<PAGE> 1
As filed with the Securities and Exchange Commission
on January 31, 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. 30
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 31 [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):
[X] Immediately upon filing pursuant [ ] on _________ pursuant
to Rule 485(b), or to Rule 485(b)
[ ] 60 days after filing pursuant [ ] on _________ pursuant
to Rule 485(a)(1), or to Rule 485(a)(1)
[ ] 75 days after filing pursuant [ ] on ___________pursuant
to Rule 485(a)(2), or to Rule 485(a)(2)
<PAGE> 2
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has registered an indefinite number of shares of its Common
Stock, $.001 par value, under the Securities Act of 1933, pursuant to Rule
24f-2 under the Investment Company Act of 1940, as amended. The Rule 24f-2
Notice for the fiscal period ending September 30, 1996, was filed with the
Securities and Exchange Commission on November 27, 1996.
This Post-Effective Amendment to the Registrant's Registration Statement also
has been executed by Master Investment Trust (a registered investment company
with separate series in which certain series of the Registrant invest
substantially all of their assets) and its trustees and principal officer.
<PAGE> 3
EXPLANATORY NOTE
This Post-Effective Amendment to the Registration Statement (the
"Amendment") of Stagecoach Funds, Inc. (the "Company") is being filed to add to
the Company's Registration Statement the audited financial statements and
certain related financial information for the fiscal period ended September 30,
1996 for the Company's 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.
This Amendment does not affect the Registration Statement for
Class E shares of the Treasury Money Market Mutual Fund or the Registration
Statement for the California Tax-Free Money Market Trust.
<PAGE> 4
Cross Reference Sheet
CLASS A AND B SHARES
<TABLE>
<CAPTION>
Form N-1A Item Number
- ---------------------
<S> <C>
Part A Prospectus Captions
- ------ -------------------
1 Cover Page
2 Prospectus Summary; Summary of Fund Expenses
3 Financial Highlights
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 Plans; Servicing Plans and Agreements; 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 Plans
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.
</TABLE>
<PAGE> 5
Cross Reference Sheet
INSTITUTIONAL, SERVICE AND CLASS S SHARES
<TABLE>
<CAPTION>
Form N-1A Item Number
- ---------------------
<S> <C>
Part A Prospectus Captions
- ------ -------------------
1 Cover Page
2 Prospectus Summary; Summary of Fund Expenses
3 Financial Highlights
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 Introduction
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.
</TABLE>
2
<PAGE> 6
LOGO
------------------------------
PROSPECTUS
------------------------------
PRIME MONEY MARKET MUTUAL FUND
CLASS A
FEBRUARY 1, 1997
<PAGE> 7
STAGECOACH FUNDS(R)
PRIME MONEY MARKET MUTUAL FUND
CLASS A SHARES
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about one class offered by one
fund of the Stagecoach Family of Funds -- Class A shares of the PRIME MONEY
MARKET MUTUAL FUND (the "Fund").
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.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
CONSTANT $1.00 NET ASSET VALUE PER SHARE.
Please read this Prospectus before investing and retain it for future
reference. It is designed to provide you with important information and to help
you decide if the Fund's goals match your own. A Statement of Additional
Information ("SAI"), dated February 1, 1997, containing additional information
about the Fund, has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this Prospectus. The SAI is
available without charge by writing to Stagecoach Funds, Inc., c/o Stagecoach
Shareholder Services, Wells Fargo Bank, N.A., P.O. Box 7066, San Francisco, CA
94120-7066 or by calling 1-800-222-8222. If you hold shares in an IRA, please
call 1-800-BEST-IRA for information or assistance.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK, N.A. ("WELLS FARGO BANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND INVOLVES CERTAIN RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
WELLS FARGO BANK IS THE FUND'S 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 FEBRUARY 1, 1997
PROSPECTUS
<PAGE> 8
TABLE OF CONTENTS
-------
PROSPECTUS SUMMARY 1
EXPLANATION OF TABLES 4
FINANCIAL HIGHLIGHTS 5
HOW THE FUND WORKS 7
THE FUND AND MANAGEMENT 12
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 29
PROSPECTUS APPENDIX - ADDITIONAL INVESTMENT POLICIES A-1
PROSPECTUS
<PAGE> 9
PROSPECTUS SUMMARY
The Fund provides you with a convenient way to invest in a portfolio of
securities selected and supervised by professional management. The following
provides you with summary information about the Fund. For more information,
please refer to the identified Prospectus sections and generally to the
Prospectus and SAI.
Q. WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
A. The 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.
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF INVESTMENT?
A. Investments in the Fund are not bank deposits or obligations of Wells Fargo
Bank and are not insured by the FDIC, nor are they insured or guaranteed
against loss of principal. Therefore, you should be willing to accept some
risk with money invested in the Fund. Although the Fund seeks to maintain a
stable net asset value of $1.00 per share, there is no assurance that it
will be able to do so. The Fund may not achieve as high a level of current
income as other mutual funds that do not limit their investment to the high
credit quality instruments in which the Fund invests. As with all mutual
funds, there can be no assurance that the Fund will achieve its investment
objective. See "How the Fund Works -- Investment Objective and
Policies -- Risk Factors" below and "Additional Permitted Investment
Activities" in the SAI for further information about the Fund's investments
and related risks.
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the Fund's investment adviser, manages your investments.
Wells Fargo Bank also provides the Fund with administrative, transfer
agency, dividend disbursing agency, and custodial services. In addition,
Wells Fargo Bank is a shareholder servicing agent and a selling agent for
the Fund. See "The Fund and Management" and "Management, Distribution and
Servicing Fees."
Q. HOW DO I INVEST?
A. You may invest by purchasing Fund shares at net asset value ("NAV"). You may
open an account by investing at least $2,500, and you may add to your
account by making additional investments of at least $100, with certain
exceptions. Shares may be purchased on any day the Fund is open by wire, by
mail, or by an automatic
1 PROSPECTUS
<PAGE> 10
investment feature called the AutoSaver Plan. 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 are declared daily, distributed monthly and automatically
reinvested in additional shares of the same class of the Fund at net asset
value unless you elect to receive dividends credited to your Wells Fargo
Bank account or distributed in cash. Any capital gains are distributed at
least annually. Investment income available for distribution to holders of a
class of shares is reduced by the class expenses payable on behalf of those
shares. See "Dividend and Capital Gain Distributions" and "Additional
Shareholder Services."
Q. HOW MAY I REDEEM SHARES?
A. You may redeem Fund shares at NAV, without charge, on any day the Fund is
open by telephone (unless you have declined this feature on your account
application), by letter, or on a regular monthly basis, by an automatic
feature called the Systematic Withdrawal Plan. See "How to Redeem Shares"
for more details, or contact Stephens (the Fund's distributor), a
shareholder servicing agent or a selling agent (such as Wells Fargo Bank).
PROSPECTUS 2
<PAGE> 11
SUMMARY OF FUND EXPENSES
CLASS A
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
PRIME MONEY
MARKET MUTUAL FUND
------------------
<S> <C>
Maximum Sales Charge on Purchases (as a percentage
of offering price).............................. None
Maximum Sales Charge on Reinvested
Distributions................................... None
Maximum Sales Charge on Redemptions............... None
Exchange Fees..................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
PRIME MONEY
MARKET MUTUAL FUND
------------------
<S> <C>
Management Fee (after waivers or
reimbursements)(1).............................. 0.12%
Rule 12b-1 Fee.................................... 0.05%
Other Expenses.................................... 0.38%
TOTAL FUND OPERATING EXPENSES (after waivers or
reimbursements)(2).............................. 0.55%
</TABLE>
- ---------------------------------
(1) Management Fee (before waivers or reimbursements) would be payable at a
maximum annual rate of 0.25%.
(2) Total Fund Operating Expenses (before waivers or reimbursements) would be
0.68%.
3 PROSPECTUS
<PAGE> 12
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment in
the Fund's Class A shares, assuming
(A) a 5% annual return and (B)
redemption at the end of each time
period indicated:
Prime Money Market Mutual
Fund........................... $6 $18 $31 $ 69
</TABLE>
EXPLANATION OF TABLES
The purpose of the foregoing tables is to help you understand the various
costs and expenses that a shareholder in the Fund will pay directly or
indirectly. You may purchase Fund shares directly from the Company or through
Wells Fargo Bank or other institutions that have developed various account
products through which Fund shares may be purchased, and for which customers may
be charged a fee. The tables do not reflect any charges that may be imposed by
Wells Fargo Bank or another institution directly on certain customer accounts in
connection with an investment in the Fund.
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell Fund
shares. There are no Shareholder Transaction Expenses for the Fund. However, the
Company reserves the right to impose a charge for wiring redemption proceeds.
ANNUAL FUND OPERATING EXPENSES for the Fund's Class A shares are based on
applicable contract amounts and amounts incurred during the most recent fiscal
year. These amounts have been adjusted to reflect voluntary fee waivers and
expense reimbursements expected to reduce expenses during the current year.
Wells Fargo Bank and Stephens have each agreed to waive or reimburse all or a
portion of their respective fees charged to, or expenses paid by, the Fund to
ensure that the "Total Fund Operating Expenses" do not exceed, on an annual
basis, 0.55% of the Fund's average daily net assets through August 31, 1997. 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
expenses. For more complete descriptions of the various costs and expenses you
can expect to incur as an investor 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
PROSPECTUS 4
<PAGE> 13
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.
FINANCIAL HIGHLIGHTS
The following information has been derived from the Financial Highlights in
the Fund's financial statements for the year ended September 30, 1996. This
information is provided to assist you in evaluating the Fund's historical
performance. Except as set forth below, the Fund's financial statements were
audited by KPMG Peat Marwick LLP. The financial information for all periods
prior to October 1, 1995, was audited by other auditors. On September 6, 1996,
the Investor Class shares of a portfolio of Pacifica Funds Trust were
reorganized as the Class A shares of the Fund. The predecessor portfolio
commenced offering the Investor Class shares in October of 1995. Prior to this
time it offered a single class -- the Service Class shares. The information for
periods prior to September 6, 1996, reflects the performance of the Investor and
Service Class shares. The financial statements and the report thereon for the
year ended September 30, 1996 are incorporated by reference into the SAI. This
information should be read in conjunction with the Fund's 1996 financial
statements and the notes thereto. The SAI has been incorporated by reference
into this prospectus.
5 PROSPECTUS
<PAGE> 14
PRIME MONEY MARKET MUTUAL FUND(1)
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A
SHARES(2) SERVICE SHARES
-------- ------------------------------------------------------
YEAR SIX
ENDED YEAR MONTHS
SEPT. ENDED ENDED YEAR ENDED MARCH 31,
30, SEPT. 30, SEPT. 30, ------------------------------
1996 1995 1994(3) 1994 1993 1992
-------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- -------- -------- -------- --------
Income from Investment Operations:
Net Investment Income..................................... 0.05 0.05 0.02 0.03 0.03 0.05
Net realized and unrealized gain on investment............ 0.00 0.00 0.00 0.00 0.00 0.00
------- -------- -------- -------- -------- --------
Total from Investment Operations........................ 0.05 0.05 0.02 0.03 0.03 0.05
Less Distributions:
Dividends from net investment income...................... (0.05) (0.05) (0.02) (0.03) (0.03) (0.05)
Distributions from net realized gain...................... 0.00 0.00 0.00 0.00 0.00 0.00
------- -------- -------- -------- -------- --------
Total From Distributions.................................. (0.05) (0.05) (0.02) (0.03) (0.03) (0.05)
------- -------- -------- -------- -------- --------
Net Asset Value, end of period............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======== ======== ======== ========
Total Return (not annualized).............................. 5.09% 5.60% 3.71% (4) 3.00% 3.32% 5.22%
Ratios/Supplemental Data:
Net Assets, end of period (000s).......................... $264,900 $614,101 $565,305 $527,599 $468,479 $528,397
Ratios to average net assets (annualized):
Ratio of expenses to average net assets................... 0.55% 0.41% 0.41% 0.41% 0.41% 0.43%
Ratio of net investment income to average net assets...... 5.06% 5.47% 3.67% 2.96% 3.27% 5.09%
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses............................ 0.68% 0.68% 0.89% 0.89% 0.89% 0.91%
Ratio of net investment income to average net
assets prior to waived fees and reimbursed expenses..... 4.93% 5.20% 3.19% 2.48% 2.79% 4.61%
<CAPTION>
1991 1990 1989 1988 1987
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net Investment Income..................................... 0.07 0.08 0.08 0.06 0.06
Net realized and unrealized gain on investment............ 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Total from Investment Operations........................ 0.07 0.08 0.08 0.06 0.06
Less Distributions:
Dividends from net investment income...................... (0.07) (0.08) (0.08) (0.06) (0.06)
Distributions from net realized gain...................... 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Total From Distributions.................................. (0.07) (0.08) (0.08) (0.06) (0.06)
-------- -------- -------- -------- --------
Net Asset Value, end of period............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return (not annualized).............................. 7.72% 8.82% 7.88% 6.50% 5.97%
Ratios/Supplemental Data:
Net Assets, end of period (000s).......................... $543,834 $493,641 $496,675 $628,987 $407,815
Ratios to average net assets (annualized):
Ratio of expenses to average net assets................... 0.47% 0.54% 0.56% 0.58% 0.68%
Ratio of net investment income to average net assets...... 7.38% 7.95% 7.58% 6.38% 5.81%
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses............................ 0.94% 0.90% 0.90% 0.93% 0.93%
Ratio of net investment income to average net
assets prior to waived fees and reimbursed expenses..... 6.91% 7.59% 7.24% 6.03% 5.56%
</TABLE>
- -------------------
(1) The 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, the Fund was
reorganized as the Pacific American Money Market Portfolio, a portfolio of
Pacifica Funds Trust. In July 1995, the Fund was renamed the Pacifica Prime
Money Market Fund, and on September 6, 1996, the Fund was reorganized as the
Prime Money Market Mutual Fund of the Company. Prior to April 1, 1996, First
Interstate Capital Management, Inc. ("FICM") served as the Fund's adviser.
In connection with the merger of First Interstate Bancorp into Wells Fargo &
Company on April 1, 1996, FICM was renamed Wells Fargo Investment
Management, Inc.
(2) Financial data for the year ended September 30, 1996 includes the
performance of the Investor shares of the predecessor portfolio, which
commenced operations October 1, 1995.
(3) The Fund changed its fiscal year-end from March 31 to September 30.
(4) Annualized.
PROSPECTUS 6
<PAGE> 15
HOW THE FUND WORKS
INVESTMENT OBJECTIVE AND POLICIES
Set forth below is a description of the investment objective and related
policies of the Fund. The Fund seeks to maintain a net asset value of $1.00 per
share. The Fund's 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 the Fund's investments
is 90 days or less. There can be no assurance that the Fund's investment
objective will be achieved or that the Fund will be able to maintain a net asset
value of $1.00 per share. A more complete description of the Fund's investments
and investment activities is contained in "Prospectus Appendix -- Additional
Investment Policies" and in 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 investment 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.
All securities acquired by the Fund 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 Prime Money Market Mutual
Fund may invest in U.S. Treasury obligations, such as bills, notes, bonds and
certificates of indebtedness, and in notes and repurchase agreements
collateralized or secured by such 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
7 PROSPECTUS
<PAGE> 16
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. 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 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 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 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.
The 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 bank-
PROSPECTUS 8
<PAGE> 17
ing 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 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 thirteen months or less.
The Fund may attempt to increase yields by trading to take advantage of
short-term market variations. This policy could result in high portfolio
turnover, which should not adversely affect the Fund since it does not
ordinarily pay brokerage commissions on the purchase of short-term debt
obligations.
A more complete description of the Fund's investments and investment
activities is contained in "Prospectus Appendix -- Additional Investment
Policies" and in the SAI.
RISK FACTORS
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. As with all mutual funds, there can be no
assurance that the Fund will achieve its investment objective.
The Fund, under the 1940 Act, must comply with certain investment criteria
designed to provide liquidity, reduce risk, and allow the Fund to maintain a
stable net asset value of $1.00 per share. The Fund's dollar-weighted average
portfolio maturity must not exceed 90 days. Any security that the Fund purchases
must have a remaining maturity of not more than 397 days. In addition, Fund
purchases must present minimal credit risks and be of the highest quality (i.e.,
be rated in the top rating category by the requisite NRSROs or, if unrated,
determined to be of comparable quality to such rated securities by the Fund's
adviser under guidelines adopted by the Company's Board of Directors).
The Fund seeks to reduce risk by investing its assets in securities of various
issuers. In addition, the Fund emphasizes safety of principal and high credit
quality. In particular,
9 PROSPECTUS
<PAGE> 18
the internal investment policies of the Fund's investment adviser prohibits the
purchase for the Fund of many types of floating-rate derivative securities that
are considered potentially volatile. The following types of derivative
securities ARE NOT permitted investments for the Fund:
- capped floaters (on which interest is not paid when market rates move above
a certain level);
- leveraged floaters (whose interest rate reset provisions are based on a
formula that magnifies changes in interest rates);
- range floaters (which do not pay any interest if market interest rates move
outside of a specified range);
- dual index floaters (whose interest rate reset provisions are tied to more
than one index so that a change in the relationship between these indices
may result in the value of the instrument falling below face value); and
- inverse floaters (which reset in the opposite direction of their index).
Additionally, the Fund may not invest in securities whose interest rate reset
provisions are tied to an index that materially lags short-term interest rates,
such as Coast of Funds Index floaters. The Fund may invest only in variable or
floating-rate securities that bear interest at a rate that resets quarterly or
more frequently and that resets based on changes in standard money market rate
indices such as U.S. Treasury bills, London Interbank Offered Rate or LIBOR, the
prime rate, published commercial paper rates, federal funds rates, Public
Securities Associates floaters or JJ Kenney index floaters.
Since the Prime Money Market Mutual Fund may purchase securities issued by
foreign issuers, it may be subject to investment risks which 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 and other
taxes imposed by foreign countries on income received from sources within such
foreign countries, 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.
PROSPECTUS 10
<PAGE> 19
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.
Generally, securities in which the Fund invests will not earn as high a yield
as securities of longer maturity and/or of lesser quality that are more subject
to market volatility. The Fund attempts to maintain the value of its shares at a
constant $1.00 per share, although there can be no assurance that it will always
be able to do so. See "Prospectus Appendix -- Additional Investment Policies"
and the SAI for further information about investment policies and risks.
PERFORMANCE
The performance of each class of shares of the Fund may be advertised from
time to time in terms of current yield, effective yield and average annual total
return. Performance figures are based on historical results and are not intended
to indicate future performance. Performance figures are calculated separately
for each class of shares of the Fund.
Yield refers to the income generated by an investment in the Fund's class over
a specified period (usually 7 days), expressed as an annual percentage rate.
Effective yield is calculated similarly but assumes reinvestment of the income
earned from the Fund. Because of the effects of compounding, effective yields
are slightly higher than yields.
Average annual total return of a class of shares is based on the overall
dollar or percentage change of an investment in the Fund's class and assumes the
investment is at NAV and all dividends and distributions attributable to a class
are also reinvested at NAV in shares of the class.
In addition to presenting these standardized performance calculations, at
times, the Fund also may present nonstandard performance figures, such as yields
and effective yields for a 30-day period or, in sales literature, distribution
rates. Because of the differences in the fees and/or expenses borne by shares of
each class of the Fund, the performance figures on such shares can be expected,
at any given time, to vary from the performance figures for other classes of the
Fund.
Additional performance information is contained in the SAI under "Performance
Calculations" and in the Annual Report, which are available upon request without
charge by calling the Company at 1-800-222-8222 or by writing the Company at the
address shown on the inside front cover of the Prospectus.
11 PROSPECTUS
<PAGE> 20
THE FUND AND MANAGEMENT
THE FUND
The Fund is one of the funds in the Stagecoach Family of Funds. The Company
was organized as a Maryland corporation on September 9, 1991 and currently
offers shares of twenty-four other Funds. Most of the Company's funds are
authorized to issue multiple classes of shares, one class generally subject to a
front end-end sales charge and, in some cases, a class subject to a
contingent-deferred sales charge, that are offered to retail investors. Certain
of the Company's funds also are authorized to issue other classes of shares,
which are sold primarily to institutional investors at NAV.
Each class of shares represents an equal, proportionate interest in 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. For information on another fund or a class of shares, please call
Stagecoach Shareholder Services at 1-800-222-8222 or write the Company at the
address shown on the front cover of the Prospectus.
The Company's Board of Directors supervises the Funds' activities and monitors
their contractual arrangements with various service providers. Although the
Company is not required to hold annual shareholder meetings, special meetings
may be required for purposes such as electing or removing Directors, approving
advisory contracts and distribution plans, and changing a fund's investment
objective or fundamental investment policies. All shares of the Company have
equal voting rights and will be voted in the aggregate, rather than by fund or
class, unless otherwise required by law (such as when the voting matter affects
only one fund or class). As a Fund shareholder, you are entitled to one vote for
each share you own and fractional votes for fractional shares you own. See
"Management" in the SAI for more information on the Company's Directors and
Officers. A more detailed description of the voting rights and attributes of the
shares is contained under "Capital Stock" in the SAI.
MANAGEMENT
Wells Fargo Bank serves as the Fund's investment 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 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 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. Wells Fargo Bank also serves as investment adviser to other
separately managed funds of the Company, and as investment adviser or sub-
adviser to separately managed funds of five other registered, open-end,
PROSPECTUS 12
<PAGE> 21
management investment companies. Wells Fargo Bank, a wholly owned subsidiary of
Wells Fargo & Company, is located at 420 Montgomery Street, San Francisco,
California 94104. Wells Fargo Investment Management, Inc. ("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.
Subsequent to its acquisition by Wells Fargo & Company on April 1, 1996, WFIM
(formerly, First Interstate Capital Management, Inc.) served as investment
adviser to the predecessor portfolio. Prior to March 18, 1994, the predecessor
portfolio's investment adviser was San Diego Financial Capital Management, Inc.,
which was acquired by First Interstate Bancorp through its merger with San Diego
Financial Corporation.
Morrison & Foerster LLP counsel to the Company and special counsel to Wells
Fargo Bank, has advised the Company and Wells Fargo Bank that Wells Fargo Bank
and its affiliates may perform the services contemplated by the Advisory
Contract and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
INVESTING IN THE FUND
OPENING AN ACCOUNT
You can buy Class A shares of the Fund in one of the several ways described
below. You must complete and sign an Account Application to open an account.
Additional documentation may be required from corporations, associations, and
certain fiduciaries. Do not mail cash. If you have any questions or need extra
forms, 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.
13 PROSPECTUS
<PAGE> 22
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 Fund share is its net asset value or NAV. Wells Fargo Bank
calculates the NAV of each class of the Fund's shares as of 12:00 p.m. (Pacific
time) and 1:00 p.m. (Pacific time) on each day the Fund is open (a "Business
Day"). The Fund is open Monday through Friday and is closed on weekends and
federal bank holidays. The NAV per share of each class of a Fund 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 purposes of determining the NAV of a share. As noted above, the Fund seeks
to maintain a constant $1.00 NAV share price, although there can be no assurance
that it will be able to do so.
Fund shares may be purchased on any Business Day. Purchase orders received
before 12:00 Noon (Pacific time) are processed at 12:00 Noon on that Business
Day. Purchase orders received after 12:00 Noon are processed at 12:00 Noon the
next Business Day, except that transaction orders that are received prior to
1:00 p.m. through shareholder servicing agents in connection with automated
investment programs are processed at 1:00 p.m. 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 for the Fund may be earlier than
12:00 Noon. All transaction orders are processed at the NAV next determined
after the order is received.
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 from the
date of purchase until maturity rather than actual changes in market value. The
Company's Board of Directors believes that this valuation method accurately
reflects fair value.
HOW TO BUY SHARES
You may buy Fund shares on any Business Day by any of the methods described
below. After a properly completed Account Application is received and your wire
order or check is received, or an account with a bank that is designated in the
Account
PROSPECTUS 14
<PAGE> 23
Application and that is approved by the transfer agent (an "Approved Bank
Account") is debited, your purchase order is effected, and full and fractional
shares are purchased at the next determined NAV, which is expected to remain a
constant $1.00 per share. 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 Fund 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).
Generally, the minimum initial investment is $2,500. The minimum initial
investment amounts, however, are $100 for investments made through the AutoSaver
Plan (described below) and $250 for investments made through 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, 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. This means, for
example, that you can make an initial investment of only $1,000 in the Fund even
though ordinarily a $2,500 minimum balance is required, in an exchange from a
fund that has a $1,000 minimum investment requirement, except that 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 the Fund. 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 (as defined below). 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.
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 books of the Company and
share certificates are not issued.
15 PROSPECTUS
<PAGE> 24
INITIAL PURCHASES BY WIRE
1. Complete an Account Application. Indicate the services to be used.
2. Instruct the wiring bank to transmit the specified amount in federal funds
($2,500 or more) to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000587
Attention: Stagecoach Funds (Name of Fund) (designate Class A)
Account Name(s): Name(s) in which to be registered
Account Number: (if investing into an existing account)
3. A completed Account Application should be mailed, or sent by telefacsimile
with the original subsequently mailed, to the following address immediately
after the funds are wired and must be received and accepted by the transfer
agent before an account can be opened:
Wells Fargo Bank, N.A.
Stagecoach Shareholder Services
P.O. Box 7066
San Francisco, California 94120-7066
Telefacsimile: 1-415-543-9538
4. Share purchases are effected at the 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 $2,500 or more, payable to
"Stagecoach Funds (Name of Fund) (designate Class A)," to the address set
forth under "Initial Purchases by Wire" above.
3. Share purchases 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 your Approved Bank
Account. You may open an Approved Bank Account with Wells Fargo Bank. The
transfer agent withdraws and uses this amount to purchase Fund shares 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
PROSPECTUS 16
<PAGE> 25
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. 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 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 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 Fund's
transfer agent to debit your Approved Bank Account by wire with an instruction
to 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 A)" to the address set forth above 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.
17 PROSPECTUS
<PAGE> 26
PURCHASES THROUGH SELLING AGENTS
You may place a purchase order for shares of the Fund through a broker/dealer
or financial institution that has entered into a selling agreement with
Stephens, the Fund's distributor (a "Selling Agent") by 12:00 p.m. (Pacific
time) on any Business Day, including orders for which payment is to be made from
your free cash credit balance maintained with a Selling Agent. These purchase
orders are executed on the same day the order is placed if notice is provided to
the transfer agent by 12:00 p.m. (Pacific time) and if federal funds are
received by the transfer agent before the close of business that day. If your
purchase order is received by a Selling Agent after 12:00 p.m. (Pacific time) on
any Business Day or if federal funds are not received by the transfer agent
before the close of business that day, then your purchase order generally is
executed on the next Business Day. The Selling Agent is responsible for the
prompt transmission of your purchase order to the Fund. A financial institution
that acts as a selling agent, shareholder servicing agent or in certain other
capacities may be required to register as a dealer pursuant to applicable state
securities laws, which may differ from federal law and any interpretations
expressed herein.
PURCHASES THROUGH SHAREHOLDER SERVICING AGENTS
Purchase orders for Fund shares may be transmitted to the transfer agent
through any entity that has entered into a shareholder servicing agreement with
the Fund (a "Shareholder Servicing Agent"), such as Wells Fargo Bank. See
"Management, Distribution and Servicing Fees -- Shareholder Servicing Agent" for
more information. A Shareholder Servicing Agent may transmit your purchase order
to the transfer agent, including an order for which payment is to be transferred
from your Approved Bank Account or wired from a financial institution. If the
Shareholder Servicing Agent transmits your order to the transfer agent before
12:00 p.m. (Pacific time) and if federal funds are received by the transfer
agent before the close of business that day, the purchase order is executed on
the same day. If your Shareholder Servicing Agent transmits your purchase order
to the transfer agent after 12:00 p.m. or if federal funds are not received by
the transfer agent before the close of business that day, then your order
generally is executed on the next Business Day, except that automated investment
program purchase orders transmitted through Shareholder Servicing Agents are
executed as of 1:00 p.m. on each Business Day. 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 monthly statement of your Fund account after every month in which there
has been a transaction that affects your share balance or your Fund account
registration. Every January, you will be provided a statement with tax
information for the previous year to
PROSPECTUS 18
<PAGE> 27
assist you in tax return preparation. At least twice a year, the Company's
financial statements are mailed to shareholders of record.
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
The Fund intends to distribute dividends of its net investment income on a
daily basis payable to shareholders of record as of 12:00 noon (Pacific time).
