
the Fund.
For the period beginning April 2, 1996 and ended September 30, 1996,
Stephens served as sole administrator to the Fund, and received $731 in
administrative fees. Stephens was entitled to receive a monthly fee at the
annual rate of 0.05% of the Fund's average daily net assets for such services.
Sponsor and Distributor. As discussed in the Fund's prospectus under the
-----------------------
heading "Management and Servicing Fees," Stephens serves as the Fund's sponsor
and distributor.
Shareholder Servicing Agent. As discussed in the Fund's Prospectus under
---------------------------
the heading "Shareholder Servicing Agent," the Fund has approved a Servicing
Plan and has entered into related shareholder servicing agreements with
financial institutions, including Wells Fargo Bank. For providing these
services, a shareholder servicing agent is entitled to a fee from the Fund of up
to 0.20%, on an annualized basis, of the average daily net asset value of the
Institutional Class shares owned by or attributable to such customers of the
Shareholder Servicing Agent.
Servicing Plan. The Servicing Plan for the Institutional Class shares of
--------------
the Fund and related shareholder servicing agreements were approved by the
Company's Board of Directors including a majority of the Directors who were not
"interested persons" (as defined in the Act) of the Fund and who had no direct
or indirect financial interest in the operation of the Servicing Plan or in any
agreement related to the Servicing Plan (the "Servicing Plan Qualified
Directors").
The actual fee payable to servicing agents under the Servicing Plan for
the Institutional Class shares is determined, within such limits, from time to
time by mutual agreement between the Company and each servicing agent and will
not exceed the maximum amounts payable by mutual funds sold by members of the
NASD under Article III, Section 26 of the NASD Rules of Fair Practice.
The Servicing Plan for the Institutional Class shares continues in effect
from year to year if such continuance is approved by a majority vote of both the
Directors of the Company and the Servicing Plan Qualified Directors. Any form
of servicing agreement related to the Servicing Plan also must be approved by
such vote of the Directors and the Servicing Plan Qualified Directors.
Servicing agreements may be terminated at any time, without payment of any
penalty, by vote of a majority of the Servicing Plan Qualified Directors. No
material amendment to the Servicing Plan may be made except by a majority of
both the Directors of the Company and the Servicing Plan Qualified Directors.
11
<PAGE>
The Servicing Plan for the Institutional Class shares requires that the
administrator shall provide to the Directors, and the Directors shall review, at
least quarterly, a written report of the amounts expended (and purposes
therefor) under the Servicing Plan.
Custodian And Transfer and Dividend Disbursing Agent. Wells Fargo Bank
----------------------------------------------------
has been retained to act as custodian and transfer and dividend disbursing agent
for the Fund. The custodian, among other things, maintains separate custody
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.
For its services as transfer and dividend disbursing agent for the
Institutional Class shares of the Fund, Wells Fargo Bank is entitled to receive
monthly payments at the annual rate of 0.02% of the average daily net assets of
the Funds Institutional Class shares. Under the prior transfer agency agreement
for the Fund, Wells Fargo Bank was entitled to receive monthly payments at the
annual rate of 0.10% of the Fund's average daily net assets plus reimbursement
for all reasonable out-of-pocket expenses.
For the period beginning April 2, 1996 and ended September 30, 1996, the
Fund did not pay any compensation to Wells Fargo Bank for custodial services or
transfer and dividend disbursing agency services.
PERFORMANCE CALCULATIONS
The following information supplements and should be read in conjunction
with the Prospectus sections entitled "Investing in the Fund -- Share Value" and
"How the Fund Works -- Performance." Performance figures for each class of
shares of the Fund will vary due to different expense levels.
Total Return. The Fund may advertise certain total return information
------------
for a class of shares, computed in the manner described in the Prospectus. As
and to the extent required by the Commission, an average annual compound rate of
return ("T") will be computed by using the redeemable value at the end of a
specified period ("ERV") of a hypothetical initial investment in a class of
shares ("P") over a period of years ("n") according to the following formula:
P(1+T)n = ERV. In addition, as indicated in the Prospectus, the Fund also may,
at times, calculate total return for a class of shares based on net asset value
per share (rather than the public offering price), in which case the figures
would not reflect the effect of any sales charges that would have been paid by
an investor, or would be based on the assumption that a sales charge other than
the
12
<PAGE>
maximum sales charge (reflecting a Volume Discount) was assessed, provided that
total return data derived pursuant to the calculation described above also are
presented.
In addition to the above performance information, the Fund may also
advertise the cumulative total return of a class. The cumulative total return
for such periods is based on the overall percentage change in value of a
hypothetical investment in a class of shares, assuming all dividends and capital
gain distributions are reinvested in shares of that class, without reflecting
the effect of any sales charge that would be paid by an investor, and is not
annualized.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year.
Yield. The Fund may advertise certain yield information. Yield for the
-----
Fund is calculated based on the net changes, exclusive of capital changes, over
a seven- or thirty-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 or 365/30, as applicable) with the
resulting yield figure carried to at least the nearest hundredth of one percent.
Tax-equivalent yield for the Fund is computed by dividing that portion of
the yield of the Fund which is tax-exempt by one minus a stated income tax rate
and then adding the product to that portion, if any, of the Fund's yield that is
not tax-exempt.
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 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 yield for the Fund fluctuates from time to time, unlike bank deposits
or other investments that pay a fixed yield for a stated period of time, and
does not provide a basis for determining future yields since it is based on
historical data. Yield is a function of portfolio quality, composition,
maturity and market conditions as well as the expenses allocated to the Fund.
In addition, investors should recognize that changes in the net asset
value of shares of the Fund will affect the Fund's yield for any specified
period, and such changes should be considered together with the Fund's yield in
ascertaining the Fund's total return to shareholders for the period. Yield
information for the Fund may be useful in reviewing the performance of the Fund
and for providing a basis for comparison with investment alternatives. The
Fund's yield, however, may not be comparable to the yields from investment
alternatives because of differences
13
<PAGE>
in the foregoing variables and differences in the methods used to value
portfolio securities, compute expenses and calculate yield.
Performance Comparisons. From time to time and only to the extent the
-----------------------
comparison is appropriate for a class of shares of 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 91-Day Treasury Bill
Average (Federal Reserve), Lipper Money Market Fund Average, Donoghue Taxable
Money Market Fund Average, Salomon Three-Month Treasury Bill Index, Bank
Averages (which are calculated from figures supplied by the U.S. League of
Savings Institutions based on effective annual rates of interest on both
passbook and certificate accounts), Dow Jones Industrial Average, Lehman
Brothers 20+ Treasury Index, Lehman Brother 5-7 Year Treasury Index, Real Estate
Investment Averages (as reported by the National Association of Real Estate
Investment Trusts), Gold Investment Averages (provided by the World Gold
Council), the Consumer Price Index (as published by the U.S. Bureau of Labor
Statistics and which is an established measure of change over time in the prices
of goods and services in major expenditure groups), average annualized
certificate of deposit rates (from the Federal Reserve G-13 Statistical Releases
or the Bank Rate Monitor), the Salomon One Year Treasury Benchmark Index, the
Consumer Price Index (as published by the U.S. Bureau of Labor Statistics),
other managed or unmanaged indices or performance data of bonds, municipal
securities, stocks or government securities (including data provided by Ibbotson
Associates), or by other services, companies, publications or persons who
monitor mutual funds on overall performance or other criteria. The S&P Index
and the Dow Jones Industrial Average are unmanaged indices of selected common
stock prices.
The performance of a class of shares of the Fund also may be compared to
the performance of other mutual funds having similar objectives. This
comparative performance could be expressed as a ranking prepared by Lipper
Analytical Services, Inc. (including the Lipper General Bond Fund Average, the
Lipper Intermediate Investment Grade Debt Fund Average, the Lipper Bond Fund
Average, the Lipper Growth Fund Average, the Lipper Flexible Fund Average),
Donoghue's Money Fund Report, including Donoghue's Taxable Money Market Fund
Average, Morningstar, Inc., or other 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 in advertisements
and other types of literature references to certain marketing approaches of the
Distributor and may also refer to general mutual fund statistics provided by the
Investment Company Institute.
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
a class of shares of the Fund: (i) the Consumer Price Index may be used to
assess the real rate of return from an investment in 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
14
<PAGE>
economic, business, investment, or financial environment in which the Fund
operates; (iii) the effect of tax-deferred compounding on the investment returns
of the Fund, or on returns in general, may be illustrated by graphs, charts,
etc., where such graphs or charts would compare, at various points in time, the
return from an investment in the Fund (or returns in general) on a tax-deferred
basis (assuming reinvestment of capital gains and dividends and assuming one or
more tax rates) with the return on a taxable basis; and (iv) the sectors or
industries in which the Fund invests may be compared to relevant indices of
stocks or surveys (e.g., S&P Industry Surveys) to evaluate the Fund's
----
historical performance or current or potential value with respect to the
particular industry or sector.
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 some of the first investment managers to advise
investment accounts using asset allocation and index strategies. The Company
also may include in advertising and other types of literature information and
other data from reports and studies prepared by the Tax Foundation, including
information regarding federal and state tax levels and the related "Tax Freedom
Day."
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Fargo Investment Management
("WFIM"), a division of Wells Fargo Bank, is listed in the top 100 by
Institutional Investor magazine in its July 1996 survey "America's Top 300 Money
Managers." This survey ranks money managers in several asset categories.
The Company also may disclose in sales literature the assets and
categories of assets under management by the Fund's investment adviser and its
affiliates. The Company may also disclose in advertising and other types of
sales literature the assets and categories of assets under management by a
fund's investment adviser or sub-adviser and the total amount of assets and
mutual fund assets managed by Wells Fargo Bank. As of April 1, 1997, Wells
Fargo Bank and its affiliates provided investment advisory services for
approximately $57 billion of assets of individuals, trusts, estates and
institutions.
The Company also may discuss in advertisements and other types of
literature that the Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as Standard & Poors Corporation.
Such rating would assess the creditworthiness of the investments held by the
Fund. The assigned rating would not be a recommendation to purchase, sell or
hold the Fund's shares since the rating would not comment on the market price of
the Fund's shares or the suitability of the Fund for a particular investor. In
addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or unavailability of, information relating
to the Fund or its investments. The Company may compare the Fund's performance
with other investments which are assigned ratings by NRSROs. Any such
comparisons may be useful to investors who wish to compare the Fund's past
performance with other rated investments.
15
<PAGE>
The Company also may discuss in advertisements and other types of
literature the features, terms and conditions of Wells Fargo Bank accounts
through which investments in the Fund may be made via a "sweep" arrangement,
including, without limitation, through investments in a Managed Sweep Account,
National Tax-Free Money Market Checking Account or National Tax-Free Money
Market Access Account (collectively, the "Sweep Accounts"). Such advertisements
and other literature may include, without limitation, discussions of such terms
and conditions as the minimum deposit required to open a Sweep Account, a
description of the yield earned on shares of the Fund through a Sweep Account, a
description of any monthly or other service charge on a Sweep Account and any
minimum required balance to waive such service charges, any overdraft protection
plan offered in connection with a Sweep Account, a description of any express
transfer or "AutoSaver" plan offered in connection with a Sweep Account, a
description of any automated teller machine ("ATM") or check privileges offered
in connection with a Sweep Account and any other terms, conditions, features or
plans offered in connection with a Sweep Account. Such advertising or other
literature may also include a discussion of the advantages of establishing and
maintaining a Sweep Account, and may include statements from customers as to the
reasons why such customers have established and maintained a Sweep Account.
The Company may disclose in advertising and other types of literature that
investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share of each class of the Fund is determined by the
Custodian on each day the Fund is open for trading. The Fund's investments in
the Master Portfolio are valued at the net asset value of the Master Portfolio's
shares.
As indicated in the Fund's Prospectus, the Master Portfolio uses the
amortized cost method to determine the value of its portfolio securities
pursuant to Rule 2a-7 under the 1940
16
<PAGE>
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 Master Portfolio would receive if the security were sold.
During these periods the yield to a shareholder may differ somewhat from that
which could be obtained from a similar fund that uses a method of valuation
based upon market prices. Thus, during periods of declining interest rates, if
the use of the amortized cost method resulted in a lower value of the Master
Portfolio's portfolio on a particular day, a prospective investor in the Master
Portfolio would be able to obtain a somewhat higher yield than would result from
investment in a fund using solely market values, and existing Master Portfolio
shareholders would receive correspondingly less income. The converse would apply
during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, the Master Portfolio must maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase securities having
remaining maturities (as defined in Rule 2a-7) of thirteen months or less and
invest only in those high-quality securities that are determined by MIT's Board
of Trustees 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,
MIT's Board of Trustees is required to establish procedures designed to
stabilize, to the extent reasonably possible, the Master Portfolio's price per
share as computed for the purpose of sales and redemptions at $1.00. Such
procedures include review of the Master Portfolio's portfolio holdings by MIT's
Board of Trustees, at such intervals as it may deem appropriate, to determine
whether or not the Master Portfolio's net asset value calculated by using
available market quotations deviates from $1.00 per share based on amortized
cost. The extent of any deviation will be examined by said Board of Trustees.
If such deviation exceeds 1/2 of 1%, said Board will promptly consider what
action, if any, will be initiated. In the event the Board determines that a
deviation exists that may result in material dilution or other unfair results to
investors or existing shareholders, the Board will take such corrective action
as it regards as necessary and appropriate, including the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity, withholding dividends or establishing a net asset
value per share by using available market quotations.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund may be purchased on any day the Fund is open for
business, provided Wells Fargo Bank also is open for business (a "Business
Day"). Currently, Wells Fargo Bank is closed on New Year's Day, President's
Day, Martin Luther King, Jr. Day, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day (each a
"Holiday"). When any Holiday falls on a weekend, the Fund typically is closed on
the weekday immediately before or after such Holiday.
17
<PAGE>
Payment for shares may, in the discretion of the adviser, be made in the
form of securities that are permissible investments for the Fund as described in
the Prospectus. 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 a Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
MIT 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 MIT's Board of Trustees, Wells Fargo Bank is responsible for the
Master Portfolio's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of MIT to obtain the best
results taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. While Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions, the Master
Portfolio will not necessarily be paying the lowest spread or commission
available.
Purchase and sale orders of the securities held by the Master Portfolio
may be combined with those of other accounts that Wells Fargo Bank manages, and
for which it has brokerage placement authority, in the interest of seeking the
most favorable overall net results. When Wells Fargo Bank determines that a
particular security should be bought or sold for the
18
<PAGE>
Master Portfolio and other accounts managed by Wells Fargo Bank, Wells Fargo
Bank undertakes to allocate those transactions among the participants equitably.
Purchases and sales of securities usually will be principal transactions.
Portfolio securities normally will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. The Master
Portfolio also purchases portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, municipal obligations,
taxable money market securities, adjustable rate mortgage securities and
collateralized mortgage obligations are traded on a net basis and do not involve
brokerage commissions. The cost of executing the Master Portfolio's portfolio
securities transactions consists primarily of dealer spreads and underwriting
commissions. Under the 1940 Act, persons affiliated with the Master Portfolio
are prohibited from dealing with the Master Portfolio as a principal in the
purchase and sale of securities unless an exemptive order allowing such
transactions is obtained from the SEC or an exemption is otherwise available.
The Master Portfolio may purchase municipal obligations from underwriting
syndicates of which Stephens or Wells Fargo Bank is a member under certain
conditions in accordance with the provisions of a rule adopted under the 1940
Act and in compliance with procedures adopted by MIT's Board of Trustees.
Wells Fargo Bank, as the Master Portfolio's investment adviser, may, in
circumstances in which two or more dealers are in a position to offer comparable
results for a Master Portfolio transaction, give preference to a dealer that has
provided statistical or other research services to Wells Fargo Bank. By
allocating transactions in this manner, Wells Fargo Bank is able to supplement
its research and analysis with the views and information of securities firms.
Information so received will be in addition to, and not in lieu of, the services
required to be performed by Wells Fargo Bank under the Advisory Contract, and
the expenses of Wells Fargo Bank will not necessarily be reduced as a result of
the receipt of this supplemental research information. Furthermore, research
services furnished by dealers through which Wells Fargo Bank places securities
transactions for the Master Portfolio may be used by Wells Fargo Bank in
servicing its other accounts, and not all of these services may be used by Wells
Fargo Bank in connection with advising the Master Portfolio.
Portfolio Turnover. Because the Master Portfolio's portfolio consists of
------------------
securities with relatively short-term maturities, the Master Portfolio can
expect to experience high portfolio turnover. A high portfolio turnover rate
should not adversely affect the Master Portfolio (or the Fund), however, because
portfolio transactions ordinarily will be made directly with principals on a net
basis and, consequently, the Master Portfolio (and, accordingly, the Fund)
usually will not incur excessive transaction costs.
FUND EXPENSES
Except for the expenses borne by Wells Fargo Bank and Stephens, the
Company bears all costs of its operations, including the compensation of its
Directors who are not affiliated with
19
<PAGE>
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
In General. The following information supplements and should be read in
----------
conjunction with the Prospectus sections entitled "Dividend and Capital Gain
Distributions" and "Taxes." The Prospectus describes generally the tax
treatment of distributions by the Fund. This section of the SAI includes
additional information concerning federal income taxes.
The Company intends to qualify the Fund as a regulated investment company
under Subchapter M of the Code as long as such qualification is in the best
interest of the Fund's shareholders. The Fund will be treated as a separate
entity for tax purposes and thus the provisions of the Code applicable to
regulated investment companies will generally be applied to the Fund, rather
than to the Company as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for the Fund.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) the Fund derive at least 90% of its annual gross
income from interest, payments with respect to securities loans, dividends and
gains from the sale or other disposition of securities or options thereon; (b)
the Fund derive less than 30% of its gross income from gains from the sale or
other disposition of securities or options thereon held for less than three
months; and (c) the Fund diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash, government securities and other securities
limited in respect of any one issuer to an amount not greater than 5% of the
Fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government securities and the securities of
other regulated investment companies), or in two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades or
businesses. As a regulated investment company, the Fund will not be subject to
federal income tax on its net investment income and net capital gains
distributed to its
20
<PAGE>
shareholders, provided that it distributes to its shareholders at least 90% of
its net investment income, including net tax-exempt income, earned in each year.
The Fund intends to pay out substantially all of its net investment income and
net realized capital gains (if any) for each year.
A 4% nondeductible excise tax will be imposed on the Fund (other than to
the extent of the Fund's tax-exempt income) to the extent it does not meet
certain minimum distribution requirements by the end of each calendar year. The
Fund will either actually or be deemed to distribute all of its net investment
income and net capital gains by the end of each calendar year and, thus, expects
not to be subject to the excise tax.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.60% (marginal rates may
be higher for some individuals due to phase out of exemptions and elimination of
deductions); the maximum individual marginal tax rate applicable to net capital
gains is 28.00%; the maximum corporate tax rate applicable to ordinary income
and net capital gains is 35.00% (except that to eliminate the benefit of lower
marginal corporate income tax rates, corporations which have taxable income in
excess of $100,000 for a taxable year will be required to pay an additional
amount of income tax of up to $11,750 and corporations which have taxable income
in excess of $15,000,000 for a taxable year will be required to pay an
additional amount of tax of up to $100,000). Naturally, the amount of tax
payable by an individual or corporation will be affected by a combination of tax
laws covering, for example, deductions, credits, deferrals, exemptions, sources
of income and other matters.
Capital Gain Distributions. To the extent that the Fund recognizes long-
--------------------------
term capital gains, such gains will be distributed at least annually and these
distributions will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held Fund shares. Such distributions
will be designated as capital gain distributions in a written notice mailed by
the Fund to the shareholders not later than 60 days after the close of the
Fund's taxable year.
Other Distributions. Although dividends will be declared daily based on
-------------------
the Fund's daily earnings, for federal income tax purposes, the Fund's earnings
and profits will be determined at the end of each taxable year and will be
allocated pro rata over the entire year. For federal income tax purposes, only
amounts paid out of earnings and profits will qualify as dividends. Thus, if
during a taxable year the Fund's declared dividends (as declared daily
throughout the year) exceed the Fund's net income (as determined at the end of
the year), only that portion of the year's distributions which equals the year's
earnings and profits will be deemed to have constituted a dividend. It is
expected that the Fund's net income, on an annual basis, will equal the
dividends declared during the year.
Disposition of Fund Shares. If a shareholder receives a designated
--------------------------
capital gain distribution (to be treated by the shareholder as a long-term
capital gain) with respect to any Fund share and such Fund share is held for six
months or less, then (unless otherwise disallowed) any loss on the sale or
exchange of that Fund share will be treated as a long-term capital loss to the
extent of the designated capital gain distribution. In addition, any loss
realized by a shareholder upon the sale or redemption of Fund shares held less
than six months is disallowed to the extent of
21
<PAGE>
any exempt-interest dividends received thereon by the shareholder. These rules
shall not apply, however, to losses incurred under a periodic redemption plan.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or of a different regulated investment company,
the sales charge previously incurred acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are reacquired within the 61-day
period beginning 30 days before and ending 30 days after the shares are disposed
of.
Taxation of Fund Investments. Gains or losses on sales of portfolio
----------------------------
securities by the Fund will generally be long-term capital gains or losses if
the securities have been held by it for more than one year, except in certain
cases such as where the Fund acquires a put or writes a call thereon. Gains
recognized on the disposition of a debt obligation (including tax-exempt
obligations purchased after April 30, 1993) purchased by the Fund at a market
discount (generally at a price less than its principal amount) will be treated
as ordinary income to the extent of the portion of market discount which accrued
during the period of time the Fund held the debt obligation. Other gains or
losses on the sale of portfolio securities will be short-term capital gains or
losses.
Foreign Shareholders. Under the Code, distributions of net investment
--------------------
income by the Fund to a nonresident alien individual, nonresident alien
fiduciary of a trust or estate, foreign corporation, or foreign partnership (a
"foreign shareholder") will be subject to U.S. withholding tax (at a rate of 30%
or a lower treaty rate). Withholding will not apply if a dividend paid by the
Fund to a foreign shareholder is "effectively connected" with a U.S. trade or
business, in which case the reporting and withholding requirements applicable to
U.S. citizens, U.S. residents or domestic corporations will apply.
Distributions of net long-term capital gains are not subject to tax withholding,
but in the case of a foreign shareholder who is a nonresident alien individual,
such distributions ordinarily will be subject to U.S. income tax at a rate of
30% if the individual is physically present in the U.S. for more than 182 days
during the taxable year.
Backup Withholding. The Company may be required to withhold, subject to
------------------
certain exemptions, at a rate of 31% ("backup withholding") on dividends,
capital gain distributions, and redemption proceeds (including proceeds from
exchanges) paid or credited to an individual Fund 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.
22
<PAGE>
Other Matters. Investors should be aware that the investments to be made
-------------
by the Fund may involve sophisticated tax rules that may result in income or
gain recognition by the Fund without corresponding current cash receipts.
Although the Fund will seek to avoid significant noncash income, such noncash
income could be recognized by the Fund, in which case the Fund may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus address
only some of the federal tax considerations generally affecting investments in
the Fund. Each investor is urged to consult his or her tax advisor regarding
specific questions as to federal, state or local taxes and foreign taxes.
CAPITAL STOCK
The Fund is one of the funds of 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 funds.
Most of the Company's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, a class subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Company's funds also are authorized to
issue other classes of shares, which are sold primarily to institutional
investors. Each class of shares in a fund represents an equal, proportionate
interest in a fund with other shares of the same class. Shareholders of each
class bear their pro rata portion of the fund's operating expenses, except for
certain class-specific expenses (e.g., any state securities registration fees,
shareholder servicing fees or distribution fees that may be paid under Rule 12b-
1) that are allocated to a particular class. Please contact Stagecoach
Shareholder Services at 1-800-260-5969 if you would like additional information
about other funds or classes of shares offered.
All shares of the Fund have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by series is required by law
or where the matter involved only affects one series. For example, a change in
the Fund's fundamental investment policy would be voted upon only by
shareholders of the Fund. Additionally, approval of an advisory contract is a
matter to be determined separately by Fund. As used in the Fund's Prospectus
and in this SAI, the term "majority," when referring to approvals to be obtained
from shareholders of the Fund, means the vote of the lesser of (i) 67% of the
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
23
<PAGE>
(ii) more than 50% of the Company's outstanding shares. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held.
The Company may dispense with an annual meeting of shareholders in any
year in which it is not required to elect Directors under the 1940 Act.
However, the Company has undertaken to hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a Director
or Directors if requested in writing by the holders of at least 10% of the
Company's outstanding voting securities, and to assist in communicating with
other shareholders as required by Section 16(c) of the 1940 Act.
Each share of the Fund represents an equal proportional interest in the
Fund with each other share and is entitled to such dividends and distributions
out of the income earned on the assets belonging to the Fund as are declared in
the discretion of the Directors. In the event of the liquidation or dissolution
of the Company, shareholders of the Fund are entitled to receive the assets
attributable to the Fund that are available for distribution, and a distribution
of any general assets not attributable to a particular investment portfolio that
are available for distribution in such manner and on such basis as the Directors
in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and non-assessable by the Company.
MIT is a business trust organized under the laws of Delaware. In
accordance with Delaware law and in connection with the tax treatment sought by
MIT, MIT's Declaration of Trust provides that its investors would be personally
responsible for MIT liabilities and obligations, but only to the extent MIT's
property is insufficient to satisfy such liabilities and obligations. The
Declaration of Trust also provides that MIT shall maintain appropriate insurance
(for example, fidelity bonding and errors and omissions insurance) for the
protection of MIT, its investors, Trustees, Officers, employees and agents
covering possible tort and other liabilities, and that investors will be
indemnified to the extent they are held liable for a disproportionate share of
MIT obligations. Thus, the risk of an investor incurring financial loss on
account of investor liability is limited to circumstances in which both
inadequate insurance exists and MIT itself is unable to meet its obligations.
The Declaration of Trust further provides that obligations of MIT are not
binding upon the Trustees individually but only upon the property of MIT and
that the Trustees will not be liable for any action or failure to act, but
nothing in the Declaration of Trust protects a Trustee against any liability to
which the Trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of the Trustee's office.
The interests in the Master Portfolio have substantially identical voting
and other rights as those rights enumerated above for shares of the Fund. MIT
also intends to dispense with annual meetings, but is required by Section 16(c)
of the Act to hold a special meeting and assist investor communications under
the circumstances described above with respect to the Company. Whenever the
Fund is requested to vote on a matter with respect to the Master Portfolio, the
24
<PAGE>
Fund will hold a meeting of Fund shareholders and will cast its votes as
instructed by such shareholders. In a situation where the Fund does not receive
instruction from certain of its shareholders on how to vote the corresponding
shares of the Master Portfolio, the Fund will vote such shares in the same
proportion as the shares for which the Fund does receive voting instructions.
As of July 31, 1997, no shareholders were known by the Company to own 5%
or more of the outstanding Institutional Class shares of the Fund. Set forth
below is the name, address and share ownership of each person known by the
Company to have beneficial or record ownership of 5% or more of a class of the
Fund or 5% or more of the voting securities of the Fund as a whole.
5% OWNERSHIP AS OF JANUARY 2, 1997
----------------------------------
<TABLE>
<CAPTION>
Name and Class; Type Percentage Percentage
Fund Address of Ownership of Class of Fund
---- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
NATIONAL TAX- Wells Fargo Bank Class A 84.18% 84.18%
FREE MONEY P.O. Box 7066 Beneficially Owned
MARKET MUTUAL San Francisco, CA 94120
Karl R. Kriegbaum Class A 6.82% 6.82%
11259 Good Night Lane #1 Record Holder
Dallas, TX 75229
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
-------------------------------
holder of more than 25% of a class (or Fund), or is identified as the holder of
- --------------------------------------------
record of more than 25% of a class (or Fund) and has voting and/or investment
-----------------
powers, it may be presumed to control such class (or Fund).
OTHER
The Company's Registration Statements, including the Fund's Prospectus
and the SAI and the exhibits filed therewith, may be examined at the office of
the SEC in Washington, D.C. Statements contained in the Prospectus or the SAI
as to the contents of any contract or other document referred to herein or in
the Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statements, each such statement being qualified in all respects by
such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP have been selected as the independent auditors for
the Company and MIT. KPMG Peat Marwick LLP provides audit services, tax return
preparation
25
<PAGE>
and assistance and consultation in connection with review of certain SEC
filings. KPMG Peat Marwick LLP's address is Three Embarcadero Center, San
Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and
independent auditors' reports for the Fund and Master Portfolio for the fiscal
period ended September 30, 1996 are hereby incorporated by reference to the
Company's Annual Report as filed with the SEC on December 9, 1996. The
portfolio of investments, audited financial statements and independent auditors'
report for the Fund and the Master Portfolio for the fiscal period ended March
31, 1997 are hereby incorporated by reference to the Company's Annual Report as
filed with the SEC on June 4, 1997. The portfolio of investments, audited
financial statements and independent auditors' report for the Fund are attached
to all SAIs delivered to current or prospective shareholders.