If your purchase order is received before 12:00 noon on any Business Day, you
begin earning dividends on that Business Day and continue to earn dividends
through the day before you redeem such shares. If your purchase order is
received at or after 12:00 noon on any Business Day, you begin earning dividends
on the next Business Day and continue to earn dividends through the day on which
you redeem your shares. Dividends for a Saturday, Sunday or Holiday are declared
payable to shareholders of record as of the preceding Business Day. If you
redeem shares before a dividend payment date, any dividends credited to you are
paid on the following dividend payment date unless you have redeemed all of the
shares in your account, in which case you will receive any accrued dividends
together with your redemption proceeds. The Fund will distribute any capital
gains at least annually.
Dividends declared in a month generally are distributed on the last Business
Day of the month. You have three options for receiving dividend and any
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 without a charge by the
Company. Your shares are redeemed at the NAV next calculated after the Company
has received your redemption order. Redemption orders that are received by the
transfer agent before 12:00 noon (Pacific time) on any Business Day are executed
on that day. Redemption orders that are received after 12:00 noon on any
Business Day are executed on the next Business Day. The Company ordinarily
remits your redemption proceeds within seven days after your redemption order is
received in proper form, unless the SEC permits a longer period under
extraordinary circumstances. Such extraordinary circumstances could include a
period during which an emergency exists as a result of which (a) disposal by the
Fund of securities owned by it is not reasonably practicable or (b) it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or (c) a period during which the SEC by order permits deferral of
redemptions for the protection of the Fund's security holders. In addition, the
Fund may hold payment on
19 PROSPECTUS
<PAGE> 28
your redemption until reasonably satisfied that your investments made by check
have been collected (which can take up to 10 days from the purchase date). To
ensure acceptance of your redemption order, 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
Fund shareholders 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. 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 Fund shares 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 at least the
applicable minimum balance. For a discussion of applicable minimum balance
requirements, see "Investing in the Funds -- How to Buy Shares."
REDEMPTIONS BY TELEPHONE
Telephone redemption or exchange privileges are made available to you
automatically upon opening an account, unless you specifically decline the
privileges. Telephone redemption privileges authorize the transfer agent to act
on telephone instructions from any person representing himself or herself to be
the investor and reasonably believed by the transfer agent to be genuine. The
Company 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.
PROSPECTUS 20
<PAGE> 29
REDEMPTIONS BY LETTER
1. Write a letter of instruction. Indicate 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 company, a member firm of a domestic stock exchange, a
savings association, or a credit union that is authorized by its charter to
provide a signature guarantee. Signature guarantees by notaries public are
not acceptable. Further documentation may be requested from corporations,
administrators, executors, personal representatives, trustees or custodians.
4. Mail your letter to the transfer agent at the address set forth under
"Investing in the Fund -- Initial Purchases by Wire."
Unless other instructions are given in proper form, a check for your net
redemption proceeds is sent to your address of record.
EXPEDITED REDEMPTIONS BY LETTER 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. Telephone redemption or exchange
privileges are made available to you automatically upon the opening of an
account unless you specifically decline the privilege. 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.
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.
21 PROSPECTUS
<PAGE> 30
You may mail your expedited redemption request to the transfer agent at the
address set forth under "Investing in the Fund -- Initial Purchases by Wire."
Upon request, 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
account at an Approved Bank or a 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 Fund shares is received by the transfer agent before 12:00 p.m. (Pacific
time) on a Business Day, your redemption proceeds are transmitted to your
Approved Bank Account or Selling Agent on the same 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 Systematic Withdrawal Plan provides you with a convenient way to have Fund
shares redeemed from your account and the proceeds distributed to you on a
monthly basis. You may participate in this Plan only if you have a Fund account
valued at $10,000 or more as of the date of your election to participate, your
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 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) Business Days after receipt of your request to
establish your participation in the Systematic Withdrawal Plan. You may change
your withdrawal
PROSPECTUS 22
<PAGE> 31
amount, suspend withdrawals or terminate your participation in the Plan 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
You may request a redemption of Fund shares through your Selling Agent.
Redemption orders transmitted by a Selling Agent to the transfer agent before
12:00 p.m. (Pacific time) on any Business Day are executed on that day.
Redemption orders transmitted by a Selling Agent to the transfer agent after
12:00 p.m. on any Business Day generally are executed 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 a Selling Agent and the transfer
agent has been informed of such arrangements, 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 redemption proceeds is mailed
to your address of record or, if such address is no longer valid, the 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 proceeds in such account. The
Selling Agent may charge you a service fee. In addition, the Selling Agent may
benefit from the use of your redemption proceeds until the check 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. Redemption requests made by telephone through your Shareholder Servicing
Agent must redeem shares with a total value equal to $100 or more. Redemption
orders transmitted by the Shareholder Servicing Agent to the transfer agent
before 12:00 p.m. (Pacific time) on any Business Day are executed on that day.
Redemption orders transmitted by a Shareholder Servicing Agent after 12:00 p.m.
on any Business Day generally are executed on the next Business Day. 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, proceeds of a
redemption order made through your Shareholder Servicing Agent are credited to
your Approved Bank Account. If no such account is designated, a check for the
proceeds is mailed to your address of record or, if such address is no longer
valid, the 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
23 PROSPECTUS
<PAGE> 32
Agent may charge you a service fee. In addition, the Shareholder Servicing Agent
may benefit from the use of your redemption proceeds until any check it issues
to you has cleared or until such proceeds have been disbursed or reinvested on
your behalf.
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 three
dividend and distribution payment options and an exchange privilege, which are
described below.
DIVIDEND AND DISTRIBUTION OPTIONS
When you fill out your Account Application, you can choose from three
distribution options listed below. If you have questions about the distribution
options available to you, please call 1-800-222-8222.
A. The AUTOMATIC REINVESTMENT OPTION provides for the reinvestment of your
dividend and/or capital gain distributions in additional shares of the
same class of the Fund that paid the dividends or distributions.
Distributions declared in a month are reinvested at NAV on the last
Business day of the month. You are assigned this option automatically if
you make no choice on your Account Application.
B. 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 your distribution is
returned to the dividend disbursing agent, your distribution is reinvested
in your Fund account at the NAV next determined after the distribution has
been received. In addition, your Automatic Clearing House Option is then
converted to the Automatic Reinvestment Option.
C. 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 early in the month
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
distribution has been received. Your Check Payment Option is then
converted to the Automatic Reinvestment Option.
The Company makes reasonable efforts to locate investors whose checks are
returned or uncashed after six months. The Company forwards moneys to the
dividend disbursing agent so that it may issue you dividend checks under the
Check Payment Option. The
PROSPECTUS 24
<PAGE> 33
dividend disbursing agent may benefit from the temporary use of such moneys
until these checks clear.
EXCHANGE PRIVILEGE
The exchange privilege is a convenient way to buy shares in Stagecoach Funds
to respond to changes in your investment needs. You can exchange Class A shares
of the Fund for Class A or B shares of another fund in the Stagecoach Family of
Funds.
You should consider the following important factors in deciding whether to
exchange shares:
- 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.
- If you exchange Class A shares, you will need to pay any difference between
a load that you have already paid and the load that you are subject to in
the new fund (less the difference between any load already paid under the
maximum 3% load schedule and the maximum 4.30% schedule).
- 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.
- For purposes of the exchange privilege, shares of the Corporate Stock,
California Tax-Free Money Market Mutual and National Tax-Free Money Market
Mutual Funds are considered Class A shares.
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.
25 PROSPECTUS
<PAGE> 34
MANAGEMENT, DISTRIBUTION AND
SERVICING FEES
INVESTMENT ADVISER
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank, as the Fund's investment adviser, provides investment guidance and
policy direction in connection with the management of the Fund's assets. The
adviser also furnishes the Board of Directors with periodic reports on the
Fund's investment strategies and performance. For these services, the adviser is
entitled to a monthly investment advisory fee at the annual rate of 0.25% of the
average daily net assets of the Fund. From time to time, the Fund, consistent
with its investment objective, policies and restrictions, may invest in
securities of companies with which Wells Fargo Bank has a lending relationship.
For the fiscal year ended September 30, 1996, the Fund paid advisory fees at the
annual rate of 0.14% of its average daily net assets. For periods prior to
September 6, 1996, this includes amounts paid to Wells Fargo Investment
Management, Inc. by the predecessor portfolio to the Fund.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank serves as the Fund's custodian and transfer and dividend
disbursing agent. Under the Custody Agreement with Wells Fargo Bank, the Fund
may, at times, borrow money from Wells Fargo Bank as needed to satisfy temporary
liquidity needs. Wells Fargo Bank charges interest on such overdrafts at a rate
determined pursuant to the Fund's Custody Agreement. Wells Fargo Bank performs
its custodial and transfer and dividend disbursing agency services at 525 Market
Street, San Francisco, California 94105.
SHAREHOLDER SERVICING AGENT
On behalf of the Class A shares, the Fund has entered into a Shareholder
Servicing Agreement with Wells Fargo Bank and may enter into similar agreements
with other entities. Under the agreement, Shareholder Servicing Agents
(including Wells Fargo Bank) agree to perform, as agents for their customers,
administrative services, with respect to Fund shares, which include 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 fees at the
annual rate of up to 0.25% of the average daily net assets of the Class A shares
owned by investors with whom the Shareholder Servicing Agent maintains a
servicing relationship. In no case shall payments exceed any maximum amount
under
PROSPECTUS 26
<PAGE> 35
applicable laws, regulations or rules, including the Conduct Rules of the NASD
("NASD Rules").
Shareholder Servicing Agents may impose certain conditions on their 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%, 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 Fund. For the year ended September 30, 1996, the Fund paid
administrative fees at the annual rate of 0.09% of its average daily net assets.
For the period prior to September 6, 1996, this includes amounts paid to The
Dreyfus Corporation by the predecessor portfolio to the Fund.
SPONSOR AND DISTRIBUTOR
Stephens is the Company's sponsor and co-administrator and distributes the
Fund's shares. Stephens is a full service broker/dealer and investment advisory
firm located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its
predecessor have been providing securities and investment services for more than
60 years. Additionally, they have been providing discretionary portfolio
management services since 1983. Stephens currently manages investment portfolios
for pension and profit-sharing plans, individual investors, foundations,
insurance companies and university endowments.
Stephens, as the principal underwriter of the Fund within the meaning of the
1940 Act, has entered into a Distribution Agreement with the Company pursuant to
which
27 PROSPECTUS
<PAGE> 36
Stephens is responsible for distributing Fund shares. The Company also has
adopted a Distribution Plan on behalf of the Fund's Class A shares under the
SEC's Rule 12b-1 (the "Plan"). Under the Plan, Stephens is entitled, as
compensation for distribution-related services, a monthly fee at an annual rate
of up to 0.05% of the average daily net assets of the Fund's Class A shares.
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; costs of printing prospectuses and other
materials to be given or sent to prospective investors; and other similar
services as the Directors determine to be reasonably calculated to result in the
sale of shares of the Fund.
Under the Distribution Agreement, Stephens may enter into Selling Agreements
with Selling Agents that wish to make available shares of the Fund to their
respective customers. On behalf of the Class A shares, 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 among the Fund and the other funds of the Company in
proportion to their relative net asset sizes, although the Company's Board of
Directors may allocate such expenses in any other manner that it deems fair and
equitable.
Stephens has established a cash and non-cash compensation program, pursuant to
which broker/dealers or financial institutions that sell shares of the Company's
fund may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise, or the cash value of a non-cash
compensation item.
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.
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
PROSPECTUS 28
<PAGE> 37
impact on the Fund's performance. Except for the expenses borne by Wells Fargo
Bank and Stephens, each fund of the Company bears all costs of its operations,
including its pro rata portion of the Company expenses such as fees and expenses
of its independent auditors and legal counsel, and compensation of the Company's
directors who are not affiliated with the adviser, administrator or any of their
affiliates; advisory, transfer agency, custody and administration fees, and any
extraordinary expenses. Expenses attributable to each fund or class are charged
against the assets of the fund or class. General expenses of the Company are
allocated among all of the funds of the Company in a manner proportionate to the
net assets of each fund, on a transactional basis, or on such other basis as the
Company's Board of Directors deems equitable.
TAXES
Distributions from the Fund's net investment income and net short-term capital
gains, if any, are designated as dividend distributions and taxable to the
Fund's shareholders as ordinary income. Distributions from the Fund's net
long-term capital gains, 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
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 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 your SAI.
29 PROSPECTUS
<PAGE> 38
PROSPECTUS APPENDIX --
ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
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 (discussed below);
(iii) certain floating- and 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 securities issued by other investment companies;
(vi) negotiable certificates of deposit, fixed time deposits, bankers'
acceptances or other short-term obligations of U.S. banks (including
foreign branches) that have more than $1 billion in total assets at
the time of investment and are members of the Federal Reserve System
or are examined by the Comptroller of the Currency or whose deposits
are insured by the FDIC ("bank instruments");
(vii) 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");
(viii) 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;
(ix) 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).
(x) mortgage-backed securities (discussed below); and
(xi) certain other asset-backed securities (discussed below).
A- 1 PROSPECTUS
<PAGE> 39
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.
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 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 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 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.
PROSPECTUS A- 2
<PAGE> 40
Forward Commitments, When-Issued Purchases and Delayed-Delivery Transactions
The Fund may purchase securities on a "when-issued" basis and may purchase or
sell securities on a "forward commitment" basis. The Fund may also purchase or
sell securities on a "delayed settlement" basis. When-issued and forward
commitment transactions, which involve a commitment by the 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 Fund 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 describes settlement of a securities
transaction in the secondary market which 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. The 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 Fund does not intend to
engage in these transactions for speculative purposes but only in furtherance of
their investment objectives.
Other Investment Companies
The Fund may invest up to 10% of its assets in shares of other open-end
investment companies that invest exclusively in the high-quality, short-term
money market instruments in which the Fund may invest. The investment companies
can be expected to charge management fees and other operating expenses that
would be in addition to those charged to the Fund; however, the Fund's 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 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
A- 3 PROSPECTUS
<PAGE> 41
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.
Mortgage-Backed And Other Asset-Backed Securities
The Fund also 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 thirteen months or less.
Asset-backed securities purchased by the Fund may include collateralized
mortgage obligations issued by private companies.
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.
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objective, as set forth under "How the Fund Works --
Investment Objective and Policies", is fundamental; that is, it may not be
changed without approval by the vote of the holders of a majority of the Fund's
outstanding voting securities, as described under "Capital Stock" in the 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 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.
PROSPECTUS A- 4
<PAGE> 42
As matters of fundamental policy, the 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 the 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 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 Fund may make loans of
portfolio securities or other assets, although the Fund does not intend to do so
during the current fiscal year.
As a matter of nonfundamental policy, the Fund may not: (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 the 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 the 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 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 Fund
within seven days after notice are subject to this 10% limit, unless the Board
or investment adviser, pursuant to guidelines adopted by the Board, determines
that a liquid trading market exists.
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
A- 5 PROSPECTUS
<PAGE> 43
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.
PROSPECTUS A- 6
<PAGE> 44
Advised by WELLS FARGO BANK, N.A.
Sponsored/Distributed by
Stephens Inc., Member NYSE/SIPC
LOGO
NOT FDIC INSURED
<PAGE> 45
LOGO
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH MONEY MARKET MUTUAL FUNDS:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- 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 LOGO
share,
however, there can be no assurance that either fund will
meet this goal. Yields and returns will vary with market
conditions.
</TABLE>
LOGO
Printed on Recycled Paper SC0205 (2/97)
<PAGE> 46
LOGO
------------------------------
PROSPECTUS
------------------------------
MONEY MARKET MUTUAL FUND
CALIFORNIA TAX-FREE MONEY MARKET MUTUAL FUND
GOVERNMENT MONEY MARKET MUTUAL FUND
NATIONAL TAX-FREE MONEY MARKET MUTUAL FUND
TREASURY MONEY MARKET MUTUAL FUND
CLASS A
FEBRUARY 1, 1997
<PAGE> 47
STAGECOACH FUNDS(R)
MONEY MARKET MUTUAL, CALIFORNIA TAX-FREE MONEY MARKET MUTUAL, GOVERNMENT MONEY
MARKET MUTUAL, NATIONAL TAX-FREE MONEY MARKET MUTUAL AND TREASURY MONEY MARKET
MUTUAL FUNDS
CLASS A SHARES
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about five funds of the Stagecoach
Family of Funds -- Class A shares of the GOVERNMENT MONEY MARKET MUTUAL, MONEY
MARKET MUTUAL and TREASURY MONEY MARKET MUTUAL FUNDS and shares (collectively,
with the Class A shares, referred to at times as "Class A shares") of the
CALIFORNIA TAX-FREE MONEY MARKET MUTUAL and NATIONAL TAX-FREE MONEY MARKET
MUTUAL FUNDS (each, a "Fund" and, collectively, the "Funds").
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS 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 February 1, 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. If you hold shares in an IRA, please
call 1-800-BEST-IRA for information or assistance. The SAI and other information
is available on the SEC's Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK, N.A. ("WELLS FARGO BANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN A FUND INVOLVES CERTAIN RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
PROSPECTUS DATED FEBRUARY 1, 1997
PROSPECTUS
<PAGE> 48
The MONEY MARKET MUTUAL FUND seeks to provide investors with a high level of
income, while preserving capital and liquidity, by investing in high-quality,
short-term instruments.
The CALIFORNIA TAX-FREE MONEY MARKET MUTUAL FUND seeks to obtain a high level
of income exempt from federal income tax and California personal income tax,
while preserving capital and liquidity, by investing in high-quality, short-term
U.S. dollar-denominated money market instruments, primarily municipal
obligations.
The GOVERNMENT MONEY MARKET MUTUAL FUND seeks to provide investors with as
high a level of current income as is consistent with preservation of capital and
liquidity.
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 its investment objective by investing
substantially 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 in a portfolio of securities. The
Fund has the same investment objective as the Master Portfolio and the
investment experience of the Fund corresponds directly to the investment
experience of the Master Portfolio. References to the investments and investment
policies and risks of such Fund unless otherwise indicated, should be understood
as references to the investments and investment policies and risks of the
corresponding Master Portfolio. The National Tax-Free Money Market Mutual Fund
and the California Tax-Free Money Market Mutual Fund are sometimes referred to
herein as the "Tax-Free Funds."
The TREASURY MONEY MARKET MUTUAL FUND seeks to provide investors with current
income and stability of principal.
You may invest in the following Funds through a Wells Fargo Bank Money Market
Access or Money Market Checking Account.
- Money Market Mutual Fund (Class A Shares)
- California Tax-Free Money Market Mutual Fund
- National Tax-Free Money Market Mutual Fund
For details, see the following pages of this prospectus: page 3 (Prospectus
Summary) and page 21 (Investing in the Funds).
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
<PAGE> 49
TABLE OF CONTENTS
-------
PROSPECTUS SUMMARY 1
SUMMARY OF FUND EXPENSES 4
FINANCIAL HIGHLIGHTS 7
HOW THE FUNDS WORK 13
THE FUNDS AND MANAGEMENT 20
INVESTING IN THE FUNDS 22
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS 29
HOW TO REDEEM SHARES 30
ADDITIONAL SHAREHOLDER SERVICES 34
MANAGEMENT, DISTRIBUTION AND SERVICING FEES 36
TAXES 40
PROSPECTUS APPENDIX - ADDITIONAL INVESTMENT POLICIES A-1
PROSPECTUS
<PAGE> 50
PROSPECTUS SUMMARY
The Funds provide you with a convenient way to invest in portfolios of
securities selected and supervised by professional management. The following
provides you with summary information about each Fund. 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 MONEY MARKET MUTUAL FUND seeks to provide investors with a high level of
income, while preserving capital and liquidity, by investing in
high-quality, short-term instruments. These securities include obligations
of the U.S. Government, its agencies and instrumentalities, high-quality
debt obligations such as corporate debt, certain obligations of U.S. banks
and certain repurchase agreements.
The CALIFORNIA TAX-FREE MONEY MARKET MUTUAL FUND seeks to obtain a high
level of income exempt from federal income tax and California personal
income tax, while preserving capital and liquidity, by investing in
high-quality, short-term U.S. dollar-denominated money market instruments,
primarily municipal obligations. Under normal market conditions,
substantially all of the Fund's assets will be invested in municipal
obligations that are exempt from federal income tax and California personal
income tax.
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 its investment objective by
investing all of its assets in the Tax-Free Money Market Master Portfolio of
MIT, which has the same investment objective as the Fund. The Master
Portfolio seeks to achieve this investment objective by investing in
high-quality, U.S. dollar-denominated money market instruments, primarily
municipal obligations.
The GOVERNMENT MONEY MARKET MUTUAL FUND seeks to provide investors with as
high a level of current income as is consistent with preservation of capital
and liquidity. The Fund pursues its objective by investing its assets
exclusively in obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities, 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.
In pursuing their respective investment objectives, each Fund invests in
securities with remaining maturities not exceeding 397 days (13 months), as
determined in
1 PROSPECTUS
<PAGE> 51
accordance with Rule 2a-7 under the Investment Company Act of 1940, as
amended from time to time (the "1940 Act"). See "How the Funds
Work -- 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 Funds are not bank deposits or obligations of Wells Fargo
Bank and are not insured by the FDIC, nor are they insured or guaranteed
against loss of principal. Therefore, you should be willing to accept some
risk with money invested in the Funds. 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. Since the California Tax-Free Money Market Mutual
Fund invests primarily in securities issued by California, its agencies and
municipalities, events in California are more likely to affect this Fund's
investments. Also, the California Tax-Free Money Market Mutual Fund is
nondiversified, which means that its assets may be invested among fewer
issuers and therefore the value of its assets may be subject to greater
impact by events affecting one of its investments. The Funds 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 Funds
invest. As with all mutual funds, there can be no assurance that each Fund
will achieve its investment objective. See "How the Funds Work -- Risk
Factors" in this prospectus 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' and the Master Portfolio's investment
adviser, manages your investments. A separate investment adviser has not
been retained for the National Tax-Free Money Market Mutual Fund because
this Fund invests all of its assets in the Master Portfolio. 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 net asset value ("NAV"). You may
open an account by investing at least $2,500, and you may add to your
account by making additional investments of at least $100, with certain
exceptions. Shares of the California Tax-Free Money Market Mutual Fund and
National Tax-Free Money Market Mutual Fund may not be suitable investments
for tax-exempt institutions or tax-exempt retirement plans, since such
investors would not generally benefit from
PROSPECTUS 2
<PAGE> 52
the tax-exempt status of such Funds' dividends. In addition, California
Tax-Free Money Market Mutual Fund shares are not available in all states.
Shares may be purchased on any day the Funds are open by wire, by mail, or
by an automatic investment feature called the AutoSaver Plan. 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. MAY I INVEST IN FUND SHARES THROUGH A WELLS FARGO BANK ACCOUNT?
A. Yes, customers of Wells Fargo Bank may invest in shares of the Money Market,
California Tax-Free and National Tax-Free Money Market Mutual Funds through
a Wells Fargo Bank Money Market Access or Money Market Checking Account. In
addition, customers of Wells Fargo Bank who hold shares of the California
Tax-Free Money Market Mutual Fund through a Wells Fargo Bank Managed Sweep
Account may open additional Managed Sweep Accounts or acquire additional
shares of the California Tax-Free Money Market Mutual Fund through such
Accounts. Certain of the features described in this Prospectus are not
available to investors purchasing shares through an Account. Investments
through an Account are governed by the terms and conditions of such Account
as set forth in a separate Disclosure Statement provided by Wells Fargo Bank
to each Accountholder. See "Investing in the Funds -- Opening A Wells Fargo
Bank Sweep Account."
Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends 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 net asset value 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
Family of Funds in which you have an established account that has met the
applicable minimum initial investment. 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 Fund shares at NAV, without charge, on any day the Fund is
open by telephone (unless you have declined this feature on your account
application), by letter, or on a regular monthly basis, by an automatic
feature called the Systematic Withdrawal Plan. See "How To Redeem Shares"
for more details, or contact Stephens (the Funds' distributor), a
shareholder servicing agent or a selling agent (such as Wells Fargo Bank).
3 PROSPECTUS
<PAGE> 53
SUMMARY OF FUND EXPENSES
MONEY MARKET MUTUAL FUNDS
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
MONEY
CALIFORNIA GOVERNMENT MARKET NATIONAL TREASURY
TAX-FREE (CLASS A) (CLASS A) TAX-FREE (CLASS A)
---------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Maximum Sales
Charge on
Purchases (as a
percentage of
offering
price)........... None None None None None
Maximum Sales
Charge on
Reinvested
Distributions.... None None None None None
Maximum Sales
Charge on
Redemptions...... None None None None None
Exchange Fees...... None None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
MONEY
CALIFORNIA GOVERNMENT MARKET NATIONAL TREASURY
TAX-FREE (CLASS A) (CLASS A) TAX-FREE(1) (CLASS A)
---------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Management Fee
(after waivers or
reimbursements)... 0.50% 0.25% 0.40 0.00%(2) 0.12%(2)
Rule 12b-1 Fee..... 0.03% 0.05% 0.02% 0.05% 0.05%
Other Expenses
(after waivers or
reimbursements)... 0.12%(3) 0.45%(3) 0.33%(3) 0.65%(3) 0.38%
TOTAL FUND
OPERATING
EXPENSES (after
waivers or
reimbursements)(4)... 0.65% 0.75% 0.75% 0.70% 0.55%
</TABLE>
- ---------------------------------
(1) The expenses shown below summarize expenses charged at both the Master
Portfolio and Fund levels.
(2) Management Fee (before waivers or reimbursements) would be 0.30% for the
National Tax-Free Fund and 0.25% for the Treasury Fund.
(3) Other Expenses (before waivers or reimbursements) would be 0.49% for the
California Tax-Free Fund, 0.43% for the Government Fund, 0.46% for the Money
Market Mutual Fund and 1.00% for the National Tax-Free Fund.
(4) Total Fund Operating Expenses(before waivers or reimbursements) would be
1.02% for the California Tax-Free Fund, 0.73% for the Government Fund, 0.88%
for the Money Market Mutual Fund, 1.35% for the National Tax-Free Fund and
0.68% for the Treasury Fund.
PROSPECTUS 4
<PAGE> 54
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment in
a Fund, assuming a 5% annual return
and redemption at the end of each
time period indicated:
California Tax-Free Money
Market Mutual Fund............. $7 $21 $36 $ 81
Government Money Market Mutual
Fund (Class A)................. $8 $24 $42 $ 93
Money Market Mutual Fund (Class
A)............................. $8 $24 $42 $ 93
National Tax-Free Money Market
Mutual Fund.................... $7 $22 $39 $ 87
Treasury Money Market Mutual
Fund (Class A)................. $6 $18 $31 $ 69
</TABLE>
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 a Wells Fargo
Bank or another institution directly on such customer accounts in connection
with an investment in a Fund.
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell Fund
shares. There are no Shareholder Transaction Expenses for the Funds. However,
the Company reserves the right to impose a charge for wiring redemption
proceeds.
ANNUAL FUND OPERATING EXPENSES shown above for the Funds, except as indicated
below, are based on applicable contract amounts and amounts incurred during the
most recent fiscal year. These amounts have been adjusted to reflect voluntary
fee waivers and expense reimbursements that are expected to continue to reduce
expenses during the current fiscal year. The amounts shown under "Other
Expenses" for the Government, National Tax-Free and Treasury Money Market Mutual
Funds are based on estimated/restated amounts expected to be in effect during
the current fiscal year. Wells Fargo Bank and Stephens each have agreed to waive
or reimburse all or a portion of their respective fees charged to, or expenses
paid by, the Government and Treasury Money Market Mutual Funds to ensure that
such Funds respective "Total Fund Operating Expenses" do not exceed, on an
annual basis, 0.75% and 0.55%, of average daily net assets through August 31,
1997. Any waivers or reimbursements will reduce the total expenses of a Fund or
Master Portfolio. There can be no assurance that such waivers or reimbursements
will continue after that date. For more complete descriptions of the various
costs and expenses you can expect to incur as an investor in the Funds, please
5 PROSPECTUS
<PAGE> 55
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 or future expenses; actual expenses and returns may be
greater or lesser than those shown.
With regard to the combined fees and expenses of the National Tax-Free Money
Market Mutual Fund and its corresponding Master Portfolio, the Company's Board
of Directors has considered whether various costs and benefits of investing all
of such Fund's assets in the Master Portfolio rather than directly in a
portfolio of securities would be more or less than if the Fund invested in
portfolio securities directly. The Company's Board of Directors believes that
the aggregate per share expenses of the Fund will not be more than the expenses
incurred by the Fund if the Fund invested directly in the type of securities
held by the Master Portfolio. The Company's Board of Directors believes that if
other investors invest their assets in the Master Portfolio, certain economic
efficiencies may be realized with respect to the Master Portfolio. For example,
fixed expenses that otherwise would have been borne solely by the Fund would be
spread across a larger asset base provided by more than one fund investing in
the Master Portfolio. There can be no assurance that these economic efficiencies
will be achieved. In addition, the Master Portfolio may sell its interests to
other mutual funds or accredited investors. Some of the Funds offer certain
classes of shares not described herein. The expenses and corresponding returns
of these other classes and funds may differ from the expenses and returns of the
shares described herein. Information regarding these and any other investment
options in the Funds or the Master Portfolio 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> 56
FINANCIAL HIGHLIGHTS
MONEY MARKET MUTUAL AND TAX-FREE FUNDS
The following information for the Class A shares of the Money Market Mutual
Fund and the shares of the California Tax-Free Money Market Mutual Fund and
National Tax-Free Money Market Mutual Fund has been derived from the Financial
Highlights in the Funds' financial statements for the fiscal period ended
September 30, 1996. The financial statements have been audited by KPMG Peat
Marwick LLP. The financial statements and KPMG Peat Marwick LLP's report thereon
are incorporated by reference into the SAI. This information should be read in
conjunction with the Funds' 1996 financial statements and the notes thereto. The
SAIs for the Funds have been incorporated by reference into this Prospectus.
MONEY MARKET MUTUAL FUND
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
SEPT. 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996(1) 1995 1994 1993 1992(2)
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value Beginning of
Period.................... $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment
Operations:
Net Investment Income..... 0.03 0.05 0.04 0.03 0.02
Net Realized and
Unrealized Gain on
Investments............. 0.00 0.00 0.00 0.00 0.00
Total from Investment
Operations................ 0.03 0.05 0.04 0.03 0.02
Less Distributions:
Dividends from Net
Investment
Income.................. (0.03) (0.05) (0.04) (0.03) (0.02)
Distributions from Net
Realized Gain........... 0.00 0.00 0.00 0.00 0.00
Total From Distributions.... (0.03) (0.05) (0.04) (0.03) (0.02)
Net Asset Value, End of
Period.................... $1.00 $1.00 $1.00 $1.00 $1.00
Total Return (not
annualized)............... 3.55% 5.34% 3.74% 2.70% 1.50%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's)................. $3,799,908 $2,892,621 $2,343,942 $317,474 $236,269
Ratios to Average Net Assets
(annualized):
Ratio of Expenses to
Average Net Assets...... 0.75% 0.75% 0.69% 0.58% 0.20%
Ratio of Net Investment
Income to Average Net
Assets.................. 4.66% 5.13% 4.12% 2.67% 2.98%
Ratio of Expenses to Average
Net Assets Prior To Waived
Fees and Reimbursed
Expenses.................. 0.88% 0.83% 0.89% 1.00% 0.94%
Ratio of Net Investment
Income to Average Net
Assets Prior To Waived
Fees and Reimbursed
Expenses.................. 4.53% 5.05% 3.92% 2.25% 2.24%
- -------------------
(1) The Fund changed its fiscal year-end from December 31 to September 30.
(2) The Fund commenced operations on July 1, 1992.
</TABLE>
7 PROSPECTUS
<PAGE> 57
CALIFORNIA TAX-FREE MONEY MARKET MUTUAL FUND
FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
SEPT. 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996(1) 1995 1994 1993 1992
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment
Operations:
Net Investment Income........ 0.02 0.03 0.02 0.02 0.03
Net Realized and Unrealized
Gain on Investments........ 0.00 0.00 0.00 0.00 0.00
--- --- ---- ---- ----
Total From Investment
Operations............... 0.02 0.03 0.02 0.02 0.03
Less Distributions:
Dividends from Net Investment
Income..................... (0.02) (0.03) (0.02) (0.02) (0.03)
Distributions From Net
Realized Gain.............. 0.00 0.00 0.00 0.00 0.00
--- --- ---- ---- ----
Total From Distributions... (0.02) (0.03) (0.02) (0.02) (0.03)
--- --- ---- ---- ----
Net Asset Value, End of
Period..................... $1.00 $1.00 $1.00 $1.00 $1.00
Total Return (not
annualized).............. 2.04% 3.23% 2.28% 1.89% 2.81%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's).................... $1,161,431 $1,031,004 $869,745 $793,420 $572,906
Ratios to Average Net Assets
(annualized):
Ratio of Expenses to Average
Net Assets................. 0.65% 0.65% 0.62% 0.55% 0.28%
Ratio of Net Investment
Income to Average Net
Assets..................... 2.69% 3.18% 2.26% 1.88% 2.41%
Ratio of Expenses to Average
Net Assets Prior to Waived
Fees and Reimbursed
Expenses................... 1.02% 1.01% 1.08% 1.06% 1.03%
Ratio of Net Investment
Income to Average Net
Assets Prior to Waived Fees
and Reimbursed Expenses.... 2.32% 2.82% 1.80% 1.37% 1.66%
</TABLE>
- -------------------
(1) The Fund changed its fiscal year-end from December 31 to September 30.
PROSPECTUS 8
<PAGE> 58
NATIONAL TAX-FREE MONEY MARKET MUTUAL FUND
FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD
ENDED
SEPT. 30,
1996(1)
---------
<S> <C>
Net Asset Value, Beginning of Period............................... $1.00
Income from Investment Operations:
Net Investment Income............................................ 0.01
Net Realized and Unrealized Gain on Investments.................. 0.00
Total From Investment Operations............................... 0.01
Less Distributions:
Dividends from Net Investment Income............................. (0.01)
Distributions From Net Realized Gain............................. 0.00
Total From Distributions....................................... (0.01)
Net Asset Value, End of Period................................... $1.00
Total Return (not annualized).................................. 1.51%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)................................ $4,975
Ratios to Average Net Assets (annualized):
Ratio of Expenses to Average Net Assets.......................... 0.62%(2)
Ratio of Net Investment Income to Average Net Assets............. 2.71%
Ratio of Expenses to Average Net Assets Prior to Waived Fees and
Reimbursed Expenses............................................ 3.56%(2)
Ratio of Net Investment Income (Loss) to Average Net Assets Prior
To Waived Fees and Reimbursed Expenses......................... (0.23)%(2)
</TABLE>
- -------------------
(1) The Fund commenced operations on April 2, 1996.
(2) This ratio includes income and expenses allocated from the Master Portfolio.
9 PROSPECTUS
<PAGE> 59
GOVERNMENT AND TREASURY MONEY MARKET MUTUAL FUNDS
The following information for the Government and Treasury Money Market Mutual
Funds has been derived from the Financial Highlights in the Funds' annual
financial statements for the fiscal year ended September 30, 1996. This
information is provided to assist you in evaluating the historical performance
of each Fund. Except as set forth below, the Funds' financial statements have
been audited by KPMG Peat Marwick LLP. The financial information for all periods
prior to October 1, 1995, was audited by other auditors. The financial
statements and KPMG Peat Marwick LLP's report thereon are incorporated by
reference into the Funds' SAIs. This information should be read in conjunction
with the Funds' 1996 annual financial statements and the notes thereto. The SAIs
for the Funds have been incorporated by reference into this Prospectus.
PROSPECTUS 10
<PAGE> 60
GOVERNMENT MONEY MARKET MUTUAL FUND
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, PERIOD ENDED
-------------------------------------------------------------------------------- SEPT. 30,
1996(1) 1995 1994 1993 1992 1991 1990 1989 1988(2)
--------- -------- -------- -------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment
Operations:
Net investment
income............. 0.05 0.05 0.03 0.03 0.04 0.06 0.08 0.08 0.03
Net realized and
unrealized gain on
investments........ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- -------- -------- -------- -------- -------- -------- -------- ------------
Total from
investment
operations....... 0.05 0.05 0.03 0.03 0.04 0.06 0.08 0.08 0.03
------- -------- -------- -------- -------- -------- -------- -------- ------------
Less Distributions:
Dividends from net
investment
income............. (0.05) (0.05) (0.03) (0.03) (0.04) (0.06) (0.08) (0.08) (0.03)
Distributions from
net realized
gain............... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- -------- -------- -------- -------- -------- -------- -------- ------------
Total
distributions.... (0.05) (0.05) (0.03) (0.03) (0.04) (0.06) (0.08) (0.08) (0.03)
------- -------- -------- -------- -------- -------- -------- -------- ------------
Net asset value, end
of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ========= ========= ========= ========= ========= ========= ========= ==========
Total Return (not
annualized)...... 4.75% 5.22% 3.16% 2.77% 3.99% 6.30% 7.85% 8.71% 3.04%
Ratios/Supplemental
Data:
Net assets, end of
period (000)....... $65,036 $109,368 $194,276 $188,934 $184,705 $171,375 $160,436 $162,726 $125,856
Ratios to average net
assets (annualized):
Ratio of expenses to
average net
assets............. 0.77% 0.79% 0.77% 0.83% 0.82% 0.85% 0.73% 0.68% 0.66%
Ratio of net
investment income
to average net
assets............. 4.74% 5.08% 3.07% 2.73% 3.85% 6.13% 7.60% 8.42% 6.94%
Ratio of expenses to
average net assets
prior to waived
fees and reimbursed
expenses........... 0.80% 0.81% 0.79% 0.84% 0.82% 0.88% 0.83% 0.84% 0.92%
Ratio of net
investment income
to average net
assets prior to
waived fees and
reimbursed
expenses........... 4.71% 5.06% 3.05% 2.72% 3.85% 6.10% 7.50% 8.26% 6.68%
</TABLE>
- -------------------
(1) The Fund operated as a series of Pacifica Funds Trust from its commencement
of operations until it was reorganized as a series of the Company on
September 6, 1996. Prior to April 1, 1996, First Interstate Capital
Management, Inc. ("FICM") served as the Fund's adviser. In connection with
the merger of First Interstate Bancorp into Wells Fargo & Company on April
1, 1996, FICM was renamed Wells Fargo Investment Management, Inc.
(2) The predecessor portfolio commenced operations on April 26, 1988.
11 PROSPECTUS
<PAGE> 61
TREASURY MONEY MARKET MUTUAL FUND(1)
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A SERVICE SHARES
--------- -----------------------------------------------------------------------
YEAR PERIOD
ENDED YEAR ENDED ENDED YEAR ENDED MAR. 31,
SEPT. 30, SEPT. 30, SEPT. 30, --------------------------------------------
1996(2) 1995(3) 1994(4) 1994 1993 1992 1991
--------- ---------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1 00 $ 1.00 $ 1.00
------- ---------- -------- -------- -------- -------- --------
Income from Investment Operations:
Net Investment income................. 0.05 0.05 0.02 0.03 0.03 0.05 0.07
Net realized and unrealized gain on
investments......................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ---------- -------- -------- -------- -------- --------
Total from Investment Operations.... 0.05 0.05 0.02 0.03 0.03 0.05 0.07
------- ---------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment
income.............................. (0.05) (0.05) (0.02) (0.03) (0.03) (0.05) (0.07)
Distributions from net realized
gain................................ 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ---------- -------- -------- -------- -------- --------
Total From Distributions............ (0.05) (0.05) (0.02) (0.03) (0.03) (0.05) (0.07)
------- ---------- -------- -------- -------- -------- --------
Net asset value, end of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ========== ======== ======== ======== ======== ========
Total Return (not annualized):...... 4.95% 5.42% 3.75%(5) 2.81% 3.13% 5.03% 7.42%
Ratios/Supplemental Data:
Net Assets, end of period (000's)..... $53,706 $1,001,707 $690,630 $654,950 $614,237 $281,343 $118,623
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets.............................. 0.55% 0.42% 0.43% 0.43% 0.43% 0.45% 0.48%
Ratio of net investment income to
average net assets.................. 4.96% 5.32% 3.72% 2.77% 3.04% 4.73% 7.10%
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses................. 0.67% 0.66% 0.90% 0.90% 0.91% 0.93% 0.94%
Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses........ 4.84% 5.08% 3.25% 2.30% 2.56% 4.25% 6.64%
<CAPTION>
1990 1989 1988 1987
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from Investment Operations:
Net Investment income................. 0.08 0.07 0.06 0.06
Net realized and unrealized gain on
investments......................... 0.00 0.00 0.00 0.00
-------- -------- -------- --------
Total from Investment Operations.... 0.08 0.07 0.06 0.06
-------- -------- -------- --------
Less Distributions:
Dividends from net investment
income.............................. (0.08) (0.07) (0.06) (0.06)
Distributions from net realized
gain................................ 0.00 0.00 0.00 0.00
-------- -------- -------- --------
Total From Distributions............ (0.08) (0.07) (0.06) (0.06)
-------- -------- -------- --------
Net asset value, end of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return (not annualized):...... 8.58% 7.63% 6.20% 5.64%
Ratios/Supplemental Data:
Net Assets, end of period (000's)..... $ 98,398 $ 90,672 $101,066 $134,375
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets.............................. 0.56% 0.63% 0.69% 0.69%
Ratio of net investment income to
average net assets.................. 7.73% 7.36% 6.12% 5.50%
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses................. 0.97% 0.98% 1.05% 0.94%
Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses........ 7.32% 7.01% 5.76% 5.25%
</TABLE>
- -------------------
(1) Prior to August 1, 1990, the Treasury Money Market Mutual Fund was known as
the Short-Term Government Fund. That Fund commenced operations on October 1,
1985 and invested in obligations issued or guaranteed by agencies and
instrumentalities of the U.S. Government. The Fund operated as a portfolio
of Pacific American Funds through October 1, 1994, when it was reorganized
as the Pacific American U.S. Treasury Portfolio, a portfolio of Pacifica
Funds Trust. In July 1995, the Fund was renamed the Pacifica Treasury Money
Market Fund, and on September 6, 1996, the Fund was reorganized as a series
of the Company. Prior to April 1, 1996, First Interstate Capital Management,
Inc. ("FICM") served as the Fund's adviser. In connection with the merger of
First Interstate Bancorp into Wells Fargo & Company on April 1, 1996, FICM
was renamed Wells Fargo Investment Management, Inc.
(2) Financial data for the year ended September 30, 1996 is for Class A shares
only, reflecting the performance of the Investor Class shares (the
predecessor of the Fund's Class A Shares), which commenced operations
October 1, 1995.
(3) Financial data for all periods up to and including the fiscal year ended
September 30, 1995, are for Service shares only.
(4) The Fund changed its fiscal year-end from March 31 to September 30.
(5) Annualized.
PROSPECTUS 12
<PAGE> 62
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 is a money market fund, subject to Rule 2a-7 of
the 1940 Act. 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 as
determined in accordance with Rule 2a-7 of the 1940 Act 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 a 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 in the SAI.
The MONEY MARKET MUTUAL FUND seeks to provide investors with a high level of
income, while preserving capital and liquidity, by investing in high-quality,
short-term instruments. The Fund invests its assets only in U.S.
dollar-denominated, high-quality money market instruments, and may engage in
certain other investment activities as described in this Prospectus. Permitted
investments include short-term U.S. Government obligations, obligations of
domestic and foreign banks, commercial paper, and repurchase agreements. In
pursuing its objective, the Fund invests in instruments with remaining
maturities not exceeding thirteen months, as determined in accordance with Rule
2a-7 under the 1940 Act. As with all mutual funds, there can be no assurance
that the Fund, which is a diversified portfolio, will achieve its investment
objective.
The CALIFORNIA TAX-FREE MONEY MARKET MUTUAL FUND seeks to obtain a high level
of income exempt from federal income tax and California personal income tax,
while preserving capital and liquidity, by investing in high-quality, short-term
U.S. dollar-denominated money market instruments, primarily municipal
obligations. This investment objective is fundamental and cannot be changed
without shareholder approval. There can be no assurance that the Fund, which is
a nondiversified portfolio, will achieve its investment objective. 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 both federal income tax and California personal income tax:
bonds, notes, and commercial paper issued by or on behalf of the State of
California, its cities, municipalities, political subdivisions and other public
authorities. 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 also invest in obligations issued by
the U.S. Virgin Islands, Puerto Rico and Guam,
13 PROSPECTUS
<PAGE> 63
the interest on which also is exempt from federal income tax and California
personal income tax.
The California Tax-Free Money Market Mutual Fund may temporarily invest some
of its assets in certain high-quality, taxable money market instruments or may
engage in certain 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, which include cash reserves, U.S. Government
obligations, obligations of domestic and foreign banks, foreign securities,
rated commercial paper, taxable municipal obligations, repurchase agreements,
and 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 Fund shares 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 Fund's assets in
securities exempt from such taxes.
As a matter of fundamental policy, at least 80% of the California Tax-Free
Money Market Mutual Fund's net assets are invested (under normal market
conditions) in municipal obligations that pay interest which is exempt from
federal income tax and not subject to the federal alternative minimum tax (or in
other open-end tax-free money market funds with a similar fundamental policy).
At least 65% of the Fund's total assets are invested (under normal market
conditions) in municipal obligations that pay interest which is exempt from
California personal income tax. However, as a matter of general operating
policy, the Fund seeks to have substantially all of its assets invested 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 California municipal obligations that are
related in such a way that an economic, business or political development or
change affecting one such obligation would also affect the other obligations;
for example, the California Tax-Free Money Market Mutual Fund may own different
municipal obligations which pay interest based on the revenues of similar types
of projects.
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, which is a diversified portfolio, seeks to achieve its
investment objective by investing all of its assets in the Master Portfolio,
which has the same investment objective as the Fund. The Master 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 months.
PROSPECTUS 14
<PAGE> 64
Since the investment characteristics of the Fund correspond directly to those
of the Master Portfolio, the following is a discussion of the various
investments of, and techniques employed by, the Master Portfolio.
Wells Fargo Bank, as investment adviser to the Master Portfolio, pursues the
investment objective of the Master Portfolio by investing (under normal market
conditions) substantially all of the Master Portfolio's assets in the following
types of municipal obligations that pay interest which is exempt from federal
income tax: bonds, notes and commercial paper issued by or on behalf of states,
territories, and possessions of the United States (including the District of
Columbia) and their political subdivisions, agencies, instrumentalities
(including government-sponsored enterprises) and authorities, the interest on
which, in the opinion of counsel to the issuer or bond counsel, is exempt from
federal income tax. These municipal obligations and the taxable investments
described below may bear interest at rates that are not fixed ("floating- and
variable-rate instruments").
The Master Portfolio 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
Master Portfolio 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 Master Portfolio may also invest in
U.S. dollar-denominated obligations of foreign banks and foreign securities.
Such temporary investments would most likely be made when there is an unexpected
or abnormal level of investor purchases or redemptions of interests in the
Master Portfolio 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 Master Portfolio's assets in securities exempt from such tax.
As a matter of fundamental policy, at least 80% of the net assets of the
Master Portfolio 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 Master Portfolio seeks to invest substantially all of its
assets in such municipal obligations. The Master Portfolio'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 Master Portfolio 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 Master Portfolio may own different
municipal obligations which pay interest based on the revenues of similar types
of projects.
15 PROSPECTUS
<PAGE> 65
The Master Portfolio
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. If the
Master Portfolio's investment objective or 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 GOVERNMENT MONEY MARKET MUTUAL FUND seeks to provide investors with as
high a level of current income as is consistent with preservation of capital and
liquidity. The Fund pursues its objective by investing its assets exclusively in
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities (as described in the "Prospectus Appendix -- Additional
Investment Policies"). The Fund may also invest in repurchase agreements
collateralized by such U.S. Government obligations. The Fund's investment
objective, and the fundamental policy stated above, may not be changed without
the vote of a majority of the outstanding shares of the Fund.
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
only in obligations issued or guaranteed by the U.S. Treasury (as described in
the "Prospectus Appendix -- Additional Investment Policies") and in notes and
other instruments, including repurchase agreements, collateralized or secured by
such obligations. The Fund's investment objective, and the fundamental policy
stated above, may not be changed without the vote of a majority of the
outstanding shares of the Fund.
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 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 the Funds seek to maintain a stable net asset
value of $1.00 per share, there is no assurance that they will be able to do so.
The Funds may not achieve as high a level of current income as other mutual
funds that do not limit their investment to the
PROSPECTUS 16
<PAGE> 66
high credit quality instruments in which the Funds invest. As with all mutual
funds, there can be no assurance that a 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 maintain a
stable net asset value of $1.00 per share. See "Prospectus
Appendix -- Additional Investment Policies" for further discussion of investment
objectives and risks.
The Funds' 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 (13 months). In addition, any security that a Fund purchases must
present minimal credit risks and be of "high quality," or in the case of the
Treasury Money Market Mutual Fund, be of the "highest quality." "High quality"
means to be rated in the top two rating categories and "highest quality" means
to be rated only 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 Board of Directors of the Company.
Each Fund seeks to reduce risk by investing its assets in securities of
various issuers. As such, the Money Market Mutual Fund and the National Tax-Free
Money Market Mutual Fund are 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 the investment
adviser prohibit the purchase 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 Funds:
- capped floaters (on which interest is not paid when market rates move above
a certain level);
- leveraged floaters (whose interest rate reset provisions are based on a
formula that magnifies changes in interest rates);
- range floaters (which do not pay any interest if market interest rates move
outside of a specified range);
- dual index floaters (whose interest rate reset provisions are tied to more
than one index so that a change in the relationship between these indices
may result in the value of the instrument falling below face value); and
- inverse floaters (which reset in the opposite direction of their index).
Additionally, the Funds 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 Funds may invest only in variable or
floating-rate securities that bear interest at a rate that resets quarterly or
more frequently and that resets based on changes in standard money market rate
indices such as U.S. Treasury bills, London Interbank
17 PROSPECTUS
<PAGE> 67
Offered Rate or LIBOR, the prime rate, published commercial paper rates, federal
funds rates, Public Securities Associates floaters or JJ Kenney index floaters.
Since the California Tax-Free Money Market Mutual 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. While the
California Tax-Free Money Market Mutual Fund seeks to reduce risk by investing
its assets in securities of various issuers, the Fund is considered to be
nondiversified for purposes of the 1940 Act. However, the California Tax-Free
Money Market Mutual Fund will comply with the Internal Revenue Code of 1986, as
amended from time to time (the "Code"), diversification requirements, as
described in the "Prospectus Appendix -- Additional Investment Policies" section
below.
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 between. 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 the 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 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.
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 18
<PAGE> 68
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.
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
The performance of each Fund may be advertised from time to time in terms of
current yield, effective yield, and average annual total return. In addition,
the performance of the Tax-Free Funds 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 a
Fund.
Yield refers to the income generated by an investment in a Fund or class over
a specified period (usually 7 days), expressed as an annual percentage rate.
Effective yield is calculated similarly but assumes reinvestment of the income
earned from a Fund or class. Because of the effects of compounding, effective
yields are slightly higher than yields. For the Tax-Free Funds, the
tax-equivalent and effective tax-equivalent yields assume that a stated income
tax rate has been applied to determine the tax-equivalent figures. Application
of a stated income-tax rate results in higher yield and effective yield figures.
Average annual total return is based on the overall dollar or percentage
change of an investment in a Fund or class and assumes the investment is at NAV
and all dividends and distributions are also reinvested at NAV in shares of the
Fund or 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 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 Money Market Mutual or Treasury Money Market
Mutual Funds, the performance figures on such shares can be expected, at any
given time, to vary from the performance figures for other classes of these
Funds.
Additional performance information is contained in the SAI under "Performance
Calculations" and in the Annual Report, which are available upon request without
charge
19 PROSPECTUS
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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 FUNDS AND MANAGEMENT
THE FUNDS
The Funds are five funds in the Stagecoach Family of Funds. The Company was
organized as a Maryland corporation on September 9, 1991 and currently offers
shares of twenty 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 at NAV.
Each class of shares represents an equal proportionate interest in a Fund with
other shares of the same class. Shareholders of each class bear their pro rata
portion of a Fund's operating expenses except for certain class-specific
expenses that are allocated to a particular class and, accordingly, may affect
performance. For information on another fund or a class of shares, please call
Stagecoach Shareholder Services at 1-800-222-8222 or write the Company at the
address shown on the front cover of the Prospectus.
The Company's Board of Directors supervises the Funds' activities and monitors
their contractual arrangements with various service providers. Although the
Company is not required to hold annual shareholder meetings, special meetings
may be required for purposes such as electing or removing Directors, approving
advisory contracts and distribution plans, and changing a fund's investment
objective or fundamental investment policies. All shares of the Company have
equal voting rights and will be voted in the aggregate, rather than by fund or
class, unless otherwise required by law (such as when the voting matter affects
only one fund or class). As a Fund shareholder, you are entitled to one vote for
each share you own and fractional votes for fractional shares you own. See
"Management" in the SAI for more information on the Company's Directors and
Officers. A more detailed description of the voting rights and attributes of the
shares is contained under "Capital Stock" in the SAI.
MANAGEMENT
Wells Fargo Bank serves as each Fund's investment adviser (or in the case of
the National Tax-Free Money Market Mutual Fund, as adviser to the Master
Portfolio), administrator, transfer and dividend disbursing agent and custodian.
In addition, Wells Fargo Bank serves as a shareholder servicing agent and as a
selling agent. Wells Fargo Bank, one of the largest banks in the United States,
was founded in 1852 and is the
PROSPECTUS 20
<PAGE> 70
oldest bank in the western United States. 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. Wells
Fargo Bank also serves as investment adviser to other separately managed funds
of the Company, and as investment adviser or sub-adviser to separately managed
funds of 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. Wells Fargo Investment
Management, Inc. ("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.
Subsequent to its acquisition by Wells Fargo Bank on April 1, 1996, WFIM
(formerly, First Interstate Capital Management, Inc.) served as investment
adviser to the predecessor portfolios of the Government and Treasury Money
Market Mutual Funds. Prior to March 18, 1994, the predecessor portfolios'
investment adviser was San Diego Financial Capital Management, Inc., which was
acquired by First Interstate Bancorp through its merger with San Diego Financial
Corporation.
Morrison & Foerster LLP, counsel to the Company and MIT and special counsel to
Wells Fargo Bank, has advised the Company, MIT and Wells Fargo Bank that Wells
Fargo Bank and its affiliates may perform the services contemplated by the
Investment 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.
21 PROSPECTUS
<PAGE> 71
INVESTING IN THE FUNDS
You may purchase Fund shares directly by opening a Fund account or, in the
case of the Money Market Mutual and Tax-Free Funds, indirectly by opening a
sweep account with Wells Fargo Bank.
OPENING A FUND 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 Account Applications. A
separate Account 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 Government and Treasury Money Market Mutual Funds through
tax-deferred retirement plans through which these Funds are available, please
contact a shareholder servicing agent or a selling agent to receive information
and the required separate application. See "Tax-Deferred Retirement Plans"
below.
The Company or Stephens may make the Prospectus available in an electronic
format. Upon receipt of a request from you or your representative, the Company
or Stephens will transmit or cause to be transmitted promptly, without charge, a
paper copy of the electronic Prospectus.
Customers of Wells Fargo Bank may invest in the Class A shares of the Money
Market Mutual Fund or shares of the Tax-Free Funds through a Money Market Access
Account or a Money Market Checking Account established with the Bank. Customers
of Wells Fargo Bank who currently hold shares of the California Tax-Free Money
Market Mutual Fund through a Managed Sweep Account may also open additional
Managed Sweep Accounts that sweep into the California Tax-Free Money Market
Mutual Fund. Investments through an account are governed by the terms and
conditions of the Account, which are set forth in a separate Disclosure
Statement provided by Wells Fargo Bank to each Accountholder. In light of the
automated sweep and custodial account structure of investments through an
Account, certain of the features described in this Prospectus are not available
to investors purchasing shares through an Account. Specifically, shares of a
Fund purchased through an Account may be redeemed only through the Account, and
the dividend and distribution options and exchange privileges
PROSPECTUS 22
<PAGE> 72
described in this Prospectus are not available with respect to shares purchased
through an Account. Potential Accountholders should refer to the Disclosure
Statement for more information regarding the Account, including information
about fees and expenses.