26
<PAGE>
SAI APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate and Municipal Bonds
- -----------------------------
Moody's: The four highest ratings for corporate and municipal bonds are
-------
"Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest amount of investment risk. Bonds rated "Aa" are
of "high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds
rated "A" possess many favorable investment attributes and are considered to be
upper medium grade obligations. Bonds rated "Baa" are considered to be medium
grade obligations; interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's also applies numerical modifiers
in its rating system: 1, 2 and 3 in each rating category from "Aa" through
"Baa" in its rating system. The modifier 1 indicates that the security ranks in
the higher end of its category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are "AAA,"
---
"AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned by S&P
and have an extremely strong capacity to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity to pay interest and repay
principal" and differ "from the highest rated issued only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having an "adequate capacity" to pay interest and
repay principal, but changes in economic conditions or other circumstances are
more likely to lead to a "weakened capacity" to make such repayments. The
ratings from "AA" to "BBB" may be modified by the addition of a plus or minus
sign to show relative standing within the category.
Municipal Notes
- ---------------
Moody's: The highest ratings for state and municipal short-term
-------
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG 2"
or "VMIG 2" are of "high quality," with margins of protections "ample although
not as large as in the preceding group." Notes rated "MIG 3" or "VMIG 3" are of
"favorable quality," with all security elements accounted for, but lacking the
strength of the preceding grades.
A-1
<PAGE>
S&P: The "SP-1" rating reflects a "very strong or strong capacity to pay
---
principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
Corporate and Municipal Commercial Paper
- ----------------------------------------
Moody's: The highest rating for corporate and municipal commercial paper
-------
is "P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for repayment
of short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate and municipal commercial paper
---
indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
Corporate Notes
- ---------------
S&P: The two highest ratings for corporate notes are "SP-1" and "SP-2."
---
The "SP-1" rating reflects a "very strong or strong capacity to pay principal
and interest." Notes issued with "overwhelming safety characteristics" will be
rated "SP-1+." The "SP-2" rating reflects a "satisfactory capacity" to pay
principal and interest.
A-2
<PAGE>
STAGECOACH FUNDS, INC.
SEC Registration Nos. 33-42927; 811-6419
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
--------------------
With respect to the Aggressive Growth, Arizona Tax-Free, Asset
Allocation, Balanced, California Tax-Free Bond, California Tax-Free
Income, California Tax-Free Money Market Mutual, Corporate Stock,
Diversified Income, Equity Value, Ginnie Mae, Government Money Market
Mutual, Growth and Income, Intermediate Bond, Money Market Mutual,
Money Market Trust, National Tax-Free, National Tax-Free Money Market
Mutual, Oregon Tax-Free, Prime Money Market Mutual, Short-Intermediate
U.S. Government Income, Small Cap, Treasury Money Market Mutual and
U.S. Government Allocation Funds, the portfolio of investments,
audited financial statements and independent auditors' report for the
fiscal period ended March 31, 1997 are incorporated in the respective
statements of additional information for such Funds by reference to
the Company's Annual Reports, as filed with the SEC on June 4, 1997.
With respect to the Asset Allocation, Capital Appreciation, Corporate
Stock, Small Cap, Tax-Free Money Market and U.S. Government Allocation
Master Portfolios of Master Investment Trust, the portfolio of
investments, audited financial statements and independent auditors'
report for the fiscal period ended March 31, 1997 are incorporated in
the respective statements of additional information for such Funds by
reference to the Company's Annual Reports as filed with the SEC on
June 4, 1997.
With respect to the International Equity Fund and National Tax Free
Money Market Trust, the financial statements for such Funds will be
incorporated by reference in their respective statements of additional
information when available.
(b) Exhibits:
--------
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
1 - Amended and Restated Articles of Incorporation dated November
22, 1995, incorporated by reference to Post-Effective
Amendment No. 17 to the Registration Statement, filed
November 29, 1995.
2 - By-Laws, incorporated by reference to Post-Effective
Amendment No. 31 to the Registration Statement, filed May 15,
1997.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
3 - Not Applicable
4 - Not Applicable
5(a)(i) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Asset Allocation Fund, incorporated by reference to
Post-Effective Amendment No. 2 to the Registration Statement,
filed April 17, 1992.
5(a)(ii) - Sub-Advisory Contract with Barclays Global Fund Advisors on
behalf of the Asset Allocation Fund, incorporated by
reference to Post-Effective Amendment No. 21 to the
Registration Statement, filed February 29, 1996.
5(b)(i) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the U.S. Government Allocation Fund, incorporated by
reference to Post-Effective Amendment No. 2 to the
Registration Statement, filed April 17, 1992.
5(b)(ii) - Sub-Advisory Contract with Barclays Global Fund Advisors on
behalf of the U.S. Government Allocation Fund, incorporated
by reference to Post-Effective Amendment No. 21 to the
Registration Statement, filed February 29, 1996.
5(c) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the California Tax-Free Money Market Mutual Fund,
incorporated by reference to Post-Effective Amendment No. 2
to the Registration Statement, filed April 17, 1992.
5(d) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the California Tax-Free Bond Fund, incorporated by reference
to Post-Effective Amendment No. 2 to the Registration
Statement, filed April 17, 1992.
5(e) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Ginnie Mae Fund, incorporated by reference to Post-
Effective Amendment No. 2 to the Registration Statement,
filed April 17, 1992.
5(f) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Growth and Income Fund, incorporated by reference to Post-
Effective Amendment No. 2 to the Registration Statement,
filed April 17, 1992.
5(g)(i) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Corporate Stock Fund, incorporated by reference to Post-
Effective Amendment No. 2 to the Registration Statement,
filed April 17, 1992.
5(g)(ii) - Sub-Advisory Contract with Barclays Global Fund Advisors on
behalf of the Corporate Stock Fund, incorporated by reference
to Post-Effective Amendment No. 21 to the Registration
Statement, filed February 29, 1996.
5(h) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Money Market Mutual Fund, incorporated by reference to
Post-Effective Amendment No. 3 to the Registration Statement,
filed May 1, 1992.
5(i) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the California Tax-Free Income Fund, incorporated by
reference to Post-Effective Amendment No. 4 to the
Registration Statement, filed September 10, 1992.
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C>
5(j) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Diversified Income Fund, incorporated by reference to
Post-Effective Amendment No. 17 to the Registration
Statement, filed November 29, 1995.
5(k) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Arizona Tax-Free Fund, incorporated by reference to Post-
Effective Amendment No. 30 to the Registration Statement,
filed January 31, 1997.
5(l) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Balanced Fund, incorporated by reference to Post-
Effective Amendment No. 30 to the Registration Statement,
filed January 31, 1997.
5(m) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Equity Value Fund, incorporated by reference to Post-
Effective Amendment No. 30 to the Registration Statement,
filed January 31, 1997.
5(n) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Government Money Market Mutual Fund, incorporated by
reference to Post-Effective Amendment No. 30 to the
Registration Statement, filed January 31, 1997.
5(o) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Intermediate Bond Fund, incorporated by reference to Post-
Effective Amendment No. 30 to the Registration Statement,
filed January 31, 1997.
5(p) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Money Market Trust Fund, incorporated by reference to
Post-Effective Amendment No. 30 to the Registration
Statement, filed January 31, 1997.
5(q) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the National Tax-Free Fund, incorporated by reference to Post-
Effective Amendment No. 30 to the Registration Statement,
filed January 31, 1997.
5(r) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Oregon Tax-Free Fund, incorporated by reference to Post-
Effective Amendment No. 30 to the Registration Statement,
filed January 31, 1997.
5(s) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Prime Money Market Mutual Fund, incorporated by reference
to Post-Effective Amendment No. 30 to the Registration
Statement, filed January 31, 1997.
5(t) - Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Treasury Money Market Mutual Fund, incorporated by
reference to Post-Effective Amendment No. 30 to the
Registration Statement, filed January 31, 1997.
5(u) - Form of Advisory Contract with Wells Fargo Bank, N.A. on
behalf of the California Tax-Free Money Market Trust,
incorporated by reference to Post-Effective Amendment No. 28
to the Registration Statement, filed December 3, 1996.
5(v) - Form of Advisory Contract with Wells Fargo Bank, N.A. on
behalf of the National Tax-Free Money Market Trust,
incorporated by reference to Post-Effective Amendment No. 32
to the Registration Statement, filed May 30, 1997.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
5(w) - Form of Advisory Contract with Wells Fargo Bank, N.A. on
behalf of the International Equity Fund, incorporated by
reference to Post-Effective Amendment No. 32 to the
Registration Statement, filed May 30, 1997.
6(a) - Amended Distribution Agreement with Stephens Inc.,
incorporated by reference to Post-Effective Amendment No. 15
to the Registration Statement, filed May 1, 1995.
6(b) - Selling Agreement with Wells Fargo Bank, N.A. on behalf of
the Funds, incorporated by reference to Post-Effective
Amendment No. 2 to the Registration Statement, filed April
17, 1992.
7 - Not Applicable
8(a) - Custody Agreement with Wells Fargo Institutional Trust
Company, N.A. on behalf of the Asset Allocation Fund,
incorporated by reference to Post-Effective Amendment No. 2
to the Registration Statement, filed April 17, 1992.
8(b) - Custody Agreement with Wells Fargo Institutional Trust
Company, N.A. on behalf of the U.S. Government Allocation
Fund, incorporated by reference to Post-Effective Amendment
No. 2 to the Registration Statement, filed April 17, 1992.
8(c) - Custody Agreement with Wells Fargo Institutional Trust
Company, N.A. on behalf of the Corporate Stock Fund,
incorporated by reference to Post-Effective Amendment No. 2
to the Registration Statement, filed April 17, 1992.
8(d) - Custody Agreement with Wells Fargo Bank, N.A. on behalf of
the California Tax-Free Money Market Mutual Fund,
incorporated by reference to Post-Effective Amendment No. 2
to the Registration Statement, filed April 17, 1992.
8(e) - Custody Agreement with Wells Fargo Bank, N.A. on behalf of
the California Tax-Free Bond Fund, incorporated by reference
to Post-Effective Amendment No. 2 to the Registration
Statement, filed April 17, 1992.
8(f) - Custody Agreement with Wells Fargo Bank, N.A. on behalf of
the Growth and Income Fund, incorporated by reference to Post-
Effective Amendment No. 2 to the Registration Statement,
filed April 17, 1992.
8(g) - Custody Agreement with Wells Fargo Bank, N.A. on behalf of
the Ginnie Mae Fund, incorporated by reference to Post-
Effective Amendment No. 2 to the Registration Statement,
filed April 17, 1992.
8(h) - Custody Agreement with Wells Fargo Bank, N.A. on behalf of
the Money Market Fund, incorporated by reference to Post-
Effective Amendment No. 3 to the Registration Statement,
filed May 1, 1992.
8(i) - Custody Agreement with Wells Fargo Bank, N.A. on behalf of
the California Tax-Free Income Fund, incorporated by
reference to Post-Effective Amendment No. 17 to the
Registration Statement, filed November 29, 1995.
8(j) - Custody Agreement with Wells Fargo Bank, N.A. on behalf of
the Diversified Income Fund, incorporated by reference to
Post-Effective Amendment No. 17 to the Registration
Statement, filed November 29, 1995.
</TABLE>
C-4
<PAGE>
<TABLE>
<S> <C>
8(k) - Custody Agreement with Wells Fargo Bank, N.A. on behalf of
the Short-Intermediate U.S. Government Income Fund,
incorporated by reference to Post-Effective Amendment No. 8
to the Registration Statement, filed February 10, 1994.
8(l) - Custody Agreement with Wells Fargo Bank, N.A. on behalf of
the National Tax-Free Money Market Mutual Fund, incorporated
by reference to Post-Effective Amendment No. 24 to the
Registration Statement, filed April 29, 1996.
8(m) - Custody Agreement with Wells Fargo Bank, N.A. on behalf of
the Aggressive Growth Fund, incorporated by reference to Post-
Effective Amendment No. 20 to the Registration Statement,
filed February 28, 1996.
8(n) - Form of Custody Agreement with Wells Fargo Bank on behalf of
the Arizona Tax-Free, Balanced, Equity Value, Government
Money Market Mutual, Intermediate Bond, Money Market Trust,
National Tax-Free, Oregon Tax-Free, Prime Money Market Mutual
and Treasury Money Market Mutual Funds, incorporated by
reference to Post-Effective Amendment No. 25 to the
Registration Statement, filed June 17, 1996.
9(a)(i) - Administration Agreement with Wells Fargo Bank, N.A. on
behalf of the Funds, filed herewith.
9(a)(ii) - Co-Administration Agreement with Wells Fargo Bank, N.A. and
Stephens Inc. on behalf of the Funds, filed herewith.
9(b) - Agency Agreement with Wells Fargo Bank, N.A. on behalf of the
Funds, incorporated by reference to Post-Effective Amendment
No. 32 to the Registration Statement, filed May 30, 1997.
9(c)(i) - Shareholder Servicing Agreement with Wells Fargo Bank, N.A.
on behalf of the California Tax-Free Money Market Mutual
Fund, incorporated by reference to Post-Effective Amendment
No. 2 to the Registration Statement, filed April 17, 1992.
9(c)(ii) - Shareholder Servicing Agreement with Wells Fargo Bank, N.A.
on behalf of the Corporate Stock Fund, incorporated by
reference to Post-Effective Amendment No. 2 to the
Registration Statement, filed April 17, 1992.
9(c)(iii) - Shareholder Servicing Agreement with Wells Fargo Bank, N.A.
on behalf of the Money Market Mutual Fund, incorporated by
reference to Post-Effective Amendment No. 3 to the
Registration Statement, filed May 1, 1992.
9(c)(iv) - Shareholder Servicing Agreement with Wells Fargo Bank, N.A.
on behalf of the California Tax-Free Income Fund,
incorporated by reference to Post-Effective Amendment No. 17
to the Registration Statement, filed November 29, 1995.
9(c)(v) - Shareholder Servicing Agreement with Wells Fargo Bank, N.A.
on behalf of the Short-Intermediate U.S. Government Income
Fund, incorporated by reference to Post-Effective Amendment
No. 8 to the Registration Statement, filed February 10, 1994.
</TABLE>
C-5
<PAGE>
<TABLE>
<S> <C>
9(c)(vi) - Shareholder Servicing Agreement with Wells Fargo Bank, N.A.
on behalf of the National Tax-Free Money Market Mutual Fund,
incorporated by reference to Post-Effective Amendment No. 24
to the Registration Statement, filed April 29, 1996.
9(c)(vii) - Shareholder Servicing Agreement with Wells Fargo Bank, N.A.
on behalf of the Class B Shares of the Asset Allocation
Fund, incorporated by reference to Post-Effective Amendment
No. 15 to the Registration Statement, filed May 1, 1995.
9(c)(viii) - Shareholder Servicing Agreement with Wells Fargo Bank, N.A.
on behalf of the Class B Shares of the California Tax-Free
Bond Fund, incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement, filed May 1,
1995.
9(c)(ix) - Shareholder Servicing Agreement with Wells Fargo Bank, N.A.
on behalf of the Class B Shares of the Diversified Income
Fund, incorporated by reference to Post-Effective Amendment
No. 15 to the Registration Statement, filed May 1, 1995.
9(c)(x) - Shareholder Servicing Agreement with Wells Fargo Bank, N.A.
on behalf of the Class B Shares of the Ginnie Mae Fund,
incorporated by reference to Post-Effective Amendment No. 15
to the Registration Statement, filed May 1, 1995.
9(c)(xi) - Shareholder Servicing Agreement with Wells Fargo Bank, N.A.
on behalf of the Class B Shares of the Growth and Income
Fund, incorporated by reference to Post-Effective Amendment
No. 15 to the Registration Statement, filed May 1, 1995.
9(c)(xii) - Shareholder Servicing Agreement with Wells Fargo Bank, N.A.
on behalf of the Class B Shares of the U.S. Government
Allocation Fund, incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement, filed May 1,
1995.
9(c)(xiii) - Shareholder Servicing Agreement with Wells Fargo Bank, N.A.
on behalf of the Class B Shares of the Aggressive Growth
Fund, incorporated by reference to Post-Effective Amendment
No. 20 to the Registration Statement, filed February 28,
1996.
9(c)(xiv) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the Asset
Allocation Fund, incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement, filed May 1,
1995.
9(c)(xv) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the California
Tax-Free Bond Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
9(c)(xvi) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the
Diversified Income Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
9(c)(xvii) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the Ginnie Mae
Fund, incorporated by reference
</TABLE>
C-6
<PAGE>
<TABLE>
<S> <C>
to Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
9(c)(xviii) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the Growth
and Income Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
9(c)(xix) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the U.S.
Government Allocation Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
9(c)(xx) - Shareholder Servicing Agreement with Wells Fargo Bank, N.A.
on behalf of the Class A Shares of the Aggressive Growth
Fund, incorporated by reference to Post-Effective Amendment
No. 20 to the Registration Statement, filed February 28,
1996.
9(d)(i) - Servicing Plan on behalf of the National Tax-Free Money
Market Mutual Fund, incorporated by reference to Post-
Effective Amendment No. 17 to the Registration Statement,
filed November 29, 1995.
9(d)(ii) - Servicing Plan on behalf of the Class B Shares of the Asset
Allocation Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
9(d)(iii) - Servicing Plan on behalf of the Class B Shares of the
California Tax-Free Bond Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
9(d)(iv) - Servicing Plan on behalf of the Class B Shares of the
Diversified Income Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
9(d)(v) - Servicing Plan on behalf of the Class B Shares of the
Ginnie Mae Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
9(d)(vi) - Servicing Plan on behalf of the Class B Shares of the
Growth and Income Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
9(d)(vii) - Servicing Plan on behalf of the Class B Shares of the U.S.
Government Allocation Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
9(d)(viii) - Servicing Plan on behalf of the Class A Shares of the
Aggressive Growth Fund, incorporated by reference to Post-
Effective Amendment No. 19 to the Registration Statement,
filed December 18, 1995.
9(d)(ix) - Servicing Plan on behalf of the Class B Shares of the
Aggressive Growth Fund, incorporated by reference to Post-
Effective Amendment No. 19 to the Registration Statement,
filed December 18, 1995.
</TABLE>
C-7
<PAGE>
<TABLE>
<S> <C>
9(e)(i) - Servicing Plan and Form of Shareholder Servicing Agreement
on behalf of the Class A Shares of the Arizona Tax-Free,
Balanced, Equity Value, Government Money Market Mutual,
Intermediate Bond, International Equity, National Tax-Free,
Oregon Tax-Free, Prime Money Market Mutual, Small Cap and
Treasury Money Market Mutual Funds, incorporated by
reference to Post-Effective Amendment No.32 to the
Registration Statement, filed May 30,1997.
9(e)(ii) - Servicing Plan and Form of Shareholder Servicing Agreement
on behalf of the Class B Shares of the Arizona Tax-Free,
Balanced, Equity Value, Intermediate Bond, International
Equity, National Tax-Free, Oregon Tax-Free and Small Cap
Funds, incorporated by reference to Post-Effective
Amendment No.32 to the Registration Statement, filed May
30,1997
9(e)(iii) - Servicing Plan and Form of Shareholder Servicing Agreement
on behalf of the Institutional Class Shares of the
Aggressive Growth, Arizona Tax-Free, Balanced, California
Tax-Free Bond, California Tax-Free Income, Equity Value,
Ginnie Mae, Growth and Income, Intermediate Bond,
International Equity, Money Market Mutual, National Tax-
Free, Oregon Tax-Free, Prime Money Market Mutual, Short-
Intermediate Government, Small Cap and Treasury Money
Market Mutual Funds, incorporated by reference to Post-
Effective Amendment N0.32 to the Registration Statment,
filed May 30,1997.
9(e)(iv) - Servicing Plan and Form of Shareholder Servicing Agreement
on behalf of the Service Class Shares of the Prime Money
Market Mutual and Treasury Money Market Mutual Funds,
incorporated by reference to Post-Effective Amendment No.
25 to the Registration Statement, filed June 17, 1996.
9(e)(v) - Servicing Plan and Form of Shareholder Servicing Agreement
on behalf of the Money Market Trust and California Tax-Free
Money Market Trust, incorporated by reference to Post-
Effective Amendment No. 28 to the Registration Statement,
filed December 3, 1996.
9(e)(vi) - Servicing Plan and Form of Shareholder Servicing Agreement
on behalf of the Class E Shares of the Treasury Money
Market Mutual Fund, incorporated by reference to Post-
Effective Amendment No. 19 to the Registration Statement,
filed January 23, 1997.
9(e)(vii) - Servicing Plan and Form of Shareholder Servicing Agreement
on behalf of the Administrative Class shares of the Prime
Money Market Mutual and Treasury Money Market Mutual Funds,
filed herewith.
9(e)(viii) - Servicing Plan and Form of Shareholder Servicing Agreement
on behalf of the Class C shares of the Aggressive Growth,
California Tax-Free Bond, Index Allocation, Ginnie Mae,
National Tax-Free Bond, Small Cap and Variable Rate
Government Funds, filed herewith.
9(e)(ix) - Servicing Plan and Form of Shareholder Servicing Agreement
on behalf of the Institutional Class shares of the National
Tax-Free Money Market Mutual Fund, filed herewith.
9(f) - Cross Indemnification Agreement, incorporated by reference
to Post-Effective Amendment No. 11 to the Registration
Statement of Stagecoach Inc., filed July 27, 1994.
10 - Opinion and Consent of Counsel, filed herewith.
11 - Not Applicable
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
12 - Not Applicable
13 - Investment letter, incorporated by reference to Item 24(b)
of Pre-Effective Amendment No. 1 to the Registration
Statement, filed November 29, 1991.
14 - Not Applicable
15(a)(i) - Distribution Plan on behalf of the California Tax-Free
Money Market Mutual Fund, incorporated by reference to Post-
Effective Amendment No. 2 to the Registration Statement,
filed April 17, 1992.
15(a)(ii) - Distribution Plan on behalf of the Corporate Stock Fund,
incorporated by reference to Post-Effective Amendment No. 2
to the Registration Statement, filed April 17, 1992.
15(a)(iii) - Distribution Plan on behalf of the Money Market Mutual
Fund, incorporated by reference to Post-Effective Amendment
No. 3 to the Registration Statement, filed May 1, 1992.
15(a)(iv) - Distribution Plan on behalf of the California Tax-Free
Income Fund, incorporated by reference to Post-Effective
Amendment No. 4 to the Registration Statement, filed
September 10, 1992.
15(a)(v) - Distribution Plan on behalf of the Short-Intermediate U.S.
Government Income Fund, incorporated by reference to Post-
Effective Amendment No. 8 to the Registration Statement,
filed February 10, 1994.
15(a)(vi) - Amended Distribution Plan on behalf of the Class A Shares
of the Asset Allocation Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
15(a)(vii) - Amended Distribution Plan on behalf of the Class A Shares
of the California Tax-Free Bond Fund, incorporated by
reference to Post-Effective Amendment No. 15 to the
Registration Statement, filed May 1, 1995.
15(a)(viii) - Amended Distribution Plan on behalf of the Class A Shares
of the Diversified Income Fund, incorporated by reference
to Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
15(a)(ix) - Amended Distribution Plan on behalf of the Class A Shares
of the Ginnie Mae Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
15(a)(x) - Amended Distribution Plan on behalf of the Class A Shares
of the Growth and Income Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
15(a)(xi) - Amended Distribution Plan on behalf of the Class A Shares
of the U.S. Government Allocation Fund, incorporated by
reference to Post-Effective Amendment No. 15 to the
Registration Statement, filed May 1, 1995.
15(a)(xii) - Distribution Plan on behalf of the National Tax-Free Money
Market Mutual Fund, incorporated by reference to Post-
Effective Amendment No. 17 to the Registration Statement,
filed November 29, 1995.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
15(a)(xiii) - Distribution Plan on behalf of the Class A Shares of the
Aggressive Growth Fund, incorporated by reference to Post-
Effective Amendment No. 19 to the Registration Statement,
filed December 18, 1995.
15(a)(xiv) - Distribution Plan on behalf of the California Tax-Free
Money Market Trust, incorporated by reference to Post-
Effective Amendment No. 28 to the Registration Statement,
filed December 3, 1996.
15(a)(xv) - Distribution Plan on behalf of the Class A Shares of the
Arizona Tax-Free, Balanced, Equity Value, Government Money
Market Mutual, Intermediate Bond, International Equity,
National Tax-Free, Oregon Tax-Free, Prime Money Market
Mutual, Small Cap and Treasury Money Market Mutual Funds,
incorporated by reference to Post-Effective Amendment No.
32, filed May 30, 1997.
15(b)(i) - Distribution Plan on behalf of the Class B Shares of the
Asset Allocation Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
15(b)(ii) - Distribution Plan on behalf of the Class B Shares of the
California Tax-Free Bond Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
15(b)(iii) - Distribution Plan on behalf of the Class B Shares of the
Diversified Income Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
15(b)(iv) - Distribution Plan on behalf of the Class B Shares of the
Ginnie Mae Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
15(b)(v) - Distribution Plan on behalf of the Class B Shares of the
Growth and Income Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
15(b)(vi) - Distribution Plan on behalf of the Class B Shares of the
U.S. Government Allocation Fund, incorporated by reference
to Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
15(b)(vii) - Distribution Plan on behalf of the Class B Shares of the
Aggressive Growth Fund, incorporated by reference to Post-
Effective Amendment No. 19 to the Registration Statement,
filed December 18, 1995.
15(b)(viii) - Distribution Plan on behalf of the Class B Shares of the
Arizona Tax-Free, Balanced, Equity Value, Intermediate
Bond, International Equity, National Tax-Free, Oregon Tax-
Free and Small Cap Funds, incorporated by reference to
Post-Effective Amendment No. 32 to the Registration
Statement, filed May 30, 1997.
15(c) - Distribution Plan on behalf of the Class C Shares of the
Aggressive Growth, California Tax-Free Bond, Index
Allocation, Ginnie Mae, National Tax-Free Bond, Small Cap
and Variable Rate Government Funds, filed herewith.
15(d) - Distribution Plan on behalf of the Class E Shares of the
Treasury Money Market Mutual Fund, incorporated by
reference to Post-Effective Amendment No. 29, filed January
23, 1997.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
16 - Schedules for Computation of Performance Data, incorporated
by reference to Post-Effective Amendment No. 15, filed May
1, 1995.
17 - See Exhibit 27.
18 - Rule 18f-3 Multi-Class Plan, as amended, filed herewith.
19 - Powers of Attorney for R. Greg Feltus, Jack S. Euphrat,
Thomas S. Goho, Joseph N. Hankin, W. Rodney Hughes, Robert
M. Joses and J. Tucker Morse, filed herewith.
27 - Financial Data Schedules for the period ended September 30,
1996, incorporated by reference to the Form N-SAR filed
December 9, 1996; Financial Data Schedules for the fiscal
period ended March 31, 1997, incorporated by reference to
the Form N-SAR, filed May 29, 1997.
</TABLE>
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
As of June 30, 1997, the Asset Allocation, Corporate Stock and U.S.
Government Allocation Funds each owned approximately 99% of the outstanding
beneficial interests of the Asset Allocation, Corporate Stock and U.S.
Government Allocation Master Portfolios, respectively, of Master Investment
Trust ("MIT"). As of June 30, 1997, the Aggressive Growth, National Tax-Free
Money Market Mutual and Small Cap Funds owned approximately 25%, 18% and 90% of
the outstanding beneficial interests of the Capital Appreciation, Tax-Free Money
Market and Small Cap Master Portfolios, respectively, of MIT. As such, each
Fund could be considered a "controlling person" (as such term is defined in the
1940 Act) of the corresponding Master Portfolio.
Item 26. Number of Holders of Securities
-------------------------------
As of June 30, 1997 the number of record holders of each class of
Securities of the Registrant was as follows:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
Class A* Class B Institutional
-------- ------- -------------
Class
-----
<S> <C> <C> <C>
Aggressive Growth Fund 1,664 1,942 N/A
Arizona Tax-Free Fund 206 7 7
Asset Allocation Fund 11,184 6,008 N/A
Balanced Fund 1,789 125 118
California Tax-Free Bond Fund 8,423 1,111 44
</TABLE>
* For purposes of this chart, shares of single class Funds are included under
the designation "Class A"
C-11
<PAGE>
Title of Class Number of Record Holders
-------------- ------------------------
<TABLE>
<CAPTION>
Class A* Class B Institutional
-------- ------- -------------
Class
-----
<S> <C> <C> <C>
California Tax-Free Income Fund 3,253 N/A 3
California Tax-Free Money Market Trust 0 N/A N/A
Corporate Stock Fund 1,318 N/A N/A
Diversified Income Fund 11,850 2,562 N/A
Equity Value Fund 1,338 809 122
Ginnie Mae Fund 3,133 657 88
Government Money Market Mutual Fund 174 N/A N/A
Growth and Income Fund 12,498 2,409 30
Intermediate Bond Fund 151 44 7
Money Market Mutual Fund 12,046 2** 6
Money Market Trust 7 N/A N/A
National Tax-Free Fund 118 9 5
National Tax-Free Money Market Mutual
Fund 79 N/A N/A
Oregon Tax-Free Fund 684 10 9
Prime Money Market Mutual 262 4*** 53
Short-Intermediate U.S. Government Income
Fund 843 N/A 59
Small Cap Fund 252 398 11
Treasury Money Market Mutual Fund 259 4*** 225
1****
U.S. Government Allocation Fund 1,424 246 N/A
</TABLE>
* For purposes of this chart, shares of single class Funds are included under
the designation "Class A"
** Designates the number of Class S recordholders.
*** Designates the number of Service Class recordholders
**** Designates the number of Class E recordholders.
C-12
<PAGE>
Item 27. Indemnification
---------------
The following paragraphs of Article VIII of the Registrant's Articles
of Incorporation provide:
(h) The Corporation shall indemnify (1) its Directors and Officers,
whether serving the Corporation or at its request any other entity, to the
full extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the advance of expenses under
the procedures and to the full extent permitted by law, and (2) its other
employees and agents to such extent as shall be authorized by the Board of
Directors or the Corporation's By-Laws and be permitted by law. The
foregoing rights of indemnification shall not be exclusive of any other
rights to which those seeking indemnification may be entitled. The Board of
Directors may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt, approve and
amend from time to time such By-Laws, resolutions or contracts implementing
such provisions or such further indemnification arrangements as may be
permitted by law. No amendment of these Articles of Incorporation of the
Corporation shall limit or eliminate the right to indemnification provided
hereunder with respect to acts or omissions occurring prior to such amendment
or repeal. Nothing contained herein shall be construed to authorize the
Corporation to indemnify any Director or officer of the Corporation against
any liability to the Corporation or to any holders of securities of the
Corporation to which he is subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his office. Any indemnification by the Corporation shall be
consistent with the requirements of law, including the 1940 Act.