SHARE VALUE
Wells Fargo Bank calculates the NAV per share of Class A shares of the Money
Market Mutual, Government Money Market Mutual and Treasury Money Market Mutual
Funds as of 12:00 Noon and 1:00 p.m. (Pacific time) and of shares of the
California Tax-Free Money Market Mutual and National Tax-Free Money Market
Mutual Funds as of 9:00 a.m. and 1:00 p.m. (Pacific time) on each day the Funds
are open (a "Business Day"). The Funds are open Monday through Friday and are
closed on weekends and federal bank holidays. NAV is computed by dividing the
value of the assets allocable to a particular class or Fund, less the
liabilities charged to that class or Fund by the total number of the outstanding
shares of that class or Fund. All expenses are accrued daily and taken into
account for the purposes of computing NAV. As noted above, each Fund seeks to
maintain a constant $1.00 NAV share price, although there can be no assurance
that it will be able to do so. The National Tax-Free Money Market Mutual Fund's
investments in the Master Portfolio are valued at the NAV of the Master
Portfolio's interests. The Master Portfolio calculates the NAV of its interests
on the same day and at the same time as the National Tax-Free Money Market
Mutual Fund.
Shares may be purchased on any Business Day. Purchase orders for Class A
shares of the Money Market Mutual, Government Money Market Mutual and Treasury
Money Market Mutual Funds received before 12:00 Noon (Pacific time) are
processed at 12:00 Noon on that Business Day. Purchase orders received after
12:00 Noon are processed at 12:00 Noon the next Business Day. Purchase orders
for shares of the California Tax-Free Money Market Mutual and National Tax-Free
Money Market Mutual Funds received before 9:00 a.m. (Pacific time) are processed
at 9:00 a.m. on that Business Day. Purchase orders received after 9:00 a.m. are
processed at 9:00 a.m. the next Business Day. Transaction orders that are
received prior to 1:00 p.m. through shareholder servicing agents in connection
with automated investment programs are processed at 1:00 p.m. 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 for the Funds may be
earlier than 12:00 Noon. All transaction orders are effective at the NAV next
determined after the order is processed.
The Funds' and the Master Portfolio's NAV are each 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
23 PROSPECTUS
<PAGE> 73
actual changes in market value. The Company's Board of Directors and MIT's Board
of Trustees believe that this valuation method accurately reflects fair value.
HOW TO BUY SHARES
You may buy Fund shares on any Business Day by any of the methods described
below. After a properly completed Account Application is received and your wire
order or check is received, or an account with a bank that is designated in the
Account Application and that is approved by the transfer agent (an "Approved
Bank Account") is debited, your purchase order is effected, and full and
fractional shares are purchased at the next determined NAV, which is expected to
remain a constant $1.00 per share. 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).
Generally, the minimum initial investment is $2,500. The minimum initial
investment amounts, however, are $100 for investments made through the AutoSaver
Plan (described below) and $250 for investments made through 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, 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. This means, for
example, that you can make an initial investment of only $1,000 in a Fund even
though ordinarily a $2,500 minimum balance is required, if you are exchanging
from a fund that has a $1,000 minimum investment requirement. 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 Funds
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(TM), please call
1-800-222-8222 or contact a shareholder servicing agent or selling agent (as
defined below). 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 24
<PAGE> 74
Shares of the Tax-Free Funds may not be suitable investments for tax-exempt
institutions or tax-deferred retirement plans, since such investors would not
benefit from the exempt status of the Funds' dividends. See "Federal Income
Taxes -- Special Tax Considerations" in the SAI. In addition, California
Tax-Free Money Market Mutual Fund shares are not available in all states.
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 books of the Company and
share certificates are not issued.
INITIAL PURCHASES BY WIRE
1. Complete an Account Application. Indicate the services to be used.
2. Instruct the wiring bank to transmit the specified amount in federal funds
($2,500 or more) to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000587
Attention: Stagecoach Funds (Name of Fund) (designate Class A where
applicable)
Account Name(s): Name(s) in which to be registered
Account Number: (if investing into an existing account)
3. A completed Account Application should be mailed, or sent by telefacsimile
with the original subsequently mailed, to the following address immediately
after the funds are wired and must be received and accepted by the transfer
agent before an account can be opened:
Wells Fargo Bank, N.A.
Stagecoach Shareholder Services
P.O. Box 7066
San Francisco, California 94120-7066
Telefacsimile: 1-415-543-9538
4. Share purchases are effected at the 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.
25 PROSPECTUS
<PAGE> 75
2. Mail the Account Application and a check for $2,500 or more, payable to
"Stagecoach Funds (Name of Fund) (designate Class A where applicable)," to
the address set forth under "Initial Purchases by Wire" above.
3. Share purchases 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 your Approved Bank
Account. You may open an Approved Bank Account with Wells Fargo Bank. The
transfer agent withdraws and uses this amount to purchase Fund shares 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. Certain restrictions may apply to indirect
investments, such as those made through a brokerage account or Wells Fargo Bank
Sweep Account, including the inability to select the particular day of the month
when the transfer agent purchases Fund shares on your behalf. See "Investing in
the Funds -- Opening a Wells Fargo Bank Sweep Account." The transfer agent
requires a minimum of ten (10) Business Days to implement your AutoSaver Plan
purchases. There are no separate fees charged to you by the 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 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-deferred retirement plan application to your shareholder servicing
agent or selling agent for approval and processing. If your tax-deferred
retirement plan application is incomplete
PROSPECTUS 26
<PAGE> 76
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 with an instruction
to 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 A, if applicable)" to the address set forth above 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 shares of the Money Market Mutual,
Government Money Market Mutual and Treasury Money Market Mutual Funds through a
broker/dealer or financial institution that has entered into a selling agreement
with Stephens, the Funds' distributor (a "Selling Agent") by 12:00 Noon (Pacific
time) on any Business Day, including orders for which payment is to be made from
your free cash credit balance maintained with a Selling Agent. These purchase
orders are executed on the same day the order is placed if notice is provided to
the transfer agent by 12:00 Noon (Pacific time) and if federal funds are
received by the transfer agent before the close of business that day. If your
purchase order is received by a Selling Agent after 12:00 Noon (Pacific time) on
any Business Day or if federal funds are not received by the transfer agent
before the close of business that day, then your purchase order generally is
executed on the next Business Day.
You may place a purchase order for shares of the California Tax-Free Money
Market Mutual and National Tax-Free Money Market Mutual Funds through a Selling
Agent by 9:00 a.m. (Pacific time) on any Business Day, including orders for
which payment is to be made from your free cash credit balance maintained with a
Selling Agent. These purchase orders are executed on the same day the order is
placed if notice is provided to the transfer agent by 9:00 a.m. (Pacific time)
and if federal funds are received by the transfer agent before the close of
business that day. If your purchase order is received by the Selling Agent after
9:00 a.m. (Pacific time) on any Business Day or if federal funds are not
received by the transfer agent before the close of business that day, then your
purchase order generally is executed on the next Business Day.
27 PROSPECTUS
<PAGE> 77
The Selling Agent is responsible for the prompt transmission of your purchase
order to the Company. 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 (a "Shareholder Servicing Agent"), such as Wells Fargo Bank. See
"Management, Distribution and Servicing Fees -- Shareholder Servicing Agent" for
more information. A Shareholder Servicing Agent may transmit your purchase order
to the transfer agent, including an order for which payment is to be transferred
from your Approved Bank Account or wired from a financial institution. If the
Shareholder Servicing Agent transmits your order for shares of the Money Market
Mutual, Government Money Market Mutual or Treasury Money Market Mutual Funds to
the transfer agent before 12:00 Noon (Pacific time) and if federal funds are
received by the transfer agent before the close of business that day, the
purchase order is executed on the same day. If your Shareholder Servicing Agent
transmits your purchase order to the transfer agent after 12:00 Noon or if
federal funds are not received by the transfer agent before the close of
business that day, then your order generally is executed on the next Business
Day, except that automated investment program purchase orders transmitted
through Shareholder Servicing Agents are executed as of 1:00 p.m. on each
Business Day. The Shareholder Servicing Agent is responsible for the prompt
transmission of your purchase order to the Company.
If the Shareholder Servicing Agent transmits your order for shares of the
California Tax-Free Money Market Mutual or National Tax-Free Money Market Mutual
Funds before 9:00 a.m. (Pacific time) and if federal funds are received by the
transfer agent before the close of business that day, the purchase order is
executed on the same day. If your Shareholder Servicing Agent transmits your
purchase order to the transfer agent after 9:00 a.m. or if federal funds are not
received by the transfer agent before the close of business that day, then your
order generally is executed on the next Business Day, except that automated
investment program purchase orders transmitted through Shareholder Servicing
Agents are executed as of 1:00 p.m. on each Business Day.
STATEMENTS AND REPORTS
The Company, or a Shareholder Servicing Agent on its behalf, typically sends
you a monthly statement of your Fund account after every month in which there
has been a transaction that affects your share balance or your Fund account
registration. Every January, you will be provided a statement with tax
information for the previous year to assist you in tax return preparation. At
least twice a year, the Company's financial statements are mailed to
shareholders of record.
PROSPECTUS 28
<PAGE> 78
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
Each Fund intends to declare dividends on a daily basis payable to
shareholders of record as of 12:00 Noon (Pacific time) (9:00 a.m. for the
California Tax-Free and National Tax-Free Money Market Mutual Funds). If your
purchase order is received before 12:00 Noon (9:00 a.m. for the California
Tax-Free and National Tax-Free Money Market Mutual Funds) on any Business Day,
or 1:00 p.m. on any Business Day through a transfer agent, you begin earning
dividends on that Business Day and continue to earn dividends through the day
before you redeem such shares. If your purchase order is received at or after
12:00 Noon (9:00 a.m. for the California Tax-Free and National Tax-Free Money
Market Mutual Funds) on any Business Day, or 1:00 p.m. on any Business Day
through a transfer agent, you begin earning dividends on the next Business Day
and continue to earn dividends through the day on which you redeem your shares.
Dividends for a Saturday, Sunday or Holiday are declared payable to
shareholders of record as of the preceding Business Day. If you redeem shares
before a 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 will receive any accrued dividends together
with your redemption proceeds. The Funds distribute any capital gains at least
annually. Dividends for the Funds generally are distributed on the last Business
Day of the month in which they are declared. You have three options for
receiving dividend and any capital-gain distributions. They are discussed under
"Additional Shareholder Services -- Dividend and Capital Gain Distribution
Options" below.
29 PROSPECTUS
<PAGE> 79
HOW TO REDEEM SHARES
You may redeem Fund shares on any Business Day without a charge by the
Company. Your shares are redeemed at the NAV next calculated after the Company
has received your redemption order. Redemption orders received by the transfer
agent before 12:00 Noon (Pacific time) (9:00 a.m. for the California Tax-Free
and National Tax-Free Money Market Mutual Funds) on any Business Day are
executed on that day. Such redemption orders that are received after 12:00 Noon
(9:00 a.m. for the California Tax-Free and National Tax-Free Money Market Mutual
Funds) on any Business Day are executed on the next Business Day. The Company
ordinarily remits your 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 (c) a period during which the SEC by order permits deferral
of redemptions for the protection of the Fund's security holders. In addition,
the Company may hold payment on your redemption until reasonably satisfied that
your investments made by check have been collected (which can take up to 10 days
from the purchase date). To ensure acceptance of your redemption order, please
follow the procedures described below. Payment of redemption proceeds may be
made in securities, subject to regulation by some state securities commissions.
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
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. 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 Fund shares after you have made only the applicable
minimum initial
PROSPECTUS 30
<PAGE> 80
investment). You will be given 30 days' notice to make an additional investment
to increase your account balance to at least the applicable minimum balance. For
a discussion of applicable minimum balance requirements, see "Investing in the
Funds -- How to Buy Shares."
REDEMPTIONS BY TELEPHONE
Telephone redemption or exchange privileges are made available to you
automatically upon opening an account, unless you specifically decline the
privileges. Telephone redemption privileges authorize the transfer agent to act
on telephone instructions from any person representing himself or herself to be
the investor and reasonably believed by the transfer agent to be genuine. The
Company 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 LETTER
1. Write a letter of instruction. Indicate 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 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."
31 PROSPECTUS
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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 LETTER OR TELEPHONE
You may request an expedited redemption of Fund shares by letter, in which
case your receipt of redemption proceeds (but not a Fund's receipt of your
redemption request) would be expedited. Telephone redemption or exchange
privileges are made available to you automatically upon the opening of an
account unless you specifically decline the privilege. 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 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 mail your expedited redemption request to the transfer agent at the
address set forth under "Investing in the Fund -- Initial Purchases by Wire."
Upon request, 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
account at an Approved Bank or a 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 Fund shares is received by the transfer agent before 12:00 Noon (Pacific
time) (9:00 a.m. for the California or National Tax-Free Money Market Mutual
Funds) on a Business Day, your redemption proceeds are transmitted to your
Approved Bank Account or Selling Agent on the same 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
PROSPECTUS 32
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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 Systematic Withdrawal Plan provides you with a convenient way to have Fund
shares redeemed from your account and the proceeds distributed to you on a
monthly basis. You may participate in this Plan only if you have a Fund account
valued at $10,000 or more as of the date of your election to participate, your
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 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) Business 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 participation in
the Plan 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
You may request a redemption of Fund shares through your Selling Agent.
Redemption orders transmitted by a Selling Agent to the transfer agent before
12:00 Noon (Pacific time) (9:00 a.m. for the California or National Tax-Free
Money Market Mutual Funds) on any Business Day, are executed on that day.
Redemption orders transmitted by a Selling Agent to the transfer agent after
12:00 Noon (9:00 a.m. for the California or National Tax-Free Money Market
Mutual Funds) on any Business Day are executed 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 a Selling Agent and the transfer
agent has been informed of such arrangements, 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 redemption proceeds is mailed
to your address of record or, if such address is no longer valid, the 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 proceeds in such account. The
Selling Agent may charge you a service fee. In
33 PROSPECTUS
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addition, the Selling Agent 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. Redemption requests made by telephone through your Shareholder Servicing
Agent must redeem shares with a total value equal to $100 or more. Redemption
orders transmitted by the Shareholder Servicing Agent to the transfer agent
before 12:00 Noon (Pacific time) (9:00 a.m. for the California or National
Tax-Free Money Market Mutual Funds) on any Business Day, are executed on that
day. Redemption orders transmitted by a Shareholder Servicing Agent after 12:00
Noon (9:00 a.m. for the California or National Tax-Free Money Market Mutual
Funds) on any Business Day, generally are executed on the next Business Day. The
Shareholder Servicing Agent is responsible for the prompt transmission of your
redemption order to the Funds.
Unless you have made other arrangements with your Shareholder Servicing Agent
and the transfer agent has been informed of such arrangements, proceeds of a
redemption order made through your Shareholder Servicing Agent are credited to
your Approved Bank Account. If no such account is designated, a check for the
proceeds is mailed to your address of record or, if such address is no longer
valid, the 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, the Shareholder Servicing Agent may benefit from the use of your
redemption proceeds until any check it issues to you has cleared or until such
proceeds have been disbursed or reinvested on your behalf.
ADDITIONAL SHAREHOLDER SERVICES
The Company offers you a number of optional services. As noted above, you can
take advantage of the AutoSaver Plan, Systematic Withdrawal Plan, and Expedited
Redemptions by Letter and Telephone. In addition, you have three dividend and
distribution payment options and an exchange privilege, which are described
below.
DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
When you fill out your Account Application, you can choose from three
distribution options listed below. If you have questions about the distribution
options available to you, please call 1-800-222-8222.
A. The AUTOMATIC REINVESTMENT OPTION provides for the reinvestment of your
dividend and/or capital-gain distributions in additional shares of the same
class of
PROSPECTUS 34
<PAGE> 84
the Fund that paid the distributions. Distributions declared in a month are
reinvested at NAV on the last Business day of the month. You are assigned
this option automatically if you make no choice on your Account
Application.
B. 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 your distribution is
returned to the dividend disbursing agent, your distribution is reinvested
in your Fund account at the NAV next determined after the distribution has
been received. In addition, your Automatic Clearing House Option is then
converted to the Automatic Reinvestment Option.
C. 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 early in the month
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
distribution has been received. Your Check Payment Option is then converted
to the Automatic Reinvestment Option.
The Company makes reasonable efforts to locate investors whose checks are
returned or uncashed after six months. The Company forwards moneys to the
dividend disbursing agent so that it may issue you dividend checks under the
Check Payment Option. The dividend disbursing agent may benefit from the
temporary use of such moneys until these checks clear.
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 Class A shares of a Fund for Class A or B shares of another
fund.
You should consider the following important factors in deciding whether to
exchange shares:
- 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.
- If you exchange Class A shares, you will need to pay any difference between
a load that you have already paid and the load that you are subject to in
the new fund (less
35 PROSPECTUS
<PAGE> 85
the difference between any load already paid under the maximum 3% load
schedule and the maximum 4.50% schedule).
- 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.
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 and
MIT's Board of Trustees, Wells Fargo Bank, as the investment adviser, provides
investment guidance and policy direction in connection with the management of
the Funds' assets. Wells Fargo Bank also furnishes the Board of Directors with
periodic reports on the Funds' investment strategies and performance. For these
services, Wells Fargo Bank is entitled to a monthly investment advisory fee at
an annual percentage rate of the average daily net assets of each Fund as
follows: 0.40% for the Money Market Mutual Fund, 0.50% for the California
Tax-Free Money Market Mutual Fund, 0.30% for the Master Portfolio, of which the
National Tax-Free Money Market Mutual Fund bears a pro rata portion, and 0.25%
for the Government Money Market Mutual and Treasury Money Market Mutual Funds.
From time to time, Wells Fargo Bank may waive such fees in whole or in part. Any
such waiver will reduce expenses of the Funds and the Master Portfolio and,
accordingly, have a favorable impact on the Funds' performance. 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 and the year ended December
31, 1995, the California Tax-Free Money Market Mutual Fund paid advisory fees to
Wells Fargo Bank at the annual rate of 0.50% of its average daily net assets.
For the nine-month period ended September 30, 1996 and the year ended December
31, 1995, the Money Market Mutual Fund paid advisory fees to Wells Fargo Bank at
the annual rate of 0.40% of its average daily net assets.
PROSPECTUS 36
<PAGE> 86
For the period from commencement of operations (April 2, 1996) to September
30, 1996, the National Tax-Free Money Market Master Portfolio did not pay any
advisory fees on behalf of the National Tax-Free Money Market Mutual Fund.
For the year ended September 30, 1996, the Government Money Market Mutual and
Treasury Money Market Mutual Funds paid advisory fees at the annual rates of
0.30% and 0.13%, respectively, of their average daily net assets. For periods
prior to September 6, 1996, this includes advisory fees paid to Wells Fargo
Investment Management, Inc. by the predecessor portfolios to the Funds.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank also serves as the Funds' and the Master Portfolio's
custodian and transfer and dividend disbursing agent. Under its respective
Custody Agreement with Wells Fargo Bank, each Fund and the Master Portfolio may,
at times, borrow money from Wells Fargo Bank as needed to satisfy temporary
liquidity needs. Wells Fargo Bank charges interest on such overdrafts at a rate
determined pursuant to each Fund's and/or Master Portfolio's Custody Agreement.
The custodial, transfer and dividend disbursing agency activities are performed
at 525 Market Street, San Francisco, California 94105.
SHAREHOLDER SERVICING AGENT
On behalf of the Class A shares, the Funds have entered into Shareholder
Servicing Agreements with Wells Fargo Bank and may enter into similar agreements
with other entities. Under the agreements, Shareholder Servicing Agents
(including Wells Fargo Bank) agree to perform, as agents for their customers,
administrative services, with respect to Fund shares, which include 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 fees, as
calculated on an annualized basis for each Fund's then-current fiscal year, up
to (1) 0.30% of the average daily net assets of each of the California Tax-Free
Money Market Mutual Fund and Class A shares of the Money Market Mutual Fund, and
0.25% of the average daily net assets of each of the National Tax-Free Money
Market Mutual, Government Money Market Mutual and Treasury Money Market Mutual
Funds, as represented by shares owned during the period for which payment is
being made by investors with whom the Shareholder Servicing Agent maintains a
servicing relationship, or (2) an amount which equals the maximum amount payable
to the Shareholder Servicing Agent under applicable laws, regulations or rules,
including the Conduct Rules of the NASD ("NASD Rules"). In no event will the
portion of such fees that constitutes a "service fee," as that term is used by
the NASD, exceed 0.25% of the average net asset value of a Fund or Class of a
Fund, as the case may be.
37 PROSPECTUS
<PAGE> 87
Shareholder Servicing Agents may impose certain conditions on their customers,
subject to the terms of this Prospectus, in addition to or different from those
imposed by each 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.
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 the other services provided to the Funds and the
Master Portfolio, 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 and the Master Portfolio'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 each 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 nine-month period ended September 30, 1996,
the California Tax-Free Money Market Mutual, Money Market Mutual and National
Tax-Free Money Market Mutual Funds paid administrative fees to Stephens at the
annual rates of 0.03%, 0.03% and 0.05%, respectively, of each Fund's average
daily net assets. For the year ended September 30, 1996, the Government and
Treasury Money Market Mutual Funds paid administrative fees at the annual rates
of 0.13% and 0.09%, respectively, of each Fund's average daily net assets. For
the period prior to September 6, 1996, this includes amounts paid to Furman Selz
LLC by the predecessor portfolios to the Government and Treasury Money Market
Mutual Funds.
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
PROSPECTUS 38
<PAGE> 88
currently manages investment portfolios for pension and profit sharing plans,
individual investors, foundations, insurance companies and university
endowments.
Stephens, as the principal underwriter of the Fund within the meaning of the
1940 Act, has entered into a Distribution Agreement with the Company pursuant to
which Stephens is responsible for distributing Fund shares. The Company also has
adopted Distribution Plans under Rule 12b-1 (the "Plans"). Under the Plans, and
on behalf of the Class A shares of the Money Market Mutual Fund and shares of
the California Tax-Free Money Market Mutual Fund (collectively, such shares
referred to in this subsection as the "Class A shares"), the Company may defray
all or part of the actual cost of preparing and printing prospectuses and other
promotional materials and of delivering prospectuses and those materials to
prospective Class A shareholders by paying on an annual basis up to 0.05% of the
average daily net assets attributable to their respective shares. Pursuant to
the Plans for the Class A shares of National Tax-Free, Government and Treasury
Money Market Mutual Funds, Stephens is entitled to receive as compensation for
distribution-related services, a monthly fee at an annual rate of up to 0.05% of
the average daily net assets attributable to their respective Class A shares.
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; costs of printing prospectuses and other
materials to be given or sent to prospective investors; and other similar
services as the Directors determine to be reasonably calculated to result in the
sale of shares of each Fund. 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.
Under the Distribution Agreement, Stephens may enter into Selling Agreements
with Selling Agents that wish to make available shares of each Fund to their
respective customers. On behalf of the Class A shares, 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 are allocated among the Funds 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.
39 PROSPECTUS
<PAGE> 89
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
fund may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise, or the cash value of a non-cash
compensation item.
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.
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 of the Company bear all costs of its
operations, including its pro rata portion of the Company expenses such as fees
and expenses of its independent auditors and legal counsel, and compensation of
the Company's directors who are not affiliated with the adviser, administrator
or any of their affiliates; advisory, shareholder servicing, transfer agency,
custody and administration fees, payments pursuant to any Plans, interest, 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. The National Tax-Free Money
Market Fund bears a pro rata portion of the Tax-Free Money Market Master
Portfolio's expenses.
TAXES
Dividends distributed from the California Tax-Free Money Market Mutual and
National Tax-Free Money Market Mutual Funds' net interest income from tax-exempt
securities will not be subject to federal income taxes. Dividends from the
California Tax-Free Money Market Mutual Fund will also be exempt from California
personal income tax to the extent such dividends are attributable to instruments
that pay interest which would be exempt from California personal income taxes,
if such instruments were held directly by an individual. Dividends attributable
to the California Tax-Free Money Market Mutual and National Tax-Free Money
Market Mutual Funds' interest income from taxable securities and short-term
capital gains and capital gain distributions will be
PROSPECTUS 40
<PAGE> 90
taxable when paid, whether you take such distributions in cash or have them
automatically reinvested in additional Fund shares.
Dividends from the net investment income and net short-term capital gains, if
any, of the Money Market Mutual, Government Money Market Mutual and Treasury
Money Market Mutual Funds are taxable to the Funds' shareholders as ordinary
income. Distributions from these Funds' 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. These dividend and capital gain distributions will
be taxable when paid, whether you take such distributions in cash or have them
automatically reinvested in additional Fund shares.
All 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 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, where applicable,
are discussed in the SAI for each Fund.
41 PROSPECTUS
<PAGE> 91
PROSPECTUS APPENDIX --
ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
Set forth below is a description of certain investments and additional
investment policies for each Fund, except where otherwise indicated. REFERENCES
TO THE INVESTMENTS AND INVESTMENT POLICIES AND RESTRICTIONS OF THE NATIONAL
TAX-FREE MONEY MARKET MUTUAL FUND, UNLESS OTHERWISE INDICATED, SHOULD BE
UNDERSTOOD AS REFERENCES TO THE INVESTMENTS AND INVESTMENT POLICIES AND
RESTRICTIONS OF THE MASTER PORTFOLIO IN WHICH SUCH FUND INVESTS ITS ASSETS.
Money Market Mutual Fund
The Money Market Mutual Fund may invest in the following:
(i) U.S. Government obligations (discussed below);
(ii) negotiable certificates of deposit, fixed time deposits, bankers'
acceptances or other short-term obligations of U.S. banks (including
foreign branches) that have more than $1 billion in total assets at
the time of investment and are members of the Federal Reserve System
or are examined by the Comptroller of the Currency or whose deposits
are insured by the FDIC ("bank instruments");
(iii) commercial paper rated at the date of purchase P-1 by Moody's
Investors Service, Inc. ("Moody's") or "A-1+" or "A-1" by Standard &
Poor's Rating Group ("S&P") ("rated commercial paper");
(iv) commercial paper unrated at the date of purchase but secured by a
letter of credit from a U.S. bank that meets the above criteria for
investment;
(v) certain floating- and variable-rate instruments (discussed below);
(vi) certain repurchase agreements (discussed below); and
(vii) short-term, U.S. dollar-denominated obligations of U.S. branches of
foreign banks that at the time of investment have more than $10
billion, or the equivalent in other currencies, in total assets
("foreign bank obligations") (discussed below);
(viii) certain municipal obligations (discussed below); and
(ix) certain securities issued by other investment companies (discussed
below).
A- 1 PROSPECTUS
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California Tax-Free Money Market Mutual Fund
The California Tax-Free Money Market Mutual Fund may invest in the following
municipal obligations with remaining maturities not exceeding thirteen months:
(i) long-term municipal bonds rated at the date of purchase "MIG 1" or "MIG
2" or, if no medium- or short-term rating is available, "Aa" or better
by Moody's or "AA" or better by S&P;
(ii) medium-term 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+" or "SP-1" 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 "A1+" by S&P.
Pending the investment of proceeds from the sale of Fund shares 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 California
Tax-Free Money Market Mutual Fund may elect to invest temporarily up to 20% of
the current value of its total assets in cash reserves or the following taxable
high-quality money market instruments:
(i) U.S. Government obligations;
(ii) bank instruments;
(iii) rated commercial paper;
(iv) repurchase agreements;
(v) foreign bank obligations;
(vi) high-quality municipal obligations, the income from which may or may not
be exempt from federal income taxes; and
(vii) certain securities issued by other investment companies.
Moreover, the California Tax-Free Money Market Mutual 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 California Tax-Free Money Market
Mutual 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.
PROSPECTUS A- 2
<PAGE> 93
National Tax-Free Money Market Mutual Fund
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.
Government Money Market Mutual Fund
The Government Money Market Mutual Fund may invest in the following:
(i) certain U.S. Government obligations;
(ii) certain repurchase agreements;
(iii) certain floating- and variable-rate instruments; and
(iv) certain securities issued by other investment companies.
Treasury Money Market Mutual Fund
The Treasury Money Market Mutual Fund may invest in the following:
(i) U.S. Treasury obligations (defined and discussed below);
(ii) certain repurchase agreements;
(iii) certain floating- and 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);
A- 3 PROSPECTUS
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(v) certain reverse repurchase agreements ("reverse repurchase agreements")
(discussed below); and
(vi) certain securities issued by other investment companies.
The following describes certain instruments in which the Funds may invest.
U.S. Government and U.S. Treasury Obligations
The Funds, except as described below with respect to the Treasury Money Market
Mutual Fund, may invest in obligations of agencies and instrumentalities of the
U.S. Government ("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.
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 ("U.S. Treasury obligations"). U.S. Treasury notes, bills
and bonds differ mainly in the length of their maturity. The U.S. Treasury
obligations in which the Fund invests may also include "U.S. Treasury STRIPS,"
interests in U.S. Treasury obligations reflected in the Federal Reserve-Book
Entry System that represent ownership in either the future interest payments or
the future principal payments on the U.S. Treasury obligations. U.S. Treasury
STRIPS are "stripped securities." 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. The Treasury and Government Money Market Mutual Funds may
invest in U.S. Treasury STRIPS.
The Funds may attempt to increase yields by trading to take advantage of
short-term market variations. This policy could 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.
PROSPECTUS A- 4
<PAGE> 95
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.
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.
Forward Commitments, When-Issued Purchases and Delayed-Delivery Transactions
The Funds (other than the Money Market Mutual 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.
Other Investment Companies
Subject to the limitations set forth below and in the 1940 Act, the Funds may
invest in securities of other investment companies. For temporary investments,
the Money Market Mutual Fund and the Tax-Free Funds may invest in shares of
other open-end investment
A- 5 PROSPECTUS
<PAGE> 96
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
with respect to the Tax-Free Funds, 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 a Fund; however, Wells Fargo Bank has undertaken to waive its
advisory fees with respect to that portion of the Funds' assets so invested,
except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition.
The Treasury Money Market Fund may invest up to 10% of its assets in shares of
other open-end investment companies that invest exclusively in the high-quality,
short-term money market instruments in which the Fund 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.
Municipal Obligations
The Money Market Mutual Fund, and the Tax-Free Funds may invest in 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 Tax-Free Funds may each invest 25% or
more of the current value of its total assets in certain "private activity
bonds," such as pollution control bonds; provided, however, that such
investments will be made only to the extent they are consistent with the Funds'
fundamental policy of investing, under normal circumstances, at least 80% of its
net assets in municipal obligations that are exempt from federal income tax and
not subject to the federal alternative minimum tax.
The Master Portfolio 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;
PROSPECTUS A- 6
<PAGE> 97
(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.
For a further discussion of factors affecting purchases of municipal
obligations by the California Tax-Free Money Market Mutual Fund, see "Special
Considerations Affecting California Municipal Obligations" in the SAI.
Letters of Credit
Certain of the debt obligations, certificates of participation, commercial
paper and other short-term obligations which the Money Market Mutual Fund and
California Tax-Free Money Market Mutual Fund are 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 such Funds.
Foreign Obligations
Each 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. 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 affect adversely
investments in, the liquidity of, and the ability to enforce contractual
obligations with respect to, securities of issuers located in those countries.
Taxable Investments
Pending the investment of proceeds from the sale of interests of the Master
Portfolio 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 Master Portfolio may
A- 7 PROSPECTUS
<PAGE> 98
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 Master Portfolio 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 Master Portfolio's interestholders when, in the opinion of Wells
Fargo Bank, as investment adviser, it is advisable to do so because of unusual
market conditions.
Illiquid Securities
The Funds 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 a Fund.
INVESTMENT POLICIES AND RESTRICTIONS
Each Fund's investment objective, as set forth in the "How the Funds Work --
Investment Objectives and Policies" section, is fundamental. Accordingly, such
investment objectives and policies may not be changed without approval by the
vote of the holders of a majority of such Fund's outstanding voting securities,
as described under "Capital Stock" in the SAI. In addition, any fundamental
investment policy may not be changed without such shareholder approval. If the
Company's Board of Directors determines, however, that a Fund's investment
objective can best be achieved by a substantive change in a nonfundamental
investment policy or strategy, the Company's Board may make such a change
without shareholder approval and will disclose any such material changes in the
then-current prospectus.
Money Market Mutual and Tax-Free Funds
As matters of fundamental policy, the Money Market Mutual Fund or California
Tax-Free Money Market Mutual Fund may: (i) borrow from banks up to 10% of the
current value of such Fund's 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
PROSPECTUS A- 8
<PAGE> 99
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 the net assets exists);
(ii) not make loans of portfolio securities or other assets, except that loans
for purposes of this restriction will not include the purchase of fixed time
deposits, repurchase agreements, commercial paper and other short-term
obligations, and other types of debt instruments commonly sold in a public or
private offering; and (iii) not invest more than 25% of its assets (i.e.,
concentrate) in any particular industry, excluding, (a) investments in municipal
securities by the California Tax-Free Money Market Mutual Fund (for the purpose
of this restriction, private activity bonds shall not be deemed municipal
securities if the payments of principal and interest on such bonds is the
ultimate responsibility of nongovernmental users), (b) U.S. Government
obligations, and (c) obligations of domestic banks (for purposes of this
restriction, domestic bank obligations do not include obligations of foreign
branches of U.S. banks and obligations of U.S. branches of foreign banks).
As matters of nonfundamental policy: (i) the Money Market Mutual Fund may not
purchase securities of any issuer (except for U.S. Government obligations, for
certain temporary purposes and for certain guarantees and unconditional puts) if
as a result more than 5% of the value of its 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) the Money Market Mutual Fund
may not invest more than 10% of the current value of its net assets in
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale and fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days; and (iii) the California Tax-Free Money Market Mutual Fund may not
invest more than 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. 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.
For purposes of complying with the Code, the California Tax-Free Money Market
Mutual 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 the California
Tax-Free Money Market Mutual Fund's assets is represented by cash, U.S.
Government obligations and other securities limited in respect of any one issuer
to an amount not greater than 5% of the California Tax-Free Money Market Mutual
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.
A- 9 PROSPECTUS
<PAGE> 100
In addition, at least 65% of the California Tax-Free Money Market Mutual
Fund's total assets are invested (under normal market conditions) in municipal
obligations that pay interest that is exempt from California personal income
tax. However, as a matter of general operating policy, the California Tax-Free
Money Market Mutual Fund seeks to have substantially all of its assets invested
in such municipal obligations.
As matters of fundamental policy, the National Tax-Free Money Market Mutual
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 Master Portfolio 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; loans for purposes of this restriction
will not include the Fund's purchase of interests in the Master Portfolio; (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. These fundamental policies do not restrict the
Fund's ability to invest all of its assets in the Master Portfolio.
As matters of non-fundamental policy the National Tax-Free Money Market Mutual
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).
PROSPECTUS A- 10
<PAGE> 101
Government and Treasury Money Market Mutual Funds
As matters of fundamental policy, each Fund may: (i) borrow from banks up to
10% with respect to the Government Money Market Mutual Fund and up to 20% with
respect to the Treasury Money Market Mutual Fund, 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 the 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 (iii) with respect to the
Government Money Market Mutual Fund, not make loans of portfolio securities or
other assets, except that loans for purposes of this restriction will not
include the purchase of repurchase agreements and other short-term obligations,
and other types of debt instruments commonly sold in a public or private
offering.
These investment restrictions are applied at the time investment securities
are purchased. As a matter of nonfundamental policy, the Treasury Money Market
Mutual Fund may make loans of portfolio securities or other assets, although it
does not intend to do so during the current fiscal year.
As a matter of nonfundamental 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. 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 Board or investment adviser, pursuant to
guidelines adopted by the Board, determines that a liquid trading market exists.
The following securities are excluded from the Funds 10% limitation: (a)
securities eligible for resale pursuant to Rule 144A under the 1933 Act that
have been determined to be liquid by the Fund's Board of Directors, and (b)
Section 4(2) commercial paper 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 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 Fund's Board of Directors has determined that the commercial
paper is of equivalent quality and is liquid.
A- 11 PROSPECTUS
<PAGE> 102
LOGO
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH MONEY MARKET MUTUAL FUNDS:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- 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 LOGO
share, however, there can be no assurance that either
fund will meet this goal. Yields and returns will vary
with market conditions.
</TABLE>
LOGO
Printed on Recycled Paper SC0204 (2/97)
<PAGE> 103
<TABLE>
<S> <C>
------------------
LOGO BULK RATE
P.O. Box 7066 U.S. POSTAGE
San Francisco, CA 94120-7066 PAID
DALLAS, TEXAS
Permit No. 1808
------------------
- -------------------------------------------------------------------------------
STAGECOACH MONEY MARKET MUTUAL FUNDS:
-------------------------------------------------------------------------
- are NOT FDIC insured
- are NOT deposits or obligations of Wells Fargo Bank
- are NOT guaranteed by Wells Fargo Bank
- involve investment risk, including possible loss of
principal
- seek to maintain a stable net asset value of $1.00 per LOGO
share,
however, there can be no assurance that either fund will
meet this goal. Yields and returns will vary with market
conditions.
- -------------------------------------------------------------------------------
</TABLE>
SC0204 2/97
<PAGE> 104
STAGECOACH FUNDS(R)
MONEY MARKET MUTUAL, CALIFORNIA TAX-FREE MONEY MARKET MUTUAL, GOVERNMENT MONEY
MARKET MUTUAL, NATIONAL TAX-FREE MONEY MARKET MUTUAL AND TREASURY MONEY MARKET
MUTUAL FUNDS
CLASS A SHARES
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about five funds of the Stagecoach
Family of Funds -- Class A shares of the GOVERNMENT MONEY MARKET MUTUAL, MONEY
MARKET MUTUAL and TREASURY MONEY MARKET MUTUAL FUNDS and shares (collectively,
with the Class A shares, referred to at times as "Class A shares") of the
CALIFORNIA TAX-FREE MONEY MARKET MUTUAL and NATIONAL TAX-FREE MONEY MARKET
MUTUAL FUNDS (each, a "Fund" and, collectively, the "Funds").
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS 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 February 1, 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. If you hold shares in an IRA, please
call 1-800-BEST-IRA for information or assistance. The SAI and other information
is available on the SEC's Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK, N.A. ("WELLS FARGO BANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN A FUND INVOLVES CERTAIN RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
PROSPECTUS DATED
FEBRUARY 1, 1997
PROSPECTUS
<PAGE> 105
The MONEY MARKET MUTUAL FUND seeks to provide investors with a high level
of income, while preserving capital and liquidity, by investing in high-quality,
short-term instruments.
The CALIFORNIA TAX-FREE MONEY MARKET MUTUAL FUND seeks to obtain a high
level of income exempt from federal income tax and California personal income
tax, while preserving capital and liquidity, by investing in high-quality,
short-term U.S. dollar-denominated money market instruments, primarily municipal
obligations.
The GOVERNMENT MONEY MARKET MUTUAL FUND seeks to provide investors with as
high a level of current income as is consistent with preservation of capital and
liquidity.
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 its investment objective by
investing substantially 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 in a portfolio of
securities. The Fund has the same investment objective as the Master Portfolio
and the investment experience of the Fund corresponds directly to the investment
experience of the Master Portfolio. References to the investments and investment
policies and risks of such Fund unless otherwise indicated, should be understood
as references to the investments and investment policies and risks of the
corresponding Master Portfolio. The National Tax-Free Money Market Mutual Fund
and the California Tax-Free Money Market Mutual Fund are sometimes referred to
herein as the "Tax-Free Funds."
The TREASURY MONEY MARKET MUTUAL FUND seeks to provide investors with
current income and stability of principal.
You may invest in the following Funds through a Wells Fargo Bank Money
Market Access or Money Market Checking Account.
- Money Market Mutual Fund (Class A Shares)
- California Tax-Free Money Market Mutual Fund
- National Tax-Free Money Market Mutual Fund
For details, see the following pages of this prospectus: [page 3]
(Prospectus Summary) and [page 27] (Investing in the Funds).
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
<PAGE> 106
TABLE OF CONTENTS
-------
PROSPECTUS SUMMARY 1
SUMMARY OF FUND EXPENSES 4
FINANCIAL HIGHLIGHTS 7
HOW THE FUNDS WORK 13
THE FUNDS AND MANAGEMENT 19
INVESTING IN THE FUNDS 21
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS 27
HOW TO REDEEM SHARES 28
ADDITIONAL SHAREHOLDER SERVICES 32
MANAGEMENT, DISTRIBUTION AND SERVICING FEES 34
TAXES 38
PROSPECTUS APPENDIX - ADDITIONAL INVESTMENT POLICIES A-1
PROSPECTUS
<PAGE> 107
PROSPECTUS SUMMARY
The Funds provide you with a convenient way to invest in portfolios of
securities selected and supervised by professional management. The following
provides you with summary information about each Fund. 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 MONEY MARKET MUTUAL FUND seeks to provide investors with a high level of
income, while preserving capital and liquidity, by investing in
high-quality, short-term instruments. These securities include obligations
of the U.S. Government, its agencies and instrumentalities, high-quality
debt obligations such as corporate debt, certain obligations of U.S. banks
and certain repurchase agreements.
The CALIFORNIA TAX-FREE MONEY MARKET MUTUAL FUND seeks to obtain a high
level of income exempt from federal income tax and California personal
income tax, while preserving capital and liquidity, by investing in
high-quality, short-term U.S. dollar-denominated money market instruments,
primarily municipal obligations. Under normal market conditions,
substantially all of the Fund's assets will be invested in municipal
obligations that are exempt from federal income tax and California personal
income tax.
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 its investment
objective by investing all of its assets in the Tax-Free Money Market
Master Portfolio of MIT, which has the same investment objective as the
Fund. The Master Portfolio seeks to achieve this investment objective by
investing in high-quality, U.S. dollar-denominated money market
instruments, primarily municipal obligations.
The GOVERNMENT MONEY MARKET MUTUAL FUND seeks to provide investors with as
high a level of current income as is consistent with preservation of
capital and liquidity. The Fund pursues its objective by investing its
assets exclusively in obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, 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.
In pursuing their respective investment objectives, each 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 from time to time (the "1940 Act"). See "How the Funds
Work -- Investment Objectives and Policies" and "Prospectus
Appendix -- Additional Investment Policies" for further information on
investments.
1 PROSPECTUS
<PAGE> 108
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF
INVESTMENT?
A. Investments in the Funds are not bank deposits or obligations of Wells Fargo
Bank and are not insured by the FDIC, nor are they insured or guaranteed
against loss of principal. Therefore, you should be willing to accept some
risk with money invested in the Funds. 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. Since the California Tax-Free Money Market Mutual
Fund invests primarily in securities issued by California, its agencies and
municipalities, events in California are more likely to affect this Fund's
investments. Also, the California Tax-Free Money Market Mutual Fund is
nondiversified, which means that its assets may be invested among fewer
issuers and therefore the value of its assets may be subject to greater
impact by events affecting one of its investments. The Funds 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
Funds invest. As with all mutual funds, there can be no assurance that each
Fund will achieve its investment objective. See "How the Funds Work -- Risk
Factors" in this prospectus 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' and the Master Portfolio's investment
adviser, manages your investments. A separate investment adviser has not
been retained for the National Tax-Free Money Market Mutual Fund because
this Fund invests all of its assets in the Master Portfolio. 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 net asset value ("NAV"). You may
open an account by investing at least $2,500, and you may add to your
account by making additional investments of at least $100, with certain
exceptions. Shares of the California Tax-Free Money Market Mutual Fund and
National Tax-Free Money Market Mutual Fund may not be suitable investments
for tax-exempt institutions or tax-exempt retirement plans, since such
investors would not generally benefit from the tax-exempt status of such
Funds' dividends. In addition, California Tax-Free Money Market Mutual Fund
shares are not available in all states. Shares may be purchased on any day
the Funds are open by wire, by mail, or by an automatic investment feature
called the AutoSaver Plan. 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).
PROSPECTUS 2
<PAGE> 109
Q. MAY I INVEST IN FUND SHARES THROUGH A WELLS FARGO BANK ACCOUNT?
A. Yes, customers of Wells Fargo Bank may invest in shares of the Money Market,
California Tax-Free and National Tax-Free Money Market Mutual Funds through
a Wells Fargo Bank Money Market Access or Money Market Checking Account. In
addition, customers of Wells Fargo Bank who hold shares of the California
Tax-Free Money Market Mutual Fund through a Wells Fargo Bank Managed Sweep
Account may open additional Managed Sweep Accounts or acquire additional
shares of the California Tax-Free Money Market Mutual Fund through such
Accounts. Certain of the features described in this Prospectus are not
available to investors purchasing shares through an Account. Investments
through an Account are governed by the terms and conditions of such Account
as set forth in a separate Disclosure Statement provided by Wells Fargo
Bank to each Accountholder. See "Investing in the Funds -- Opening A Wells
Fargo Bank Sweep Account."
Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends 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 net asset value
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 Family of Funds in which you have an established account that
has met the applicable minimum initial investment. 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 Fund shares at NAV, without charge, on any day the Fund is
open by telephone (unless you have declined this feature on your account
application), by letter, or on a regular monthly basis, by an automatic
feature called the Systematic Withdrawal Plan. See "How To Redeem Shares"
for more details, or contact Stephens (the Funds' distributor), a
shareholder servicing agent or a selling agent (such as Wells Fargo Bank).
3 PROSPECTUS
<PAGE> 110
SUMMARY OF FUND EXPENSES
MONEY MARKET MUTUAL FUNDS
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
MONEY
CALIFORNIA GOVERNMENT MARKET NATIONAL TREASURY
TAX-FREE (CLASS A) (CLASS A) TAX-FREE (CLASS A)
---------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Maximum Sales Charge on Purchases
(as a percentage of offering price)........... None None None None None
Maximum Sales Charge on Reinvested
Distributions................................. None None None None None
Maximum Sales Charge on Redemptions............. None None None None None
Exchange Fees................................... None None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
MONEY
CALIFORNIA GOVERNMENT MARKET NATIONAL TREASURY
TAX-FREE (CLASS A) (CLASS A) TAX-FREE(1) (CLASS A)
---------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Management Fee (after waivers or
reimbursements)............................... 0.50% 0.25% 0.40 0.00%(2) 0.12%(2)
Rule 12b-1 Fee.................................. 0.03% 0.05% 0.02% 0.05% 0.05%
Other Expenses (after waivers or
reimbursements)............................... 0.12%(3) 0.45%(3) 0.33%(3) 0.65%(3) 0.38%
TOTAL FUND OPERATING EXPENSES (after waivers or
reimbursements)(4)............................ 0.65% 0.75% 0.75% 0.70% 0.55%
</TABLE>
- ---------------------------------
(1) The expenses shown below summarize expenses charged at both the Master
Portfolio and Fund levels.
(2) Management Fee (before waivers or reimbursements) would be 0.30% for the
National Tax-Free Fund and 0.25% for the Treasury Fund.
(3) Other Expenses (before waivers or reimbursements) would be 0.49% for the
California Tax-Free Fund, 0.43% for the Government Fund, 0.46% for the Money
Market Mutual Fund and 1.00% for the National Tax-Free Fund.
(4) Total Fund Operating Expenses(before waivers or reimbursements) would be
1.02% for the California Tax-Free Fund, 0.73% for the Government Fund, 0.88%
for the Money Market Mutual Fund, 1.35% for the National Tax-Free Fund and
0.68% for the Treasury Fund.
PROSPECTUS 4
<PAGE> 111
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment in a
Fund, assuming a 5% annual return and redemption at the end of
each time period indicated:
California Tax-Free Money Market Mutual Fund................ $7 $21 $36 $ 81
Government Money Market Mutual Fund (Class A)............... $8 $24 $42 $ 93
Money Market Mutual Fund (Class A).......................... $8 $24 $42 $ 93
National Tax-Free Money Market Mutual Fund.................. $7 $22 $39 $ 87
Treasury Money Market Mutual Fund (Class A)................. $6 $18 $31 $ 69
</TABLE>
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 a Wells Fargo
Bank or another institution directly on such customer accounts in connection
with an investment in a Fund.
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell
Fund shares. There are no Shareholder Transaction Expenses for the Funds.
However, the Company reserves the right to impose a charge for wiring redemption
proceeds.
ANNUAL FUND OPERATING EXPENSES shown above for the Funds, except as
indicated below, are based on applicable contract amounts and amounts incurred
during the most recent fiscal year. These amounts have been adjusted to reflect
voluntary fee waivers and expense reimbursements that are expected to continue
to reduce expenses during the current fiscal year. The amounts shown under
"Other Expenses" for the Government, National Tax-Free and Treasury Money Market
Mutual Funds are based on estimated/restated amounts expected to be in effect
during the current fiscal year. Wells Fargo Bank and Stephens each have agreed
to waive or reimburse all or a portion of their respective fees charged to, or
expenses paid by, the Government and Treasury Money Market Mutual Funds to
ensure that such Funds respective "Total Fund Operating Expenses" do not exceed,
on an annual basis, 0.75% and 0.55%, of average daily net assets through August
31, 1997. Any waivers or reimbursements will reduce the total expenses of a Fund
or Master Portfolio. There can be no assurance that such waivers or
reimbursements will continue after that date. 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,
Distribution and Servicing Fees."
5 PROSPECTUS
<PAGE> 112
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 lesser than those shown.
With regard to the combined fees and expenses of the National Tax-Free
Money Market Mutual Fund and its corresponding Master Portfolio, the Company's
Board of Directors has considered whether various costs and benefits of
investing all of such Fund's assets in the Master Portfolio rather than directly
in a portfolio of securities would be more or less than if the Fund invested in
portfolio securities directly. The Company's Board of Directors believes that
the aggregate per share expenses of the Fund will not be more than the expenses
incurred by the Fund if the Fund invested directly in the type of securities
held by the Master Portfolio. The Company's Board of Directors believes that if
other investors invest their assets in the Master Portfolio, certain economic
efficiencies may be realized with respect to the Master Portfolio. For example,
fixed expenses that otherwise would have been borne solely by the Fund would be
spread across a larger asset base provided by more than one fund investing in
the Master Portfolio. There can be no assurance that these economic efficiencies
will be achieved. In addition, the Master Portfolio may sell its interests to
other mutual funds or accredited investors. Some of the Funds offer certain
classes of shares not described herein. The expenses and corresponding returns
of these other classes and funds may differ from the expenses and returns of the
shares described herein. Information regarding these and any other investment
options in the Funds or the Master Portfolio 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> 113
FINANCIAL HIGHLIGHTS
MONEY MARKET MUTUAL AND TAX-FREE FUNDS
The following information for the Class A shares of the Money Market Mutual
Fund and the shares of the California Tax-Free Money Market Mutual Fund and
National Tax-Free Money Market Mutual Fund has been derived from the Financial
Highlights in the Funds' financial statements for the fiscal period ended
September 30, 1996. The financial statements have been audited by KPMG Peat
Marwick LLP. The financial statements and KPMG Peat Marwick LLP's report thereon
are incorporated by reference into the SAI. This information should be read in
conjunction with the Funds' 1996 financial statements and the notes thereto. The
SAIs for the Funds have been incorporated by reference into this Prospectus.
MONEY MARKET MUTUAL FUND
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
SEPT. 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996(1) 1995 1994 1993 1992(2)
------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value Beginning of Period.......... $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment Operations:
Net Investment Income...................... 0.03 0.05 0.04 0.03 0.02
Net Realized and Unrealized Gain on
Investments.............................. 0.00 0.00 0.00 0.00 0.00
Total from Investment Operations............. 0.03 0.05 0.04 0.03 0.02
Less Distributions:
Dividends from Net Investment Income....... (0.03) (0.05) (0.04) (0.03) (0.02)
Distributions from Net Realized Gain....... 0.00 0.00 0.00 0.00 0.00
Total From Distributions..................... (0.03) (0.05) (0.04) (0.03) (0.02)
Net Asset Value, End of Period............... $1.00 $1.00 $1.00 $1.00 $1.00
Total Return (not annualized)................ 3.55% 5.34% 3.74% 2.70% 1.50%
Ratios/Supplemental Data:
Net Assets, End of Period (000's).......... $3,799,908 $2,892,621 $2,343,942 $317,474 $236,269
Ratios to Average Net Assets (annualized):
Ratio of Expenses to Average Net Assets.... 0.75% 0.75% 0.69% 0.58% 0.20%
Ratio of Net Investment Income to Average
Net Assets............................... 4.66% 5.13% 4.12% 2.67% 2.98%
Ratio of Expenses to Average Net Assets Prior
To Waived Fees and Reimbursed Expenses..... 0.88% 0.83% 0.89% 1.00% 0.94%
Ratio of Net Investment Income to Average Net
Assets Prior To Waived Fees and Reimbursed
Expenses................................... 4.53% 5.05% 3.92% 2.25% 2.24%
- -------------------
(1) The Fund changed its fiscal year-end from December 31 to September 30.
(2) The Fund commenced operations on July 1, 1992.
</TABLE>
7 PROSPECTUS
<PAGE> 114
CALIFORNIA TAX-FREE MONEY MARKET MUTUAL FUND
FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996(1) 1995 1994 1993 1992
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................. $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment Operations:
Net Investment Income.............................. 0.02 0.03 0.02 0.02 0.03
Net Realized and Unrealized Gain on Investments.... 0.00 0.00 0.00 0.00 0.00
---- ---- ---- ---- ----
Total From Investment Operations................. 0.02 0.03 0.02 0.02 0.03
Less Distributions:
Dividends from Net Investment Income............... (0.02) (0.03) (0.02) (0.02) (0.03)
Distributions From Net Realized Gain............... 0.00 0.00 0.00 0.00 0.00
---- ---- ---- ---- ----
Total From Distributions......................... (0.02) (0.03) (0.02) (0.02) (0.03)
---- ---- ---- ---- ----
Net Asset Value, End of Period..................... $1.00 $1.00 $1.00 $1.00 $1.00
Total Return (not annualized).................... 2.04% 3.23% 2.28% 1.89% 2.81%
Ratios/Supplemental Data:
Net Assets, End of Period (000's).................. $1,161,431 $1,031,004 $869,745 $793,420 $572,906
Ratios to Average Net Assets (annualized):
Ratio of Expenses to Average Net Assets............ 0.65% 0.65% 0.62% 0.55% 0.28%
Ratio of Net Investment Income to Average Net
Assets........................................... 2.69% 3.18% 2.26% 1.88% 2.41%
Ratio of Expenses to Average Net Assets Prior to
Waived Fees and Reimbursed Expenses.............. 1.02% 1.01% 1.08% 1.06% 1.03%
Ratio of Net Investment Income to Average Net
Assets Prior to Waived Fees and Reimbursed
Expenses......................................... 2.32% 2.82% 1.80% 1.37% 1.66%
</TABLE>
- -------------------
(1) The Fund changed its fiscal year-end from December 31 to September 30.
PROSPECTUS 8
<PAGE> 115
NATIONAL TAX-FREE MONEY MARKET MUTUAL FUND
FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD ENDED
SEPT. 30,
1996(1)
------------
<S> <C>
Net Asset Value, Beginning of Period............................................................. $1.00
Income from Investment Operations:
Net Investment Income.......................................................................... 0.01
Net Realized and Unrealized Gain on Investments................................................ 0.00
Total From Investment Operations............................................................. 0.01
Less Distributions:
Dividends from Net Investment Income........................................................... (0.01)
Distributions From Net Realized Gain........................................................... 0.00
Total From Distributions..................................................................... (0.01)
Net Asset Value, End of Period................................................................. $1.00
Total Return (not annualized)................................................................ 1.51%
Ratios/Supplemental Data:
Net Assets, End of Period (000's).............................................................. $4,975
Ratios to Average Net Assets (annualized):
Ratio of Expenses to Average Net Assets........................................................ 0.62%(2)
Ratio of Net Investment Income to Average Net Assets........................................... 2.71%
Ratio of Expenses to Average Net Assets Prior to Waived Fees and Reimbursed Expenses........... 3.56%(2)
Ratio of Net Investment Income (Loss) to Average Net Assets Prior To Waived Fees and Reimbursed
Expenses..................................................................................... (0.23)%(2)
</TABLE>
- -------------------
(1) The Fund commenced operations on April 2, 1996.
(2) This ratio includes income and expenses allocated from the Master Portfolio.
9 PROSPECTUS
<PAGE> 116
GOVERNMENT AND TREASURY MONEY MARKET MUTUAL FUNDS
The following information for the Government and Treasury Money Market
Mutual Funds has been derived from the Financial Highlights in the Funds' annual
financial statements for the fiscal year ended September 30, 1996. This
information is provided to assist you in evaluating the historical performance
of each Fund. Except as set forth below, the Funds' financial statements have
been audited by KPMG Peat Marwick LLP. The financial information for all periods
prior to October 1, 1995, was audited by other auditors. On September 6, 1996,
the Investor class shares were reorganized as the Class A shares. The
information for periods prior to September 6, 1996 reflects the performance of
the Investor class shares. The financial statements and KPMG Peat Marwick LLP's
report thereon are incorporated by reference into the Funds' SAIs. This
information should be read in conjunction with the Funds' 1996 annual financial
statements and the notes thereto. The SAIs for the Funds have been incorporated
by reference into this Prospectus.