(i) To the fullest extent permitted by Maryland statutory and
decisional law and the 1940 Act, as amended or interpreted, no Director or
officer of the Corporation shall be personally liable to the Corporation or
its stockholders for money damages; provided, however, that nothing herein
shall be construed to protect any Director or officer of the Corporation
against any liability to which such Director or officer would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office. No
amendment, modification or repeal of this Article VIII shall adversely affect
any right or protection of a Director or officer that exists at the time of
such amendment, modification or repeal.
Item 28. Business and Other Connections of Investment Adviser.
----------------------------------------------------
Wells Fargo Bank, N.A. ("Wells Fargo Bank"), a wholly owned subsidiary
of Wells Fargo & Company, currently serves as investment adviser to several of
the Registrant's investment portfolios and to certain other registered open-end
management investment companies. Wells Fargo Bank's business is that of a
national banking association with respect to which it conducts a variety of
commercial banking and trust activities.
C-13
<PAGE>
To the knowledge of Registrant, none of the directors or executive
officers of Wells Fargo Bank, except those set forth below, is or has been at
any time during the past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
executive officers also hold various positions with and engage in business for
Wells Fargo & Company. Set forth below are the names and principal businesses of
the directors and executive officers of Wells Fargo Bank who are or during the
past two fiscal years have been engaged in any other business, profession,
vocation or employment of a substantial nature for their own account or in the
capacity of director, officer, employee, partner or trustee. All the directors
of Wells Fargo Bank also serve as directors of Wells Fargo & Company.
<TABLE>
<CAPTION>
Name and Position Principal Business(es) and Address(es)
at Wells Fargo Bank During at Least the Last Two Fiscal Years
- ------------------- -----------------------------------------
<S> <C>
H. Jesse Arnelle Senior Partner of Arnelle, Hastie, McGee, Willis & Greene
Director 455 Market Street
San Francisco, CA 94105
Director of Armstrong World Industries, Inc.
5037 Patata Street
South Gate, CA 90280
Director of Eastman Chemical Corporation
12805 Busch Place
Santa Fe Springs, CA 90670
Director of FPL Group, Inc.
700 Universe Blvd.
P.O. Box 14000
North Palm Beach, FL 33408
Michael R. Bowlin Chairman of the Board of Directors, Chief Executive Officer,
Director Chief Operating Officer and President of
Atlantic Richfield Co. (ARCO)
Highway 150
Santa Paula, CA 93060
Edward Carson Chairman of the Board and Chief Executive Officer of
Director First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071
Director of Aztar Corporation
2390 East Camelback Road
Suite 400
Phoenix, AZ 85016
</TABLE>
C-14
<PAGE>
<TABLE>
<CAPTION>
Name and Position Principal Business(es) and Address(es)
at Wells Fargo Bank During at Least the Last Two Fiscal Years
- ------------------- -----------------------------------------
<S> <C>
Director of Castle & Cook, Inc.
10900 Wilshire Blvd.
Los Angeles, CA 90024
Director of Terra Industries, Inc.
1321 Mount Pisgah Road
Walnut Creek, CA 94596
William S. Davilla President (Emeritus) and a Director of
Director The Vons Companies, Inc.
618 Michillinda Ave.
Arcadia, CA 91007
Director of Pacific Gas & Electric Company
788 Taylorville Road
Grass Valley, CA 95949
Rayburn S. Dezember Director of CalMat Co.
Director 3200 San Fernando Road
Los Angeles, CA 90065
Director of Tejon Ranch Company
P.O. Box 1000
Lebec, CA 93243
Director of The Bakersfield Californian
1707 I Street
P.O. Box 440
Bakersfield, CA 93302
Trustee of Whittier College
13406 East Philadelphia Ave.
P.O. Box 634
Whittier, CA 90608
Paul Hazen Chairman of the Board of Directors of
Chairman of the Board of Wells Fargo & Company
Directors 420 Montgomery Street
San Francisco, CA 94105
Director of Phelps Dodge Corporation
2600 North Central Ave.
Phoenix, AZ 85004
Director of Safeway, Inc.
4th and Jackson Streets
Oakland, CA 94660
</TABLE>
C-15
<PAGE>
<TABLE>
<CAPTION>
Name and Position Principal Business(es) and Address(es)
at Wells Fargo Bank During at Least the Last Two Fiscal Years
- ------------------- -----------------------------------------
<S> <C>
Robert K. Jaedicke Professor (Emeritus) of Accounting
Director Graduate School of Business at Stanford University
MBA Admissions Office
Stanford, CA 94305
Director of Bailard Biehl & Kaiser
Real Estate Investment Trust, Inc.
2755 Campus Dr.
San Mateo, CA 94403
Director of Boise Cascade Corporation
1111 West Jefferson Street
P.O. Box 50
Boise, ID 83728
Director of California Water Service Company
1720 North First Street
San Jose, CA 95112
Director of Enron Corporation
1400 Smith Street
Houston, TX 77002
Director of GenCorp, Inc.
175 Ghent Road
Fairlawn, OH 44333
Director of Homestake Mining Company
650 California Street
San Francisco, CA 94108
Thomas L. Lee Chairman and Chief Executive Officer of
Director The Newhall Land and Farming Company
10302 Avenue 7 1-2
Firebaugh, CA 93622
Director of Calmat Co.
501 El Charro Road
Pleasanton, CA 94588
Director of First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071
Ellen Newman President of Ellen Newman Associates
Director 323 Geary Street
Suite 507
San Francisco, CA 94102
</TABLE>
C-16
<PAGE>
<TABLE>
<CAPTION>
Name and Position Principal Business(es) and Address(es)
at Wells Fargo Bank During at Least the Last Two Fiscal Years
- ------------------- -----------------------------------------
<S> <C>
Chair (Emeritus) of the Board of Trustees
University of California at San Francisco
Foundation
250 Executive Park Blvd.
Suite 2000
San Francisco, CA 94143
Director of the California Chamber of Commerce
1201 K Street
12th Floor
Sacremento, CA 95814
Philip J. Quigley Chairman, President and Chief Executive Officer of
Director Pacific Telesis Group
130 Kearney Street
Rm. 3700
San Francisco, CA 94108
Carl E. Reichardt Director of Columbia/HCA Healthcare Corporation
Director One Park Plaza
Nashville, TN 37203
Director of Ford Motor Company
The American Road
Dearborn, MI 48121
Director of Newhall Management Corporation
23823 Valencia Blvd.
Valencia, CA 91355
Director of Pacific Gas and Electric Company
77 Beale Street
San Francisco, CA 94105
Retired Chairman of the Board of Directors
and Chief Executive Officer of Wells Fargo & Company
420 Montgomery Street
San Francisco, CA 94105
Donald B. Rice President and Chief Executive Officer of Teledyne, Inc.
Director 2049 Century Park East
Los Angeles, CA 90067
Retired Secretary of the Air Force
Director of Vulcan Materials Company
One MetroPlex Drive
Birmingham, AL 35209
</TABLE>
C-17
<PAGE>
<TABLE>
<CAPTION>
Name and Position Principal Business(es) and Address(es)
at Wells Fargo Bank During at Least the Last Two Fiscal Years
- ------------------- -----------------------------------------
<S> <C>
Richard J. Stegemeier Chairman (Emeritus) of Unocal Corp
Director 44141 Yucca Avenue
Lancaster, CA 93534
Director of Foundation Health Corporation
166 4th
Fort Irwin, CA 92310
Director of Halliburton Company
3600 Lincoln Plaza
500 North Alcard Street
Dallas, TX 75201
Director of Northrop Grumman Corp.
1840 Century Park East
Los Angeles, CA 90067
Director of Outboard Marine Corporation
100 SeaHorse Drive
Waukegan, IL 60085
Director of Pacific Enterprises
555 West Fifth Street
Suite 2900
Los Angeles, CA 90031
Director of First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071
Susan G. Swenson President and Chief Executive Officer of Cellular One
Director 651 Gateway Blvd.
San Francisco, CA 94080
David M. Tellep Retired Chairman of the Board and Chief Executive Officer of
Director Martin Lockheed Corp
6801 Rockledge Drive
Bethesda, MD 20817
Director of Edison International
and Southern California Edison Company
2244 Walnut Grove Ave.
Rosemead, CA 91770
Director of First Interstate
633 West Fifth Street
Los Angeles, CA 90071
</TABLE>
C-18
<PAGE>
<TABLE>
<CAPTION>
Name and Position Principal Business(es) and Address(es)
at Wells Fargo Bank During at Least the Last Two Fiscal Years
- ------------------- -----------------------------------------
<S> <C>
Chang-Lin Tien Chancellor of the University of California at Berkeley
Director
Director of Raychem Corporation
300 Constitution Drive
Menlo Park, CA 94025
John A. Young President, Chief Executive Officer and Director
Director of Hewlett-Packard Company
3000 Hanover Street
Palo Alto, CA 9434
Director of Chevron Corporation
225 Bush Street
San Francisco, CA 94104
Director of Lucent Technologies
25 John Glenn Drive
Amherst, NY 14228
Director of Novell, Inc.
11300 West Olympic Blvd.
Los Angeles, CA 90064
Director of Shaman Pharmaceuticals Inc.
213 East Grand Ave. South
San Francisco, CA 94080
William F. Zuendt President of Wells Fargo & Company
President 420 Montgomery Street
San Francisco, CA 94105
Director of 3Com Corporation
5400 Bayfront Plaza, P.O. Box 58145
Santa Clara, CA 95052
Director of the California Chamber of Commerce
</TABLE>
Prior to May 1, 1996, Barclays Global Fund Advisors ("BGFA"), a wholly-
owned subsidiary of Barclays Global Investors, N.A. ("BGI", formerly, Wells
Fargo Institutional Trust Company), served as sub-adviser to the Asset
Allocation, Corporate Stock and U.S. Government Allocation Funds of the Company
and to certain other open-end management investment companies. As of May 1,
1996, BGFA no longer served as sub-adviser to the Asset Allocation, Corporate
Stock and U.S. Government Allocation Funds. As of this date, BGFA served as
sub-adviser to the corresponding Asset Allocation, U.S. Government Allocation
and Corporate Stock Master Portfolios of Master Investment Trust, in which such
funds invest substantially all of their assets.
C-19
<PAGE>
The directors and officers of BGFA consist primarily of persons who
during the past two years have been active in the investment management business
of the former sub-adviser to the Registrant, Wells Fargo Nikko Investment
Advisors ("WFNIA") and, in some cases, the service business of BGI. With the
exception of Irving Cohen, each of the directors and executive officers of BGFA
will also have substantial responsibilities as directors and/or officers of BGI.
To the knowledge of the Registrant, except as set forth below, none of the
directors or executive officers of BGFA is or has been at any time during the
past two fiscal years engaged in any other business, profession, vocation or
employment of a substantial nature.
<TABLE>
<CAPTION>
Name and Position Principal Business(es) During at
at BGFA Least the Last Two Fiscal Years
- ------- -------------------------------
<S> <C>
Frederick L.A. Grauer Director of BGFA and Co-Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Patricia Dunn Director of BGFA and Co-Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Lawrence Tint Chairman of the Board of Directors of BGFA and
Chairman and Director Chief Executive Officer of BGI
45 Fremont Street, San Francisco, CA 94105
Geoffrey Fletcher Chief Financial Officer of BGFA and BGI since May, 1997
Chief Financial Officer 45 Fremont Street, San Francisco, CA 94105
Managing Director and Principal Accounting Officer
at Bankers Trust Co. from 1988-1997
505 Market Street, San Fransisco, Ca 94105
</TABLE>
Prior to January 1, 1996 Wells Fargo Nikko Investment Advisors
("WFNIA") served as sub-adviser to the Asset Allocation, Corporate Stock and
U.S. Government Allocation Funds of the Company and as adviser or sub-adviser to
various other open-end management investment companies. For additional
information, see "The Funds and Management" in the Prospectus and "Management"
in the Statement of Additional Information of such Funds. For information as to
the business, profession, vocation or employment of a substantial nature of each
of the officers and management committees of WFNIA, reference is made to WFNIA's
Form ADV and Schedules A and D filed under the Investment Advisers Act of 1940,
File No. 801-36479, incorporated herein by reference.
Item 29. Principal Underwriters.
----------------------
(a) Stephens Inc., distributor for the Registrant, does not presently
act as investment adviser for any other registered investment companies, but
does act as principal underwriter for Overland Express Funds, Inc., MasterWorks
Funds, Inc. (formerly, Stagecoach Inc.), Stagecoach Trust, Nations Fund, Inc.,
Nations Fund Trust, Nations Fund Portfolios, Inc., Nations Life Goal Funds, Inc.
and Nations Institutional Reserves (formerly, The Capitol Mutual Funds), and is
the exclusive placement agent for Master Investment Trust, Managed Series
Investment Trust, Life & Annuity Trust and Master Investment Portfolio, all of
which are
C-20
<PAGE>
registered open-end management investment companies, and has acted as principal
underwriter for Nations Government Income Term Trust 2003, Inc., Nations
Government Income Term Trust 2004, Inc., and Nations Managed Balanced Target
Maturity Fund, Inc., which are closed-end management investment companies.
(b) Information with respect to each director and officer of the
principal underwriter is incorporated by reference to Form ADV and Schedules A
and D filed by Stephens Inc. with the Securities and Exchange Commission
pursuant to the Investment Advisers Act of 1940 (file No. 501-15510).
(c) Not Applicable.
Item 30. Location of Accounts and Records.
--------------------------------
(a) The Registrant maintains accounts, books and other documents
required by Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder (collectively, "Records") at the offices of Stephens Inc., 111 Center
Street, Little Rock, Arkansas 72201.
(b) Wells Fargo Bank maintains all Records relating to its services as
investment adviser, administrator and custodian and transfer and dividend
disbursing agent at 525 Market Street, San Francisco, California 94105.
(c) WFNIA and Wells Fargo Institutional Trust Company, N.A. maintain
all Records relating to their services as sub-adviser and custodian,
respectively, for the period prior to January 1, 1996, at 45 Fremont Street, San
Francisco, California 94105.
(d) BGFA and BGI maintain all Records relating to their services as
sub-adviser and custodian, respectively, for the period beginning January 1,
1996 at 45 Fremont Street, San Francisco, California 94105.
(e) Stephens maintains all Records relating to its services as
sponsor, co-administrator and distributor at 111 Center Street, Little Rock,
Arkansas 72201.
Item 31. Management Services.
-------------------
Other than as set forth under the captions "The Fund and Management"
in the Prospectuses constituting Part A of this Registration Statement and
"Management" in the Statement of Additional Information constituting Part B of
this Registration Statement, the Registrant is not a party to any management-
related service contract.
Item 32. Undertakings.
------------
(a) Not Applicable.
C-21
<PAGE>
(b) Registrant undertakes to file a Post-Effective Amendment, using
financial statements for the International Equity Fund which need
not be certified, within four to six months from the later of the
effective date of this Registration Statement or the Fund's
commencement of operations.
(c) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of its most current annual report to
shareholders, upon request and without charge.
(d) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
provisions set forth above in response to Item 27, or otherwise,
the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue
C-22
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereto duly authorized in the City of Little Rock, State of
Arkansas on the 1st day of August, 1997.
STAGECOACH FUNDS, INC.
By /s/ Richard H. Blank, Jr.
---------------------------------------
Richard H. Blank, Jr.
Secretary and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement on Form N-1A has been signed below by the
following persons in the capacities and on the date indicated:
Signature Title
--------- -----
* Director, Chairman and President
--------------------------
(R. Greg Feltus) (Principal Executive Officer)
/s/ Richard H. Blank, Jr. Secretary and Treasurer
--------------------------
(Richard H. Blank, Jr.) (Principal Financial Officer)
* Director
--------------------------
(Jack S. Euphrat)
* Director
--------------------------
(Thomas S. Goho)
* Director
--------------------------
(Joseph N. Hankin)
* Director
--------------------------
(W. Rodney Hughes)
* Director
--------------------------
(Robert M. Joses)
* Director
--------------------------
(J. Tucker Morse)
*By: /s/ Richard H. Blank, Jr.
--------------------------------
Richard H. Blank, Jr.
As Attorney-in-Fact
August 1, 1997
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
the Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereto duly authorized in the City of Little Rock, State of
Arkansas on the 1st day of August, 1997.
MASTER INVESTMENT TRUST
By /s/ Richard H. Blank, Jr.
-----------------------------------------
Richard H. Blank, Jr.
Secretary and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement on Form N-1A has been signed below by the
following persons in the capacities and on the date indicated:
Signature Title
--------- -----
* Trustee, Chairman and
-------------------------- President (Principal
(R. Greg Feltus) Executive Officer)
/s/ Richard H. Blank, Jr. Secretary and Treasurer
-------------------------- (Principal Financial Officer)
(Richard H. Blank, Jr.)
* Trustee
--------------------------
(Jack S. Euphrat)
* Trustee
--------------------------
(Thomas S. Goho)
* Trustee
--------------------------
(Joseph N. Hankin)
* Trustee
--------------------------
(W. Rodney Hughes)
* Trustee
--------------------------
(Robert M. Joses)
* Trustee
--------------------------
(J. Tucker Morse)
*By: /s/ Richard H. Blank, Jr.
--------------------------------
Richard H. Blank, Jr.
As Attorney-in-Fact
August 1, 1997
<PAGE>
STAGECOACH FUNDS, INC.
FILE NOS. 33-42927; 811-6419
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
EX-99.B9(a)(i) . Administration Agreement with Wells Fargo Bank,
N.A. on behalf of the Funds
EX-99.B9(a)(ii) . Co-Administration Agreement with Wells Fargo
Bank, N.A. and Stephens Inc. on behalf of the
Funds
EX-99.B9(e)(vii) . Administrative Class Servicing Plan and form of
Shareholder Servicing Agreement
EX-99.B9(e)(viii) . Class C Servicing Plan and form of Shareholder
Servicing Agreement
EX-99.B9(e)(ix) . Institutional Class Servicing Plan and form of
Shareholder Servicing Agreement
EX-99.B10 . Opinion and Consent of Counsel
EX-99.B15(c) . Class C Distribution Plan
EX-99.B18 . Rule 18f-3 Multi-Class Plan, as amended
</TABLE>
<PAGE>
EX-99.B9(a)(i)
ADMINISTRATION AGREEMENT
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
THIS AGREEMENT is made as of this 1st day of February, 1997, by and
between the Stagecoach Funds, Inc., a Maryland corporation ("Stagecoach") and
Wells Fargo Bank, N.A., a national banking association ("Wells Fargo").
WHEREAS, Stagecoach is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, Stagecoach desires to retain Wells Fargo to render certain
administrative services to Stagecoach's investment portfolios listed in Appendix
A (individually, a "Fund" and collectively, the "Funds"), and Wells Fargo is
willing to render such services; and
WHEREAS, Stagecoach is retaining Stephens Inc. pursuant to a separate
Co-Administration Agreement with Stagecoach and Wells Fargo to provide certain
other administrative services.
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed by the parties as follows:
1. Appointment. Stagecoach hereby appoints Wells Fargo to act as
-----------
Administrator of the Funds, and Wells Fargo hereby accepts such appointment and
agrees to render such services and duties set forth in Paragraph 3, for the
compensation and on the terms herein provided. Each new investment portfolio
established in the future by Stagecoach shall automatically become a "Fund" for
all purposes hereunder as if it were listed in Appendix A, absent written
notification to the contrary by either Stagecoach or Wells Fargo.
2. Delivery of Documents. Stagecoach shall furnish to, or cause to
---------------------
be furnished to, Wells Fargo originals of, or copies of, all books, records, and
other documents and papers related in any way to the administration of
Stagecoach.
3. Duties as Administrator. Wells Fargo shall, at its expense,
-----------------------
provide the following administrative services in connection with the operations
of Stagecoach and the Funds:
(a) maintain and preserve the records of the Funds, including
financial and corporate records;
1
<PAGE>
(b) track authorized vs. issued shares;
(c) furnish statistical and research data;
(d) coordinate (or assist in) the preparation and filing with the U.S.
Securities and Exchange Commission of registration statements, notices, reports,
and other material required to be filed under applicable laws;
(e) coordinate (or assist in) the preparation of reports and other
information materials regarding the Funds including proxies and other
shareholder communications, and review prospectuses;
(f) prepare expense table information for annual updates;
(g) provide legal and regulatory advice to the Funds in connection
with its other administrative functions;
(h) provide office facilities and clerical support for the Funds;
(i) develop and implement procedures for monitoring compliance with
regulatory requirements and compliance with the Funds' investment objectives,
policies and restrictions;
(j) provide liaison with the Funds' independent auditors;
(k) prepare and file tax returns;
(l) review payments of Fund expenses;
(m) prepare expense budgeting and accruals;
(n) provide communication, coordination, and supervision services with
regard to the Funds' transfer agent, custodian, fund accountant, co-
administrator, and other service organizations that render recordkeeping or
shareholder communication services;
(o) provide information to the Funds' distributor concerning fund
performance and administration;
(p) assist Stagecoach in the development of additional investment
portfolios;
(q) provide reports to the Funds' board of directors regarding its
activities;
(r) assist in the preparation and assembly of meeting materials,
including comparable fee information, as required, for the Funds' board of
directors;
2
<PAGE>
(s) provide shareholder services through a toll-free telephone number
and/or an electronic medium; and
(t) provide any other administrative services reasonably necessary for
the operation of the Funds other than those services that are to be provided by
Stephens pursuant to its Co-Administration Agreement with Stagecoach and Wells
Fargo, and by Stagecoach's transfer and dividend disbursing agent, custodian,
and fund accountant, provided that nothing in this Agreement shall be deemed to
require Wells Fargo to provide any services that may not be provided by it under
applicable banking laws and regulations.
In performing all services under this agreement, Wells Fargo shall:
(a) act in conformity with Stagecoach's Articles of Incorporation and By-Laws,
the 1940 Act, and any other applicable laws as may be amended from time to time;
and Stagecoach's registration statement under the Securities Act of 1933 and the
1940 Act, as may be amended from time to time; (b) consult and coordinate with
legal counsel to Stagecoach as necessary and appropriate; and (c) advise and
report to Stagecoach and its legal counsel, as necessary and appropriate, with
respect to any compliance or other matters that come to its attention.
In connection with its duties under this Paragraph 3, Wells Fargo may,
at its own expense, enter into sub-administration agreements with other service
providers, provided that each such service provider agrees with Wells Fargo to
comply with all relevant provisions of the 1940 Act, the Investment Advisers Act
of 1940, any other applicable laws as may be amended from time to time, and all
relevant rules thereunder. Wells Fargo will provide Stagecoach with a copy of
each sub-administration agreement it executes relating to Stagecoach. Wells
Fargo will be liable for acts or omissions of any such sub-administrators under
the standards of care described herein under Paragraph 5.
In performing its services under this agreement, Wells Fargo shall
cooperate and coordinate with Stephens as necessary and appropriate and shall
provide such information to Stephens as is reasonably necessary or appropriate
for Stephens to perform its obligations to Stagecoach.
4. Compensation. In consideration of the administration services to
------------
be rendered by Wells Fargo under this agreement, Stagecoach shall pay Wells
Fargo a monthly fee at the annual rate of 0.04% of the average daily value (as
determined on each business day at the time set forth in the Prospectus for
determining net asset value per share) of the Funds' net assets during the
preceding month. If the fee payable to Wells Fargo pursuant to this Paragraph 4
begins to accrue before the end of any month or if this agreement terminates
before the end of any month, the fee for the period from the effective date to
the end of that month or from the beginning of that month to the termination
date, respectively, shall be prorated according to the proportion that the
period bears to the full month in which the effectiveness or termination occurs.
For purposes of calculating each such monthly fee, the value of each Fund's net
assets shall be computed in the manner specified in the Prospectus and
Stagecoach's Articles of Incorporation for the computation of the value of the
Fund's net assets in connection with the determination of the net
3
<PAGE>
asset value of Fund shares. For purposes of this agreement, a "business day" is
any day that Stagecoach is open for trading.
5. Limitation of Liability; Indemnification.
----------------------------------------
(a) Wells Fargo shall not be liable for any error of judgment or
mistake of law or for any loss suffered by Stagecoach in connection with the
performance of its obligations and duties under this agreement, except a loss
resulting from Wells Fargo's willful misfeasance, bad faith, or negligence in
the performance of its obligations and duties or that of its agents or sub-
administrators, or by reason of its or their reckless disregard thereof. Any
person, even though also an officer, director, employee or agent of Wells Fargo,
shall be deemed, when rendering services to Stagecoach or acting on any business
of Stagecoach (other than services or business in connection with Wells Fargo's
duties as Administrator hereunder) to be acting solely for Stagecoach and not as
an officer, director, employee, or agent or one under the control or discretion
of Wells Fargo even though paid by it.
(b) Stagecoach, on behalf of each Fund, will indemnify Wells Fargo
against and hold it harmless from any and all losses, claims, damages,
liabilities, or expenses (including reasonable counsel fees and expenses)
resulting from any claim, demand, action, or suit relating to the particular
Fund and not resulting from willful misfeasance, bad faith, or negligence of
Wells Fargo or its agents or sub-administrators in the performance of such
obligations and duties, or by reason of its or their reckless disregard thereof.
Wells Fargo will not confess any claim or settle or make any compromise in any
instance in which Stagecoach will be asked to provide indemnification, except
with Stagecoach's prior written consent. Any amounts payable by Stagecoach
under this Paragraph 5(b) shall be satisfied only against the assets of the Fund
involved in the claim, demand, action, or suit and not against the assets of any
other Fund.
6. Stagecoach expenses. Except as provided in each of Stagecoach's
-------------------
advisory contracts and its co-administration and distribution agreements with
Stephens, Stagecoach shall bear all costs of its operations, including the
compensation of its directors who are entitled to receive compensation; advisory
and administration fees; payments of distribution-related expenses pursuant to
any Rule 12b-1 Plan under the 1940 Act; governmental fees; interest charges;
taxes; fees and expenses of its independent accountants, legal counsel, transfer
agent and dividend disbursing agent; expenses of redeeming shares; expenses of
preparing and printing prospectuses (except the expense of printing and mailing
prospectuses used for promotional purposes, unless otherwise payable pursuant to
a Rule 12b-1 Plan), shareholders' reports, notices, proxy statements and reports
to regulatory agencies; travel expenses of directors, officers and employees;
office supplies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio securities transactions; fees and
expenses of any custodian, including those for keeping books and accounts and
calculating the net asset value per share of the Funds; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Funds; pricing services, if any; organizational
expenses; and any extraordinary expenses. Expenses attributable to one or more,
but not all, of the Funds are charged against the assets of the relevant Funds.
General expenses of the Funds are allocated among the Funds in a manner
4
<PAGE>
proportionate to the net assets of each Fund, on a transactional basis or on
such other basis as the Board of Directors deems equitable.
7. Amendment. This agreement may be amended at any time by mutual
---------
agreement in writing of Stagecoach and Wells Fargo, provided that the Board of
Directors of Stagecoach approve any such amendment in advance.
8. Administrator's other businesses. Except to the extent necessary
--------------------------------
to perform Wells Fargo's obligations under this agreement, nothing herein shall
be deemed to limit or restrict the right of Wells Fargo, or any affiliate or
employee of Wells Fargo, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
corporation, firm, individual or association.
9. Duration. This agreement shall become effective on its execution
--------
date and shall remain in full force and effect for one year or until terminated
pursuant to the provisions in Paragraph 10, and it may be reapproved at least
annually by the Board of Directors, including a majority of the directors who
are not interested persons of Stagecoach or any party to this agreement, as
defined by the 1940 Act.