PROSPECTUS 10
<PAGE> 117
GOVERNMENT MONEY MARKET MUTUAL FUND
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, PERIOD ENDED
------------------------------------------------------------------------------------------- SEPT. 30,
1996(1) 1995 1994 1993 1992 1991 1990 1989 1988(2)
------- -------- -------- -------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from
Investment
Operations:
Net investment
income........... 0.05 0.05 0.03 0.03 0.04 0.06 0.08 0.08 0.03
Net realized and
unrealized gain
on investments... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- -------- -------- -------- -------- -------- -------- -------- ----------
Total from
investment
operations..... 0.05 0.05 0.03 0.03 0.04 0.06 0.08 0.08 0.03
------- -------- -------- -------- -------- -------- -------- -------- ----------
Less Distributions:
Dividends from net
investment
income........... (0.05) (0.05) (0.03) (0.03) (0.04) (0.06) (0.08) (0.08) (0.03)
Distributions from
net realized
gain............. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- -------- -------- -------- -------- -------- -------- -------- ----------
Total
distributions... (0.05) (0.05) (0.03) (0.03) (0.04) (0.06) (0.08) (0.08) (0.03)
------- -------- -------- -------- -------- -------- -------- -------- ----------
Net asset value,
end of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======== ======== ======== ======== ======== ======== ========
Total Return (not
annualized).... 4.75% 5.22% 3.16% 2.77% 3.99% 6.30% 7.85% 8.71% 3.04%
Ratios/Supplemental
Data:
Net assets, end of
period (000)..... $65,036 $109,368 $194,276 $188,934 $184,705 $171,375 $160,436 $162,726 $125,856
Ratios to average net
assets
(annualized):
Ratio of expenses
to average net
assets........... 0.77% 0.79% 0.77% 0.83% 0.82% 0.85% 0.73% 0.68% 0.66%
Ratio of net
investment income
to average net
assets........... 4.74% 5.08% 3.07% 2.73% 3.85% 6.13% 7.60% 8.42% 6.94%
Ratio of expenses
to average net
assets prior to
waived fees and
reimbursed
expenses......... 0.80% 0.81% 0.79% 0.84% 0.82% 0.88% 0.83% 0.84% 0.92%
Ratio of net
investment income
to average net
assets prior to
waived fees and
reimbursed
expenses......... 4.71% 5.06% 3.05% 2.72% 3.85% 6.10% 7.50% 8.26% 6.68%
</TABLE>
- -------------------
(1) The Fund operated as a series of Pacifica Funds Trust from its commencement
of operations until it was reorganized as a series of the Company on
September 6, 1996. Prior to April 1, 1996, First Interstate Capital
Management, Inc. ("FICM") served as the Fund's adviser. In connection with
the merger of First Interstate Bancorp into Wells Fargo & Company on April
1, 1996, FICM was renamed Wells Fargo Investment Management, Inc.
(2) The predecessor portfolio commenced operations on April 26, 1988.
11 PROSPECTUS
<PAGE> 118
TREASURY MONEY MARKET MUTUAL FUND(1)
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A SERVICE SHARES
--------- -----------------------------------------------------------------------
YEAR PERIOD
ENDED YEAR ENDED ENDED YEAR ENDED MAR. 31,
SEPT. 30, SEPT. 30, SEPT. 30, --------------------------------------------
1996(2) 1995(3) 1994(4) 1994 1993 1992 1991
--------- ---------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1 00 $ 1.00 $ 1.00
------- ---------- -------- -------- -------- -------- --------
Income from Investment Operations:
Net Investment income................. 0.05 0.05 0.02 0.03 0.03 0.05 0.07
Net realized and unrealized gain on
investments......................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ---------- -------- -------- -------- -------- --------
Total from Investment Operations.... 0.05 0.05 0.02 0.03 0.03 0.05 0.07
------- ---------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment
income.............................. (0.05) (0.05) (0.02) (0.03) (0.03) (0.05) (0.07)
Distributions from net realized
gain................................ 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ---------- -------- -------- -------- -------- --------
Total From Distributions............ (0.05) (0.05) (0.02) (0.03) (0.03) (0.05) (0.07)
------- ---------- -------- -------- -------- -------- --------
Net asset value, end of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ========== ======== ======== ======== ======== ========
Total Return (not annualized):...... 4.95% 5.42% 3.75%(5) 2.81% 3.13% 5.03% 7.42%
Ratios/Supplemental Data:
Net Assets, end of period (000's)..... $53,706 $1,001,707 $690,630 $654,950 $614,237 $281,343 $118,623
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets.............................. 0.55% 0.42% 0.43% 0.43% 0.43% 0.45% 0.48%
Ratio of net investment income to
average net assets.................. 4.96% 5.32% 3.72% 2.77% 3.04% 4.73% 7.10%
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses................. 0.67% 0.66% 0.90% 0.90% 0.91% 0.93% 0.94%
Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses........ 4.84% 5.08% 3.25% 2.30% 2.56% 4.25% 6.64%
<CAPTION>
1990 1989 1988 1987
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from Investment Operations:
Net Investment income................. 0.08 0.07 0.06 0.06
Net realized and unrealized gain on
investments......................... 0.00 0.00 0.00 0.00
-------- -------- -------- --------
Total from Investment Operations.... 0.08 0.07 0.06 0.06
-------- -------- -------- --------
Less Distributions:
Dividends from net investment
income.............................. (0.08) (0.07) (0.06) (0.06)
Distributions from net realized
gain................................ 0.00 0.00 0.00 0.00
-------- -------- -------- --------
Total From Distributions............ (0.08) (0.07) (0.06) (0.06)
-------- -------- -------- --------
Net asset value, end of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return (not annualized):...... 8.58% 7.63% 6.20% 5.64%
Ratios/Supplemental Data:
Net Assets, end of period (000's)..... $ 98,398 $ 90,672 $101,066 $134,375
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets.............................. 0.56% 0.63% 0.69% 0.69%
Ratio of net investment income to
average net assets.................. 7.73% 7.36% 6.12% 5.50%
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses................. 0.97% 0.98% 1.05% 0.94%
Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses........ 7.32% 7.01% 5.76% 5.25%
</TABLE>
- -------------------
(1) Prior to August 1, 1990, the Treasury Money Market Mutual Fund was known as
the Short-Term Government Fund. That Fund commenced operations on October 1,
1985 and invested in obligations issued or guaranteed by agencies and
instrumentalities of the U.S. Government. The Fund operated as a portfolio
of Pacific American Funds through October 1, 1994, when it was reorganized
as the Pacific American U.S. Treasury Portfolio, a portfolio of Pacifica
Funds Trust. In July 1995, the Fund was renamed the Pacifica Treasury Money
Market Fund, and on September 6, 1996, the Fund was reorganized as a series
of the Company. Prior to April 1, 1996, First Interstate Capital Management,
Inc. ("FICM") served as the Fund's adviser. In connection with the merger of
First Interstate Bancorp into Wells Fargo & Company on April 1, 1996, FICM
was renamed Wells Fargo Investment Management, Inc.
(2) Financial data for the year ended September 30, 1996 is for Class A shares
only, reflecting the performance of the Investor Class shares (the
predecessor of the Fund's Class A Shares), which commenced operations
October 1, 1995.
(3) Financial data for all periods up to and including the fiscal year ended
September 30, 1995, are for Service shares only.
(4) The Fund changed its fiscal year-end from March 31 to September 30.
(5) Annualized.
PROSPECTUS 12
<PAGE> 119
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 is a money market fund, subject to Rule 2a-7 of
the 1940 Act. 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 as
determined in accordance with Rule 2a-7 of the 1940 Act 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 a 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 in the SAI.
The MONEY MARKET MUTUAL FUND seeks to provide investors with a high level
of income, while preserving capital and liquidity, by investing in high-quality,
short-term instruments. The Fund invests its assets only in U.S.
dollar-denominated, high-quality money market instruments, and may engage in
certain other investment activities as described in this Prospectus. Permitted
investments include short-term U.S. Government obligations, obligations of
domestic and foreign banks, commercial paper, and repurchase agreements. In
pursuing its objective, the Fund invests in instruments with remaining
maturities not exceeding thirteen months, as determined in accordance with Rule
2a-7 under the 1940 Act. As with all mutual funds, there can be no assurance
that the Fund, which is a diversified portfolio, will achieve its investment
objective.
The CALIFORNIA TAX-FREE MONEY MARKET MUTUAL FUND seeks to obtain a high
level of income exempt from federal income tax and California personal income
tax, while preserving capital and liquidity, by investing in high-quality,
short-term U.S. dollar-denominated money market instruments, primarily municipal
obligations. This investment objective is fundamental and cannot be changed
without shareholder approval. There can be no assurance that the Fund, which is
a nondiversified portfolio, will achieve its investment objective. 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 both federal income tax and California personal income tax:
bonds, notes, and commercial paper issued by or on behalf of the State of
California, its cities, municipalities, political subdivisions and other public
authorities. 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 also invest in obligations issued by
the U.S. Virgin Islands, Puerto Rico and Guam, the interest on which also is
exempt from federal income tax and California personal income tax.
The California Tax-Free Money Market Mutual Fund may temporarily invest
some of its assets in certain high-quality, taxable money market instruments or
may engage in certain other investment activities as described in this
Prospectus. The Fund may elect to invest temporarily up to 20% of its
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net assets in certain permitted taxable investments, which include cash
reserves, U.S. Government obligations, obligations of domestic and foreign
banks, foreign securities, rated commercial paper, taxable municipal
obligations, repurchase agreements, and 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 Fund shares 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 Fund's assets in securities exempt from such taxes.
As a matter of fundamental policy, at least 80% of the California Tax-Free
Money Market Mutual Fund's net assets are invested (under normal market
conditions) in municipal obligations that pay interest which is exempt from
federal income tax and not subject to the federal alternative minimum tax (or in
other open-end tax-free money market funds with a similar fundamental policy).
At least 65% of the Fund's total assets are invested (under normal market
conditions) in municipal obligations that pay interest which is exempt from
California personal income tax. However, as a matter of general operating
policy, the Fund seeks to have substantially all of its assets invested 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 California municipal obligations that are
related in such a way that an economic, business or political development or
change affecting one such obligation would also affect the other obligations;
for example, the California Tax-Free Money Market Mutual Fund may own different
municipal obligations which pay interest based on the revenues of similar types
of projects.
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, which is a diversified portfolio, seeks to
achieve its investment objective by investing all of its assets in the Master
Portfolio, which has the same investment objective as the Fund. The Master
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 months.
Since the investment characteristics of the Fund correspond directly to
those of the Master Portfolio, the following is a discussion of the various
investments of, and techniques employed by, the Master Portfolio.
Wells Fargo Bank, as investment adviser to the Master Portfolio, pursues
the investment objective of the Master Portfolio by investing (under normal
market conditions) substantially all of the Master Portfolio's assets in the
following types of municipal obligations that pay interest which is exempt from
federal income tax: bonds, notes and commercial paper issued by or on behalf of
states, territories, and possessions of the United States (including the
District of Columbia) and their political subdivisions, agencies,
instrumentalities (including government-sponsored enterprises) and authorities,
the interest on which, in the opinion of counsel to the issuer or bond counsel,
is
PROSPECTUS 14
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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 Master Portfolio 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
Master Portfolio 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 Master Portfolio may also invest in
U.S. dollar-denominated obligations of foreign banks and foreign securities.
Such temporary investments would most likely be made when there is an unexpected
or abnormal level of investor purchases or redemptions of interests in the
Master Portfolio 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 Master Portfolio's assets in securities exempt from such tax.
As a matter of fundamental policy, at least 80% of the net assets of the
Master Portfolio 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 Master Portfolio seeks to invest substantially all of its
assets in such municipal obligations. The Master Portfolio'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 Master Portfolio 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 Master Portfolio may own different
municipal obligations which pay interest based on the revenues of similar types
of projects.
The Master Portfolio
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. If the Master Portfolio's investment objective or 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.
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The GOVERNMENT MONEY MARKET MUTUAL FUND seeks to provide investors with as
high a level of current income as is consistent with preservation of capital and
liquidity. The Fund pursues its objective by investing its assets exclusively in
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities (as described in the "Prospectus Appendix -- Additional
Investment Policies"). The Fund may also invest in repurchase agreements
collateralized by such U.S. Government obligations. The Fund's investment
objective, and the fundamental policy stated above, may not be changed without
the vote of a majority of the outstanding shares of the Fund.
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 only in obligations issued or guaranteed by the U.S. Treasury (as
described in the "Prospectus Appendix -- Additional Investment Policies") and in
notes and other instruments, including repurchase agreements, collateralized or
secured by such obligations. The Fund's investment objective, and the
fundamental policy stated above, may not be changed without the vote of a
majority of the outstanding shares of the Fund.
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 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 the Funds seek to maintain a stable net
asset value of $1.00 per share, there is no assurance that they will be able to
do so. The Funds 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 Funds invest. As with all mutual funds, there can be no
assurance that a 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 maintain a
stable net asset value of $1.00 per share. See "Prospectus
Appendix -- Additional Investment Policies" for further discussion of investment
objectives and risks.
The Funds' 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 (13 months). In addition, any security that a Fund purchases
must present minimal credit risks and be of "high quality," or in the case of
the Treasury Money Market Mutual Fund, be of the "highest quality." "High
quality" means to be rated in the top two rating categories and "highest
quality" means to be rated only 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 Board of Directors of the Company.
PROSPECTUS 16
<PAGE> 123
Each Fund seeks to reduce risk by investing its assets in securities of
various issuers. As such, the Money Market Mutual Fund and the National Tax-Free
Money Market Mutual Fund are 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 the investment
adviser prohibit the purchase 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 Funds:
- capped floaters (on which interest is not paid when market rates move
above a certain level);
- leveraged floaters (whose interest rate reset provisions are based on a
formula that magnifies changes in interest rates);
- range floaters (which do not pay any interest if market interest rates
move outside of a specified range);
- dual index floaters (whose interest rate reset provisions are tied to
more than one index so that a change in the relationship between these
indices may result in the value of the instrument falling below face
value); and
- inverse floaters (which reset in the opposite direction of their index).
Additionally, the Funds 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 Funds may invest only in
variable or floating-rate securities that bear interest at a rate that resets
quarterly or more frequently and that resets based on changes in standard money
market rate indices such as U.S. Treasury bills, London Interbank Offered Rate
or LIBOR, the prime rate, published commercial paper rates, federal funds rates,
Public Securities Associates floaters or JJ Kenney index floaters.
Since the California Tax-Free Money Market Mutual 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. While the
California Tax-Free Money Market Mutual Fund seeks to reduce risk by investing
its assets in securities of various issuers, the Fund is considered to be
nondiversified for purposes of the 1940 Act. However, the California Tax-Free
Money Market Mutual Fund will comply with the Internal Revenue Code of 1986, as
amended from time to time (the "Code"), diversification requirements, as
described in the "Prospectus Appendix -- Additional Investment Policies" section
below.
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 between. 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
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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 the 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 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.
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.
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.
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
The performance of each Fund may be advertised from time to time in terms
of current yield, effective yield, and average annual total return. In addition,
the performance of the Tax-Free Funds 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 a
Fund.
Yield refers to the income generated by an investment in a Fund or class
over a specified period (usually 7 days), expressed as an annual percentage
rate. Effective yield is calculated similarly but assumes reinvestment of the
income earned from a Fund or class. Because of the effects of compounding,
effective yields are slightly higher than yields. For the Tax-Free Funds, the
tax-
PROSPECTUS 18
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equivalent and effective tax-equivalent yields assume that a stated income tax
rate has been applied to determine the tax-equivalent figures. Application of a
stated income-tax rate results in higher yield and effective yield figures.
Average annual total return is based on the overall dollar or percentage
change of an investment in a Fund or class and assumes the investment is at NAV
and all dividends and distributions are also reinvested at NAV in shares of the
Fund or 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 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 Money Market Mutual or Treasury Money Market
Mutual Funds, the performance figures on such shares can be expected, at any
given time, to vary from the performance figures for other classes of these
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 1-800-222-8222 or by writing
the Company at the address shown on the inside front cover of the Prospectus.
THE FUNDS AND MANAGEMENT
THE FUNDS
The Funds are five funds in the Stagecoach Family of Funds. The Company was
organized as a Maryland corporation on September 9, 1991 and currently offers
shares of twenty 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 at NAV.
Each class of shares represents an equal proportionate interest in a Fund
with other shares of the same class. Shareholders of each class bear their pro
rata portion of a Fund's operating expenses except for certain class-specific
expenses that are allocated to a particular class and, accordingly, may affect
performance. For information on another fund or a class of shares, please call
Stagecoach Shareholder Services at 1-800-222-8222 or write the Company at the
address shown on the front cover of the Prospectus.
The Company's Board of Directors supervises the Funds' activities and
monitors their contractual arrangements with various service providers. Although
the Company is not required to hold annual shareholder meetings, special
meetings may be required for purposes such as electing or removing Directors,
approving advisory contracts and distribution plans, and changing a fund's
investment objective or fundamental investment policies. All shares of the
Company have equal
19 PROSPECTUS
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voting rights and will be voted in the aggregate, rather than by fund or class,
unless otherwise required by law (such as when the voting matter affects only
one fund or class). As a Fund shareholder, you are entitled to one vote for each
share you own and fractional votes for fractional shares you own. See
"Management" in the SAI for more information on the Company's Directors and
Officers. A more detailed description of the voting rights and attributes of the
shares is contained under "Capital Stock" in the SAI.
MANAGEMENT
Wells Fargo Bank serves as each Fund's investment adviser (or in the case
of the National Tax-Free Money Market Mutual Fund, as adviser to the Master
Portfolio), administrator, transfer and dividend disbursing agent and custodian.
In addition, Wells Fargo Bank serves as a shareholder servicing agent and as a
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
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. Wells Fargo Bank also serves as investment
adviser to other separately managed funds of the Company, and as investment
adviser or sub-adviser to separately managed funds of 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. Wells Fargo Investment Management, Inc. ("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.
Subsequent to its acquisition by Wells Fargo Bank on April 1, 1996, WFIM
(formerly, First Interstate Capital Management, Inc.) served as investment
adviser to the predecessor portfolios of the Government and Treasury Money
Market Mutual Funds. Prior to March 18, 1994, the predecessor portfolios'
investment adviser was San Diego Financial Capital Management, Inc., which was
acquired by First Interstate Bancorp through its merger with San Diego Financial
Corporation.
Morrison & Foerster LLP, counsel to the Company and MIT and special counsel
to Wells Fargo Bank, has advised the Company, MIT and Wells Fargo Bank that
Wells Fargo Bank and its affiliates may perform the services contemplated by the
Investment 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 20
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INVESTING IN THE FUNDS
You may purchase Fund shares directly by opening a Fund account or, in the
case of the Money Market Mutual and Tax-Free Funds, indirectly by opening a
sweep account with Wells Fargo Bank.
OPENING A FUND 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 Account
Applications. A separate Account 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 Government and Treasury Money Market Mutual Funds through
tax-deferred retirement plans through which these Funds are available, please
contact a shareholder servicing agent or a selling agent to receive information
and the required separate application. See "Tax-Deferred Retirement Plans"
below.
The Company or Stephens may make the Prospectus available in an electronic
format. Upon receipt of a request from you or your representative, the Company
or Stephens will transmit or cause to be transmitted promptly, without charge, a
paper copy of the electronic Prospectus.
Customers of Wells Fargo Bank may invest in the Class A shares of the Money
Market Mutual Fund or shares of the Tax-Free Funds through a Money Market Access
Account or a Money Market Checking Account established with the Bank. Customers
of Wells Fargo Bank who currently hold shares of the California Tax-Free Money
Market Mutual Fund through a Managed Sweep Account may also open additional
Managed Sweep Accounts that sweep into the California Tax-Free Money Market
Mutual Fund. Investments through an account are governed by the terms and
conditions of the Account, which are set forth in a separate Disclosure
Statement provided by Wells Fargo Bank to each Accountholder. In light of the
automated sweep and custodial account structure of investments through an
Account, certain of the features described in this Prospectus are not available
to investors purchasing shares through an Account. Specifically, shares of a
Fund purchased through an Account may be redeemed only through the Account, and
the dividend and distribution options and exchange privileges described in this
Prospectus are not available with respect to shares purchased through an
Account. Potential Accountholders should refer to the Disclosure Statement for
more information regarding the Account, including information about fees and
expenses.
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SHARE VALUE
Wells Fargo Bank calculates the NAV per share of Class A shares of the
Money Market Mutual, Government Money Market Mutual and Treasury Money Market
Mutual Funds as of 12:00 Noon and 1:00 p.m. (Pacific time) and of shares of the
California Tax-Free Money Market Mutual and National Tax-Free Money Market
Mutual Funds as of 9:00 a.m. and 1:00 p.m. (Pacific time) on each day the Funds
are open (a "Business Day"). The Funds are open Monday through Friday and are
closed on weekends and federal bank holidays. NAV is computed by dividing the
value of the assets allocable to a particular class or Fund, less the
liabilities charged to that class or Fund by the total number of the outstanding
shares of that class or Fund. All expenses are accrued daily and taken into
account for the purposes of computing NAV. As noted above, each Fund seeks to
maintain a constant $1.00 NAV share price, although there can be no assurance
that it will be able to do so. The National Tax-Free Money Market Mutual Fund's
investments in the Master Portfolio are valued at the NAV of the Master
Portfolio's interests. The Master Portfolio calculates the NAV of its interests
on the same day and at the same time as the National Tax-Free Money Market
Mutual Fund.
Shares may be purchased on any Business Day. Purchase orders for Class A
shares of the Money Market Mutual, Government Money Market Mutual and Treasury
Money Market Mutual Funds received before 12:00 Noon (Pacific time) are
processed at 12:00 Noon on that Business Day. Purchase orders received after
12:00 Noon are processed at 12:00 Noon the next Business Day. Purchase orders
for shares of the California Tax-Free Money Market Mutual and National Tax-Free
Money Market Mutual Funds received before 9:00 a.m. (Pacific time) are processed
at 9:00 a.m. on that Business Day. Purchase orders received after 9:00 a.m. are
processed at 9:00 a.m. the next Business Day. Transaction orders that are
received prior to 1:00 p.m. through shareholder servicing agents in connection
with automated investment programs are processed at 1:00 p.m. All transaction
orders are effective at the NAV next determined after the order is processed.
The Funds' and the Master Portfolio's NAV are each 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 and MIT's Board of Trustees believe that this valuation method
accurately reflects fair value.
HOW TO BUY SHARES
You may buy Fund shares on any Business Day by any of the methods described
below. After a properly completed Account Application is received and your wire
order or check is received, or an account with a bank that is designated in the
Account Application and that is approved by the transfer agent (an "Approved
Bank Account") is debited, your purchase order is effected, and full and
fractional shares are purchased at the next determined NAV, which is expected to
remain a constant $1.00 per share. 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).
PROSPECTUS 22
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Generally, the minimum initial investment is $2,500. The minimum initial
investment amounts, however, are $100 for investments made through the AutoSaver
Plan (described below) and $250 for investments made through 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, 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. This means, for
example, that you can make an initial investment of only $1,000 in a Fund even
though ordinarily a $2,500 minimum balance is required, if you are exchanging
from a fund that has a $1,000 minimum investment requirement. 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 Funds
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(TM), please call
1-800-222-8222 or contact a shareholder servicing agent or selling agent (as
defined below). 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.
Shares of the Tax-Free Funds may not be suitable investments for tax-exempt
institutions or tax-deferred retirement plans, since such investors would not
benefit from the exempt status of the Funds' dividends. See "Federal Income
Taxes -- Special Tax Considerations" in the SAI. In addition, California
Tax-Free Money Market Mutual Fund shares are not available in all states.
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 books of the Company
and share certificates are not issued.
INITIAL PURCHASES BY WIRE
1. Complete an Account Application. Indicate the services to be used.
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2. Instruct the wiring bank to transmit the specified amount in federal funds
($2,500 or more) to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000587
Attention: Stagecoach Funds (Name of Fund) (designate Class A where
applicable)
Account Name(s): Name(s) in which to be registered
Account Number: (if investing into an existing account)
3. A completed Account Application should be mailed, or sent by telefacsimile
with the original subsequently mailed, to the following address immediately
after the funds are wired and must be received and accepted by the transfer
agent before an account can be opened:
Wells Fargo Bank, N.A.
Stagecoach Shareholder Services
P.O. Box 7066
San Francisco, California 94120-7066
Telefacsimile: 1-415-543-9538
4. Share purchases are effected at the 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 $2,500 or more, payable to
"Stagecoach Funds (Name of Fund) (designate Class A where applicable)," to
the address set forth under "Initial Purchases by Wire" above.
3. Share purchases 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 your
Approved Bank Account. You may open an Approved Bank Account with Wells Fargo
Bank. The transfer agent withdraws and uses this amount to purchase Fund shares
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. Certain restrictions may apply to indirect
investments, such as those made through a brokerage account or Wells Fargo Bank
Sweep Account, including the inability to select the particular day of the month
when the transfer
PROSPECTUS 24
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agent purchases Fund shares on your behalf. See "Investing in the
Funds -- Opening a Wells Fargo Bank Sweep Account." The transfer agent requires
a minimum of ten (10) Business Days to implement your AutoSaver Plan purchases.
There are no separate fees charged to you by the 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 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-deferred retirement plan application to your shareholder servicing
agent or 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 with an instruction
to 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 A, if applicable)" to the address set forth above 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 shares of the Money Market Mutual,
Government Money Market Mutual and Treasury Money Market Mutual Funds through a
broker/dealer or financial institution that has entered into a selling agreement
with Stephens, the Funds' distributor (a "Selling Agent") by 12:00 Noon (Pacific
time) on any Business Day, including orders for which payment is to be made from
your free cash credit balance maintained with a Selling Agent. These
25 PROSPECTUS
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purchase orders are executed on the same day the order is placed if notice is
provided to the transfer agent by 12:00 Noon (Pacific time) and if federal funds
are received by the transfer agent before the close of business that day. If
your purchase order is received by a Selling Agent after 12:00 Noon (Pacific
time) on any Business Day or if federal funds are not received by the transfer
agent before the close of business that day, then your purchase order generally
is executed on the next Business Day.
You may place a purchase order for shares of the California Tax-Free Money
Market Mutual and National Tax-Free Money Market Mutual Funds through a Selling
Agent by 9:00 a.m. (Pacific time) on any Business Day, including orders for
which payment is to be made from your free cash credit balance maintained with a
Selling Agent. These purchase orders are executed on the same day the order is
placed if notice is provided to the transfer agent by 9:00 a.m. (Pacific time)
and if federal funds are received by the transfer agent before the close of
business that day. If your purchase order is received by the Selling Agent after
9:00 a.m. (Pacific time) on any Business Day or if federal funds are not
received by the transfer agent before the close of business that day, then your
purchase order generally is executed on the next Business Day.
The Selling Agent is responsible for the prompt transmission of your
purchase order to the Company. 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 (a "Shareholder Servicing Agent"), such as Wells Fargo Bank. See
"Management, Distribution and Servicing Fees -- Shareholder Servicing Agent" for
more information. A Shareholder Servicing Agent may transmit your purchase order
to the transfer agent, including an order for which payment is to be transferred
from your Approved Bank Account or wired from a financial institution. If the
Shareholder Servicing Agent transmits your order for shares of the Money Market
Mutual, Government Money Market Mutual or Treasury Money Market Mutual Funds to
the transfer agent before 12:00 Noon (Pacific time) and if federal funds are
received by the transfer agent before the close of business that day, the
purchase order is executed on the same day. If your Shareholder Servicing Agent
transmits your purchase order to the transfer agent after 12:00 Noon or if
federal funds are not received by the transfer agent before the close of
business that day, then your order generally is executed on the next Business
Day, except that automated investment program purchase orders transmitted
through Shareholder Servicing Agents are executed as of 1:00 p.m. on each
Business Day. The Shareholder Servicing Agent is responsible for the prompt
transmission of your purchase order to the Company.
If the Shareholder Servicing Agent transmits your order for shares of the
California Tax-Free Money Market Mutual or National Tax-Free Money Market Mutual
Funds before 9:00 a.m. (Pacific time) and if federal funds are received by the
transfer agent before the close of business that day, the purchase order is
executed on the same day. If your Shareholder Servicing Agent transmits your
PROSPECTUS 26
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purchase order to the transfer agent after 9:00 a.m. or if federal funds are not
received by the transfer agent before the close of business that day, then your
order generally is executed on the next Business Day, except that automated
investment program purchase orders transmitted through Shareholder Servicing
Agents are executed as of 1:00 p.m. on each Business Day.
STATEMENTS AND REPORTS
The Company, or a Shareholder Servicing Agent on its behalf, typically
sends you a monthly statement of your Fund account after every month in which
there has been a transaction that affects your share balance or your Fund
account registration. Every January, you will be provided a statement with tax
information for the previous year to assist you in tax return preparation. At
least twice a year, the Company's financial statements are mailed to
shareholders of record.
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
Each Fund intends to declare dividends on a daily basis payable to
shareholders of record as of 12:00 Noon (Pacific time) (9:00 a.m. for the
California Tax-Free and National Tax-Free Money Market Mutual Funds). If your
purchase order is received before 12:00 Noon (9:00 a.m. for the California
Tax-Free and National Tax-Free Money Market Mutual Funds) on any Business Day,
or 1:00 p.m. on any Business Day through a transfer agent, you begin earning
dividends on that Business Day and continue to earn dividends through the day
before you redeem such shares. If your purchase order is received at or after
12:00 Noon (9:00 a.m. for the California Tax-Free and National Tax-Free Money
Market Mutual Funds) on any Business Day, or 1:00 p.m. on any Business Day
through a transfer agent, you begin earning dividends on the next Business Day
and continue to earn dividends through the day on which you redeem your shares.
Dividends for a Saturday, Sunday or Holiday are declared payable to
shareholders of record as of the preceding Business Day. If you redeem shares
before a 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 will receive any accrued dividends together
with your redemption proceeds. The Funds distribute any capital gains at least
annually. Dividends for the Funds generally are distributed on the last Business
Day of the month in which they are declared. You have three options for
receiving dividend and any capital-gain distributions. They are discussed under
"Additional Shareholder Services -- Dividend and Capital Gain Distribution
Options" below.
27 PROSPECTUS
<PAGE> 134
HOW TO REDEEM SHARES
You may redeem Fund shares on any Business Day without a charge by the
Company. Your shares are redeemed at the NAV next calculated after the Company
has received your redemption order. Redemption orders received by the transfer
agent before 12:00 Noon (Pacific time) (9:00 a.m. for the California Tax-Free
and National Tax-Free Money Market Mutual Funds) on any Business Day are
executed on that day. Such redemption orders that are received after 12:00 Noon
(9:00 a.m. for the California Tax-Free and National Tax-Free Money Market Mutual
Funds) on any Business Day are executed on the next Business Day. The Company
ordinarily remits your 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 (c) a period during which the SEC by order permits deferral
of redemptions for the protection of the Fund's security holders. In addition,
the Company may hold payment on your redemption until reasonably satisfied that
your investments made by check have been collected (which can take up to 10 days
from the purchase date). To ensure acceptance of your redemption order, please
follow the procedures described below. Payment of redemption proceeds may be
made in securities, subject to regulation by some state securities commissions.
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
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. 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 Fund shares 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 at least the
applicable minimum balance. For a discussion of applicable minimum balance
requirements, see "Investing in the Funds -- How to Buy Shares."
PROSPECTUS 28
<PAGE> 135
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 LETTER
1. Write a letter of instruction. Indicate 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 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 LETTER OR TELEPHONE
You may request an expedited redemption of Fund shares by letter, in which
case your receipt of redemption proceeds (but not a Fund's receipt of your
redemption request) would be expedited. Telephone redemption or exchange
privileges are made available to you automatically upon the opening of an
account unless you specifically decline the privilege. You also may request an
expedited redemption of Fund shares by telephone on any Business Day, in which
case both your
29 PROSPECTUS
<PAGE> 136
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 mail your expedited redemption request to the transfer agent at the
address set forth under "Investing in the Fund -- Initial Purchases by Wire."
Upon request, 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 account at an Approved Bank or a 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 Fund shares is received by the transfer agent before
12:00 Noon (Pacific time) (9:00 a.m. for the California or National Tax-Free
Money Market Mutual Funds) on a Business Day, your redemption proceeds are
transmitted to your Approved Bank Account or Selling Agent on the same 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 Systematic Withdrawal Plan provides you with a convenient way to have
Fund shares redeemed from your account and the proceeds distributed to you on a
monthly basis. You may participate in this Plan only if you have a Fund account
valued at $10,000 or more as of the date of your election to participate, your
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 proceeds as instructed on or about the fifth Business Day
PROSPECTUS 30
<PAGE> 137
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) Business 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 participation in
the Plan 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
You may request a redemption of Fund shares through your Selling Agent.
Redemption orders transmitted by a Selling Agent to the transfer agent before
12:00 Noon (Pacific time) (9:00 a.m. for the California or National Tax-Free
Money Market Mutual Funds) on any Business Day, are executed on that day.
Redemption orders transmitted by a Selling Agent to the transfer agent after
12:00 Noon (9:00 a.m. for the California or National Tax-Free Money Market
Mutual Funds) on any Business Day are executed 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 a Selling Agent and the
transfer agent has been informed of such arrangements, 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 redemption proceeds
is mailed to your address of record or, if such address is no longer valid, the
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 proceeds in such
account. The Selling Agent may charge you a service fee. In addition, the
Selling Agent may benefit from the use of your redemption proceeds until the
check 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. Redemption requests made by telephone through your Shareholder
Servicing Agent must redeem shares with a total value equal to $100 or more.
Redemption orders transmitted by the Shareholder Servicing Agent to the transfer
agent before 12:00 Noon (Pacific time) (9:00 a.m. for the California or National
Tax-Free Money Market Mutual Funds) on any Business Day, are executed on that
day. Redemption orders transmitted by a Shareholder Servicing Agent after 12:00
Noon (9:00 a.m. for the California or National Tax-Free Money Market Mutual
Funds) on any Business Day, generally are executed on the next Business Day. The
Shareholder Servicing Agent is responsible for the prompt transmission of your
redemption order to the Funds.
Unless you have made other arrangements with your Shareholder Servicing
Agent and the transfer agent has been informed of such arrangements, proceeds of
a redemption order made
31 PROSPECTUS
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through your Shareholder Servicing Agent are credited to your Approved Bank
Account. If no such account is designated, a check for the proceeds is mailed to
your address of record or, if such address is no longer valid, the 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, the
Shareholder Servicing Agent may benefit from the use of your redemption proceeds
until any check it issues to you has cleared or until such proceeds have been
disbursed or reinvested on your behalf.
ADDITIONAL SHAREHOLDER SERVICES
The Company offers you a number of optional services. As noted above, you
can take advantage of the AutoSaver Plan, Systematic Withdrawal Plan, and
Expedited Redemptions by Letter and Telephone. In addition, you have three
dividend and distribution payment options and an exchange privilege, which are
described below.
DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
When you fill out your Account Application, you can choose from three
distribution options listed below. If you have questions about the distribution
options available to you, please call 1-800-222-8222.
A. The AUTOMATIC REINVESTMENT OPTION provides for the reinvestment of your
dividend and/or capital-gain distributions in additional shares of the
same class of the Fund that paid the distributions. Distributions
declared in a month are reinvested at NAV on the last Business day of
the month. You are assigned this option automatically if you make no
choice on your Account Application.
B. 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 your distribution is
returned to the dividend disbursing agent, your distribution is
reinvested in your Fund account at the NAV next determined after the
distribution has been received. In addition, your Automatic Clearing
House Option is then converted to the Automatic Reinvestment Option.
C. 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 early in the month
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
distribution has been received. Your Check Payment Option is then
converted to the Automatic Reinvestment Option.
PROSPECTUS 32
<PAGE> 139
The Company makes reasonable efforts to locate investors whose checks are
returned or uncashed after six months. The Company forwards moneys to the
dividend disbursing agent so that it may issue you dividend checks under the
Check Payment Option. The dividend disbursing agent may benefit from the
temporary use of such moneys until these checks clear.
EXCHANGE PRIVILEGE
Wells Fargo Bank advises a variety of other funds, each with its own
investment objective and policies. The exchange privilege is a convenient way to
buy shares in another fund of the Stagecoach Family of Funds to respond to
changes in your investment needs. You can exchange Class A shares of a Fund for
Class A or B shares of another fund.
You should consider the following important factors in deciding whether to
exchange shares:
- 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. Therefore, the redemption may produce a gain or
loss for federal income tax purposes.
- You must exchange the minimum purchase amount from the fund you are
redeeming unless your balance has fallen below that amount due to market
conditions.
- You will be required to pay any difference in load that you are subject
to in the new fund.
- 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.
You can 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.
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MANAGEMENT, DISTRIBUTION AND
SERVICING FEES
INVESTMENT ADVISER
Subject to the overall supervision of the Company's Board of Directors and
MIT's Board of Trustees, Wells Fargo Bank, as the investment adviser, provides
investment guidance and policy direction in connection with the management of
the Funds' assets. Wells Fargo Bank also furnishes the Board of Directors with
periodic reports on the Funds' investment strategies and performance. For these
services, Wells Fargo Bank is entitled to a monthly investment advisory fee at
an annual percentage rate of the average daily net assets of each Fund as
follows: 0.40% for the Money Market Mutual Fund, 0.50% for the California
Tax-Free Money Market Mutual Fund, 0.30% for the Master Portfolio, of which the
National Tax-Free Money Market Mutual Fund bears a pro rata portion, and 0.25%
for the Government Money Market Mutual and Treasury Money Market Mutual Funds.
From time to time, Wells Fargo Bank may waive such fees in whole or in part. Any
such waiver will reduce expenses of the Funds and the Master Portfolio and,
accordingly, have a favorable impact on the Funds' performance. 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 and the year ended
December 31, 1995, the California Tax-Free Money Market Mutual Fund paid
advisory fees to Wells Fargo Bank at the annual rate of 0.50% of its average
daily net assets.
For the nine-month period ended September 30, 1996 and the year ended
December 31, 1995, the Money Market Mutual Fund paid advisory fees to Wells
Fargo Bank at the annual rate of 0.40% of its average daily net assets.
For the period from commencement of operations (April 2, 1996) to September
30, 1996, the National Tax-Free Money Market Master Portfolio did not pay any
advisory fees on behalf of the National Tax-Free Money Market Mutual Fund.
For the year ended September 30, 1996, the Government Money Market Mutual
and Treasury Money Market Mutual Funds paid advisory fees at the annual rates of
0.30% and 0.13%, respectively, of their average daily net assets. For periods
prior to September 6, 1996, this includes advisory fees paid to Wells Fargo
Investment Management, Inc. by the predecessor portfolios to the Funds.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank also serves as the Funds' and the Master Portfolio's
custodian and transfer and dividend disbursing agent. Under its respective
Custody Agreement with Wells Fargo Bank, each
PROSPECTUS 34
<PAGE> 141
Fund and the Master Portfolio may, at times, borrow money from Wells Fargo Bank
as needed to satisfy temporary liquidity needs. Wells Fargo Bank charges
interest on such overdrafts at a rate determined pursuant to each Fund's and/or
Master Portfolio's Custody Agreement. The custodial, transfer and dividend
disbursing agency activities are performed at 525 Market Street, San Francisco,
California 94105.
SHAREHOLDER SERVICING AGENT
On behalf of the Class A shares, the Funds have entered into Shareholder
Servicing Agreements with Wells Fargo Bank and may enter into similar agreements
with other entities. Under the agreements, Shareholder Servicing Agents
(including Wells Fargo Bank) agree to perform, as agents for their customers,
administrative services, with respect to Fund shares, which include 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 fees, as
calculated on an annualized basis for each Fund's then-current fiscal year, up
to (1) 0.30% of the average daily net assets of each of the California Tax-Free
Money Market Mutual Fund and Class A shares of the Money Market Mutual Fund, and
0.25% of the average daily net assets of each of the National Tax-Free Money
Market Mutual, Government Money Market Mutual and Treasury Money Market Mutual
Funds, as represented by shares owned during the period for which payment is
being made by investors with whom the Shareholder Servicing Agent maintains a
servicing relationship, or (2) an amount which equals the maximum amount payable
to the Shareholder Servicing Agent under applicable laws, regulations or rules,
including the Conduct Rules of the NASD ("NASD Rules"). In no event will the
portion of such fees that constitutes a "service fee," as that term is used by
the NASD, exceed 0.25% of the average net asset value of a Fund or Class of a
Fund, as the case may be.
Shareholder Servicing Agents may impose certain conditions on their
customers, subject to the terms of this Prospectus, in addition to or different
from those imposed by each 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.
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 the other services provided to the Funds and the
Master Portfolio, 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
35 PROSPECTUS
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to conduct each Fund's and the Master Portfolio'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 each 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 nine-month period ended September 30, 1996,
the California Tax-Free Money Market Mutual, Money Market Mutual and National
Tax-Free Money Market Mutual Funds paid administrative fees to Stephens at the
annual rates of 0.03%, 0.03% and 0.05%, respectively, of each Fund's average
daily net assets. For the year ended September 30, 1996, the Government and
Treasury Money Market Mutual Funds paid administrative fees at the annual rates
of 0.13% and 0.09%, respectively, of each Fund's average daily net assets. For
the period prior to September 6, 1996, this includes amounts paid to Furman Selz
LLC and Dreyfus Corporation by the predecessor portfolio to the Treasury Money
Market Mutual Fund and to Furman Selz LLC by the predecessor portfolio to the
Government Money Market Mutual 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 principal underwriter of the Fund within the meaning of
the 1940 Act, has entered into a Distribution Agreement with the Company
pursuant to which Stephens is responsible for distributing Fund shares. The
Company also has adopted Distribution Plans under Rule 12b-1 (the "Plans").
Under the Plans, and on behalf of the Class A shares of the Money Market Mutual
Fund and shares of the California Tax-Free Money Market Mutual Fund
(collectively, such shares referred to in this subsection as the "Class A
shares"), the Company may defray all or part of the actual cost of preparing and
printing prospectuses and other promotional materials and of delivering
prospectuses and those materials to prospective Class A shareholders by paying
on an annual basis up to 0.05% of the average daily net assets attributable to
their respective shares. Pursuant to the Plans for the Class A shares of
National Tax-Free, Government and Treasury Money Market Mutual Funds, Stephens
is entitled to receive as compensation for distribution-related services, a
monthly fee at an annual rate of up to 0.05% of the average daily net assets
attributable to their respective Class A shares. 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;
PROSPECTUS 36
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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; costs of printing
prospectuses and other materials to be given or sent to prospective investors;
and other similar services as the Directors determine to be reasonably
calculated to result in the sale of shares of each Fund. 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.
Under the Distribution Agreement, Stephens may enter into Selling
Agreements with Selling Agents that wish to make available shares of each Fund
to their respective customers. On behalf of the Class A shares, 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 are allocated among the Funds 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 fund may earn additional compensation in the form of trips to sales
seminars or vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise, or the cash value of a non-cash
compensation item.
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.
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 of the Company bear all costs of its
operations, including its pro rata portion of the Company expenses such as fees
and expenses of its independent auditors and legal counsel, and compensation of
the Company's directors who are not affiliated with the adviser, administrator
or any of their affiliates; advisory, shareholder servicing, transfer agency,
custody and administration fees, payments pursuant to any Plans, interest, 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. The National Tax-Free Money
Market Fund bears a pro rata portion of the Tax-Free Money Market Master
Portfolio's expenses.
37 PROSPECTUS
<PAGE> 144
TAXES
Dividends distributed from the California Tax-Free Money Market Mutual and
National Tax-Free Money Market Mutual Funds' net interest income from tax-exempt
securities will not be subject to federal income taxes. Dividends from the
California Tax-Free Money Market Mutual Fund will also be exempt from California
personal income tax to the extent such dividends are attributable to instruments
that pay interest which would be exempt from California personal income taxes,
if such instruments were held directly by an individual. Dividends attributable
to the California Tax-Free Money Market Mutual and National Tax-Free Money
Market Mutual Funds' interest income from taxable securities and short-term
capital gains and capital gain distributions will be taxable when paid, whether
you take such distributions in cash or have them automatically reinvested in
additional Fund shares.
Dividends from the net investment income and net short-term capital gains,
if any, of the Money Market Mutual, Government Money Market Mutual and Treasury
Money Market Mutual Funds are taxable to the Funds' shareholders as ordinary
income. Distributions from these Funds' 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. These dividend and capital gain distributions will
be taxable when paid, whether you take such distributions in cash or have them
automatically reinvested in additional Fund shares.
All 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 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, where applicable,
are discussed in the SAI for each Fund.
PROSPECTUS 38
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PROSPECTUS APPENDIX --
ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
Set forth below is a description of certain investments and additional
investment policies for each Fund, except where otherwise indicated. REFERENCES
TO THE INVESTMENTS AND INVESTMENT POLICIES AND RESTRICTIONS OF THE NATIONAL
TAX-FREE MONEY MARKET MUTUAL FUND, UNLESS OTHERWISE INDICATED, SHOULD BE
UNDERSTOOD AS REFERENCES TO THE INVESTMENTS AND INVESTMENT POLICIES AND
RESTRICTIONS OF THE MASTER PORTFOLIO IN WHICH SUCH FUND INVESTS ITS ASSETS.
Money Market Mutual Fund
The Money Market Mutual Fund may invest in the following:
(i) U.S. Government obligations (discussed below);
(ii) negotiable certificates of deposit, fixed time deposits, bankers'
acceptances or other short-term obligations of U.S. banks (including
foreign branches) that have more than $1 billion in total assets at
the time of investment and are members of the Federal Reserve System
or are examined by the Comptroller of the Currency or whose deposits
are insured by the FDIC ("bank instruments");
(iii) commercial paper rated at the date of purchase P-1 by Moody's
Investors Service, Inc. ("Moody's") or "A-1+" or "A-1" by Standard &
Poor's Rating Group ("S&P") ("rated commercial paper");
(iv) commercial paper unrated at the date of purchase but secured by a
letter of credit from a U.S. bank that meets the above criteria for
investment;
(v) certain floating- and variable-rate instruments (discussed below);
(vi) certain repurchase agreements (discussed below); and
(vii) short-term, U.S. dollar-denominated obligations of U.S. branches of
foreign banks that at the time of investment have more than $10
billion, or the equivalent in other currencies, in total assets
("foreign bank obligations") (discussed below);
(viii) certain municipal obligations (discussed below); and
(ix) certain securities issued by other investment companies (discussed
below).
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California Tax-Free Money Market Mutual Fund
The California Tax-Free Money Market Mutual Fund may invest in the
following municipal obligations with remaining maturities not exceeding thirteen
months:
(i) long-term municipal bonds rated at the date of purchase "MIG 1" or "MIG
2" or, if no medium- or short-term rating is available, "Aa" or better
by Moody's or "AA" or better by S&P;
(ii) medium-term 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+" or "SP-1" 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 "A1+" by S&P.
Pending the investment of proceeds from the sale of Fund shares 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 California
Tax-Free Money Market Mutual Fund may elect to invest temporarily up to 20% of
the current value of its total assets in cash reserves or the following taxable
high-quality money market instruments:
(i) U.S. Government obligations;
(ii) bank instruments;
(iii) rated commercial paper;
(iv) repurchase agreements;
(v) foreign bank obligations;
(vi) high-quality municipal obligations, the income from which may or may not
be exempt from federal income taxes; and
(vii) certain securities issued by other investment companies.
Moreover, the California Tax-Free Money Market Mutual 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 California Tax-Free Money Market
Mutual 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.
PROSPECTUS A- 2
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National Tax-Free Money Market Mutual Fund
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.
Government Money Market Mutual Fund
The Government Money Market Mutual Fund may invest in the following:
(i) certain U.S. Government obligations;
(ii) certain repurchase agreements;
(iii) certain floating- and variable-rate instruments; and
(iv) certain securities issued by other investment companies.
Treasury Money Market Mutual Fund
The Treasury Money Market Mutual Fund may invest in the following:
(i) U.S. Treasury obligations (defined and discussed below);
(ii) certain repurchase agreements;
(iii) certain floating- and 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.
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<PAGE> 149
The following describes certain instruments in which the Funds may invest.
U.S. Government and U.S. Treasury Obligations
The Funds, except as described below with respect to the Treasury Money
Market Mutual Fund, may invest in obligations of agencies and instrumentalities
of the U.S. Government ("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.
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 ("U.S. Treasury obligations"). U.S. Treasury notes,
bills and bonds differ mainly in the length of their maturity. The U.S. Treasury
obligations in which the Fund invests may also include "U.S. Treasury STRIPS,"
interests in U.S. Treasury obligations reflected in the Federal Reserve-Book
Entry System that represent ownership in either the future interest payments or
the future principal payments on the U.S. Treasury obligations. U.S. Treasury
STRIPS are "stripped securities." 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. The Treasury and Government Money Market Mutual Funds may
invest in U.S. Treasury STRIPS.
The Funds may attempt to increase yields by trading to take advantage of
short-term market variations. This policy could 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.
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
PROSPECTUS A- 4
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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.
Forward Commitments, When-Issued Purchases and Delayed-Delivery Transactions
The Funds (other than the Money Market Mutual 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.
Other Investment Companies
Subject to the limitations set forth below and in the 1940 Act, the Funds
may invest in securities of other investment companies. For temporary
investments, the Money Market Mutual Fund and the Tax-Free Funds 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 with respect to the Tax-Free Funds,
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 a Fund; however, Wells Fargo Bank
has undertaken to waive its advisory fees with respect to that portion of the
Funds' assets so invested, except when such purchase is part of a plan of
merger, consolidation, reorganization or acquisition.
A- 5 PROSPECTUS
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The Treasury Money Market Fund may invest up to 10% of its assets in shares
of other open-end investment companies that invest exclusively in the
high-quality, short-term money market instruments in which the Fund 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.
Municipal Obligations
The Money Market Mutual Fund, and the Tax-Free Funds may invest in
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 Tax-Free Funds may each invest 25% or
more of the current value of its total assets in certain "private activity
bonds," such as pollution control bonds; provided, however, that such
investments will be made only to the extent they are consistent with the Funds'
fundamental policy of investing, under normal circumstances, at least 80% of its
net assets in municipal obligations that are exempt from federal income tax and
not subject to the federal alternative minimum tax.
The Master Portfolio 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.
For a further discussion of factors affecting purchases of municipal
obligations by the California Tax-Free Money Market Mutual Fund, see "Special
Considerations Affecting California Municipal Obligations" in the SAI.
PROSPECTUS A- 6
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Letters of Credit
Certain of the debt obligations, certificates of participation, commercial
paper and other short-term obligations which the Money Market Mutual Fund and
California Tax-Free Money Market Mutual Fund are 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 such Funds.
Foreign Obligations
Each 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. 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 affect adversely
investments in, the liquidity of, and the ability to enforce contractual
obligations with respect to, securities of issuers located in those countries.
Taxable Investments
Pending the investment of proceeds from the sale of interests of the Master
Portfolio 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 Master Portfolio 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 Master Portfolio 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 Master Portfolio's interestholders when, in the opinion of Wells
Fargo Bank, as investment adviser, it is advisable to do so because of unusual
market conditions.
A- 7 PROSPECTUS
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Illiquid Securities
The Funds 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 a Fund.
INVESTMENT POLICIES AND RESTRICTIONS
Each Fund's investment objective, as set forth in the "How the Funds
Work -- Investment Objectives and Policies" section, is fundamental.
Accordingly, such investment objectives and policies may not be changed without
approval by the vote of the holders of a majority of such Fund's outstanding
voting securities, as described under "Capital Stock" in the SAI. In addition,
any fundamental investment policy may not be changed without such shareholder
approval. If the Company's Board of Directors determines, however, that a Fund's
investment objective can best be achieved by a substantive change in a
nonfundamental investment policy or strategy, the Company's Board may make such
a change without shareholder approval and will disclose any such material
changes in the then-current prospectus.
Money Market Mutual and Tax-Free Funds
As matters of fundamental policy, the Money Market Mutual Fund or
California Tax-Free Money Market Mutual Fund may: (i) borrow from banks up to
10% of the current value of such Fund's 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 the
net assets exists); (ii) not make loans of portfolio securities or other assets,
except that loans for purposes of this restriction will not include the purchase
of fixed time deposits, repurchase agreements, commercial paper and other
short-term obligations, and other types of debt instruments commonly sold in a
public or private offering; and (iii) not invest more than 25% of its assets
(i.e., concentrate) in any particular industry, excluding, (a) investments in
municipal securities by the California Tax-Free Money Market Mutual Fund (for
the purpose of this restriction, private activity bonds shall not be deemed
municipal securities if the payments of principal and interest on such bonds is
the ultimate responsibility of nongovernmental users), (b) U.S. Government
obligations, and (c) obligations of domestic banks (for purposes of this
restriction, domestic bank obligations do not include obligations of foreign
branches of U.S. banks and obligations of U.S. branches of foreign banks).
As matters of nonfundamental policy: (i) the Money Market Mutual Fund may
not purchase securities of any issuer (except for U.S. Government obligations,
for certain temporary purposes and for certain guarantees and unconditional
puts) if as a result more than 5% of the value of its 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) the Money Market Mutual
Fund may not invest more than 10% of the current value of its net assets in
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale and fixed time
PROSPECTUS A- 8
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deposits that are subject to withdrawal penalties and that have maturities of
more than seven days; and (iii) the California Tax-Free Money Market Mutual Fund
may not invest more than 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. 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.
For purposes of complying with the Code, the California Tax-Free Money
Market Mutual 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 the
California Tax-Free Money Market Mutual Fund's assets is represented by cash,
U.S. Government obligations and other securities limited in respect of any one
issuer to an amount not greater than 5% of the California Tax-Free Money Market
Mutual 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.
In addition, at least 65% of the California Tax-Free Money Market Mutual
Fund's total assets are invested (under normal market conditions) in municipal
obligations that pay interest that is exempt from California personal income
tax. However, as a matter of general operating policy, the California Tax-Free
Money Market Mutual Fund seeks to have substantially all of its assets invested
in such municipal obligations.
As matters of fundamental policy, the National Tax-Free Money Market Mutual
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 Master Portfolio 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; loans for purposes of this restriction
will not include the Fund's purchase of interests in the Master Portfolio; (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
A- 9 PROSPECTUS
<PAGE> 155
Fund's ownership would be more than 10% of the outstanding voting securities of
such issuer. These fundamental policies do not restrict the Fund's ability to
invest all of its assets in the Master Portfolio.
As matters of non-fundamental policy the National Tax-Free Money Market
Mutual 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).
Government and Treasury Money Market Mutual Funds
As matters of fundamental policy, each Fund may: (i) borrow from banks up
to 10% with respect to the Government Money Market Mutual Fund and up to 20%
with respect to the Treasury Money Market Mutual Fund, 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 the 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 (iii) with respect to the
Government Money Market Mutual Fund, not make loans of portfolio securities or
other assets, except that loans for purposes of this restriction will not
include the purchase of repurchase agreements and other short-term obligations,
and other types of debt instruments commonly sold in a public or private
offering.
These investment restrictions are applied at the time investment securities
are purchased. As a matter of nonfundamental policy, the Treasury Money Market
Mutual Fund may make loans of portfolio securities or other assets, although it
does not intend to do so during the current fiscal year.
As a matter of nonfundamental 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. 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 Board or investment adviser, pursuant to
guidelines adopted by the Board, determines that a liquid trading market exists.
The following securities are excluded from the Funds 10% limitation: (a)
securities eligible for resale pursuant to Rule 144A under the 1933 Act that
have
PROSPECTUS A- 10
<PAGE> 156
been determined to be liquid by the Fund's Board of Directors, and (b) Section
4(2) commercial paper 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 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 Fund's Board of Directors has determined that the commercial paper is of
equivalent quality and is liquid.
A- 11 PROSPECTUS
<PAGE> 157
LOGO
P.O. Box 7066
San Francisco, CA 94120-7066
<TABLE>
<S> <C>
- --------------------------------------------------------
STAGECOACH MONEY MARKET MUTUAL FUNDS:
------------------------------------------------------
- are NOT insured by the FDIC or U.S.
GOVERNMENT
- are NOT obligations or deposits of Wells
Fargo Bank nor guaranteed by the Bank
- involve investment risk, including possible
loss of principal LOGO
- seek to maintain a stable net asset value of
$1.00 per share, however; there can be no
assurance that the Fund will meet this
objective.