10. Termination of Agreement. This agreement may be terminated at
------------------------
any time, without the payment of any penalty, by a vote of a majority of the
members of Stagecoach's Board of Directors, on 60 days' written notice to Wells
Fargo; or by Wells Fargo on 60 days' written notice to Stagecoach.
11. Expense waivers. If in any fiscal year the total expenses of a
---------------
Fund incurred by, or allocated to, the Fund excluding taxes, interest, brokerage
commissions and other portfolio transaction expenses, other expenditures that
are capitalized in accordance with generally accepted accounting principles,
extraordinary expenses and amounts accrued or paid under a Rule 12b-1 Plan of
the Fund, but including the fees provided for in Paragraph 4 and those provided
for pursuant to the Fund's Advisory Agreement ("includible expenses"), exceed
the applicable voluntary expense waivers, if any, set forth in the Prospectus,
Wells Fargo shall waive or reimburse that portion of the excess derived by
multiplying the excess by a fraction, the numerator of which shall be the
percentage at which the excess portion attributable to the fee payable pursuant
to this agreement is calculated under Paragraph 4 hereof, and the denominator of
which shall be the sum of such percentage plus the percentage at which the
excess portion attributable to the fee payable pursuant to the Fund's Advisory
Agreement is calculated (the "Applicable Ratio"), but only to the extent of the
fee hereunder for the fiscal year. If the fees payable under this agreement
and/or the Fund's Advisory Agreement contributing to such excess portion are
calculated at more than one percentage rate, the Applicable Ratio shall be
calculated separately on the basis of, and applied separately to, the portions
of the fees calculated at the different rates. At the end of each month of
Stagecoach's fiscal year, Stagecoach shall review the includible expenses
accrued during that fiscal year to the end of that period and shall estimate the
includible expenses for the balance of that fiscal year. If as a result of that
review and estimation it appears likely that the includible expenses will exceed
the limitations referred to in this Paragraph 11 for a fiscal year
5
<PAGE>
with respect to the Fund, the monthly fee set forth in Paragraph 4 payable to
Wells Fargo for such month shall be reduced, subject to a later adjustment, by
an amount equal to the Applicable Ratio times the pro rata portion (prorated on
the basis of the remaining months of the fiscal year, including the month just
ended) of the amount by which the includible expenses for the fiscal year are
expected to exceed the limitations provided for in this Paragraph 11. For
purposes of computing the excess, if any, over the most restrictive applicable
expense limitation, the value of the Fund's net assets shall be computed in the
manner specified in Paragraph 4, and any reimbursements required to be made by
Wells Fargo shall be made once a year promptly after the end of Stagecoach's
fiscal year.
12. Stagecoach not bound to violate its Articles. Nothing in this
--------------------------------------------
agreement shall require Stagecoach to take any action contrary to any provision
of its Articles of Incorporation or to any applicable statute or regulation.
13. Miscellaneous.
-------------
(a) Any notice or other instrument authorized or required by this
agreement to be given in writing to Stagecoach or Wells Fargo shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To Stagecoach:
Stagecoach Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
Attention: Richard H. Blank
To Wells Fargo:
Wells Fargo Bank, N.A.
111 Sutter Street, 18th Floor
San Francisco, California 94104
Attention: C. David Messman
(b) This agreement shall extend to and be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this agreement shall not be subject to assignment (as that term is defined
under the 1940 Act) without the written consent of the other party.
(c) This agreement shall be governed by and construed in
accordance with the laws of the State of California.
6
<PAGE>
(d) This agreement may be executed in any number of counterparts each
of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one agreement.
(e) The captions of this agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
In witness whereof, the parties have caused this agreement to be executed
by their duly authorized officers as of the day and year first above written.
STAGECOACH FUNDS, INC.
By: /s/ Richard H. Blank, Jr.
--------------------------------
Richard H. Blank
Chief Operating Officer
WELLS FARGO BANK, N.A.
By: /s/ Michael J. Hogan
--------------------------------
Michael J. Hogan
Senior Vice President
7
<PAGE>
Appendix A
Stagecoach Funds
Arizona Tax-Free Fund
Asset Allocation Fund
Balanced Fund
California Money Market Trust
Corporate Stock Fund
California Tax-Free Bond Fund
California Tax-Free Income Fund
California Tax-Free Money Market Mutual Fund
California Tax-Free Money Market Trust
Diversified Income Fund
Equity Value Fund
Government Money Market Mutual Fund
Growth and Income Fund
Index Allocation Fund
Intermediate Bond Fund
Money Market Mutual Fund
National Tax-Free Fund
National Tax-Free Money Market Mutual Fund
National Tax-Free Money Market Trust
Oregon Tax-Free Fund
Overland Sweep Fund
Prime Money Market Mutual Fund
Short-Intermediate U.S. Government Income Fund
Short-Term Government-Corporate Income Fund
Short-Term Municipal Income Fund
Small Cap Fund
Aggressive Growth Fund
Treasury Money Market Mutual Fund
Government Allocation Fund
Ginnie Mae Fund
Variable Rate Government Fund
8
<PAGE>
EX-99.B9(a)(ii)
CO-ADMINISTRATION AGREEMENT
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
THIS AGREEMENT is made as of this 1st day of February, 1997, by and
among the Stagecoach Funds, Inc., a Maryland corporation ("Stagecoach"),
Stephens Inc. ("Stephens"), an Arkansas corporation, and Wells Fargo Bank, N.A.,
a national banking association ("Wells Fargo").
WHEREAS, Stagecoach is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, Stagecoach desires to retain Stephens to render certain co-
administrative services to Stagecoach's investment portfolios listed in Appendix
A (individually, a "Fund" and collectively, the "Funds"), and Stephens is
willing to render such services; and
WHEREAS, Stagecoach is retaining Wells Fargo pursuant to a separate
Administration Agreement to provide certain other administrative services.
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed by the parties as follows:
1. Appointment. Stagecoach hereby appoints Stephens to act as Co-
-----------
Administrator of the Funds, subject to the control and supervision of Wells
Fargo and the overall supervision of the Board of Directors of Stagecoach.
Stephens hereby accepts such appointment and agrees to render such services and
duties set forth in Paragraph 3, for the compensation and on the terms herein
provided, the performance of which Wells Fargo agrees to supervise. Each new
investment portfolio established in the future by Stagecoach shall automatically
become a "Fund" for all purposes hereunder as if it were listed in Appendix A,
absent written notification to the contrary by either Stagecoach, Wells Fargo,
or Stephens.
2. Delivery of Documents. Stagecoach and Wells Fargo shall furnish
---------------------
Stephens with originals of, or copies of, all books, records, and other
documents and papers related in any way to the administration of Stagecoach.
3. Duties as Co-Administrator. Stephens shall, at its expense,
--------------------------
provide the following co-administrative services in connection with the
operations of Stagecoach and the Funds:
(a) prepare and file with the states registration statements,
notices, reports, and other material required to be filed under applicable laws;
<PAGE>
(b) prepare and file Form 24F-2s and N-SARs;
(c) review bills submitted to the Funds and, upon determining that
a bill is appropriate, allocating amounts to the appropriate Funds and
instructing the Funds' custodian to pay such bills;
(d) provide officers at no cost to the Funds;
(e) provide office space and facilities;
(f) provide reports to the Funds' board of directors ("Board")
regarding its activities;
(g) assist in the preparation and assembly of Board meeting
materials, including comparable fee information, as required;
(h) prepare and retain original minutes of Board meetings,
shareholder meetings, and other official corporate records; and
(i) provide any other administrative services reasonably necessary
for the operation of the Funds, as Stagecoach, Wells Fargo, and Stephens shall
agree from time to time, other than those services that are to be provided by
Wells Fargo pursuant to its Administration Agreement with Stagecoach, and by
Stagecoach's transfer and dividend disbursing agent, custodian, and fund
accountant.
In performing all services under this agreement, Stephens shall: (a)
act in conformity with Stagecoach's Articles of Incorporation and By-Laws, the
1940 Act, the Investment Advisers Act of 1940, as applicable, and any other
applicable laws as may be amended from time to time; and Stagecoach's
registration statement under the Securities Act of 1933 and the 1940 Act, as may
be amended from time to time; (b) consult and coordinate with legal counsel to
Stagecoach as necessary and appropriate; and (c) advise and report to Stagecoach
and its legal counsel, as necessary and appropriate, with respect to any
compliance or other matters that come to its attention.
Nothing in this Agreement shall be deemed to require Wells Fargo to
provide any supervisory services that may not be provided by it under applicable
banking laws and regulations.
In connection with its duties under this Paragraph 3, Stephens may, at
its own expense, enter into sub-administration agreements with other service
providers, provided that: (a) each such service provider agrees with Stephens
to comply with all relevant provisions of the 1940 Act, the Investment Advisers
Act of 1940, any other applicable laws as may be amended from time to time, and
all relevant rules thereunder; and (b) Wells Fargo agrees to the appointment of
such service provider. Stephens will provide Stagecoach and Wells Fargo with a
copy of each sub-administration agreement it executes relating to Stagecoach.
Stephens will be liable for acts or omissions of any such sub-administrators
under the standards of care described herein under Paragraph 5.
2
<PAGE>
In performing its services under this agreement, Stephens shall cooperate
and coordinate with Wells Fargo as necessary and appropriate and shall provide
such information to Wells Fargo as is reasonably necessary or appropriate for
Wells Fargo to perform its obligations to Stagecoach. Similarly, Wells Fargo
shall cooperate and coordinate with Stephens as necessary and appropriate and
shall provide such information to Stephens as is reasonably necessary or
appropriate for Stephens to perform its obligations to Stagecoach.
4. Compensation. In consideration of the administration services to
------------
be rendered by Stephens under this agreement, Stagecoach shall pay Stephens a
monthly fee at the annual rate of 0.02% of the average daily value (as
determined on each business day at the time set forth in the Prospectus for
determining net asset value per share) of the Funds' net assets during the
preceding month. If the fee payable to Stephens pursuant to this Paragraph 4
begins to accrue before the end of any month or if this agreement terminates
before the end of any month, the fee for the period from the effective date to
the end of that month or from the beginning of that month to the termination
date, respectively, shall be prorated according to the proportion that the
period bears to the full month in which the effectiveness or termination occurs.
For purposes of calculating each such monthly fee, the value of each Fund's net
assets shall be computed in the manner specified in the Prospectus and
Stagecoach's Articles of Incorporation for the computation of the value of the
Fund's net assets in connection with the determination of the net asset value of
Fund shares. For purposes of this agreement, a "business day" is any day that
Stagecoach is open for trading.
5. Limitation of Liability; Indemnification.
----------------------------------------
(a) Stephens shall not be liable for any error of judgment or
mistake of law or for any loss suffered by Stagecoach in connection with the
performance of its obligations and duties under this agreement, except a loss
resulting from Stephens' willful misfeasance, bad faith, or negligence in the
performance of its obligations and duties, or by reason of its reckless
disregard thereof. Any person, even though also an officer, director, employee
or agent of Stephens, shall be deemed, when rendering services to Stagecoach or
acting on any business of Stagecoach (other than services or business in
connection with Stephens' duties as Co-Administrator hereunder) to be acting
solely for Stagecoach and not as an officer, director, employee, or agent or one
under the control or discretion of Stephens even though paid by it.
Wells Fargo shall not be liable for any error of judgment or
mistake of law or for any loss suffered by Stagecoach in connection with
Stephen's performance of its obligations and duties under this Agreement, except
a loss resulting from Wells Fargo's willful misfeasance, bad faith, or
negligence in failing to supervise Stephens as required by this Agreement.
(b) Stagecoach, on behalf of each Fund, will indemnify Stephens
against and hold it harmless from any and all losses, claims, damages,
liabilities, or expenses (including reasonable counsel fees and expenses)
resulting from any claim, demand, action, or suit relating to the particular
Fund and not resulting from willful misfeasance, bad faith, or negligence of
Stephens in the performance of such obligations and duties, or by reason of its
reckless disregard thereof. Stephens will not confess any claim or settle or
make any compromise in any instance in which Stagecoach will be asked to provide
indemnification, except with Stagecoach's prior
3
<PAGE>
written consent. Any amounts payable by Stagecoach under this Paragraph 5(b)
shall be satisfied only against the assets of the Fund involved in the claim,
demand, action, or suit and not against the assets of any other Fund.
6. Stagecoach expenses. Except as provided in each of Stagecoach's
-------------------
advisory contracts and its Administration Agreement with Wells Fargo, Stagecoach
shall bear all costs of its operations, including the compensation of its
directors who are not affiliated with Stephens or any of their affiliates;
advisory and administration fees; payments of distribution-related expenses
pursuant to any Rule 12b-1 Plan under the 1940 Act; governmental fees; interest
charges; taxes; fees and expenses of its independent accountants, legal counsel,
transfer agent and dividend disbursing agent; expenses of redeeming shares;
expenses of preparing and printing prospectuses (except the expense of printing
and mailing prospectuses used for promotional purposes, unless otherwise payable
pursuant to a Rule 12b-1 Plan), shareholders' reports, notices, proxy statements
and reports to regulatory agencies; travel expenses of directors, officers and
employees; office supplies; insurance premiums and certain expenses relating to
insurance coverage; trade association membership dues; brokerage and other
expenses connected with the execution of portfolio securities transactions; fees
and expenses of any custodian, including those for keeping books and accounts
and calculating the net asset value per share of the Funds; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Funds; pricing services, if any; organizational
expenses; and any extraordinary expenses. Expenses attributable to one or more,
but not all, of the Funds are charged against the assets of the relevant Funds.
General expenses of the Funds are allocated among the Funds in a manner
proportionate to the net assets of each Fund, on a transactional basis or on
such other basis as the Board of Directors deems equitable.
7. Amendment. This agreement may be amended at any time by mutual
---------
agreement in writing of Stagecoach, Stephens, and Wells Fargo, provided that the
Board of Directors of Stagecoach approve any such amendment in advance.
8. Co-Administrator's other businesses. Except to the extent
-----------------------------------
necessary to perform Stephens' obligations under this agreement, nothing herein
shall be deemed to limit or restrict the right of Stephens, or any affiliate or
employee of Stephens, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
corporation, firm, individual or association.
9. Duration. This agreement shall become effective on its execution
--------
date and shall remain in full force and effect for one year or until terminated
pursuant to the provisions in Paragraph 10, and it may be reapproved at least
annually by the Board of Directors, including a majority of the directors who
are not interested persons of Stagecoach or any party to this agreement, as
defined by the 1940 Act.
10. Termination of Agreement. This agreement may be terminated at
------------------------
any time, without the payment of any penalty by a vote of a majority of the
members of Stagecoach's Board of Directors, on 60 days' written notice to
Stephens and Wells Fargo; or by Stephens on 60 days' written notice to
Stagecoach and Wells Fargo; or by Wells Fargo on 60 days' written notice to
Stagecoach and Stephens.
4
<PAGE>
11. Confidentiality. Stephens shall keep confidential all books,
---------------
records, information, and data pertaining to the business of Stagecoach and its
prior, present, or potential shareholders that are exchanged or received
pursuant to the performance of Stephens' duties under this agreement and
Stephens shall not disclose the aforementioned to any other person, except as
Stagecoach shall specifically authorize or as required by law, and the
aforementioned documents, information, and data shall not be used for any
purpose other than performance of its responsibilities and duties under this
agreement.
12. Stagecoach not bound to violate its Articles. Nothing in this
--------------------------------------------
agreement shall require Stagecoach to take any action contrary to any provision
of its Articles of Incorporation or to any applicable statute or regulation.
13. Miscellaneous.
-------------
(a) Any notice or other instrument authorized or required by this
agreement to be given in writing to Stagecoach, Wells Fargo, or Stephens shall
be sufficiently given if addressed to that party and received by it at its
office set forth below or at such other place as it may from time to time
designate in writing.
To Stagecoach:
Stagecoach Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
Attention: Richard H. Blank
To Stephens:
Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
Attention: Richard H. Blank
To Wells Fargo:
Wells Fargo Bank, N.A.
111 Sutter Street, 18th Floor
San Francisco, California 94104
Attention: C. David Messman
(b) This agreement shall extend to and be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this agreement shall not be subject to assignment (as that term is defined
under the 1940 Act) without the written consent of the other party.
5
<PAGE>
(c) This agreement shall be governed by and construed in
accordance with the laws of the State of California.
(d) This agreement may be executed in any number of counterparts
each of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one agreement.
(e) The captions of this agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
In witness whereof, the parties have caused this agreement to be
executed by their duly authorized officers in the day and year first above
written.
STAGECOACH FUNDS, INC.
By: /s/ Richard H. Blank
---------------------------
Richard H. Blank
Chief Operating Officer
STEPHENS INC.
By: /s/ Richard H. Blank
---------------------------
Richard H. Blank
Vice President
WELLS FARGO BANK, N.A.
By: /s/ Michael J. Hogan
---------------------------
Michael J. Hogan
Senior Vice President
6
<PAGE>
Appendix A
Stagecoach Funds
Arizona Tax-Free Fund
Asset Allocation Fund
Balanced Fund
California Money Market Trust
Corporate Stock Fund
California Tax-Free Bond Fund
California Tax-Free Income Fund
California Tax-Free Money Market Mutual Fund
California Tax-Free Money Market Trust
Diversified Income Fund
Equity Value Fund
Government Money Market Mutual Fund
Growth and Income Fund
Index Allocation Fund
Intermediate Bond Fund
Money Market Mutual Fund
National Tax-Free Fund
National Tax-Free Money Market Mutual Fund
National Tax-Free Money Market Trust
Oregon Tax-Free Fund
Prime Money Market Mutual Fund
Short-Intermediate U.S. Government Income Fund
Short-Term Government-Corporate Income Fund
Short-Term Municipal Income Fund
Small Cap Fund
Aggressive Growth Fund
Overland Sweep Fund
Treasury Money Market Mutual Fund
U.S. Government Allocation Fund
Ginnie Mae Fund
Variable Rate Government Fund
7
<PAGE>
EXHIBIT 99.B9(e)(vii)
STAGECOACH FUNDS, INC.
SERVICING PLAN
--------------
ADMINISTRATIVE CLASS SHARES
---------------------------
Section 1. Each of the proper officers of Stagecoach Funds, Inc. (the
"Company") is authorized to execute and deliver, in the name and on behalf of
the Company, written agreements based substantially on the form attached hereto
as Exhibit A or any other form duly approved by the Company's Board of Directors
("Agreements") with broker/dealers, banks and other financial institutions that
are dealers of record or holders of record or which have a servicing
relationship ("Servicing Agents") with the beneficial owners of Administrative
Class shares of the Company's Funds listed on the attached Appendix (each a
"Fund" and, collectively, the "Funds"). Pursuant to such Agreements, Servicing
Agents shall provide support services as set forth therein to their clients who
beneficially own Administrative Class shares of a Fund in consideration of a
fee, computed monthly in the manner set forth in the Fund's then current
prospectus, based on an annual rate applied to the average daily net asset value
of the Administrative Class shares beneficially owned by or attributable to such
clients. The applicable fee with respect to a particular Fund shall be as set
forth opposite the name of such Fund on the attached Appendix. The Company's
distributor, administrator and adviser and their respective affiliates are
eligible to become Servicing Agents and to receive fees under this Servicing
Plan. All expenses incurred by a Fund in connection with the Agreements and the
implementation of this Servicing Plan shall be borne entirely by the holders of
the Administrative Class shares of the Fund.
Section 2. The Company's administrator shall monitor the arrangements
pertaining to the Company's Agreements with Servicing Agents. The Company's
administrator shall not, however, be obligated by this Servicing Plan to
recommend, and the Company shall not be obligated to execute, any Agreement with
any qualifying Servicing Agents.
Section 3. So long as this Servicing Plan is in effect, the Company's
administrator shall provide to the Company's Board of Directors, and the
Directors shall review, at least quarterly, a written report of the amounts
expended pursuant to this Servicing Plan and the purposes for which such
expenditures were made.
Section 4. The Plan shall be effective on the date upon which it is
approved by a majority of the Directors of the Company, or on the date the Fund
commences operations, if such date is later.
Section 5. Unless sooner terminated, this Servicing Plan (and each related
agreement) shall continue in effect for a period of one year from its date of
approval and shall continue thereafter for successive annual periods, provided
that such Plan is not specifically terminated by a majority of the Board of
Directors.
<PAGE>
Section 6. This Servicing Plan may be amended at any time with respect to
a Fund by the Company's Board of Directors.
Section 7. This Servicing Plan is terminable at any time with respect to a
Fund by vote of a majority of the Board of Directors.
Section 8. Notwithstanding anything herein to the contrary, a Fund shall
not be obligated to make any payments under this Plan that exceed the maximum
amounts payable under Rule 2830 of the Conduct Rules of the National Association
of Securities Dealers, Inc.
Section 9. The Company will preserve copies of this Servicing Plan,
Agreements, and any written reports regarding this Servicing Plan presented to
the Board of Directors for a period of not less than six years.
Dated: July 23, 1997
2
<PAGE>
APPENDIX
--------
Applicable
Fund Name Servicing Fee Rate
--------- ------------------
Prime Money Market Mutual Fund 0.15%
Treasury Money Market Mutual Fund 0.15%
Approved: July 23, 1997
3
<PAGE>
EXHIBIT A
---------
FORM OF SHAREHOLDER SERVICING AGREEMENT
THIS SHAREHOLDER SERVICING AGREEMENT ("Agreement"), dated as of ________
__, 1997, is made among Stagecoach Funds, Inc. (the "Company"), a Maryland
corporation, Stagecoach Trust (the "Trust"), a Massachusetts business trust,
(sometimes referred to herein as the "Companies"), each having its principal
place of business at 111 Center Street, Little Rock, Arkansas 72201, on behalf
of the classes of shares of the Funds of the Company and the Trust listed in the
attached Appendix (each a "Class" and a "Fund" and, collectively, the "Classes"
and the "Funds"), and _____________________ as shareholder servicing agent
hereunder ("Shareholder Servicing Agent");
W I T N E S S E T H:
WHEREAS, shares of common stock of a Fund of the Company, and shares of
beneficial interest of a Fund of the Trust (hereinafter the "Shares") may be
purchased or redeemed through a broker/dealer or financial institution which has
entered into a shareholder servicing agreement with the Company and the Trust on
behalf of their respective Funds; and
WHEREAS, the Shareholder Servicing Agent wishes to facilitate purchases
and redemptions of Shares by its customers (the "Customers") and wishes to act
as the Customers' agent in performing certain administrative functions in
connection with transactions in Shares from time to time for the account of the
Customers and to provide related services to the Customers in connection with
their investments in a Fund; and
WHEREAS, it is in the best interests of the Funds to make the services of
the Shareholder Servicing Agent available to the Customers who, from time to
time, become shareholders of a Fund;
NOW THEREFORE, the Company and the Trust, on behalf of their respective
Funds, and the Shareholder Servicing Agent hereby agree as follows:
1. Appointment. The Shareholder Servicing Agent hereby agrees to
-----------
perform certain services for Customers as hereinafter set forth. The
Shareholder Servicing Agent's appointment hereunder is not exclusive, and the
Shareholder Servicing Agent shall not be entitled to notice of or a right to
consent to the execution of a shareholder servicing agreement with any other
person.
2. Services to be Performed.
------------------------
2.1 Types of Services. The Shareholder Servicing Agent shall be
-----------------
responsible for performing shareholder administrative and liaison services,
which shall include, without limitation:
(a) answering Customer inquiries regarding account status and
history, and the manner in which purchases, exchanges and redemptions of Shares
may be effected;
(b) assisting Customers in designating and changing dividend
options, account designations and addresses;
<PAGE>
(c) providing necessary personnel and facilities to establish
and maintain Customer accounts and records;
(d) assisting in aggregating and transmitting purchase,
redemption and exchange transactions;
(e) arranging for the wiring of money;
(f) transferring money in connection with Customer orders to
purchase or redeem shares;
(g) verifying and guaranteeing Customer signatures in
connection with redemption and exchange orders and transfers and changes in
Customer accounts with a bank which is designated in the Fund Account
Application and which is approved by a Fund's Transfer Agent;
(h) furnishing (either separately or on an integrated basis
with other reports sent to a Customer by the Shareholder Servicing Agent)
monthly and year-end statements and confirmations of purchases, redemptions and
exchanges;
(i) furnishing, on behalf of the Shares of a Fund, proxy
statements, annual reports, updated prospectuses and other communications to
Customers;
(j) receiving, tabulating and sending to a Fund, proxies
executed by Customers; and
(k) providing such other related services, and necessary
personnel and facilities to provide all of the shareholder services contemplated
hereby, in each case, as the Company or the Trust, as the case may be, or a
Customer may reasonably request.
2.2 Standard of Services. All services to be rendered by the
--------------------
Shareholder Servicing Agent hereunder shall be performed in a professional,
competent and timely manner. Any detailed operating standards and procedures to
be followed by the Shareholder Servicing Agent in performing the services
described above shall be determined from time to time by agreement between the
Shareholder Servicing Agent and the Companies. The Company and the Trust each
acknowledges that the Shareholder Servicing Agent's ability to perform on a
timely basis certain of its obligations under this Agreement depends upon a
Fund's timely delivery of certain materials and/or information to the
Shareholder Servicing Agent. The Company and the Trust each agrees to use its
best efforts to provide, or cause to be provided, such materials to the
Shareholder Servicing Agent in a timely manner.
2.3 Investments through Distributor. The Company, the Trust and
-------------------------------
the Shareholder Servicing Agent each hereby agrees that all purchases of Shares
effected by the Shareholder Servicing Agent on behalf of its Customers shall be
effected by it through Stephens Inc. ("Distributor") in its capacity as the
Funds' principal underwriter.
3. Fees.
----
3.1 Fees from the Funds. In consideration of the services
-------------------
described in Section 2 hereof and the incurring of expenses in connection
therewith, the Shareholder Servicing Agent shall receive a fee, from each of the
Classes of Shares of the Funds identified in the attached Appendix, which shall
be
2
<PAGE>
paid in arrears periodically or on a periodic basis to be agreed between the
Company and the Shareholder Servicing Agent, and between the Trust and the
Shareholder Servicing Agent, from time to time (but in no event less frequently
than semi-annually) determined by a formula based upon the number of accounts of
the particular Class in a particular Fund serviced by the Shareholder Servicing
Agent during the period for which payment is being made, the level of assets or
activity in such accounts during such period, and/or the expenses incurred by
the Shareholder Servicing Agent. In no event will the fees charged to a Class of
Shares of a Fund exceed the amount set forth opposite such Class of Shares of
such Fund in the Appendix attached hereto. In addition, all fees paid by Classes
of Shares of the Funds hereunder shall be calculated based on the average daily
net assets of the particular Class of Shares of such Fund owned of record by the
Shareholder Servicing Agent on behalf of the Customers during the period for
which payment is being made. For purposes of determining the fees payable to the
Shareholder Servicing Agent hereunder, the per share value of a Class of a Fund
shall be computed in the manner specified in the Fund's then-current prospectus.
Notwithstanding the foregoing, if applicable laws, regulations or rules impose a
maximum fee amount (a "cap") with respect to shareholder servicing fees and/or
fees for distribution-related services that may be paid by the Shares of a Fund,
the amount payable hereunder shall be reduced to an amount which, when
considered in conjunction with the fees payable by a Fund for the Shares'
distribution-related activities, is the maximum amount payable to the
Shareholder Servicing Agent under applicable laws, regulations or rules.
Notwithstanding anything herein to the contrary, neither the Company nor the
Trust shall be obligated to make any payments under this Agreement that exceed
the maximum amounts payable under Rule 2830 of the Conduct Rules of the National
Association of Securities Dealers, Inc. The above fee constitutes all fees to be
paid to the Shareholder Servicing Agent by a Class of Shares of a Fund of the
Company or the Trust with respect to the shareholder services contemplated
hereby.
3.2 Fees from Customers. It is agreed that the Shareholder
-------------------
Servicing Agent may impose certain conditions on Customers, subject to the terms
of the relevant Fund's then-current prospectus, in addition to or different from
those imposed by the Fund, such as requiring a minimum initial investment or the
payment of additional fees directly by the Customer for additional services
offered by the Shareholder Servicing Agent to the Customer; provided, however,
-------- -------
that the Shareholder Servicing Agent may not charge Customers any direct fee
which would constitute a "sales load" within the meaning of Section 2(a)(35) of
the Investment Company Act of 1940, as amended (the "1940 Act"). The
Shareholder Servicing Agent shall bill Customers directly for any such
additional fees. In the event the Shareholder Servicing Agent charges Customers
such additional fees, it shall notify the Company in advance and make
appropriate prior written disclosure (such disclosure to be in accordance with
all applicable laws) to Customers of any such additional fees charged directly
to the Customer. To the extent required by applicable rules and regulations of
the Securities and Exchange Commission ("SEC"), the Company and the Trust shall
make written disclosure of the fees paid or to be paid by a Fund to the
Shareholder Servicing Agent pursuant to Section 3.1 of this Agreement. In no
event shall the Shareholder Servicing Agent have recourse or access, as
Shareholder Servicing Agent or otherwise, to the assets in the Customer's
account, except to the extent expressly authorized by law or by such Customer,
or to any assets of a Fund, the Company or the Trust, for payment of any
additional direct fees referred to in this Section 3.2.
4. Information Pertaining to the Shares. The Shareholder Servicing
------------------------------------
Agent and its officers, employees and agents are not authorized to make any
representations concerning the Company, the Trust, a Fund or the Shares of any
Class thereof to Customers or prospective Customers, excepting only accurate
communication of any information provided by or on behalf of any administrator
of the Company, the Trust or the Distributor of information contained in the
relevant Fund's then-current prospectus. In furnishing such information
regarding the Company, the Trust, a Fund or the Shares, the Shareholder
Servicing Agent shall act as agent for the Customer only and shall have no
authority to act as agent for the
3
<PAGE>
Company, the Trust, a Fund or the Shares. Advance copies or proofs of all
materials which are proposed to be circulated or disseminated by the Shareholder
Servicing Agent to Customers or prospective Customers and which identify or
describe the Company, the Trust, a Fund or the Shares shall be provided to the
Company or the Trust, as the case may be, at least 10 days prior to such
circulation or dissemination (unless the Company or the Trust, as the case may
be, consents in writing to a shorter period), and such materials shall not be
circulated or disseminated or further circulated or disseminated at any time
after the Company or the Trust, as the case may be, shall have given written
notice to the Shareholder Servicing Agent of any objection thereto.
Nothing in this Section 4 shall be construed to make the Company or the
Trust liable for the use (as opposed to the accuracy) of any information about
the Company, the Trust, a Fund or the Shares which is disseminated by the
Shareholder Servicing Agent.
5. Use of the Shareholder Servicing Agent's Name. Neither the Company
---------------------------------------------
nor the Trust shall use the name of the Shareholder Servicing Agent, or any of
its affiliates or subsidiaries, in any prospectus, sales literature or other
materials relating to the Company, the Trust, a Fund or the Shares in a manner
not approved by the Shareholder Servicing Agent prior thereto in writing;
provided, however, that the approval of the Shareholder Servicing Agent shall
- -------- -------
not be required for any use of its name which merely refers in accurate and
factual terms to its appointment hereunder or which is required by the SEC or
any state securities authority or any other appropriate regulatory, governmental
or judicial authority; provided, further, that in no event shall such approval
-------- -------
be unreasonably withheld or delayed.
6. Use of the Name of the Company, the Trust or a Fund. The
---------------------------------------------------
Shareholder Servicing Agent shall not use the name of the Company, the Trust, a
Fund or any Class of Shares on any checks, bank drafts, bank statements or forms
for other than internal use in a manner not approved by the Company or the
Trust, as the case may be, prior thereto in writing; provided, however, that the
-------- -------
approval of the Company or the Trust, as the case may be, shall not be required
for (i) the use of the Company's or the Trust's name, or the name of a Fund, in
connection with communications permitted by Section 4 hereof, or (ii) (subject
to Section 4, to the extent the same may be applicable) for any use of the
Company's or the Trust's name or a Fund's name which merely identifies the
Company, the Trust or a Fund, as the case may be, in connection with the
Shareholder Servicing Agent's role hereunder or which is required by the SEC or
any state securities authority or any other appropriate regulatory, governmental
or judicial authority; provided, further, that in no event shall such approval
-------- -------
be unreasonably withheld or delayed.
7. Security. The Shareholder Servicing Agent represents and warrants
--------
that to the best of its knowledge, the various procedures and systems which it
has implemented (including provision for twenty-four hours a day restricted
access) with regard to safeguarding from loss or damage attributable to fire,
theft or any other cause the Companies records and other data within its
possession or control and the Shareholder Servicing Agent's records, data,
equipment, facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as in its judgment are required for the secure performance of
its obligations hereunder. The parties shall review such systems and procedures
on a periodic basis, and the Company and the Trust shall each, from time to
time, specify the types of records and other data of the Company and the Trust,
respectively, to be safeguarded in accordance with this Section 7.
8. Compliance with Laws. The Shareholder Servicing Agent shall comply
--------------------
with all applicable federal and state laws and regulations, including securities
laws. The Shareholder Servicing Agent represents and warrants to the Company
and the Trust, respectively, that the performance of all its obligations
hereunder will comply with all applicable laws and regulations, the provisions
of its charter
4
<PAGE>
documents and by-laws and all material contractual obligations binding upon the
Shareholder Servicing Agent. The Shareholder Servicing Agent furthermore
undertakes that it will promptly, after the Shareholder Servicing Agent becomes
so aware, inform the Company and the Trust of any change in applicable laws or
regulations (or interpretations thereof) or in its charter or by-laws or
material contracts which would prevent or impair full performance of any of its
obligations hereunder.
9. Reports. To the extent requested by the Company or the Trust from
-------
time to time, but at least quarterly, the Shareholder Servicing Agent will
provide the Treasurer of the Company or the Trust, as the case may be, with a
written report of the amounts expended by the Shareholder Servicing Agent
pursuant to this Agreement and the purposes for which such expenditures were
made. Such written reports shall be in a form satisfactory to the Company or
the Trust, as the case may be, and shall supply all information necessary for
the Company and the Trust to discharge their responsibilities under applicable
laws and regulations. In addition, the Shareholder Servicing Agent shall have a
duty to furnish to the Company's Board of Directors and the Trust's Board of
Trustees such information as may reasonably be necessary to an informed
determination of whether this Agreement should be implemented or continued
pursuant to Section 16.
10. Recordkeeping.
-------------
10.1 Each party shall maintain and preserve records as required by
law to be maintained and preserved by it in connection with providing the
services contemplated by this Agreement. The Shareholder Servicing Agent's
recordkeeping responsibilities shall include those relating to establishing and
maintaining sub-accounts and records on behalf of Customers, and recording
Customers' sub-account balances and changes thereto.
10.2. Upon the request of the Company or the Trust, the Shareholder
Servicing Agent shall provide copies of all records relating to the transactions
between the Funds and the Customers as are maintained by the Shareholder
Servicing Agent in the ordinary course of its business and in compliance with
laws and regulations as may reasonably be requested to enable the Company and
the Trust to comply with any applicable laws or regulations or request of a
governmental body or self-regulatory organization.
10.3. The recordkeeping and access obligations imposed in this
Section 10 shall survive the termination of this Agreement for the shorter of a
period of six years or that minimum period required by applicable rules or
regulations of the SEC.
11. Force Majeure. The Shareholder Servicing Agent shall not be liable
-------------
or responsible for delays or errors by reason of circumstances beyond its
reasonable control, including, but not limited to, acts of civil or military
authority, national emergencies, labor difficulties, fire, mechanical breakdown,
flood or catastrophe, acts of God, insurrection, war, riots or failure of
communication systems or power supply.
12. Indemnification.
---------------
12.1 Indemnification of the Shareholder Servicing Agent by the
---------------------------------------------------------
Companies. Each of the Company and the Trust will indemnify and hold the
- ---------
Shareholder Servicing Agent harmless from all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses) from
any claim, demand, action or suit (collectively, "Claims") (a) arising in
connection with misstatements or omissions in the Funds' prospectus, actions or
inactions by the Company or the Trust, as the case may be, or any of its agents
or contractors or the performance of the Shareholder Servicing Agent's
obligations hereunder and (b) not resulting from (i) the bad faith or negligence
of the Shareholder Servicing Agent, its
5
<PAGE>
officers, employees or agents, or (ii) any breach of applicable law by the
Shareholder Servicing Agent, its officers, employees or agents, or (iii) any
action of the Shareholder Servicing Agent, its officers, employees or agents
which exceeds the legal authority of the Shareholder Servicing Agent or its
authority hereunder, or (iv) any error or omission of the Shareholder Servicing
Agent, its officers, employees or agents with respect to the purchase,
redemption and transfer of Customers' Shares or the Shareholder Servicing
Agent's verification or guarantee of any Customer signature. Notwithstanding
anything herein to the contrary, each of the Company and the Trust will
indemnify and hold the Shareholder Servicing Agent harmless from any and all
losses, claims, damages, liabilities or expenses (including reasonable counsel
fees and expenses) resulting from any Claim as a result of its acting in
accordance with any written instructions reasonably believed by the Shareholder
Servicing Agent to have been executed by any person duly authorized by the
Company or the Trust, as the case may be, or as a result of acting in reliance
upon any instrument or stock certificate reasonably believed by the Shareholder
Servicing Agent to have been genuine and signed, countersigned or executed by a
person duly authorized by the Company or the Trust, as the case may be,
excepting only the gross negligence or bad faith of the Shareholder Servicing
Agent.
In any case in which the Company or the Trust may be asked to indemnify
or hold the Shareholder Servicing Agent harmless, the Company or the Trust, as
the case may be, shall be advised of all pertinent facts concerning the
situation in question and the Shareholder Servicing Agent shall use reasonable
care to identify and notify the Company or the Trust, as the case may be,
promptly concerning any situation which presents or appears likely to present a
claim for indemnification against the Company or the Trust. The Company and the
Trust shall have the option to defend the Shareholder Servicing Agent against
any Claim which may be the subject of indemnification hereunder. In the event
that the Company or the Trust, as the case may be, elects to defend against such
Claim, the defense shall be conducted by counsel chosen by the Company or the
Trust, as the case may be, and reasonably satisfactory to the Shareholder
Servicing Agent. The Shareholder Servicing Agent may retain additional counsel
at its expense. Except with the prior written consent of the Company or the
Trust, as the case may be, the Shareholder Servicing Agent shall not confess any
Claim or make any compromise in any case in which the Company or the Trust will
be asked to indemnify the Shareholder Servicing Agent.
12.2 Indemnification of the Companies by the Shareholder Servicing
-------------------------------------------------------------
Agent. Without limiting the rights of the Companies under applicable law, the
- -----
Shareholder Servicing Agent will indemnify and hold each of the Company and the
Trust harmless from all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) from any Claim (a) resulting
from (i) the bad faith or negligence of the Shareholder Servicing Agent, its
officers, employees or agents, or (ii) any breach of applicable law by the
Shareholder Servicing Agent, its officers, employees or agents, or (iii) any
action of the Shareholder Servicing Agent, its officers, employees or agents
which exceeds the legal authority of the Shareholder Servicing Agent or its
authority hereunder, or (iv) any error or omission of the Shareholder Servicing
Agent, its officers, employees or agents with respect to the purchase,
redemption and transfer of Customers' Shares or the Shareholder Servicing
Agent's verification or guarantee of any Customer signature, and (b) not
resulting from the Shareholder Servicing Agent's actions in accordance with
written instructions reasonably believed by the Shareholder Servicing Agent to
have been executed by any person duly authorized by the Company or the Trust, as
the case may be, or in reliance upon any instrument or stock certificate
reasonably believed by the Shareholder Servicing Agent to have been genuine and
signed, countersigned or executed by a person duly authorized by the Company or
the Trust, as the case may be.
In any case in which the Shareholder Servicing Agent may be asked to
indemnify or hold the Company or the Trust harmless, the Shareholder Servicing
Agent shall be advised of all pertinent facts concerning the situation in
question and the Company or the Trust, as the case may be, shall use reasonable
6
<PAGE>
care to identify and notify the Shareholder Servicing Agent promptly concerning
any situation which presents or appears likely to present a claim for
indemnification against the Shareholder Servicing Agent. The Shareholder
Servicing Agent shall have the option to defend the Company or the Trust, as the
case may be, against any Claim which may be the subject of indemnification
hereunder. In the event that the Shareholder Servicing Agent elects to defend
against such Claim, the defense shall be conducted by counsel chosen by the
Shareholder Servicing Agent and satisfactory to the Company or the Trust, as the
case may be. The Company or the Trust may retain additional counsel at its
expense. Except with the prior written consent of the Shareholder Servicing
Agent, neither the Company nor the Trust shall confess any Claim or make any
compromise in any case in which the Shareholder Servicing Agent will be asked to
indemnify the Company or the Trust.
12.3 Indemnification Between the Companies. The Company will
-------------------------------------
indemnify and hold harmless the Trust against any losses, claims, damages and
liabilities to which the Trust may become subject arising in connection with
this Agreement, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any prospectus of
the Company for which the Shareholder Servicing Agent acts as such pursuant to
this Agreement, or arise out of or are based upon actions or inactions by the
Company or any of its agents or contractors or the performance of the
Shareholder Servicing Agent's obligations hereunder and (b) not resulting from
(i) the bad faith or negligence of the Trust, its officers, employees or agents,
or (ii) any breach of applicable law by the Trust, its officers, employees or
agents, or (iii) any action of the Trust, its officers, employees or agents
which exceeds the legal authority of the Trust or its authority hereunder, or
(iv) any error or omission of the Shareholder Servicing Agent, its officers,
employees or agents with respect to the purchase, redemption and transfer of
Customers' Shares or the Shareholder Servicing Agent's verification or guarantee
of any Customer signature.
The Trust will indemnify and hold harmless the Company against any
losses, claims, damages and liabilities to which The Company may become subject
arising in connection with this Agreement, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any the Trust prospectus for which the Shareholder Servicing Agent
acts as such pursuant to this Agreement, or arise out of or are based upon
actions or inactions by the Trust or any of its agents or contractors or the
performance of the Shareholder Servicing Agent's obligations hereunder and (b)
not resulting from (i) the bad faith or negligence of the Company, its officers,
employees or agents, or (ii) any breach of applicable law by the Company, its
officers, employees or agents, or (iii) any action of the Company, its officers,
employees or agents which exceeds the legal authority of the Company or its
authority hereunder, or (iv) any error or omission of the Shareholder Servicing
Agent, its officers, employees or agents with respect to the purchase,
redemption and transfer of Customers' Shares or the Shareholder Servicing
Agent's verification or guarantee of any Customer signature.
In any case in which the Company or the Trust may be asked to indemnify
or hold the other harmless, the indemnifying party shall be advised of all
pertinent facts concerning the situation in question and the party to be
indemnified shall use reasonable care to identify and notify the indemnifying
party promptly concerning any situation which presents or appears likely to
present a claim for indemnification against the indemnifying party. The
indemnifying party shall have the option to defend the indemnified party against
any Claim which may be the subject of indemnification hereunder. In the event
that the indemnifying party elects to defend against such Claim, the defense
shall be conducted by counsel chosen by the indemnifying party and reasonably
satisfactory to the indemnified party. The indemnified party may retain
additional counsel at its expense. Except with the prior written consent of the
indemnifying party,
7
<PAGE>
the indemnified party shall not confess any claim or make any compromise in any
case in which indemnifying party will be asked to indemnify the indemnified
party.
12.4 Survival of Indemnities. The indemnities granted by the
-----------------------
parties in this Section 12 shall survive the termination of this Agreement.
13. Insurance. The Shareholder Servicing Agent shall maintain
---------
reasonable insurance coverage against any and all liabilities which may arise in
connection with the performance of its duties hereunder.
14. Notices. All notices or other communications hereunder shall be in
-------
writing and shall be deemed sufficient if mailed to each other party at the
address of such party set forth in the preamble of this Agreement or at such
other address as such party may have designated by written notice to the others.
15. Further Assurances. Each party agrees to perform such further acts
------------------
and execute such further documents as are necessary to effectuate the purposes
hereof.
16. Implementation and Duration of Agreement. This Agreement is
----------------------------------------
effective upon the date first written above and shall continue in effect with
respect to a Class of Shares of a Fund of the Company and the Trust for a period
of more than one year from the date hereof so long as the Servicing Plan adopted
for such Class and related form of agreement or this Agreement is not
specifically terminated by a vote of the Board of Directors/Trustees of the
Company/Trust (as applicable) and of the Directors/Trustees who are not
"interested persons" of the Company/Trust (as defined in the 1940 Act) and have
no direct or indirect financial interest in the operation of the relevant
Servicing Plan (the "Plan") pursuant to which the fees are paid, this Agreement,
or any other agreement related to such Plan, cast in person at a meeting called
for the purpose of voting on this Agreement.
17. Termination. This Agreement may be terminated with respect to the
-----------
Company or the Trust, or one or more Funds of the Company or the Trust, by the
Company or the Trust, respectively, without the payment of any penalty, at any
time upon not more than 60 days' nor less than 30 days' notice, by a vote of a
majority of the Board of Directors/Trustees of the Company/Trust (as applicable)
who are not "interested persons" of the Company/Trust (as defined in the 1940
Act) and have no direct or indirect financial interest in the operation of the
relevant Plan, this Agreement or any other agreement related to such Plan,
including the Amended Distribution Agreement, or by "a vote of a majority of the
outstanding voting securities" (as defined in the 1940 Act) of the relevant
class of shares of the Fund. The Shareholder Servicing Agent may terminate this
Agreement with respect to either the Company or the Trust upon not more than 60
days' nor less than 30 days' notice to the Company or the Trust, as the case may
be. Either the Company, the Trust or the Shareholder Servicing Agent may assign
this Agreement provided that such assigning party obtains the prior written
consent of the other parties hereto. Upon termination hereof, a Fund shall pay
such compensation as may be due the Shareholder Servicing Agent as of the date
of such termination.
18. Changes; Amendments. Except as otherwise provided in this Section
-------------------
18, this Agreement may be supplemented or amended only by written instrument
signed by all parties, but may not be amended to increase materially the maximum
amount payable by a Class of Shares of a Fund without the approval of "a vote of
a majority of the outstanding voting securities" (as defined in the 1940 Act) of
such Class of Shares of such Fund, and all material amendments must be approved
in the manner described in Section 16. From time to time, the Company and the
Trust may, by written notice to the Shareholder Servicing Agent, amend the
Appendix attached hereto to add or delete Funds and/or classes of Shares as
8
<PAGE>
available investment options hereunder. Any such notice shall be effective upon
receipt by the Shareholder Servicing Agent.
19. Limitation of Liability. The Shareholder Servicing Agent hereby
-----------------------
agrees that obligations assumed by the Company and the Trust pursuant to this
Agreement shall be limited in all cases to the Funds and their assets and that
the Shareholder Servicing Agent shall not seek satisfaction of any such
obligations from the Board of Directors or any individual Director of the
Company, or from the Board of Trustees or any individual Trustee of the Trust.
The Shareholder Servicing Agent further agrees that all obligations of a Fund
hereunder shall be solely the obligations of such Fund and that in no case will
any Fund of either the Company or the Trust be liable for the obligations of any
other Fund of the Company of the Trust, nor shall any Fund of the Company be
liable for any obligation of a Fund of the Trust, or vice versa.
20. Subcontracting by Shareholder Servicing Agent. The Shareholder
---------------------------------------------
Servicing Agent may, with the written approval of each of the Company and the
Trust (such approval not to be unreasonably withheld or delayed), subcontract
for the performance of the Shareholder Servicing Agent's obligations hereunder
with any one or more persons, including but not limited to any one or more
persons which is an affiliate of the Shareholder Servicing Agent; provided,
--------
however, that the Shareholder Servicing Agent shall be as fully responsible to
- -------
the Companies for the acts and omissions of any subcontractor as it would be for
its own acts or omissions.
21. Authority to Vote. The Company and the Trust hereby confirm that
-----------------
nothing contained in its Articles of Incorporation or Declaration of Trust,
respectively, would preclude the Shareholder Servicing Agent, at any meeting of
shareholders of the Company, the Trust or of a Fund, from voting any Shares held
in accounts serviced by the Shareholder Servicing Agent and which are otherwise
not represented in person or by proxy at the meeting, proportionately in
accordance with the votes cast by holders of all Shares otherwise represented at
the meeting in person or by proxy and held in accounts serviced by the
Shareholder Servicing Agent.
22. Compliance with Laws and Policies; Cooperation. The Company and the
----------------------------------------------
Trust each hereby agrees that it will comply with all laws and regulations
applicable to operations of Funds thereof and the Shareholder Servicing Agent
agrees that it will comply with all laws and regulations applicable to providing
the services contemplated hereby.
9
<PAGE>
22.1 Miscellaneous. This Agreement shall be construed and enforced
-------------
in accordance with and governed by the laws of the State of California. The
captions in this Agreement are included for convenience of reference only and in
no way define or limit any of the provisions hereof or otherwise affect their
construction or effect. This Agreement may be executed simultaneously in three
or more counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
STAGECOACH FUNDS, INC. on behalf of the
classes of shares of the Funds listed in the
attached Appendix
By:
------------------------------------
Name: Richard H. Blank, Jr.
---------------------
Title: Chief Operating Officer,
------------------------
Secretary and Treasurer
-----------------------
STAGECOACH TRUST, on behalf of the classes of
shares of the Funds listed in the attached
Appendix
By:
------------------------------------
Name: Richard H. Blank, Jr.
---------------------
Title: Chief Operating Officer,
------------------------
Secretary and Treasurer
-----------------------
By:
-----------------------
Name:
---------------------
Title:
--------------------
By:
-----------------------
Name:
---------------------
Title:
--------------------
10
<PAGE>
APPENDIX
--------
<TABLE>
<CAPTION>
Maximum
Annual
Fund and Share Class(es) Fee Rate
------------------------ --------
Stagecoach
----------
<S> <C>
Arizona Tax-Free Fund
Class A .25%
Class B .25%
Institutional Class .25%
Asset Allocation Fund
Class A .30%
Class B .30%
Balanced Fund
Class A .25%
Class B .25%
Institutional Class .25%
California Tax-Free Bond Fund
Class A .30%
Class B .30%
Class C .25%
Institutional Class .25%
California Tax-Free Income Fund
Class A .30%
Institutional Class .25%
California Tax-Free Money Market Fund
Single Class .30%
California Tax-Free Money Market Trust
Single Class .20%
Corporate Stock Fund
Single Class .30%
Diversified Income Fund
Class A .30%
Class B .30%
Equity Value Fund
Class A .25%
Class B .25%
Institutional Class .25%
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Maximum
Annual
Fund and Share Class(es) Fee Rate
------------------------ --------
<S> <C>
Government Money Market Mutual Fund
Class A .25%
Growth and Income Fund
Class A .30%
Class B .30%
Institutional Class .25%
Index Allocation Fund
Class A .25%
Class B .25%
Class C .25%
Intermediate Bond Fund
Class A .25%
Class B .25%
Institutional Class .25%
International Equity Fund
Class A .25%
Class B .25%
Institutional Class .25%
Money Market Mutual Fund
Class A .30%
Service Class .25%
Institutional Class .25%
Money Market Trust Fund
Single Class .20%
National Tax-Free Fund
Class A .25%
Class B .25%
Class C .25%
Institutional Class .25%
National Tax-Free Money Market Fund
Class [A] .25%
Institutional Class .20%
Oregon Tax-Free Fund
Class A .25%
Class B .25%
Institutional Class .25%
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Maximum
Annual
Fund and Share Class(es) Fee Rate
------------------------ --------
<S> <C>
Overland Sweep Fund
Single Class .30%
Prime Money Market Mutual Fund
Class A .25%
Service Class .20%
Institutional Class .25%
Administrative Class .15%
Short-Term Government-Corporate Income Fund
Single Class .25%
Short-Intermediate U.S. Government Income Fund
Class A .30%
Institutional Class .25%
Short-Term Municipal Income Fund
Single Class .25%
Small Cap Fund
Class A .25%
Class B .25%
Class C .25%
Institutional Class .25%
Strategic Growth Fund
Class A .25%
Class B .25%
Class C .25%
Treasury Money Market Mutual Fund
Class A .25%
Service Class .20%
Institutional Class .25%
Administrative Class .15%
U.S. Government Allocation Fund
Class A .30%
Class B .30%
U.S. Government Income Fund
Class A .30%
Class B .30%
Class C .25%
Institutional Class .25%
Variable Rate Government Fund
Class A .25%
Class C .25%
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
Stagecoach Trust
----------------
Stagecoach LifePath 2000
Class A .20%
Institutional Class .20%
Stagecoach LifePath 2010
Class A .20%
Class B .20%
Institutional Class .20%
Stagecoach LifePath 2020
Class A .20%
Class B .20%
Institutional Class .20%
Stagecoach LifePath 2030
Class A .20%
Class B .20%
Institutional Class .20%
Stagecoach Trust
----------------
Stagecoach LifePath 2040
Class A .20%
Class B .20%
Institutional Class .20%
</TABLE>
14
<PAGE>
EX-99.B9(e)(viii)
STAGECOACH FUNDS, INC.
SERVICING PLAN
--------------
CLASS C SHARES
--------------
Section 1. Each of the proper officers of Stagecoach Funds, Inc. (the
"Company") is authorized to execute and deliver, in the name and on behalf of
the Company, written shareholder servicing agreements based substantially on the
form attached hereto as Exhibit A or any other form duly approved by the
Company's Board of Directors ("Agreements") with broker/dealers, banks and other
financial institutions that are dealers of record or holders of record or that
have a servicing relationship with the beneficial owners of Class C shares
("Servicing Agents") in the Company's Funds listed on the attached Appendix
(each a "Fund" and, collectively, the "Funds"). Pursuant to such Agreements,
Servicing Agents shall provide shareholder administrative and liaison services
as set forth therein to their clients who beneficially own Class C shares of a
Fund in consideration of a fee, computed monthly in the manner set forth in the
Fund's then current prospectus, at an annual rate of up to 0.25% of the average
daily net asset value of the Class C shares beneficially owned by or
attributable to such clients. The Company's distributor, administrator and
adviser and their respective affiliates are eligible to become Servicing Agents
and to receive fees under this Servicing Plan. All expenses incurred by the
Fund in connection with the Agreements and the implementation of this Servicing
Plan shall be borne entirely by the holders of the Class C shares of the Fund.
Section 2. The Company's administrator shall monitor the arrangements
pertaining to the Company's Agreements with Servicing Agents. The Company's
administrator shall not, however, be obligated by this Servicing Plan to
recommend, and the Company shall not be obligated to execute, any Agreement with
any qualifying Servicing Agents.
Section 3. So long as this Servicing Plan is in effect, the Company's
administrator shall provide to the Company's Board of Directors, and the
Directors shall review, at least quarterly, a written report of the amounts
expended pursuant to this Servicing Plan and the purposes for which such
expenditures were made.
Section 4. The Plan shall be effective on the date upon which it is
approved by a majority of the Directors of the Company, or on the date the Fund
commences operations, if such date is later.
Section 5. Unless sooner terminated, this Servicing Plan (and each related
agreement) shall continue in effect for a period of one year from its effective
date and shall continue thereafter for successive annual periods, provided that
such Plan is not specifically terminated by a majority of the Board of
Directors.
<PAGE>
Section 6. This Servicing Plan may be amended at any time with respect to
a Fund by the Company's Board of Directors.
Section 7. This Servicing Plan is terminable at any time with respect to a
Fund by vote of a majority of the Board of Directors.
Section 8. Notwithstanding anything herein to the contrary, a Fund shall
not be obligated to make any payments under this Plan that exceed the maximum
amounts payable under Rule 2830 of the Conduct Rules of the National Association
of Securities Dealers, Inc.
Section 9. The Company will preserve copies of this Servicing Plan,
Agreements, and any written reports regarding this Servicing Plan presented to
the Board of Directors for a period of not less than six years.
Dated: July 23, 1997
2
<PAGE>
APPENDIX
--------
Fund Name
---------
Aggressive Growth Fund
California Tax-Free Bond Fund
Index Allocation Fund
Ginnie Mae Fund
National Tax-Free Bond Fund
Small Cap Fund
Rate Government Fund
Approved: July 23, 1997
3
<PAGE>
EXHIBIT A
---------
FORM OF SHAREHOLDER SERVICING AGREEMENT
THIS SHAREHOLDER SERVICING AGREEMENT ("Agreement"), dated as of ________
__, 1997, is made among Stagecoach Funds, Inc. (the "Company"), a Maryland
corporation, Stagecoach Trust (the "Trust"), a Massachusetts business trust,
(sometimes referred to herein as the "Companies"), each having its principal
place of business at 111 Center Street, Little Rock, Arkansas 72201, on behalf
of the classes of shares of the Funds of the Company and the Trust listed in the
attached Appendix (each a "Class" and a "Fund" and, collectively, the "Classes"
and the "Funds"), and _____________________ as shareholder servicing agent
hereunder ("Shareholder Servicing Agent");
W I T N E S S E T H:
WHEREAS, shares of common stock of a Fund of the Company, and shares of
beneficial interest of a Fund of the Trust (hereinafter the "Shares") may be
purchased or redeemed through a broker/dealer or financial institution which has
entered into a shareholder servicing agreement with the Company and the Trust on
behalf of their respective Funds; and
WHEREAS, the Shareholder Servicing Agent wishes to facilitate purchases
and redemptions of Shares by its customers (the "Customers") and wishes to act
as the Customers' agent in performing certain administrative functions in
connection with transactions in Shares from time to time for the account of the
Customers and to provide related services to the Customers in connection with
their investments in a Fund; and
WHEREAS, it is in the best interests of the Funds to make the services of
the Shareholder Servicing Agent available to the Customers who, from time to
time, become shareholders of a Fund;
NOW THEREFORE, the Company and the Trust, on behalf of their respective
Funds, and the Shareholder Servicing Agent hereby agree as follows:
1. Appointment. The Shareholder Servicing Agent hereby agrees to
-----------
perform certain services for Customers as hereinafter set forth. The
Shareholder Servicing Agent's appointment hereunder is not exclusive, and the
Shareholder Servicing Agent shall not be entitled to notice of or a right to
consent to the execution of a shareholder servicing agreement with any other
person.
2. Services to be Performed.
------------------------
2.1 Types of Services. The Shareholder Servicing Agent shall be
-----------------
responsible for performing shareholder administrative and liaison services,
which shall include, without limitation:
(a) answering Customer inquiries regarding account status and
history, and the manner in which purchases, exchanges and redemptions of Shares
may be effected;
(b) assisting Customers in designating and changing dividend
options, account designations and addresses;
<PAGE>
(c) providing necessary personnel and facilities to establish
and maintain Customer accounts and records;
(d) assisting in aggregating and transmitting purchase,
redemption and exchange transactions;
(e) arranging for the wiring of money;
(f) transferring money in connection with Customer orders to
purchase or redeem shares;
(g) verifying and guaranteeing Customer signatures in
connection with redemption and exchange orders and transfers and changes in
Customer accounts with a bank which is designated in the Fund Account
Application and which is approved by a Fund's Transfer Agent;
(h) furnishing (either separately or on an integrated basis
with other reports sent to a Customer by the Shareholder Servicing Agent)
monthly and year-end statements and confirmations of purchases, redemptions and
exchanges;
(i) furnishing, on behalf of the Shares of a Fund, proxy
statements, annual reports, updated prospectuses and other communications to
Customers;
(j) receiving, tabulating and sending to a Fund, proxies
executed by Customers; and
(k) providing such other related services, and necessary
personnel and facilities to provide all of the shareholder services contemplated
hereby, in each case, as the Company or the Trust, as the case may be, or a
Customer may reasonably request.
2.2 Standard of Services. All services to be rendered by the
--------------------
Shareholder Servicing Agent hereunder shall be performed in a professional,
competent and timely manner. Any detailed operating standards and procedures to
be followed by the Shareholder Servicing Agent in performing the services
described above shall be determined from time to time by agreement between the
Shareholder Servicing Agent and the Companies. The Company and the Trust each
acknowledges that the Shareholder Servicing Agent's ability to perform on a
timely basis certain of its obligations under this Agreement depends upon a
Fund's timely delivery of certain materials and/or information to the
Shareholder Servicing Agent. The Company and the Trust each agrees to use its
best efforts to provide, or cause to be provided, such materials to the
Shareholder Servicing Agent in a timely manner.
2.3 Investments through Distributor. The Company, the Trust and
-------------------------------
the Shareholder Servicing Agent each hereby agrees that all purchases of Shares
effected by the Shareholder Servicing Agent on behalf of its Customers shall be
effected by it through Stephens Inc. ("Distributor") in its capacity as the
Funds' principal underwriter.
3. Fees.
----
3.1 Fees from the Funds. In consideration of the services
-------------------
described in Section 2 hereof and the incurring of expenses in connection
therewith, the Shareholder Servicing Agent shall receive a fee, from each of the
Classes of Shares of the Funds identified in the attached Appendix, which
shall be
2
<PAGE>
paid in arrears periodically or on a periodic basis to be agreed between the
Company and the Shareholder Servicing Agent, and between the Trust and the
Shareholder Servicing Agent, from time to time (but in no event less frequently
than semi-annually) determined by a formula based upon the number of accounts of
the particular Class in a particular Fund serviced by the Shareholder Servicing
Agent during the period for which payment is being made, the level of assets or
activity in such accounts during such period, and/or the expenses incurred by
the Shareholder Servicing Agent. In no event will the fees charged to a Class of
Shares of a Fund exceed the amount set forth opposite such Class of Shares of
such Fund in the Appendix attached hereto. In addition, all fees paid by Classes
of Shares of the Funds hereunder shall be calculated based on the average daily
net assets of the particular Class of Shares of such Fund owned of record by the
Shareholder Servicing Agent on behalf of the Customers during the period for
which payment is being made. For purposes of determining the fees payable to the
Shareholder Servicing Agent hereunder, the per share value of a Class of a Fund
shall be computed in the manner specified in the Fund's then-current prospectus.
Notwithstanding the foregoing, if applicable laws, regulations or rules impose a
maximum fee amount (a "cap") with respect to shareholder servicing fees and/or
fees for distribution-related services that may be paid by the Shares of a Fund,
the amount payable hereunder shall be reduced to an amount which, when
considered in conjunction with the fees payable by a Fund for the Shares'
distribution-related activities, is the maximum amount payable to the
Shareholder Servicing Agent under applicable laws, regulations or rules.
Notwithstanding anything herein to the contrary, neither the Company nor the
Trust shall be obligated to make any payments under this Agreement that exceed
the maximum amounts payable under Rule 2830 of the Conduct Rules of the National
Association of Securities Dealers, Inc. The above fee constitutes all fees to be
paid to the Shareholder Servicing Agent by a Class of Shares of a Fund of the
Company or the Trust with respect to the shareholder services contemplated
hereby.
3.2 Fees from Customers. It is agreed that the Shareholder
-------------------
Servicing Agent may impose certain conditions on Customers, subject to the terms
of the relevant Fund's then-current prospectus, in addition to or different from
those imposed by the Fund, such as requiring a minimum initial investment or the
payment of additional fees directly by the Customer for additional services
offered by the Shareholder Servicing Agent to the Customer; provided, however,
-------- -------
that the Shareholder Servicing Agent may not charge Customers any direct fee
which would constitute a "sales load" within the meaning of Section 2(a)(35) of
the Investment Company Act of 1940, as amended (the "1940 Act"). The
Shareholder Servicing Agent shall bill Customers directly for any such
additional fees. In the event the Shareholder Servicing Agent charges Customers
such additional fees, it shall notify the Company in advance and make
appropriate prior written disclosure (such disclosure to be in accordance with
all applicable laws) to Customers of any such additional fees charged directly
to the Customer. To the extent required by applicable rules and regulations of
the Securities and Exchange Commission ("SEC"), the Company and the Trust shall
make written disclosure of the fees paid or to be paid by a Fund to the
Shareholder Servicing Agent pursuant to Section 3.1 of this Agreement. In no
event shall the Shareholder Servicing Agent have recourse or access, as
Shareholder Servicing Agent or otherwise, to the assets in the Customer's
account, except to the extent expressly authorized by law or by such Customer,
or to any assets of a Fund, the Company or the Trust, for payment of any
additional direct fees referred to in this Section 3.2.
4. Information Pertaining to the Shares. The Shareholder Servicing
------------------------------------
Agent and its officers, employees and agents are not authorized to make any
representations concerning the Company, the Trust, a Fund or the Shares of any
Class thereof to Customers or prospective Customers, excepting only accurate
communication of any information provided by or on behalf of any administrator
of the Company, the Trust or the Distributor of information contained in the
relevant Fund's then-current prospectus. In furnishing such information
regarding the Company, the Trust, a Fund or the Shares, the Shareholder
Servicing Agent shall act as agent for the Customer only and shall have no
authority to act as agent for the
3
<PAGE>
Company, the Trust, a Fund or the Shares. Advance copies or proofs of all
materials which are proposed to be circulated or disseminated by the Shareholder
Servicing Agent to Customers or prospective Customers and which identify or
describe the Company, the Trust, a Fund or the Shares shall be provided to the
Company or the Trust, as the case may be, at least 10 days prior to such
circulation or dissemination (unless the Company or the Trust, as the case may
be, consents in writing to a shorter period), and such materials shall not be
circulated or disseminated or further circulated or disseminated at any time
after the Company or the Trust, as the case may be, shall have given written
notice to the Shareholder Servicing Agent of any objection thereto.
Nothing in this Section 4 shall be construed to make the Company or the
Trust liable for the use (as opposed to the accuracy) of any information about
the Company, the Trust, a Fund or the Shares which is disseminated by the
Shareholder Servicing Agent.
5. Use of the Shareholder Servicing Agent's Name. Neither the Company
---------------------------------------------
nor the Trust shall use the name of the Shareholder Servicing Agent, or any of
its affiliates or subsidiaries, in any prospectus, sales literature or other
materials relating to the Company, the Trust, a Fund or the Shares in a manner
not approved by the Shareholder Servicing Agent prior thereto in writing;
provided, however, that the approval of the Shareholder Servicing Agent shall
- -------- -------
not be required for any use of its name which merely refers in accurate and
factual terms to its appointment hereunder or which is required by the SEC or
any state securities authority or any other appropriate regulatory, governmental
or judicial authority; provided, further, that in no event shall such approval
-------- -------
be unreasonably withheld or delayed.
6. Use of the Name of the Company, the Trust or a Fund. The
---------------------------------------------------
Shareholder Servicing Agent shall not use the name of the Company, the Trust, a
Fund or any Class of Shares on any checks, bank drafts, bank statements or forms
for other than internal use in a manner not approved by the Company or the
Trust, as the case may be, prior thereto in writing; provided, however, that the
-------- -------
approval of the Company or the Trust, as the case may be, shall not be required
for (i) the use of the Company's or the Trust's name, or the name of a Fund, in
connection with communications permitted by Section 4 hereof, or (ii) (subject
to Section 4, to the extent the same may be applicable) for any use of the
Company's or the Trust's name or a Fund's name which merely identifies the
Company, the Trust or a Fund, as the case may be, in connection with the
Shareholder Servicing Agent's role hereunder or which is required by the SEC or
any state securities authority or any other appropriate regulatory, governmental
or judicial authority; provided, further, that in no event shall such approval
-------- -------
be unreasonably withheld or delayed.
7. Security. The Shareholder Servicing Agent represents and warrants
--------
that to the best of its knowledge, the various procedures and systems which it
has implemented (including provision for twenty-four hours a day restricted
access) with regard to safeguarding from loss or damage attributable to fire,
theft or any other cause the Companies records and other data within its
possession or control and the Shareholder Servicing Agent's records, data,
equipment, facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as in its judgment are required for the secure performance of
its obligations hereunder. The parties shall review such systems and procedures
on a periodic basis, and the Company and the Trust shall each, from time to
time, specify the types of records and other data of the Company and the Trust,
respectively, to be safeguarded in accordance with this Section 7.
8. Compliance with Laws. The Shareholder Servicing Agent shall comply
--------------------
with all applicable federal and state laws and regulations, including securities
laws. The Shareholder Servicing Agent represents and warrants to the Company
and the Trust, respectively, that the performance of all its obligations
hereunder will comply with all applicable laws and regulations, the provisions
of its charter
4
<PAGE>
documents and by-laws and all material contractual obligations binding upon the
Shareholder Servicing Agent. The Shareholder Servicing Agent furthermore
undertakes that it will promptly, after the Shareholder Servicing Agent becomes
so aware, inform the Company and the Trust of any change in applicable laws or
regulations (or interpretations thereof) or in its charter or by-laws or
material contracts which would prevent or impair full performance of any of its
obligations hereunder.
9. Reports. To the extent requested by the Company or the Trust from
-------
time to time, but at least quarterly, the Shareholder Servicing Agent will
provide the Treasurer of the Company or the Trust, as the case may be, with a
written report of the amounts expended by the Shareholder Servicing Agent
pursuant to this Agreement and the purposes for which such expenditures were
made. Such written reports shall be in a form satisfactory to the Company or
the Trust, as the case may be, and shall supply all information necessary for
the Company and the Trust to discharge their responsibilities under applicable
laws and regulations. In addition, the Shareholder Servicing Agent shall have a
duty to furnish to the Company's Board of Directors and the Trust's Board of
Trustees such information as may reasonably be necessary to an informed
determination of whether this Agreement should be implemented or continued
pursuant to Section 16.
10. Recordkeeping.
-------------
10.1 Each party shall maintain and preserve records as required by
law to be maintained and preserved by it in connection with providing the
services contemplated by this Agreement. The Shareholder Servicing Agent's
recordkeeping responsibilities shall include those relating to establishing and
maintaining sub-accounts and records on behalf of Customers, and recording
Customers' sub-account balances and changes thereto.
10.2. Upon the request of the Company or the Trust, the Shareholder
Servicing Agent shall provide copies of all records relating to the transactions
between the Funds and the Customers as are maintained by the Shareholder
Servicing Agent in the ordinary course of its business and in compliance with
laws and regulations as may reasonably be requested to enable the Company and
the Trust to comply with any applicable laws or regulations or request of a
governmental body or self-regulatory organization.
10.3. The recordkeeping and access obligations imposed in this
Section 10 shall survive the termination of this Agreement for the shorter of a
period of six years or that minimum period required by applicable rules or
regulations of the SEC.
11. Force Majeure. The Shareholder Servicing Agent shall not be liable
-------------
or responsible for delays or errors by reason of circumstances beyond its
reasonable control, including, but not limited to, acts of civil or military
authority, national emergencies, labor difficulties, fire, mechanical breakdown,
flood or catastrophe, acts of God, insurrection, war, riots or failure of
communication systems or power supply.
12. Indemnification.
---------------
12.1 Indemnification of the Shareholder Servicing Agent by the
---------------------------------------------------------
Companies. Each of the Company and the Trust will indemnify and hold the
- ---------
Shareholder Servicing Agent harmless from all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses) from
any claim, demand, action or suit (collectively, "Claims") (a) arising in
connection with misstatements or omissions in the Funds' prospectus, actions or
inactions by the Company or the Trust, as the case may be, or any of its agents
or contractors or the performance of the Shareholder Servicing Agent's
obligations hereunder and (b) not resulting from (i) the bad faith or negligence
of the Shareholder Servicing Agent, its
5
<PAGE>
officers, employees or agents, or (ii) any breach of applicable law by the
Shareholder Servicing Agent, its officers, employees or agents, or (iii) any
action of the Shareholder Servicing Agent, its officers, employees or agents
which exceeds the legal authority of the Shareholder Servicing Agent or its
authority hereunder, or (iv) any error or omission of the Shareholder Servicing
Agent, its officers, employees or agents with respect to the purchase,
redemption and transfer of Customers' Shares or the Shareholder Servicing
Agent's verification or guarantee of any Customer signature. Notwithstanding
anything herein to the contrary, each of the Company and the Trust will
indemnify and hold the Shareholder Servicing Agent harmless from any and all
losses, claims, damages, liabilities or expenses (including reasonable counsel
fees and expenses) resulting from any Claim as a result of its acting in
accordance with any written instructions reasonably believed by the Shareholder
Servicing Agent to have been executed by any person duly authorized by the
Company or the Trust, as the case may be, or as a result of acting in reliance
upon any instrument or stock certificate reasonably believed by the Shareholder
Servicing Agent to have been genuine and signed, countersigned or executed by a
person duly authorized by the Company or the Trust, as the case may be,
excepting only the gross negligence or bad faith of the Shareholder Servicing
Agent.
In any case in which the Company or the Trust may be asked to indemnify
or hold the Shareholder Servicing Agent harmless, the Company or the Trust, as
the case may be, shall be advised of all pertinent facts concerning the
situation in question and the Shareholder Servicing Agent shall use reasonable
care to identify and notify the Company or the Trust, as the case may be,
promptly concerning any situation which presents or appears likely to present a
claim for indemnification against the Company or the Trust. The Company and the
Trust shall have the option to defend the Shareholder Servicing Agent against
any Claim which may be the subject of indemnification hereunder. In the event
that the Company or the Trust, as the case may be, elects to defend against such
Claim, the defense shall be conducted by counsel chosen by the Company or the
Trust, as the case may be, and reasonably satisfactory to the Shareholder
Servicing Agent. The Shareholder Servicing Agent may retain additional counsel
at its expense. Except with the prior written consent of the Company or the
Trust, as the case may be, the Shareholder Servicing Agent shall not confess any
Claim or make any compromise in any case in which the Company or the Trust will
be asked to indemnify the Shareholder Servicing Agent.
12.2 Indemnification of the Companies by the Shareholder Servicing
-------------------------------------------------------------
Agent. Without limiting the rights of the Companies under applicable law, the
- -----
Shareholder Servicing Agent will indemnify and hold each of the Company and the
Trust harmless from all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) from any Claim (a) resulting
from (i) the bad faith or negligence of the Shareholder Servicing Agent, its
officers, employees or agents, or (ii) any breach of applicable law by the
Shareholder Servicing Agent, its officers, employees or agents, or (iii) any
action of the Shareholder Servicing Agent, its officers, employees or agents
which exceeds the legal authority of the Shareholder Servicing Agent or its
authority hereunder, or (iv) any error or omission of the Shareholder Servicing
Agent, its officers, employees or agents with respect to the purchase,
redemption and transfer of Customers' Shares or the Shareholder Servicing
Agent's verification or guarantee of any Customer signature, and (b) not
resulting from the Shareholder Servicing Agent's actions in accordance with
written instructions reasonably believed by the Shareholder Servicing Agent to
have been executed by any person duly authorized by the Company or the Trust, as
the case may be, or in reliance upon any instrument or stock certificate
reasonably believed by the Shareholder Servicing Agent to have been genuine and
signed, countersigned or executed by a person duly authorized by the Company or
the Trust, as the case may be.
In any case in which the Shareholder Servicing Agent may be asked to
indemnify or hold the Company or the Trust harmless, the Shareholder Servicing
Agent shall be advised of all pertinent facts concerning the situation in
question and the Company or the Trust, as the case may be, shall use reasonable
6
<PAGE>
care to identify and notify the Shareholder Servicing Agent promptly concerning
any situation which presents or appears likely to present a claim for
indemnification against the Shareholder Servicing Agent. The Shareholder
Servicing Agent shall have the option to defend the Company or the Trust, as the
case may be, against any Claim which may be the subject of indemnification
hereunder. In the event that the Shareholder Servicing Agent elects to defend
against such Claim, the defense shall be conducted by counsel chosen by the
Shareholder Servicing Agent and satisfactory to the Company or the Trust, as the
case may be. The Company or the Trust may retain additional counsel at its
expense. Except with the prior written consent of the Shareholder Servicing
Agent, neither the Company nor the Trust shall confess any Claim or make any
compromise in any case in which the Shareholder Servicing Agent will be asked to
indemnify the Company or the Trust.
12.3 Indemnification Between the Companies. The Company will
------------------------------------
indemnify and hold harmless the Trust against any losses, claims, damages and
liabilities to which the Trust may become subject arising in connection with
this Agreement, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any prospectus of
the Company for which the Shareholder Servicing Agent acts as such pursuant to
this Agreement, or arise out of or are based upon actions or inactions by the
Company or any of its agents or contractors or the performance of the
Shareholder Servicing Agent's obligations hereunder and (b) not resulting from
(i) the bad faith or negligence of the Trust, its officers, employees or agents,
or (ii) any breach of applicable law by the Trust, its officers, employees or
agents, or (iii) any action of the Trust, its officers, employees or agents
which exceeds the legal authority of the Trust or its authority hereunder, or
(iv) any error or omission of the Shareholder Servicing Agent, its officers,
employees or agents with respect to the purchase, redemption and transfer of
Customers' Shares or the Shareholder Servicing Agent's verification or guarantee
of any Customer signature.
The Trust will indemnify and hold harmless the Company against any
losses, claims, damages and liabilities to which The Company may become subject
arising in connection with this Agreement, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any the Trust prospectus for which the Shareholder Servicing Agent
acts as such pursuant to this Agreement, or arise out of or are based upon
actions or inactions by the Trust or any of its agents or contractors or the
performance of the Shareholder Servicing Agent's obligations hereunder and (b)
not resulting from (i) the bad faith or negligence of the Company, its officers,
employees or agents, or (ii) any breach of applicable law by the Company, its
officers, employees or agents, or (iii) any action of the Company, its officers,
employees or agents which exceeds the legal authority of the Company or its
authority hereunder, or (iv) any error or omission of the Shareholder Servicing
Agent, its officers, employees or agents with respect to the purchase,
redemption and transfer of Customers' Shares or the Shareholder Servicing
Agent's verification or guarantee of any Customer signature.
In any case in which the Company or the Trust may be asked to indemnify
or hold the other harmless, the indemnifying party shall be advised of all
pertinent facts concerning the situation in question and the party to be
indemnified shall use reasonable care to identify and notify the indemnifying
party promptly concerning any situation which presents or appears likely to
present a claim for indemnification against the indemnifying party. The
indemnifying party shall have the option to defend the indemnified party against
any Claim which may be the subject of indemnification hereunder. In the event
that the indemnifying party elects to defend against such Claim, the defense
shall be conducted by counsel chosen by the indemnifying party and reasonably
satisfactory to the indemnified party. The indemnified party may retain
additional counsel at its expense. Except with the prior written consent of the
indemnifying party,
7
<PAGE>
the indemnified party shall not confess any claim or make any compromise in any
case in which indemnifying party will be asked to indemnify the indemnified
party.
12.4 Survival of Indemnities. The indemnities granted by the
-----------------------
parties in this Section 12 shall survive the termination of this Agreement.
13. Insurance. The Shareholder Servicing Agent shall maintain
---------
reasonable insurance coverage against any and all liabilities which may arise in
connection with the performance of its duties hereunder.
14. Notices. All notices or other communications hereunder shall be in
-------
writing and shall be deemed sufficient if mailed to each other party at the
address of such party set forth in the preamble of this Agreement or at such
other address as such party may have designated by written notice to the others.
15. Further Assurances. Each party agrees to perform such further acts
------------------
and execute such further documents as are necessary to effectuate the purposes
hereof.
16. Implementation and Duration of Agreement. This Agreement is
----------------------------------------
effective upon the date first written above and shall continue in effect with
respect to a Class of Shares of a Fund of the Company and the Trust for a period
of more than one year from the date hereof so long as the Servicing Plan adopted
for such Class and related form of agreement or this Agreement is not
specifically terminated by a vote of the Board of Directors/Trustees of the
Company/Trust (as applicable) and of the Directors/Trustees who are not
"interested persons" of the Company/Trust (as defined in the 1940 Act) and have
no direct or indirect financial interest in the operation of the relevant
Servicing Plan (the "Plan") pursuant to which the fees are paid, this Agreement,
or any other agreement related to such Plan, cast in person at a meeting called
for the purpose of voting on this Agreement.
17. Termination. This Agreement may be terminated with respect to the
-----------
Company or the Trust, or one or more Funds of the Company or the Trust, by the
Company or the Trust, respectively, without the payment of any penalty, at any
time upon not more than 60 days' nor less than 30 days' notice, by a vote of a
majority of the Board of Directors/Trustees of the Company/Trust (as applicable)
who are not "interested persons" of the Company/Trust (as defined in the 1940
Act) and have no direct or indirect financial interest in the operation of the
relevant Plan, this Agreement or any other agreement related to such Plan,
including the Amended Distribution Agreement, or by "a vote of a majority of the
outstanding voting securities" (as defined in the 1940 Act) of the relevant
class of shares of the Fund. The Shareholder Servicing Agent may terminate this
Agreement with respect to either the Company or the Trust upon not more than 60
days' nor less than 30 days' notice to the Company or the Trust, as the case may
be. Either the Company, the Trust or the Shareholder Servicing Agent may assign
this Agreement provided that such assigning party obtains the prior written
consent of the other parties hereto. Upon termination hereof, a Fund shall pay
such compensation as may be due the Shareholder Servicing Agent as of the date
of such termination.
18. Changes; Amendments. Except as otherwise provided in this Section
-------------------
18, this Agreement may be supplemented or amended only by written instrument
signed by all parties, but may not be amended to increase materially the maximum
amount payable by a Class of Shares of a Fund without the approval of "a vote of
a majority of the outstanding voting securities" (as defined in the 1940 Act) of
such Class of Shares of such Fund, and all material amendments must be approved
in the manner described in Section 16. From time to time, the Company and the
Trust may, by written notice to the Shareholder Servicing Agent, amend the
Appendix attached hereto to add or delete Funds and/or classes of Shares as
8
<PAGE>
available investment options hereunder. Any such notice shall be effective upon
receipt by the Shareholder Servicing Agent.
19. Limitation of Liability. The Shareholder Servicing Agent hereby
-----------------------
agrees that obligations assumed by the Company and the Trust pursuant to this
Agreement shall be limited in all cases to the Funds and their assets and that
the Shareholder Servicing Agent shall not seek satisfaction of any such
obligations from the Board of Directors or any individual Director of the
Company, or from the Board of Trustees or any individual Trustee of the Trust.
The Shareholder Servicing Agent further agrees that all obligations of a Fund
hereunder shall be solely the obligations of such Fund and that in no case will
any Fund of either the Company or the Trust be liable for the obligations of any
other Fund of the Company of the Trust, nor shall any Fund of the Company be
liable for any obligation of a Fund of the Trust, or vice versa.
20. Subcontracting by Shareholder Servicing Agent. The Shareholder
---------------------------------------------
Servicing Agent may, with the written approval of each of the Company and the
Trust (such approval not to be unreasonably withheld or delayed), subcontract
for the performance of the Shareholder Servicing Agent's obligations hereunder
with any one or more persons, including but not limited to any one or more
persons which is an affiliate of the Shareholder Servicing Agent; provided,
--------
however, that the Shareholder Servicing Agent shall be as fully responsible to
- -------
the Companies for the acts and omissions of any subcontractor as it would be for
its own acts or omissions.
21. Authority to Vote. The Company and the Trust hereby confirm that
-----------------
nothing contained in its Articles of Incorporation or Declaration of Trust,
respectively, would preclude the Shareholder Servicing Agent, at any meeting of
shareholders of the Company, the Trust or of a Fund, from voting any Shares held
in accounts serviced by the Shareholder Servicing Agent and which are otherwise
not represented in person or by proxy at the meeting, proportionately in
accordance with the votes cast by holders of all Shares otherwise represented at
the meeting in person or by proxy and held in accounts serviced by the
Shareholder Servicing Agent.
22. Compliance with Laws and Policies; Cooperation. The Company and the
----------------------------------------------
Trust each hereby agrees that it will comply with all laws and regulations
applicable to operations of Funds thereof and the Shareholder Servicing Agent
agrees that it will comply with all laws and regulations applicable to providing
the services contemplated hereby.
9
<PAGE>
22.1 Miscellaneous. This Agreement shall be construed and enforced
-------------
in accordance with and governed by the laws of the State of California. The
captions in this Agreement are included for convenience of reference only and in
no way define or limit any of the provisions hereof or otherwise affect their
construction or effect. This Agreement may be executed simultaneously in three
or more counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
STAGECOACH FUNDS, INC. on behalf of the
classes of shares of the Funds listed in the
attached Appendix
By:
----------------------------------
Name: Richard H. Blank, Jr.
---------------------
Title: Chief Operating Officer,
------------------------
Secretary and Treasurer
-----------------------
STAGECOACH TRUST, on behalf of the classes of
shares of the Funds listed in the attached
Appendix
By:
----------------------------------
Name: Richard H. Blank, Jr.
---------------------
Title: Chief Operating Officer,
------------------------
Secretary and Treasurer
-----------------------
By:
----------------------
Name:
--------------------
Title:
-------------------
By:
----------------------
Name:
--------------------
Title:
-------------------
10
<PAGE>
APPENDIX
--------
Maximum
Annual
Fund and Share Class(es) Fee Rate
------------------------ --------
Stagecoach
----------
Arizona Tax-Free Fund
Class A .25%
Class B .25%
Institutional Class .25%
Asset Allocation Fund
Class A .30%
Class B .30%
Balanced Fund
Class A .25%
Class B .25%
Institutional Class .25%
California Tax-Free Bond Fund
Class A .30%
Class B .30%
Class C .25%
Institutional Class .25%
California Tax-Free Income Fund
Class A .30%
Institutional Class .25%
California Tax-Free Money Market Fund
Single Class .30%
California Tax-Free Money Market Trust
Single Class .20%
Corporate Stock Fund
Single Class .30%
Diversified Income Fund
Class A .30%
Class B .30%
Equity Value Fund
Class A .25%
Class B .25%
Institutional Class .25%
11
<PAGE>
Maximum
Annual
Fund and Share Class(es) Fee Rate
------------------------ --------
Government Money Market Mutual Fund
Class A .25%
Growth and Income Fund
Class A .30%
Class B .30%
Institutional Class .25%
Index Allocation Fund
Class A .25%
Class B .25%
Class C .25%
Intermediate Bond Fund
Class A .25%
Class B .25%
Institutional Class .25%
International Equity Fund
Class A .25%
Class B .25%
Institutional Class .25%
Money Market Mutual Fund
Class A .30%
Service Class .25%
Institutional Class .25%
Money Market Trust Fund
Single Class .20%
National Tax-Free Fund
Class A .25%
Class B .25%
Class C .25%
Institutional Class .25%
National Tax-Free Money Market Fund
Class [A] .25%
Institutional Class .20%
Oregon Tax-Free Fund
Class A .25%
Class B .25%
Institutional Class .25%
12
<PAGE>
Maximum
Annual
Fund and Share Class(es) Fee Rate
------------------------ --------
Overland Sweep Fund
Single Class .30%
Prime Money Market Mutual Fund
Class A .25%
Service Class .20%
Institutional Class .25%
Administrative Class .15%
Short-Term Government-Corporate Income Fund
Single Class .25%
Short-Intermediate U.S. Government Income Fund
Class A .30%
Institutional Class .25%
Short-Term Municipal Income Fund
Single Class .25%
Small Cap Fund
Class A .25%
Class B .25%
Class C .25%
Institutional Class .25%
Strategic Growth Fund
Class A .25%
Class B .25%
Class C .25%
Treasury Money Market Mutual Fund
Class A .25%
Service Class .20%
Institutional Class .25%
Administrative Class .15%
U.S. Government Allocation Fund
Class A .30%
Class B .30%
U.S. Government Income Fund
Class A .30%
Class B .30%
Class C .25%
Institutional Class .25%
Variable Rate Government Fund
Class A .25%
Class C .25%
13
<PAGE>
Stagecoach Trust
----------------
Stagecoach LifePath 2000
Class A .20%
Institutional Class .20%
Stagecoach LifePath 2010
Class A .20%
Class B .20%
Institutional Class .20%
Stagecoach LifePath 2020
Class A .20%
Class B .20%
Institutional Class .20%
Stagecoach LifePath 2030
Class A .20%
Class B 20%
Institutional Class .20%
Stagecoach Trust
----------------
Stagecoach LifePath 2040
Class A .20%
Class B .20%
Institutional Class .20%
14
<PAGE>
EXHIBIT 99.B9(e)(ix)
STAGECOACH FUNDS, INC.
SERVICING PLAN
--------------
INSTITUTIONAL CLASS SHARES
--------------------------
Section 1. Each of the proper officers of Stagecoach Funds, Inc. (the
"Company") is authorized to execute and deliver, in the name and on behalf of
the Company, written agreements based substantially on the form attached hereto
as Exhibit A or any other form duly approved by the Company's Board of Directors
("Agreements") with broker/dealers, banks and other financial institutions that
are dealers of record or holders of record or which have a servicing
relationship ("Servicing Agents") with the beneficial owners of Institutional
Class shares of the Company's Funds listed on the attached Appendix (each a
"Fund" and, collectively, the "Funds"). Pursuant to such Agreements, Servicing
Agents shall provide support services as set forth therein to their clients who
beneficially own Institutional Class shares of a Fund in consideration of a fee,
computed monthly in the manner set forth in the Fund's then current prospectus,
based on an annual rate applied to the average daily net asset value of the
Institutional Class shares beneficially owned by or attributable to such
clients. The applicable fee with respect to a particular Fund shall be as set
forth opposite the name of such Fund on the attached Appendix. The Company's
distributor, administrator and adviser and their respective affiliates are
eligible to become Servicing Agents and to receive fees under this Servicing
Plan. All expenses incurred by a Fund in connection with the Agreements and the
implementation of this Servicing Plan shall be borne entirely by the holders of
the Institutional Class shares of the Fund.
Section 2. The Company's administrator shall monitor the arrangements
pertaining to the Company's Agreements with Servicing Agents. The Company's
administrator shall not, however, be obligated by this Servicing Plan to
recommend, and the Company shall not be obligated to execute, any Agreement with
any qualifying Servicing Agents.
Section 3. So long as this Servicing Plan is in effect, the Company's
administrator shall provide to the Company's Board of Directors, and the
Directors shall review, at least quarterly, a written report of the amounts
expended pursuant to this Servicing Plan and the purposes for which such
expenditures were made.
Section 4. The Plan shall be effective on the date upon which it is
approved by a majority of the Directors of the Company, or on the date the Fund
commences operations, if such date is later.
Section 5. Unless sooner terminated, this Servicing Plan (and each related
agreement) shall continue in effect for a period of one year from its date of
approval and shall continue thereafter for successive annual periods, provided
that such Plan is not specifically terminated by a majority of the Board of
Directors.
<PAGE>
Section 6. This Servicing Plan may be amended at any time with respect to
a Fund by the Company's Board of Directors.
Section 7. This Servicing Plan is terminable at any time with respect to a
Fund by vote of a majority of the Board of Directors.
Section 8. Notwithstanding anything herein to the contrary, a Fund shall
not be obligated to make any payments under this Plan that exceed the maximum
amounts payable under Rule 2830 of the Conduct Rules of the National Association
of Securities Dealers, Inc.
Section 9. The Company will preserve copies of this Servicing Plan,
Agreements, and any written reports regarding this Servicing Plan presented to
the Board of Directors for a period of not less than six years.
Dated: July 23, 1997
2
<PAGE>
APPENDIX
--------
<TABLE>
<CAPTION>
Applicable
Fund Name Servicing Fee Rate
--------- ------------------
<S> <C>
National Tax-Free Money Market Mutual Fund 0.20%
</TABLE>
Approved: July 23, 1997
3
<PAGE>
EXHIBIT A
---------
FORM OF SHAREHOLDER SERVICING AGREEMENT
THIS SHAREHOLDER SERVICING AGREEMENT ("Agreement"), dated as of ________
__, 1997, is made among Stagecoach Funds, Inc. (the "Company"), a Maryland
corporation, Stagecoach Trust (the "Trust"), a Massachusetts business trust,
(sometimes referred to herein as the "Companies"), each having its principal
place of business at 111 Center Street, Little Rock, Arkansas 72201, on behalf
of the classes of shares of the Funds of the Company and the Trust listed in the
attached Appendix (each a "Class" and a "Fund" and, collectively, the "Classes"
and the "Funds"), and _____________________ as shareholder servicing agent
hereunder ("Shareholder Servicing Agent");
W I T N E S S E T H:
WHEREAS, shares of common stock of a Fund of the Company, and shares of
beneficial interest of a Fund of the Trust (hereinafter the "Shares") may be
purchased or redeemed through a broker/dealer or financial institution which has
entered into a shareholder servicing agreement with the Company and the Trust on
behalf of their respective Funds; and
WHEREAS, the Shareholder Servicing Agent wishes to facilitate purchases
and redemptions of Shares by its customers (the "Customers") and wishes to act
as the Customers' agent in performing certain administrative functions in
connection with transactions in Shares from time to time for the account of the
Customers and to provide related services to the Customers in connection with
their investments in a Fund; and
WHEREAS, it is in the best interests of the Funds to make the services of
the Shareholder Servicing Agent available to the Customers who, from time to
time, become shareholders of a Fund;
NOW THEREFORE, the Company and the Trust, on behalf of their respective
Funds, and the Shareholder Servicing Agent hereby agree as follows:
1. Appointment. The Shareholder Servicing Agent hereby agrees to
-----------
perform certain services for Customers as hereinafter set forth. The
Shareholder Servicing Agent's appointment hereunder is not exclusive, and the
Shareholder Servicing Agent shall not be entitled to notice of or a right to
consent to the execution of a shareholder servicing agreement with any other
person.
2. Services to be Performed.
------------------------
2.1 Types of Services. The Shareholder Servicing Agent shall be
-----------------
responsible for performing shareholder administrative and liaison services,
which shall include, without limitation:
(a) answering Customer inquiries regarding account status and
history, and the manner in which purchases, exchanges and redemptions of Shares
may be effected;
(b) assisting Customers in designating and changing dividend
options, account designations and addresses;
<PAGE>
(c) providing necessary personnel and facilities to establish
and maintain Customer accounts and records;
(d) assisting in aggregating and transmitting purchase,
redemption and exchange transactions;
(e) arranging for the wiring of money;
(f) transferring money in connection with Customer orders to
purchase or redeem shares;
(g) verifying and guaranteeing Customer signatures in
connection with redemption and exchange orders and transfers and changes in
Customer accounts with a bank which is designated in the Fund Account
Application and which is approved by a Fund's Transfer Agent;
(h) furnishing (either separately or on an integrated basis
with other reports sent to a Customer by the Shareholder Servicing Agent)
monthly and year-end statements and confirmations of purchases, redemptions and
exchanges;
(i) furnishing, on behalf of the Shares of a Fund, proxy
statements, annual reports, updated prospectuses and other communications to
Customers;
(j) receiving, tabulating and sending to a Fund, proxies
executed by Customers; and
(k) providing such other related services, and necessary
personnel and facilities to provide all of the shareholder services contemplated
hereby, in each case, as the Company or the Trust, as the case may be, or a
Customer may reasonably request.
2.2 Standard of Services. All services to be rendered by the
--------------------
Shareholder Servicing Agent hereunder shall be performed in a professional,
competent and timely manner. Any detailed operating standards and procedures to
be followed by the Shareholder Servicing Agent in performing the services
described above shall be determined from time to time by agreement between the
Shareholder Servicing Agent and the Companies. The Company and the Trust each
acknowledges that the Shareholder Servicing Agent's ability to perform on a
timely basis certain of its obligations under this Agreement depends upon a
Fund's timely delivery of certain materials and/or information to the
Shareholder Servicing Agent. The Company and the Trust each agrees to use its
best efforts to provide, or cause to be provided, such materials to the
Shareholder Servicing Agent in a timely manner.
2.3 Investments through Distributor. The Company, the Trust and
-------------------------------
the Shareholder Servicing Agent each hereby agrees that all purchases of Shares
effected by the Shareholder Servicing Agent on behalf of its Customers shall be
effected by it through Stephens Inc. ("Distributor") in its capacity as the
Funds' principal underwriter.
3. Fees.
----
3.1 Fees from the Funds. In consideration of the services
-------------------
described in Section 2 hereof and the incurring of expenses in connection
therewith, the Shareholder Servicing Agent shall receive a fee, from each of the
Classes of Shares of the Funds identified in the attached Appendix, which
shall be
2
<PAGE>
paid in arrears periodically or on a periodic basis to be agreed between the
Company and the Shareholder Servicing Agent, and between the Trust and the
Shareholder Servicing Agent, from time to time (but in no event less frequently
than semi-annually) determined by a formula based upon the number of accounts of
the particular Class in a particular Fund serviced by the Shareholder Servicing
Agent during the period for which payment is being made, the level of assets or
activity in such accounts during such period, and/or the expenses incurred by
the Shareholder Servicing Agent. In no event will the fees charged to a Class of
Shares of a Fund exceed the amount set forth opposite such Class of Shares of
such Fund in the Appendix attached hereto. In addition, all fees paid by Classes
of Shares of the Funds hereunder shall be calculated based on the average daily
net assets of the particular Class of Shares of such Fund owned of record by the
Shareholder Servicing Agent on behalf of the Customers during the period for
which payment is being made. For purposes of determining the fees payable to the
Shareholder Servicing Agent hereunder, the per share value of a Class of a Fund
shall be computed in the manner specified in the Fund's then-current prospectus.
Notwithstanding the foregoing, if applicable laws, regulations or rules impose a
maximum fee amount (a "cap") with respect to shareholder servicing fees and/or
fees for distribution-related services that may be paid by the Shares of a Fund,
the amount payable hereunder shall be reduced to an amount which, when
considered in conjunction with the fees payable by a Fund for the Shares'
distribution-related activities, is the maximum amount payable to the
Shareholder Servicing Agent under applicable laws, regulations or rules.
Notwithstanding anything herein to the contrary, neither the Company nor the
Trust shall be obligated to make any payments under this Agreement that exceed
the maximum amounts payable under Rule 2830 of the Conduct Rules of the National
Association of Securities Dealers, Inc. The above fee constitutes all fees to be
paid to the Shareholder Servicing Agent by a Class of Shares of a Fund of the
Company or the Trust with respect to the shareholder services contemplated
hereby.
3.2 Fees from Customers. It is agreed that the Shareholder
-------------------
Servicing Agent may impose certain conditions on Customers, subject to the terms
of the relevant Fund's then-current prospectus, in addition to or different from
those imposed by the Fund, such as requiring a minimum initial investment or the
payment of additional fees directly by the Customer for additional services
offered by the Shareholder Servicing Agent to the Customer; provided, however,
-------- -------
that the Shareholder Servicing Agent may not charge Customers any direct fee
which would constitute a "sales load" within the meaning of Section 2(a)(35) of
the Investment Company Act of 1940, as amended (the "1940 Act"). The
Shareholder Servicing Agent shall bill Customers directly for any such
additional fees. In the event the Shareholder Servicing Agent charges Customers
such additional fees, it shall notify the Company in advance and make
appropriate prior written disclosure (such disclosure to be in accordance with
all applicable laws) to Customers of any such additional fees charged directly
to the Customer. To the extent required by applicable rules and regulations of
the Securities and Exchange Commission ("SEC"), the Company and the Trust shall
make written disclosure of the fees paid or to be paid by a Fund to the
Shareholder Servicing Agent pursuant to Section 3.1 of this Agreement. In no
event shall the Shareholder Servicing Agent have recourse or access, as
Shareholder Servicing Agent or otherwise, to the assets in the Customer's
account, except to the extent expressly authorized by law or by such Customer,
or to any assets of a Fund, the Company or the Trust, for payment of any
additional direct fees referred to in this Section 3.2.
4. Information Pertaining to the Shares. The Shareholder Servicing
------------------------------------
Agent and its officers, employees and agents are not authorized to make any
representations concerning the Company, the Trust, a Fund or the Shares of any
Class thereof to Customers or prospective Customers, excepting only accurate
communication of any information provided by or on behalf of any administrator
of the Company, the Trust or the Distributor of information contained in the
relevant Fund's then-current prospectus. In furnishing such information
regarding the Company, the Trust, a Fund or the Shares, the Shareholder
Servicing Agent shall act as agent for the Customer only and shall have no
authority to act as agent for the
3
<PAGE>
Company, the Trust, a Fund or the Shares. Advance copies or proofs of all
materials which are proposed to be circulated or disseminated by the Shareholder
Servicing Agent to Customers or prospective Customers and which identify or
describe the Company, the Trust, a Fund or the Shares shall be provided to the
Company or the Trust, as the case may be, at least 10 days prior to such
circulation or dissemination (unless the Company or the Trust, as the case may
be, consents in writing to a shorter period), and such materials shall not be
circulated or disseminated or further circulated or disseminated at any time
after the Company or the Trust, as the case may be, shall have given written
notice to the Shareholder Servicing Agent of any objection thereto.
Nothing in this Section 4 shall be construed to make the Company or the
Trust liable for the use (as opposed to the accuracy) of any information about
the Company, the Trust, a Fund or the Shares which is disseminated by the
Shareholder Servicing Agent.
5. Use of the Shareholder Servicing Agent's Name. Neither the Company
---------------------------------------------
nor the Trust shall use the name of the Shareholder Servicing Agent, or any of
its affiliates or subsidiaries, in any prospectus, sales literature or other
materials relating to the Company, the Trust, a Fund or the Shares in a manner
not approved by the Shareholder Servicing Agent prior thereto in writing;
provided, however, that the approval of the Shareholder Servicing Agent shall
- -------- -------
not be required for any use of its name which merely refers in accurate and
factual terms to its appointment hereunder or which is required by the SEC or
any state securities authority or any other appropriate regulatory, governmental
or judicial authority; provided, further, that in no event shall such approval
-------- -------
be unreasonably withheld or delayed.
6. Use of the Name of the Company, the Trust or a Fund. The
---------------------------------------------------
Shareholder Servicing Agent shall not use the name of the Company, the Trust, a
Fund or any Class of Shares on any checks, bank drafts, bank statements or forms
for other than internal use in a manner not approved by the Company or the
Trust, as the case may be, prior thereto in writing; provided, however, that the
-------- -------
approval of the Company or the Trust, as the case may be, shall not be required
for (i) the use of the Company's or the Trust's name, or the name of a Fund, in
connection with communications permitted by Section 4 hereof, or (ii) (subject
to Section 4, to the extent the same may be applicable) for any use of the
Company's or the Trust's name or a Fund's name which merely identifies the
Company, the Trust or a Fund, as the case may be, in connection with the
Shareholder Servicing Agent's role hereunder or which is required by the SEC or
any state securities authority or any other appropriate regulatory, governmental
or judicial authority; provided, further, that in no event shall such approval
-------- -------
be unreasonably withheld or delayed.
7. Security. The Shareholder Servicing Agent represents and warrants
--------
that to the best of its knowledge, the various procedures and systems which it
has implemented (including provision for twenty-four hours a day restricted
access) with regard to safeguarding from loss or damage attributable to fire,
theft or any other cause the Companies records and other data within its
possession or control and the Shareholder Servicing Agent's records, data,
equipment, facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as in its judgment are required for the secure performance of
its obligations hereunder. The parties shall review such systems and procedures
on a periodic basis, and the Company and the Trust shall each, from time to
time, specify the types of records and other data of the Company and the Trust,
respectively, to be safeguarded in accordance with this Section 7.
8. Compliance with Laws. The Shareholder Servicing Agent shall comply
--------------------
with all applicable federal and state laws and regulations, including securities
laws. The Shareholder Servicing Agent represents and warrants to the Company
and the Trust, respectively, that the performance of all its obligations
hereunder will comply with all applicable laws and regulations, the provisions
of its charter
4
<PAGE>
documents and by-laws and all material contractual obligations binding upon the
Shareholder Servicing Agent. The Shareholder Servicing Agent furthermore
undertakes that it will promptly, after the Shareholder Servicing Agent becomes
so aware, inform the Company and the Trust of any change in applicable laws or
regulations (or interpretations thereof) or in its charter or by-laws or
material contracts which would prevent or impair full performance of any of its
obligations hereunder.
9. Reports. To the extent requested by the Company or the Trust from
-------
time to time, but at least quarterly, the Shareholder Servicing Agent will
provide the Treasurer of the Company or the Trust, as the case may be, with a
written report of the amounts expended by the Shareholder Servicing Agent
pursuant to this Agreement and the purposes for which such expenditures were
made. Such written reports shall be in a form satisfactory to the Company or
the Trust, as the case may be, and shall supply all information necessary for
the Company and the Trust to discharge their responsibilities under applicable
laws and regulations. In addition, the Shareholder Servicing Agent shall have a
duty to furnish to the Company's Board of Directors and the Trust's Board of
Trustees such information as may reasonably be necessary to an informed
determination of whether this Agreement should be implemented or continued
pursuant to Section 16.
10. Recordkeeping.
-------------
10.1 Each party shall maintain and preserve records as required by
law to be maintained and preserved by it in connection with providing the
services contemplated by this Agreement. The Shareholder Servicing Agent's
recordkeeping responsibilities shall include those relating to establishing and
maintaining sub-accounts and records on behalf of Customers, and recording
Customers' sub-account balances and changes thereto.
10.2. Upon the request of the Company or the Trust, the Shareholder
Servicing Agent shall provide copies of all records relating to the transactions
between the Funds and the Customers as are maintained by the Shareholder
Servicing Agent in the ordinary course of its business and in compliance with
laws and regulations as may reasonably be requested to enable the Company and
the Trust to comply with any applicable laws or regulations or request of a
governmental body or self-regulatory organization.
10.3. The recordkeeping and access obligations imposed in this
Section 10 shall survive the termination of this Agreement for the shorter of a
period of six years or that minimum period required by applicable rules or
regulations of the SEC.
11. Force Majeure. The Shareholder Servicing Agent shall not be liable
-------------
or responsible for delays or errors by reason of circumstances beyond its
reasonable control, including, but not limited to, acts of civil or military
authority, national emergencies, labor difficulties, fire, mechanical breakdown,
flood or catastrophe, acts of God, insurrection, war, riots or failure of
communication systems or power supply.
12. Indemnification.
---------------
12.1 Indemnification of the Shareholder Servicing Agent by the
---------------------------------------------------------
Companies. Each of the Company and the Trust will indemnify and hold the
- ---------
Shareholder Servicing Agent harmless from all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses) from
any claim, demand, action or suit (collectively, "Claims") (a) arising in
connection with misstatements or omissions in the Funds' prospectus, actions or
inactions by the Company or the Trust, as the case may be, or any of its agents
or contractors or the performance of the Shareholder Servicing Agent's
obligations hereunder and (b) not resulting from (i) the bad faith or negligence
of the Shareholder Servicing Agent, its
5
<PAGE>
officers, employees or agents, or (ii) any breach of applicable law by the
Shareholder Servicing Agent, its officers, employees or agents, or (iii) any
action of the Shareholder Servicing Agent, its officers, employees or agents
which exceeds the legal authority of the Shareholder Servicing Agent or its
authority hereunder, or (iv) any error or omission of the Shareholder Servicing
Agent, its officers, employees or agents with respect to the purchase,
redemption and transfer of Customers' Shares or the Shareholder Servicing
Agent's verification or guarantee of any Customer signature. Notwithstanding
anything herein to the contrary, each of the Company and the Trust will
indemnify and hold the Shareholder Servicing Agent harmless from any and all
losses, claims, damages, liabilities or expenses (including reasonable counsel
fees and expenses) resulting from any Claim as a result of its acting in
accordance with any written instructions reasonably believed by the Shareholder
Servicing Agent to have been executed by any person duly authorized by the
Company or the Trust, as the case may be, or as a result of acting in reliance
upon any instrument or stock certificate reasonably believed by the Shareholder
Servicing Agent to have been genuine and signed, countersigned or executed by a
person duly authorized by the Company or the Trust, as the case may be,
excepting only the gross negligence or bad faith of the Shareholder Servicing
Agent.
In any case in which the Company or the Trust may be asked to indemnify
or hold the Shareholder Servicing Agent harmless, the Company or the Trust, as
the case may be, shall be advised of all pertinent facts concerning the
situation in question and the Shareholder Servicing Agent shall use reasonable
care to identify and notify the Company or the Trust, as the case may be,
promptly concerning any situation which presents or appears likely to present a
claim for indemnification against the Company or the Trust. The Company and the
Trust shall have the option to defend the Shareholder Servicing Agent against
any Claim which may be the subject of indemnification hereunder. In the event
that the Company or the Trust, as the case may be, elects to defend against such
Claim, the defense shall be conducted by counsel chosen by the Company or the
Trust, as the case may be, and reasonably satisfactory to the Shareholder
Servicing Agent. The Shareholder Servicing Agent may retain additional counsel
at its expense. Except with the prior written consent of the Company or the
Trust, as the case may be, the Shareholder Servicing Agent shall not confess any
Claim or make any compromise in any case in which the Company or the Trust will
be asked to indemnify the Shareholder Servicing Agent.
12.2 Indemnification of the Companies by the Shareholder Servicing
-------------------------------------------------------------
Agent. Without limiting the rights of the Companies under applicable law, the
- -----
Shareholder Servicing Agent will indemnify and hold each of the Company and the
Trust harmless from all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) from any Claim (a) resulting
from (i) the bad faith or negligence of the Shareholder Servicing Agent, its
officers, employees or agents, or (ii) any breach of applicable law by the
Shareholder Servicing Agent, its officers, employees or agents, or (iii) any
action of the Shareholder Servicing Agent, its officers, employees or agents
which exceeds the legal authority of the Shareholder Servicing Agent or its
authority hereunder, or (iv) any error or omission of the Shareholder Servicing
Agent, its officers, employees or agents with respect to the purchase,
redemption and transfer of Customers' Shares or the Shareholder Servicing
Agent's verification or guarantee of any Customer signature, and (b) not
resulting from the Shareholder Servicing Agent's actions in accordance with
written instructions reasonably believed by the Shareholder Servicing Agent to
have been executed by any person duly authorized by the Company or the Trust, as
the case may be, or in reliance upon any instrument or stock certificate
reasonably believed by the Shareholder Servicing Agent to have been genuine and
signed, countersigned or executed by a person duly authorized by the Company or
the Trust, as the case may be.
In any case in which the Shareholder Servicing Agent may be asked to
indemnify or hold the Company or the Trust harmless, the Shareholder Servicing
Agent shall be advised of all pertinent facts concerning the situation in
question and the Company or the Trust, as the case may be, shall use reasonable
6
<PAGE>
care to identify and notify the Shareholder Servicing Agent promptly concerning
any situation which presents or appears likely to present a claim for
indemnification against the Shareholder Servicing Agent. The Shareholder
Servicing Agent shall have the option to defend the Company or the Trust, as the
case may be, against any Claim which may be the subject of indemnification
hereunder. In the event that the Shareholder Servicing Agent elects to defend
against such Claim, the defense shall be conducted by counsel chosen by the
Shareholder Servicing Agent and satisfactory to the Company or the Trust, as the
case may be. The Company or the Trust may retain additional counsel at its
expense. Except with the prior written consent of the Shareholder Servicing
Agent, neither the Company nor the Trust shall confess any Claim or make any
compromise in any case in which the Shareholder Servicing Agent will be asked to
indemnify the Company or the Trust.
12.3 Indemnification Between the Companies. The Company will
------------------------------------
indemnify and hold harmless the Trust against any losses, claims, damages and
liabilities to which the Trust may become subject arising in connection with
this Agreement, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any prospectus of
the Company for which the Shareholder Servicing Agent acts as such pursuant to
this Agreement, or arise out of or are based upon actions or inactions by the
Company or any of its agents or contractors or the performance of the
Shareholder Servicing Agent's obligations hereunder and (b) not resulting from
(i) the bad faith or negligence of the Trust, its officers, employees or agents,
or (ii) any breach of applicable law by the Trust, its officers, employees or
agents, or (iii) any action of the Trust, its officers, employees or agents
which exceeds the legal authority of the Trust or its authority hereunder, or
(iv) any error or omission of the Shareholder Servicing Agent, its officers,
employees or agents with respect to the purchase, redemption and transfer of
Customers' Shares or the Shareholder Servicing Agent's verification or guarantee
of any Customer signature.
The Trust will indemnify and hold harmless the Company against any
losses, claims, damages and liabilities to which The Company may become subject
arising in connection with this Agreement, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any the Trust prospectus for which the Shareholder Servicing Agent
acts as such pursuant to this Agreement, or arise out of or are based upon
actions or inactions by the Trust or any of its agents or contractors or the
performance of the Shareholder Servicing Agent's obligations hereunder and (b)
not resulting from (i) the bad faith or negligence of the Company, its officers,
employees or agents, or (ii) any breach of applicable law by the Company, its
officers, employees or agents, or (iii) any action of the Company, its officers,
employees or agents which exceeds the legal authority of the Company or its
authority hereunder, or (iv) any error or omission of the Shareholder Servicing
Agent, its officers, employees or agents with respect to the purchase,
redemption and transfer of Customers' Shares or the Shareholder Servicing
Agent's verification or guarantee of any Customer signature.
In any case in which the Company or the Trust may be asked to indemnify
or hold the other harmless, the indemnifying party shall be advised of all
pertinent facts concerning the situation in question and the party to be
indemnified shall use reasonable care to identify and notify the indemnifying
party promptly concerning any situation which presents or appears likely to
present a claim for indemnification against the indemnifying party. The
indemnifying party shall have the option to defend the indemnified party against
any Claim which may be the subject of indemnification hereunder. In the event
that the indemnifying party elects to defend against such Claim, the defense
shall be conducted by counsel chosen by the indemnifying party and reasonably
satisfactory to the indemnified party. The indemnified party may retain
additional counsel at its expense. Except with the prior written consent of the
indemnifying party,
7
<PAGE>
the indemnified party shall not confess any claim or make any compromise in any
case in which indemnifying party will be asked to indemnify the indemnified
party.
12.4 Survival of Indemnities. The indemnities granted by the
-----------------------
parties in this Section 12 shall survive the termination of this Agreement.
13. Insurance. The Shareholder Servicing Agent shall maintain
---------
reasonable insurance coverage against any and all liabilities which may arise in
connection with the performance of its duties hereunder.
14. Notices. All notices or other communications hereunder shall be in
-------
writing and shall be deemed sufficient if mailed to each other party at the
address of such party set forth in the preamble of this Agreement or at such
other address as such party may have designated by written notice to the others.
15. Further Assurances. Each party agrees to perform such further acts
------------------
and execute such further documents as are necessary to effectuate the purposes
hereof.
16. Implementation and Duration of Agreement. This Agreement is
----------------------------------------
effective upon the date first written above and shall continue in effect with
respect to a Class of Shares of a Fund of the Company and the Trust for a period
of more than one year from the date hereof so long as the Servicing Plan adopted
for such Class and related form of agreement or this Agreement is not
specifically terminated by a vote of the Board of Directors/Trustees of the
Company/Trust (as applicable) and of the Directors/Trustees who are not
"interested persons" of the Company/Trust (as defined in the 1940 Act) and have
no direct or indirect financial interest in the operation of the relevant
Servicing Plan (the "Plan") pursuant to which the fees are paid, this Agreement,
or any other agreement related to such Plan, cast in person at a meeting called
for the purpose of voting on this Agreement.
17. Termination. This Agreement may be terminated with respect to the
-----------
Company or the Trust, or one or more Funds of the Company or the Trust, by the
Company or the Trust, respectively, without the payment of any penalty, at any
time upon not more than 60 days' nor less than 30 days' notice, by a vote of a
majority of the Board of Directors/Trustees of the Company/Trust (as applicable)
who are not "interested persons" of the Company/Trust (as defined in the 1940
Act) and have no direct or indirect financial interest in the operation of the
relevant Plan, this Agreement or any other agreement related to such Plan,
including the Amended Distribution Agreement, or by "a vote of a majority of the
outstanding voting securities" (as defined in the 1940 Act) of the relevant
class of shares of the Fund. The Shareholder Servicing Agent may terminate this
Agreement with respect to either the Company or the Trust upon not more than 60
days' nor less than 30 days' notice to the Company or the Trust, as the case may
be. Either the Company, the Trust or the Shareholder Servicing Agent may assign
this Agreement provided that such assigning party obtains the prior written
consent of the other parties hereto. Upon termination hereof, a Fund shall pay
such compensation as may be due the Shareholder Servicing Agent as of the date
of such termination.
18. Changes; Amendments. Except as otherwise provided in this Section
-------------------
18, this Agreement may be supplemented or amended only by written instrument
signed by all parties, but may not be amended to increase materially the maximum
amount payable by a Class of Shares of a Fund without the approval of "a vote of
a majority of the outstanding voting securities" (as defined in the 1940 Act) of
such Class of Shares of such Fund, and all material amendments must be approved
in the manner described in Section 16. From time to time, the Company and the
Trust may, by written notice to the Shareholder Servicing Agent, amend the
Appendix attached hereto to add or delete Funds and/or classes of Shares as
8
<PAGE>
available investment options hereunder. Any such notice shall be effective upon
receipt by the Shareholder Servicing Agent.
19. Limitation of Liability. The Shareholder Servicing Agent hereby
-----------------------
agrees that obligations assumed by the Company and the Trust pursuant to this
Agreement shall be limited in all cases to the Funds and their assets and that
the Shareholder Servicing Agent shall not seek satisfaction of any such
obligations from the Board of Directors or any individual Director of the
Company, or from the Board of Trustees or any individual Trustee of the Trust.
The Shareholder Servicing Agent further agrees that all obligations of a Fund
hereunder shall be solely the obligations of such Fund and that in no case will
any Fund of either the Company or the Trust be liable for the obligations of any
other Fund of the Company of the Trust, nor shall any Fund of the Company be
liable for any obligation of a Fund of the Trust, or vice versa.
20. Subcontracting by Shareholder Servicing Agent. The Shareholder
---------------------------------------------
Servicing Agent may, with the written approval of each of the Company and the
Trust (such approval not to be unreasonably withheld or delayed), subcontract
for the performance of the Shareholder Servicing Agent's obligations hereunder
with any one or more persons, including but not limited to any one or more
persons which is an affiliate of the Shareholder Servicing Agent; provided,
--------
however, that the Shareholder Servicing Agent shall be as fully responsible to
- -------
the Companies for the acts and omissions of any subcontractor as it would be for
its own acts or omissions.
21. Authority to Vote. The Company and the Trust hereby confirm that
-----------------
nothing contained in its Articles of Incorporation or Declaration of Trust,
respectively, would preclude the Shareholder Servicing Agent, at any meeting of
shareholders of the Company, the Trust or of a Fund, from voting any Shares held
in accounts serviced by the Shareholder Servicing Agent and which are otherwise
not represented in person or by proxy at the meeting, proportionately in
accordance with the votes cast by holders of all Shares otherwise represented at
the meeting in person or by proxy and held in accounts serviced by the
Shareholder Servicing Agent.
22. Compliance with Laws and Policies; Cooperation. The Company and the
----------------------------------------------
Trust each hereby agrees that it will comply with all laws and regulations
applicable to operations of Funds thereof and the Shareholder Servicing Agent
agrees that it will comply with all laws and regulations applicable to providing
the services contemplated hereby.
9
<PAGE>
22.1 Miscellaneous. This Agreement shall be construed and enforced
-------------
in accordance with and governed by the laws of the State of California. The
captions in this Agreement are included for convenience of reference only and in
no way define or limit any of the provisions hereof or otherwise affect their
construction or effect. This Agreement may be executed simultaneously in three
or more counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
STAGECOACH FUNDS, INC. on behalf of the
classes of shares of the Funds listed in the
attached Appendix
By:
----------------------------------
Name: Richard H. Blank, Jr.
---------------------
Title: Chief Operating Officer,
------------------------
Secretary and Treasurer
-----------------------
STAGECOACH TRUST, on behalf of the classes of
shares of the Funds listed in the attached
Appendix
By:
----------------------------------
Name: Richard H. Blank, Jr.
---------------------
Title: Chief Operating Officer,
------------------------
Secretary and Treasurer
-----------------------
By:
----------------------
Name:
--------------------
Title:
-------------------
By:
----------------------
Name:
--------------------
Title:
-------------------
10
<PAGE>
APPENDIX
--------
Maximum
Annual
Fund and Share Class(es) Fee Rate
------------------------ --------
Stagecoach
----------
Arizona Tax-Free Fund
Class A .25%
Class B .25%
Institutional Class .25%
Asset Allocation Fund
Class A .30%
Class B .30%
Balanced Fund
Class A .25%
Class B .25%
Institutional Class .25%
California Tax-Free Bond Fund
Class A .30%
Class B .30%
Class C .25%
Institutional Class .25%
California Tax-Free Income Fund
Class A .30%
Institutional Class .25%
California Tax-Free Money Market Fund
Single Class .30%
California Tax-Free Money Market Trust
Single Class .20%
Corporate Stock Fund
Single Class .30%
Diversified Income Fund
Class A .30%
Class B .30%
Equity Value Fund
Class A .25%
Class B .25%
Institutional Class .25%
11
<PAGE>
Maximum
Annual
Fund and Share Class(es) Fee Rate
------------------------ --------
Government Money Market Mutual Fund
Class A .25%
Growth and Income Fund
Class A .30%
Class B .30%
Institutional Class .25%
Index Allocation Fund
Class A .25%
Class B .25%
Class C .25%
Intermediate Bond Fund
Class A .25%
Class B .25%
Institutional Class .25%
International Equity Fund
Class A .25%
Class B .25%
Institutional Class .25%
Money Market Mutual Fund
Class A .30%
Service Class .25%
Institutional Class .25%
Money Market Trust Fund
Single Class .20%
National Tax-Free Fund
Class A .25%
Class B .25%
Class C .25%
Institutional Class .25%
National Tax-Free Money Market Fund
Class [A] .25%
Institutional Class .20%
Oregon Tax-Free Fund
Class A .25%
Class B .25%
Institutional Class .25%
12
<PAGE>
Maximum
Annual
Fund and Share Class(es) Fee Rate
------------------------ --------
Overland Sweep Fund
Single Class .30%
Prime Money Market Mutual Fund
Class A .25%
Service Class .20%
Institutional Class .25%
Administrative Class .15%
Short-Term Government-Corporate Income Fund
Single Class .25%
Short-Intermediate U.S. Government Income Fund
Class A .30%
Institutional Class .25%
Short-Term Municipal Income Fund
Single Class .25%
Small Cap Fund
Class A .25%
Class B .25%
Class C .25%
Institutional Class .25%
Strategic Growth Fund
Class A .25%
Class B .25%
Class C .25%
Treasury Money Market Mutual Fund
Class A .25%
Service Class .20%
Institutional Class .25%
Administrative Class .15%
U.S. Government Allocation Fund
Class A .30%
Class B .30%
U.S. Government Income Fund
Class A .30%
Class B .30%
Class C .25%
Institutional Class .25%
Variable Rate Government Fund
Class A .25%
Class C .25%
13
<PAGE>
Stagecoach Trust
----------------
Stagecoach LifePath 2000
Class A .20%
Institutional Class .20%
Stagecoach LifePath 2010
Class A .20%
Class B .20%
Institutional Class .20%
Stagecoach LifePath 2020
Class A .20%
Class B .20%
Institutional Class .20%
Stagecoach LifePath 2030
Class A .20%
Class B 20%
Institutional Class .20%
Stagecoach Trust
----------------
Stagecoach LifePath 2040
Class A .20%
Class B .20%
Institutional Class .20%
14
<PAGE>
EX-99.B10
[MORRISON & FOERSTER LLP Letterhead]
August 4, 1997
Stagecoach Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
Re: Shares of Common Stock of
Stagecoach Funds, Inc.
--------------------------
Ladies/Gentlemen:
We refer to Post-Effective Amendment No. 33 and Amendment No. 34 to the
Registration Statement on Form N-1A (SEC File Nos. 33-42927 and 811-6419) (the
"Registration Statement") of Stagecoach Funds, Inc. (the "Company") relating to
the registration of an indefinite number of shares of common stock of the
Aggressive Growth, California Tax-Free Bond, Ginnie Mae, National Tax-Free,
National Tax-Free Money Market Mutual, Prime Money Market Mutual, Small Cap and
Treasury Money Market Mutual Funds of the Company (the "Shares").
We have been requested by the Company to furnish this opinion as Exhibit
10 to the Registration Statement.
We have examined documents relating to the organization of the Company
and its series and the authorization and issuance of shares of its series. We
have also verified with the Company's transfer agent the maximum number of
shares issued by the Company during the six-month fiscal period ended March 31,
1997.
Based upon and subject to the foregoing, we are of the opinion that:
The issuance and sale of the Shares by the Company has been duly and
validly authorized by all appropriate corporate action, and assuming delivery by
sale or in accord with the Company's dividend reinvestment plan in accordance
with the description set forth in the Fund's current prospectuses under the
Securities Act of 1933, as amended, the Shares will be legally issued, fully
paid and nonassessable by the Company.
<PAGE>
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
In addition, we hereby consent to the use of our name and to the
reference to our firm under the caption "Legal Counsel" and the description of
advice rendered by our firm under the headings "Management, Distribution and
Servicing Fees" and "Management and Servicing Fees" in the Prospectuses, which
are included as part of the Registration Statement.
Very truly yours,
/s/ Morrison & Foerster LLP
MORRISON & FOERSTER LLP
<PAGE>
EX-99.B15(c)
STAGECOACH FUNDS, INC.
DISTRIBUTION PLAN
-----------------
CLASS C SHARES
--------------
WHEREAS, Stagecoach Funds, Inc. ("Company") is an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended ("Act"); and
WHEREAS, the Company desires to adopt a Distribution Plan ("Plan")
pursuant to Rule 12b-1 under the Act on behalf of the Class C Shares of each
Fund listed on the attached Appendix A as it may be amended from time to time
(each, a "Fund" and, collectively, the "Funds") and the Board of Directors,
including a majority of the Qualified Directors (as defined below), has
determined that there is a reasonable likelihood that adoption of the Plan will
benefit each Fund and its Class C shareholders;
NOW THEREFORE, each Fund hereby adopts the Plan in accordance with Rule
12b-1 under the Act on the following terms and conditions:
Section 1. Pursuant to the Plan, the Company may pay to Stephens Inc.
("Distributor"), as compensation for distribution-related services provided, or
reimbursement for distribution related expenses incurred, a monthly fee at
annual rates as set forth on Appendix A. The actual fee payable to the
Distributor shall, within such limit, be determined from time to time by mutual
agreement between the Company and the Distributor. The Distributor may enter
into selling agreements with one or more selling agents under which such agents
may receive compensation for distribution-related services from the Distributor,
including, but not limited to, commissions or other payments to such agents
based on the average daily net assets of Fund shares attributable to them. The
Distributor may retain any portion of the total distribution fee payable
hereunder to compensate it for distribution-related services provided by it or
to reimburse it for other distribution-related expenses.
Section 2. The Plan (and each related agreement) will, unless earlier
terminated in accordance with its terms, remain in effect from year to year
after the first anniversary of its effectiveness if such continuance is
specifically approved at least annually by vote of a majority of both (a) the
Directors of the Company and (b) the Qualified Directors, cast in person at a
meeting (or meetings) called for the purpose of voting on such approval.
Section 3. The Company shall provide to the Company's Board of Directors
and the Directors shall review, at least quarterly, a written report of the
amounts expended by the Company under the Plan and each related agreement and
the purposes for which such expenditures were made.
<PAGE>
Section 4. The Plan may be terminated at any time by vote of a majority
of the Qualified Directors or by vote of a majority of the outstanding voting
securities of Class C Shares of the Fund.
Section 5. All agreements related to the Plan shall be in writing and
shall be approved by vote of a majority of both (a) the Directors of the Company
and (b) the Qualified Directors, cast in person at a meeting called for the
purpose of voting on such approval. Any agreement related to the Plan shall
provide:
A. That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Qualified Directors or by vote
of a majority of the outstanding voting securities of Class C Shares of
the Fund, on not more than 60 days' written notice to any other party to
the agreement; and
B. That such agreement shall terminate automatically in the event of its
"assignment" (as defined below).
Section 6. The Plan may not be amended to increase materially the amount
that may be expended by the Fund pursuant to the Plan without the approval by a
vote of a majority of the outstanding voting securities of Class C Shares of the
Fund, and no material amendment to the Plan shall be made unless approved by
vote of a majority of both (a) the Directors of the Company and (b) the
Qualified Directors, cast in person at a meeting (or meetings) called for the
purpose of voting on such approval.
Section 7. While the Plan is in effect, the selection and nomination of
each Director who is not an "interested person" (as defined below) of the
Company shall be committed to the discretion of the Directors who are not
interested persons.
Section 8. To the extent any payments made by the Fund pursuant to a
Servicing Agreement are deemed to be payments for the financing of any activity
primarily intended to result in the sale of Class C Shares within the context of
Rule 12b-1 under the Act, such payments shall be deemed to have been approved
pursuant to this Plan. Notwithstanding anything herein to the contrary, the
Fund shall not be obligated to make any payments under this Plan that exceed the
maximum amounts payable under Rule 2830 of the Conduct Rules of the National
Association of Securities Dealers, Inc.
Section 9. The Company shall preserve copies of the Plan, each related
agreement and each report made pursuant to Section 4 hereof, for a period of not
less than six years from the date of the Plan, such agreement or such report, as
the case may be, the first two years in an easily accessible place.
Section 10. As used in the Plan, (a) the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting securities" shall have
the respective meanings specified in the Act and the rules and regulations
thereunder, subject to such exemption as may be granted by the Securities and
Exchange Commission and (b) the term "Qualified Directors" shall
2
<PAGE>
mean the Directors of the Company who are not interested persons of the Company
and have no direct or indirect financial interest in the operation of the Plan
or in any agreements related to the Plan.
Dated: July 23, 1997
3
<PAGE>
APPENDIX A
----------
<TABLE>
<CAPTION>
Percentage of Funds
Fund Name Average Daily Net Assets
--------- ------------------------
<S> <C>
Aggressive Growth Fund 0.75%
California Tax-Free Bond Fund 0.50%
Index Allocation Fund 0.75%
Ginnie Mae Fund 0.50%
National Tax-Free Bond Fund 0.50%
Small Cap Fund 0.75%
Variable Rate Government Fund 0.50%
</TABLE>
Approved: July 23, 1997
4
<PAGE>
EX-99.B18
STAGECOACH FUNDS, INC.
RULE 18f-3 MULTI-CLASS PLAN
---------------------------
I. Introduction.
------------
Pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended
(the "1940 Act"), the following sets forth the method for allocating fees and
expenses among each class of shares in the separate investment portfolios
("Funds") of Stagecoach Funds, Inc. (Registration Nos. 33-42927 and 811-6419)
(the "Company"). In addition, this Rule 18f-3 Multi-Class Plan (the "Plan")
sets forth the maximum initial sales charges, contingent deferred sales charges
("CDSCs"), Rule 12b-1 distribution fees, shareholder servicing fees, conversion
features, exchange privileges and other shareholder services applicable to a
particular class of shares of the Funds.
The Company is an open-end series investment company registered under the
1940 Act, the shares of which are registered on Form N-1A under the Securities
Act of 1933. Upon the effective date of Rule 18f-3, the Company hereby elects
to offer multiple classes of shares of the Funds pursuant to the provisions of
Rule 18f-3 and the Plan. The Plan has been amended to reflect the offerings of
additional Funds and additional share classes.
The Company currently offers or will offer the following thirty-two
separate Funds: Arizona Tax-Free, Asset Allocation, Balanced, California Tax-
Free Bond, California Tax-Free Income, California Tax-Free Money Market Mutual,
California Tax-Free Money Market Trust, Corporate Stock, Diversified Income,
Equity Value, Government Money Market Mutual, Growth and Income, Index
Allocation, Intermediate Bond, International Equity, Money Market Mutual, Money
Market Trust, National Tax-Free, National Tax-Free Money Market Mutual, National
Tax-Free Money Market Trust, Oregon Tax-Free, Overland Sweep, Prime Money Market
Mutual, Short-Intermediate U.S. Government Income, Short-Term Government-
Corporate Income, Short-Term Municipal Income, Small Cap, Strategic Growth
(formerly, Aggressive Growth), Treasury Money Market Mutual, U.S. Government
Allocation, U.S. Government Income (formerly, Ginnie Mae) and Variable Rate
Government Funds. The Asset Allocation, Corporate Stock, National Tax-Free
Money Market Mutual, Small Cap, Strategic Growth and U.S. Government Allocation
Funds each invests all of its assets in a separate portfolio (each, a "Master
Portfolio") of Master Investment Trust, an open-end investment management
company, rather than directly in a portfolio of securities. Each Master
Portfolio has the same investment objective as the Fund which invests its assets
in the Master Portfolio.
The Funds listed below are authorized to issue the following class of
shares representing interests in such Funds:
(i) Class A shares and Class B shares: Asset Allocation, Diversified
Income and U.S. Government Allocation Funds.
(ii) Class A shares, Class B shares and Class C shares: Index Allocation
Fund.
(iii) Class A shares and Class C shares: Variable Rate Government Fund.
1
<PAGE>
(iv) Class A shares and Institutional Class shares: California Tax-Free
Income, National Tax-Free Money Market Mutual and Short-Intermediate
U.S. Government Income Funds.
(v) Class A shares, Class B shares and Institutional Class shares:
Arizona Tax-Free, Balanced, Equity Value, Growth and Income,
Intermediate Bond, International Equity and Oregon Tax-Free Funds.
(vi) Class A shares, Class B shares, Class C shares and Institutional
Class shares: California Tax-Free Bond, National Tax-Free, Small
Cap, Strategic Growth Funds and U.S. Government Income.
(vii) Class A shares, Institutional Class shares, Administrative Class
shares and Service Class shares: Prime Money Market Mutual Fund.
(iix) Class A shares, Class E shares, Institutional Class shares,
Administrative Class shares, and Service Class shares: Treasury
Money Market Mutual Fund.
(ix) Class A shares, Class S shares and Institutional Class shares: Money
Market Mutual Fund.
All of the Company's Funds other than the California Tax-Free Money Market
Mutual Fund, California Tax-Free Money Market Trust, Corporate Stock Fund, Money
Market Trust, National Tax-Free Money Market Trust, Overland Sweep, Short-Term
Municipal Income Fund and Short-Term Government-Corporate Income Fund, which
offer a single unnamed class of shares and the Government Money Market Mutual
Fund, which offers only Class A shares, are collectively referred to herein as
the "Multi-Class Funds". The differences among the classes are discussed below.
II. Allocation of Expenses.
----------------------
Pursuant to Rule 18f-3 under the 1940 Act, the Company allocates to each
class of shares of a Multi-Class Fund (i) any fees and expenses incurred by the
Fund in connection with the distribution of such class of shares under a
distribution plan adopted for such class of shares pursuant to Rule 12b-1, and
(ii) any fees and expenses incurred by the Fund under a servicing plan in
connection with the provision of shareholder administrative or liaison services
to the holders of such class of shares. In addition, pursuant to Rule 18f-3,
the Company may allocate the following fees and expenses to a particular class
of shares of a single Multi-Class Fund:
(i) transfer agent fees identified by the transfer agent as being
attributable to such class of shares;
(ii) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, notices, prospectuses,
reports, and proxies to current shareholders of that class or to
regulatory agencies with respect to such class of shares;
(iii) blue sky registration or qualification fees incurred by such class
of shares;
2
<PAGE>
(iv) Securities and Exchange Commission registration fees incurred by
such class of shares;
(v) the expense of administrative personnel and services as required to
support the shareholders of such class of shares;
(vi) litigation or other legal expenses relating solely to such class of
shares; and
(vii) fees of the Company's Directors incurred as result of issues
relating to such class of shares.
The initial determination of the class expenses that will be allocated by
the Company to a particular class of shares and any subsequent changes thereto
will be reviewed by the Board of Directors of the Company and approved by a vote
of the Directors of the Company, including a majority of the Directors who are
not interested persons of the Company.
Income, realized and unrealized capital gains and losses, and any expenses
of a Multi-Class Fund not allocable to a particular class of the Fund pursuant
to this Plan shall be allocated to each class of the Fund based upon the
relative net asset value of that class in relation to the aggregate net asset
value of the Fund. In certain cases, Stephens, the Bank or another service
provider for a Multi-Class Fund may waive or reimburse all or a portion of the
expenses of a specific class of shares of the Multi-Class Fund. The Board of
Directors will monitor any such waivers or reimbursements to ensure that they do
not provide a means for cross-subsidization between classes.
III. Class Arrangements.
------------------
The following summarizes the maximum initial sales charges, CDSCs, Rule
12b-1 distribution fees, shareholder servicing fees, conversion features,
exchange privileges and other shareholder services applicable to a particular
class of shares of the Multi-Class Funds. Additional details and restrictions
regarding such fees and services are set forth in the relevant Fund's current
Prospectus and Statement of Additional Information.
A. Class A Shares -- Multi-Class Funds
-----------------------------------
1. Maximum Initial Sales Charge: The maximum initial sales charge
----------------------------
expressed as a percentage of the net asset value at time of purchase
is as follows:
5.25% Aggressive Growth, Balanced, Diversified Income, Equity
Value, Growth and Income, Index Allocation, International
Equity and Small Cap Funds.
4.50% Asset Allocation, Arizona Tax-Free, California Tax-Free Bond,
Ginnie Mae, Intermediate Bond, National Tax-Free, Oregon Tax-
Free and U.S. Government Allocation Funds.
3.00% California Tax-Free Income, Short-Intermediate U.S.
Government Income and Variable Rate Government Funds.
3
<PAGE>
2. Contingent Deferred Sales Charge: None
--------------------------------
3. Maximum Annual Rule 12b-1 Distribution Fee: 0.10% of average daily
------------------------------------------
net assets attributable to Class A shares, except for the Index
Allocation and Variable Rate Government Funds, which are subject to
Rule 12b-1 fees at a rate equal to 0.25% of average daily net assets
attributable to Class A shares of such Funds.
4. Maximum Annual Shareholder Servicing Fee: 0.30% of average daily net
----------------------------------------
assets attributable to Class A shares, except for the Index Allocation
and Variable Rate Government Funds which have a shareholder servicing
fee equal to 0.25% of the average daily net assets attributable to
Class B Shares of such Funds.
5. Conversion Features: None
-------------------
6. Exchange Privileges: As described in current prospectus for each
-------------------
Fund.
7. Other Class-Specific Shareholder Services: None
-----------------------------------------
B. Class B Shares -- Multi-Class Funds
-----------------------------------
1. Maximum Initial Sales Charge: None
----------------------------
2. Contingent Deferred Sales Charge: Class B shares that are redeemed
--------------------------------
within six years from the receipt of a purchase order affecting such
shares are subject to a CDSC equal to the indicated percentage of the
dollar amount equal to the lesser of the net asset value ("NAV") at
the time of purchase of the Class B shares being redeemed or the NAV
of such shares at the time of redemption. No CDSC is imposed on Class
B shares purchased through reinvestment of dividends or capital gain
distributions.
<TABLE>
<CAPTION>
Redemption Within: 1 Year 2 Years 3 Years 4Years 5 Years 6 Years
----------------- ------ ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
CDSC: 5% 4% 3% 3% 2% 1%
</TABLE>
3. Maximum Annual Rule 12b-1 Distribution Fee: 0.75% of average daily
------------------------------------------
net assets attributable to Class B shares.
4. Maximum Annual Shareholder Servicing Fee: 0.30% of average daily net
----------------------------------------
assets attributable to Class B shares, except for the Index Allocation
and Variable Rate Government Funds which have a shareholder servicing
fee equal to 0.25% of the average daily net assets attributable to
Class B Shares of such Funds.
5. Conversion Features: Class B shares of a Multi-Class Fund that have
-------------------
been outstanding for six years after the end of the month in which the
shares were initially purchased automatically convert to Class A
shares of such Fund and, consequently, are no longer subject to the
higher Rule 12b-1 fees applicable to Class B shares. Such conversion
is on the basis of the relative NAVs of the two classes, without the
imposition of any sales charge or other charge, except that the lower
Rule 12b-1 fees applicable to Class A shares shall thereafter be
applied to
4
<PAGE>
such converted shares.
6. Exchange Privileges: As described in the current prospectus for each
-------------------
Fund.
7. Other Class-Specific Shareholder Services: None
-----------------------------------------
C. Class C Shares-- Multi-Class Funds
----------------------------------
1. Maximum Initial Sales Charge: None
----------------------------
2. Contingent Deferred Sales Charge: Class C shares that are redeemed
--------------------------------
within one year of the receipt of a purchase order affecting such
shares are subject to a CDSC equal to 1.00% of an amount equal to the
lesser of NAV at the time of purchase of the Class C shares being
redeemed or the NAV of such shares at the time of redemption. No CDSC
is imposed on Class C shares purchased through reinvestment of
dividends or capital gain distributions.
3. Maximum Annual Rule 12b-1 Distribution Fee: 0.75% of average daily
------------------------------------------
net assets attributable to Class C shares, except for the California
Tax-Free Bond, National Tax-Free, U.S. Government Income and Variable
Rate Government Funds, which are subject to Rule 12b-1 fees at a rate
equal to 0.50% of average daily net assets attributable to Class C
shares of such Funds.
4. Maximum Annual Shareholder Servicing Fee: 0.25% of average daily net
----------------------------------------
assets attributable to Class C shares.
5. Conversion Features: None
-------------------
6. Exchange Privileges: As described in the current prospectus for each
-------------------
Fund.
7. Other Class-Specific Shareholder Services: None
-----------------------------------------
D. Institutional Class Shares -- Multi-Class Funds
-----------------------------------------------
1. Maximum Initial Sales Charge: None
----------------------------
2. Contingent Deferred Sales Charge: None
--------------------------------
3. Maximum Annual Rule 12b-1 Distribution Fee: 0.10% of average daily
-------------------------------------------
net assets attributable to Institutional Class Shares.
4. Maximum Annual Shareholder Servicing Fee: 0.25% of average daily net
----------------------------------------
assets attributable to Institutional Class shares, except for the
National Tax-Free Money Market Mutual Fund, which has a shareholder
servicing fee equal to 0.20% of the average daily net assets
attributable to Institutional Class shares.
5. Conversion Features: None.
--------------------
5
<PAGE>
6. Exchange Privileges: As described in the current prospectus for each
-------------------
Fund.
7. Other Class-Specific Shareholder Services: None
------------------------------------------
E. Service Class Shares -- Multi-Class Funds
-----------------------------------------
1. Maximum Initial Sales Charge: None
----------------------------
2. Contingent Deferred Sales Charge: None
--------------------------------
3. Maximum Annual Rule 12b-1 Distribution Fee: None
-------------------------------------------
4. Maximum Annual Shareholder Servicing Fee: 0.20% of the average daily
----------------------------------------
net assets attributable to Class E shares
5. Conversion Features: None.
--------------------
6. Exchange Privileges: As described in the current prospectus for each
--------------------
Fund.
7. Other Class-Specific Shareholder Services: None
------------------------------------------
F. Class E Shares -- Multi-Class Funds
-----------------------------------
1. Maximum Initial Sales Charge: None
----------------------------
2. Contingent Deferred Sales Charge: None
--------------------------------
3. Maximum Annual Rule 12b-1 Distribution Fee: 0.25% of average daily
-------------------------------------------
net assets attributable to Class E shares
4. Maximum Annual Shareholder Servicing Fee: 0.25% of the average daily
----------------------------------------
net assets attributable to Service Class shares
5. Conversion Features: None.
--------------------
6. Exchange Privileges: As described in the Fund's current prospectus.
--------------------
7. Other Class-Specific Shareholder Services: None
------------------------------------------
G. Administrative Class Shares -- Multi-Class Funds:
------------------------------------------------
1. Maximum Initial Sales Charge: None
----------------------------
2. Contingent Deferred Sales Charge: None
--------------------------------
3. Maximum Annual Rule 12b-1 Distribution Fee: None
-------------------------------------------
6
<PAGE>
4. Maximum Annual Shareholder Servicing Fee: 0.15% of average daily net
----------------------------------------
assets attributable to Administrative Class shares.
5. Conversion Features: None.
--------------------
6. Exchange Privileges: As described in the current prospectus for each
-------------------
Fund.
7. Other Class-Specific Shareholder Services: None
------------------------------------------
7
<PAGE>
IV. Board Review.
-------------
The Board of Directors of the Company shall review the Plan as it deems
necessary. Prior to any material amendment(s) to the Plan with respect to any
Multi-Class Fund's shares, the Company's Board of Directors, including a
majority of the Directors that are not interested persons of the Company, shall
find that the Plan, as proposed to be amended (including any proposed amendments
to the method of allocating class and/or fund expenses), is in the best interest
of each class of shares of the Fund individually and the Fund as a whole. In
considering whether to approve any proposed amendment(s) to the Plan, the
Directors of the Company shall request and evaluate such information as it
considers reasonably necessary to evaluate the proposed amendment(s) to the
Plan.
Adopted: April 3, 1995
Adopted as Amended: April 25, 1996
Adopted as Amended: January 16, 1997
Adopted as Amended: April 29, 1997
Adopted as Amended: July 23, 1997
8