- --------------------------------------------------------
</TABLE>
LOGO
Printed on Recycled Paper SC0217 (2/97)
LOGO
------------------------
PROSPECTUS
------------------------
Money Market Mutual Fund
California Tax-Free
Money Market Mutual Fund
Government Money Market
Mutual Fund
National Tax-Free Money
Market Mutual Fund
Treasury Money Market Mutual Fund
CLASS A
------------------------
February 1, 1997
------------------------
<PAGE> 158
LOGO
------------------------------
PROSPECTUS
------------------------------
ASSET ALLOCATION FUND
U.S. GOVERNMENT ALLOCATION FUND
Class A and Class B
FEBRUARY 1, 1997
<PAGE> 159
STAGECOACH FUNDS(R)
ASSET ALLOCATION FUND
U.S. GOVERNMENT ALLOCATION FUND
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about two funds in the Stagecoach
Family of Funds -- the ASSET ALLOCATION FUND and U.S. GOVERNMENT ALLOCATION FUND
(each a "Fund" and, collectively, the "Funds"). Two classes of shares of each
Fund (each, a "Class") are described in this Prospectus -- Class A shares and
Class B shares.
The ASSET ALLOCATION FUND seeks to earn over the long term a high level of
total return, including net realized and unrealized capital gains and net
investment income, consistent with reasonable risk. The Fund is designed for
investors with investment horizons of at least five years. The Fund's
investments are managed using an "asset allocation" strategy that allocates and
reallocates investments among three asset classes -- common stocks, U.S.
Treasury bonds, and money market instruments. See "How the Funds
Work -- Investment Objective and Policies".
The U.S. GOVERNMENT ALLOCATION FUND seeks to achieve over the long term a high
level of total return, including net realized and unrealized capital gains and
net investment income, consistent with reasonable risk. The Fund is designed for
investors with investment horizons of at least five years. The Fund's
investments are managed using a strategy that allocates and reallocates
investments among three classes of debt securities -- long-term U.S. Treasury
bonds, intermediate-term U.S. Treasury notes, and short-term money market
instruments -- at least 65% of which will be obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities. See "How the Funds
Work -- Investment Objective and Policies."
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 February 1, 1997, for the Funds has been filed with
the Securities and Exchange Commission ("SEC") and is incorporated by reference.
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 for information or assistance.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK, N.A. ("WELLS FARGO BANK"), BARCLAYS GLOBAL
INVESTORS, N.A. OR ANY OF THEIR AFFILIATES. SUCH SHARES ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION
("FDIC"), THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
PROSPECTUS DATED FEBRUARY 1, 1997
PROSPECTUS
<PAGE> 160
The ASSET ALLOCATION and U.S. GOVERNMENT ALLOCATION FUNDS each invests all of
its assets in the Asset Allocation and U.S. Government Allocation Master
Portfolios (each, a "Master Portfolio"), respectively of Master Investment Trust
("MIT"), an open-end management investment company. Each Master Portfolio has
the same investment objective as the Fund bearing the corresponding name.
Therefore, each Fund's investment experience corresponds directly with that of
the Master Portfolio in which it invests. Interests in a Master Portfolio may be
purchased only by other investment companies or accredited investors. References
to the investments and investment policies and risks of the Funds, unless
otherwise indicated, should be understood as references to the investments and
investment policies and risks of the corresponding Master Portfolios.
The Master Portfolios are advised by Wells Fargo Bank. Barclays Global Fund
Advisors ("BGFA"), an affiliate of Barclays Bank PLC ("Barclays") which is not
affiliated with Wells Fargo Bank, serves as sub-adviser to the Master
Portfolios. Wells Fargo Bank also serves as the Funds' administrator, transfer
and dividend disbursing agent, and is a Shareholder Servicing Agent and a
Selling Agent (each as defined below). Barclays Global Investors, N.A. ("BGI")
serves as the Funds' and the Master Portfolios' custodian. Stephens Inc.
("Stephens") is the Funds' sponsor and co-administrator and serves as the
distributor of the Funds' shares.
THE MASTER PORTFOLIOS' INVESTMENTS (EXCEPT AS NOTED UNDER "HOW THE FUNDS
WORK -- INVESTMENT OBJECTIVES AND POLICIES" AND "PROSPECTUS APPENDIX --
ADDITIONAL INVESTMENT POLICIES") ARE NOT INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT OR ANY FEDERAL AGENCY OR INSTRUMENTALITY.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND ADMINISTRATOR, AND IS
COMPENSATED FOR PROVIDING CERTAIN OTHER SERVICES TO THE FUNDS AND THE MASTER
PORTFOLIOS. BGFA IS THE SUB-ADVISER AND BGFA AND BGI PROVIDE CERTAIN OTHER
SERVICES TO THE FUNDS AND THE MASTER PORTFOLIOS, FOR WHICH THEY ARE COMPENSATED.
STEPHENS, WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, BGFA OR BGI, IS THE
SPONSOR, CO-ADMINISTRATOR AND DISTRIBUTOR FOR THE FUNDS.
PROSPECTUS
<PAGE> 161
TABLE OF CONTENTS
-------
PROSPECTUS SUMMARY 1
SUMMARY OF FUND EXPENSES 5
FINANCIAL HIGHLIGHTS 9
HOW THE FUNDS WORK 14
THE FUNDS AND MANAGEMENT 19
INVESTING IN THE FUNDS 21
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS 31
HOW TO REDEEM SHARES 32
ADDITIONAL SHAREHOLDER SERVICES 36
MANAGEMENT, DISTRIBUTION AND SERVICING FEES 39
TAXES 43
PROSPECTUS APPENDIX - ADDITIONAL INVESTMENT POLICIES A-1
PROSPECTUS
<PAGE> 162
PROSPECTUS SUMMARY
The Funds provide you with a convenient way to invest in a portfolio of
securities selected and supervised by professional management. The following
provides you with summary information about the Funds. For more information,
please refer specifically to the identified Prospectus sections and generally to
the Prospectus and SAI.
Q. WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
A. The ASSET ALLOCATION FUND'S investment objective is to seek over the long
term a high level of total return, including net realized and unrealized
capital gains and net investment income, consistent with reasonable risk.
The Fund seeks to achieve this objective by investing all of its assets in
the Asset Allocation Master Portfolio. The Asset Allocation Master Portfolio
has an identical investment objective. The Master Portfolio attempts to
achieve this objective by pursuing an "asset allocation" strategy by
allocating its investments among three asset classes -- common stocks, U.S.
Treasury bonds and money market instruments. The Fund is designed for
investors with investment horizons of at least five years. See "How the
Funds Work" and "Prospectus Appendix -- Additional Investment Policies."
The U.S. GOVERNMENT ALLOCATION FUND'S investment objective is to seek over
the long term a high level of total return, including net realized and
unrealized capital gains and net investment income, consistent with
reasonable risk. The Fund seeks to achieve this objective by investing all
of its assets in the U.S. Government Allocation Master Portfolio. The U.S.
Government Allocation Master Portfolio has an identical investment
objective. The Master Portfolio attempts to achieve this objective by
pursuing a strategy of allocating and reallocating its investments among
three classes of debt securities: long-term U.S. Treasury bonds,
intermediate-term U.S. Treasury notes and short-term money market
instruments. Under normal market conditions, at least 65% of such Master
Portfolio's total assets will be invested in obligations that are issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
including government-sponsored enterprises ("U.S. Government obligations").
The Fund is designed for investors with investment horizons of at least five
years. See "How the Funds Work" and "Prospectus Appendix -- Additional
Investment Policies."
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 attributable to a Fund 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 a Fund. Since the investment risks
associated with an investment in each Fund correspond to those of the Master
Portfolio in which such Fund invests, the following is a summary of certain
of the risks associated with an investment in the
1 PROSPECTUS
<PAGE> 163
Master Portfolios. Because each Master Portfolio may shift its investment
allocations significantly from time to time, its performance and that of the
corresponding Fund may differ from funds which invest in one asset class or
from funds with a stable mix of assets. Further, shifts among asset classes
may result in relatively high portfolio turnover rates, which may, in turn,
result in increased brokerage and transaction costs, and/or increased
short-term capital gains or losses.
The portfolio debt instruments of the Master Portfolios 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
instruments in which a Master Portfolio invests and hence the value of your
investment in the Fund which invests in such Master Portfolio. The value of
instruments held by the Master Portfolios generally changes inversely to
changes in market interest rates. During those periods in which a high
percentage of the portfolio of a Master Portfolio is invested in long-term
bonds, its exposure to interest rate risk will be greater because the longer
maturity of those instruments means they generally are more sensitive to
interest rate fluctuations than shorter-term debt instruments. Credit risk
is the risk that the issuer of a debt instrument is unable, due to financial
constraints, to make timely payments on its outstanding obligations. The
portfolio equity instruments of the Master Portfolios 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 U.S. stock
market tends to be cyclical, with periods when stock prices generally rise
and periods when prices generally decline. Although each Fund's investment
experience will correspond directly to the investment experience of the
Master Portfolio in which it invests, to the extent other funds invest in
the Master Portfolio, their performance may differ from that of the Fund due
to different expense levels.
As with all mutual funds, there can be no assurance that the Funds or the
corresponding Master Portfolio will achieve their investment objectives.
Investors should be prepared to accept that risk, as well as the risk that a
Fund may under-perform (over the short and/or long term) one or more of the
three classes of securities in which the corresponding Master Portfolio
invests.
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank is investment adviser to the Master Portfolios. BGFA serves
as sub-adviser to the Master Portfolios and provides advisory assistance
using certain computer-based asset allocation models. The Company has not
retained the services of a separate investment adviser for the Funds because
each Fund invests all of its assets in the corresponding Master Portfolio.
Wells Fargo Bank also provides the Funds with administrative, transfer
agency and dividend disbursing agency services. BGI provides the Funds and
the Master Portfolios with custodial services. In
PROSPECTUS 2
<PAGE> 164
addition, Wells Fargo Bank is a Shareholder Servicing Agent and a Selling
Agent under Selling Agreements with Stephens, the Funds' distributor. See
"The Funds and Management" and "Management, Distribution and Servicing
Fees."
Q. HOW DO I INVEST?
A. You may invest by purchasing shares of a Fund at their public offering price,
which is the net asset value ("NAV") per share plus any applicable sales
charge. Class A shares are subject to a maximum front-end sales charge of
4.50%. Class B shares that are redeemed within six years of purchase are
subject to a maximum contingent-deferred sales charge of 5.00% of the lesser
of NAV at purchase or NAV at redemption. In some cases, such as for
investments by certain fiduciary or retirement accounts, the front-end sales
charge may be waived. In other cases, the front-end sales charge may be
reduced. You may open an account by investing at least $1,000 and may add to
your account by making additional investments of at least $100, with certain
exceptions. 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 ("NYSE") is open. See "Investing in the Funds." For more details,
contact Stephens (the Funds' Sponsor and Distributor), a Shareholder
Servicing Agent or a Selling Agent (such as Wells Fargo Bank).
Q. HOW WILL I RECEIVE DIVIDENDS AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends from net investment income of the Asset Allocation Fund are
declared quarterly and dividends from the net investment income of the U.S.
Government Allocation Fund are declared daily. Any capital gains will be
distributed at least annually. All distributions by each Fund are
automatically reinvested in additional shares of the same class of the
respective Fund at NAV without a sales charge unless you elect to receive
dividends in cash. You may also elect to reinvest distributions of the Funds
in shares of the same class of another multi-class fund or in shares of
certain other funds in the Stagecoach Family of Funds with which you have an
established account that has met the applicable minimum initial investment
requirement. The net investment income available for distribution to holders
of Class B shares will be reduced by the amount of the higher Rule 12b-1 Fee
payable on behalf of the Class B shares. 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 NYSE is open.
Contingent deferred sales charges may be charged upon redemption of Class B
shares. In addition, the Company reserves the right to impose charges for
wiring redemption proceeds. See "How To Redeem Shares" and "How to Purchase
Shares -- Contingent deferred Sales Charges -- Class B Shares." For more
details, contact Stephens, a Shareholder Servicing Agent or a Selling Agent
(such as Wells Fargo Bank).
3 PROSPECTUS
<PAGE> 165
Q. WHAT ARE DERIVATIVES AND DO THE FUNDS AND THE MASTER PORTFOLIOS 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 variable-rate instruments may be considered derivatives.
Some derivatives also 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 AND MASTER PORTFOLIOS TAKE TO CONTROL
DERIVATIVES-RELATED RISKS?
A. Wells Fargo Bank and BGFA use a variety of internal risk management
procedures to ensure that derivatives use is consistent with both the Funds'
investment objectives, does not expose the Funds to undue risks and is
closely monitored. These procedures include providing periodic reports to
the Board of Directors concerning the use of derivatives. The use of
derivatives is also subject to broadly applicable investment policies. For
example, each Master Portfolio may not invest more than a specified
percentage of its assets in "illiquid securities," including those
derivatives that do not have active secondary markets. In addition, the
Master Portfolios may not use derivatives without establishing adequate
"cover" in compliance with SEC rules limiting the use of leverage. For
additional information, see "Appendix -- Additional Investment Policies."
PROSPECTUS 4
<PAGE> 166
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
FOR CLASS A SHARES
<TABLE>
<CAPTION>
ASSET ALLOCATION U.S. GOVERNMENT
FUND ALLOCATION FUND
---------------- ---------------
<S> <C> <C>
Maximum Sales Charge on Purchases (as
a percentage of offering price)..... 4.50% 4.50%
Maximum Sales Charge on Reinvested
Distributions....................... None None
Maximum Sales Charge on Redemptions... None None
Exchange Fees......................... None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES(1)
FOR CLASS A SHARES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
ASSET ALLOCATION U.S. GOVERNMENT
FUND ALLOCATION FUND
---------------- ---------------
<S> <C> <C>
Management Fee........................ 0.37% 0.50%
Rule 12b-1 Fee........................ 0.05% 0.05%
Other Expenses (after waivers or
reimbursements)..................... 0.48% 0.57%(2)
---- ----
TOTAL FUND OPERATING EXPENSES (after
waivers or reimbursements).......... 0.90% 1.12%(2)
==== ====
</TABLE>
- -------------------------------
(1) Annual Fund Operating Expenses summarize expenses charged at the Fund and
Master Portfolio levels.
(2) Absent waivers or reimbursements, the percentages shown above under "Other
Expenses" and "Total Fund Operating Expenses" would be 0.65% and 1.20%,
respectively, for the U.S. Government Allocation Fund.
<TABLE>
<CAPTION>
EXAMPLE OF EXPENSES --
CLASS A SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- -------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment in Class A shares of a
Fund, assuming (A) a 5% annual return and
(B) redemption at the end of each time
period indicated:
Asset Allocation Fund.................. $ 54 $72 $ 93 $151
U.S. Government Allocation Fund........ $ 56 $79 $ 104 $175
</TABLE>
5 PROSPECTUS
<PAGE> 167
SHAREHOLDER TRANSACTION EXPENSES
FOR CLASS B SHARES
<TABLE>
<CAPTION>
ASSET ALLOCATION U.S. GOVERNMENT
FUND ALLOCATION 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 Imposed on
Redemptions............................ 5.00% 5.00%
Exchange Fees............................ None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES(1)
FOR CLASS B SHARES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
ASSET ALLOCATION U.S. GOVERNMENT
FUND ALLOCATION FUND
---------------- ---------------
<S> <C> <C>
Management Fee........................... 0.37% 0.50%
Rule 12b-1 Fee........................... 0.70% 0.70%
Other Expenses (after waivers or
reimbursements)........................ 0.07% 0.72%(2)
TOTAL FUND OPERATING EXPENSES (after
waivers or reimbursements)............. 1.14% 1.92%(2)
</TABLE>
- -------------------------------
(1) Annual Fund Operating Expenses summarize expenses charged at the Fund and
Master Portfolio levels.
(2) Absent waivers and reimbursements, "Other Expenses" and "Total Fund
Operating Expenses" would be 0.49% and 1.56%, respectively, for the Asset
Allocation Fund and 1.01% and 2.21%, respectively, for the U.S. Government
Allocation Fund.
PROSPECTUS 6
<PAGE> 168
EXAMPLE OF EXPENSES -- CLASS B SHARES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- -------
<S> <C> <C> <C> <C>
You would pay the following expenses
on a $1,000 investment in Class B
shares of a Fund, assuming (A) a 5%
annual return and (B) redemption at
the end of each time period
indicated:
Asset Allocation Fund............ $ 62 $66 $ 83 $126
U.S. Government Allocation
Fund............................. $ 69 $90 $ 124 $184
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- -------
<S> <C> <C> <C> <C>
You would pay the following expenses
on a $1,000 investment in Class B
shares of a Fund, assuming a 5%
annual return and no redemption:
Asset Allocation Fund............ $ 12 $36 $ 63 $126
U.S. Government Allocation
Fund............................. $ 19 $60 $ 104 $184
</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 Funds 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 you pay when you buy or sell Fund
shares. You are subject to a front-end sales charge on purchases of Class A
shares of the Funds and may be subject to a contingent-deferred sales charge on
Class B shares if you redeem such shares within a specified period. The Company
reserves the right to impose a charge for wiring redemption proceeds. In certain
instances, you may qualify for a reduction or waiver of the front-end sales
charge. There are no exchange fees. See "Investing in the Funds -- Sales
Charges."
ANNUAL FUND OPERATING EXPENSES for the Funds are based on amounts incurred
during the most recent fiscal year and reflect voluntary fee waivers and expense
reimbursements that are expected to continue to reduce expenses during the
current fiscal year. Wells Fargo Bank and Stephens, at their sole discretion,
may waive or reimburse all or a portion of their respective fees charged to, or
expenses paid by, a Fund and/or Master Portfolio. Any waivers or reimbursements
would reduce a Fund's total
7 PROSPECTUS
<PAGE> 169
expenses. There can be no assurances that waivers or reimbursements will
continue. The Funds could pay more in sales charges than the economic equivalent
of the maximum front-end sales charges applicable to mutual funds sold by
members of the National Association of Securities Dealers, Inc. ("NASD"). For
more complete descriptions of the various costs and expenses you can expect to
incur as an investor in each Fund, 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
tables above and an assumed annual rate of return of 5%. This annual rate of
return should not be considered an indication of actual or expected performance
of a Fund nor a representation of past or future expenses; and actual expenses
and returns may be greater or lesser than those shown.
With regard to the combined fees and expenses of the Funds and their
corresponding Master Portfolios, the Company's Board of Directors has considered
whether various costs and benefits of investing all of such Funds' assets in a
corresponding Master Portfolio rather than directly in a portfolio of securities
would be more or less than if each such Fund invested in portfolio securities
directly. The Company's Board of Directors believes that the aggregate per share
expenses of each Fund will not be more than the expenses incurred if the Fund
invested directly in the type of securities held by the corresponding Master
Portfolio. The Company's Board of Directors believes that if other investors
invest their assets in the Master Portfolios, certain economic efficiencies may
be realized with respect to the Master Portfolios. For example, fixed expenses
that otherwise would have been borne solely by a Fund would be spread across a
larger asset base provided by more than one fund investing in a Master
Portfolio. There can be no assurance that these economic efficiencies will be
achieved. In addition, each Master Portfolio may sell its interests to other
mutual funds or accredited investors. The expenses and corresponding returns of
these other funds may differ from the expenses and returns of the shares
described herein. Information regarding these and any other investment options
in the Funds or the Master Portfolios 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 8
<PAGE> 170
FINANCIAL HIGHLIGHTS
The following information for the Asset Allocation Fund and U.S. Government
Allocation Fund, has been derived from the Financial Highlights in the Funds'
financial statements for the fiscal period ended September 30, 1996. This
information is provided to assist you in evaluating the historical performance
of each Fund. Except for periods ending prior to January 1, 1992, which were
audited by other auditors, the financial statements have been audited by KPMG
Peat Marwick LLP. The Financial Statements and the report thereon are
incorporated by reference into the SAI. This information should be read in
conjunction with the Funds' 1996 financial statements and notes thereto. The SAI
is incorporated by reference into this Prospectus.
9 PROSPECTUS
<PAGE> 171
ASSET ALLOCATION FUND
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
SEPT. 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996(1) 1995 1994 1993 1992 1991(2)
---------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period..................... $20.74 $16.73 $18.80 $17.89 $17.65 $14.45
Income from investment operations:
Net investment income (loss)............................. 0.57 0.74 0.77 0.77 0.87 0.92
Net realized and unrealized gain (loss) on investments... 0.50 4.07 (1.31) 1.88 0.31 2.28
Total from investment operations......................... 1.07 4.81 (0.54) 2.65 1.18 3.20
Less distributions:
Dividends from net investment income..................... (0.57) (0.74) (0.77) (0.77) (0.87) 0.00
Distributions from net realized gain..................... (0.00) (0.06) (0.76) (0.97) (0.07) 0.00
Total from distributions................................. (0.57) (0.80) (1.53) (1.74) (0.94) 0.00
Net asset value, end of period........................... $21.24 $20.74 $16.73 $18.80 $17.89 $17.65
Total return (not annualized)............................ 5.14% 29.18% (2.82)% 15.00% 7.00% 22.13%
Ratios/supplemental data:
Net assets, end of period (000).......................... $1,057,346 $1,077,935 $896,943 $1,048,667 $542,226 $367,251
Ratios to average net assets (annualized):
Ratio of expenses to average net assets.................. 0.90%(4) 0.84% 0.84% 0.86% 0.95% 0.95%
Ratio of net investment income to average net assets..... 3.53%(4) 3.81% 4.30% 4.20% 5.22% 5.88%
Portfolio turnover....................................... 1%(5) 15% 49% 40% 5% 25%
Average commission rate paid(6).......................... $0.0320(5) -- -- -- -- --
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses............................ N/A N/A N/A 0.86% 0.97% N/A
Ratio of net investment income to average net assets
prior to waived fees and reimbursed expenses............ N/A N/A N/A 4.20% 5.20% N/A
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1990(2) 1989(2) 1988(2) 1987(2) 1986(2,3)
-------- -------- -------- -------- --------
<S> <<C> <C> <C> <C> <C>
Net asset value, beginning of period..................... $13.42 $12.00 $10.93 $10.07 $10.00
Income from investment operations:
Net investment income (loss)............................. 0.91 0.93 0.72 0.72 0.07
Net realized and unrealized gain (loss) on investments... 0.12 0.49 0.35 0.14 0.00
Total from investment operations......................... 1.03 1.42 1.07 0.86 0.07
Less distributions:
Dividends from net investment income..................... 0.00 0.00 0.00 0.00 0.00
Distributions from net realized gain..................... 0.00 0.00 0.00 0.00 0.00
Total from distributions................................. 0.00 0.00 0.00 0.00 0.00
Net asset value, end of period........................... $14.45 $13.42 $12.00 $10.93 $10.07
Total return (not annualized)............................ 7.68% 11.83% 9.79% 8.54% 0.70%
Ratios/supplemental data:
Net assets, end of period (000).......................... $261,881 $229,211 $172,326 $111,025 $1,600
Ratios to average net assets (annualized):
Ratio of expenses to average net assets.................. 0.96% 1.02% 1.00% 1.04% 0%
Ratio of net investment income to average net assets..... 6.59% 7.35% 6.23% 6.79% 0.29%
Portfolio turnover....................................... 88% 117% 94% 81% 0%
Average commission rate paid(6).......................... -- -- -- -- --
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses............................ N/A N/A N/A N/A N/A
Ratio of net investment income to average net assets
prior to waived fees and reimbursed expenses............ N/A N/A N/A N/A N/A
</TABLE>
- ---------------------
(1) The Fund changed its fiscal year end from December 31 to September 30.
(2) The financial information for the fiscal periods prior to, and including,
1991 is based on the financial information for the Asset Allocation Fund of
the Wells Fargo Investment Trust for Retirement Programs which was
reorganized into the Asset Allocation Fund on January 2, 1992.
(3) The Fund commenced operations on November 13, 1986.
(4) Ratio includes income and expenses charged to the Master Portfolio.
(5) Represents portfolio activity for the Fund's stand-alone period only. The
portfolio turnover and average commission rates for the Asset Allocation
Master Portfolio for the period from April 28, 1996 to September 30, 1996
were 28% and $0.0261, respectively.
(6) For fiscal years beginning on or after September 1, 1995, a Fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged if the Fund invests more than 10% of the value
of its average net assets in equity securities on which commissions are
charged on trades. This amount may vary from period to period and fund to
fund depending on the mix of trades executed in various markets where
trading practices and commission rate structures may differ.
PROSPECTUS 10
<PAGE> 172
ASSET ALLOCATION FUND
FOR A CLASS B SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD YEAR
ENDED ENDED
SEPT. 30, DEC. 31,
1996(1) 1995(2)
--------- --------
<S> <C> <C>
Net asset value, beginning of period..................... $12.50 $10.00
Income from investment operations:
Net investment income (loss)............................. 0.28 0.22
Net realized and unrealized gain (loss) on investments... 0.34 2.53
Total from investment operations......................... 0.62 2.75
Less distributions:
Dividends from net investment income..................... (0.28) (0.22)
Distributions from net realized gain..................... 0.00 (0.03)
Total from distributions................................. (0.28) (0.25)
Net asset value, end of period........................... $12.84 $12.50
Total return (not annualized)............................ 4.96% 27.72%
Ratios/supplemental data:
Net assets, end of period (000).......................... $63,443 $26,271
Ratios to average net assets (annualized):
Ratio of expenses to average net assets.................. 1.14%(3) 1.53%
Ratio of net investment income to average net assets..... 3.37%(3) 2.71%
Portfolio turnover....................................... 1%(4) 15%
Average commission rate paid(5).......................... $0.0320(4) --
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses........................... 1.56%(3) 1.76%
Ratio of net investment income to average net assets
prior to waived fees and reimbursed expenses........... 2.95%(3) 2.48%
</TABLE>
- ---------------
(1) The Fund changed its fiscal year end from December 31 to September 30.
(2) Class B shares commenced operations on January 1, 1995.
(3) Ratio includes income and expenses charged to the Master Portfolio.
(4) Represents portfolio activity for the Fund's stand-alone period only. The
portfolio turnover and average commission rates for the Asset Allocation
Master Portfolio for the period from April 28, 1996 to September 30, 1996
were 28% and $0.0261, respectively.
(5) For fiscal years beginning on or after September 1, 1995, a Fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged if the Fund invests more than 10% of the value
of its average net assets in equity securities on which commissions are
charged on trades. This amount may vary from period to period and fund to
fund depending on the mix of trades executed in various markets where
trading practices and commission rate structures may differ.
11 PROSPECTUS
<PAGE> 173
U.S. GOVERNMENT ALLOCATION FUND
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
SEPT. 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996(1) 1995 1994 1993 1992 1991(2)
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period................. $14.98 $13.76 $15.71 $15.41 $15.41 $13.14
Income from investment operations:
Net investment income (loss)......................... 0.59 0.79 0.87 0.96 0.87 0.94
Net realized and unrealized gain (loss) on
investments......................................... (0.50) 1.22 (1.95) 1.69 0.04 1.33
Total from investment operations..................... 0.09 2.01 (1.08) 2.65 0.91 2.27
Less distributions:
Dividends from net investment income................. (0.59) (0.79) (0.87) (0.96) (0.87) 0.00
Distributions from net realized gain................. 0.00 0.00 0.00 (1.39) (0.04) 0.00
Total from distributions............................. (0.59) (0.79) (0.87) (2.35) (0.91) 0.00
Net asset value, end of period....................... $14.48 $14.98 $13.76 $15.71 $15.41 $15.41
Total return (not annualized)........................ 0.69% 14.91% (6.99)% 17.46% 6.30% 17.21%
Ratios/supplemental data:
Net assets, end of period (000)...................... $98,741 $135,577 $140,066 $283,206 $127,504 $30,098
Ratios to average net assets (annualized):
Ratio of expenses to average net assets.............. 1.12%(4) 1.04% 1.01% 0.99% 1.00% 1.01%
Ratio of net investment income to average net
assets.............................................. 5.45%(4) 5.41% 5.94% 5.92% 6.06% 6.77%
Portfolio turnover................................... 31%(5) 292% 112% 150% 33% 147%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses................. 1.20%(4) 1.07% 1.08% 1.02% 1.08% N/A
Ratio of net investment income to average net assets
prior to waived fees and reimbursed expenses........ 5.37%(4) 5.38% 5.87% 5.89% 5.98% N/A
- ---------------
(1) The Fund changed its fiscal year end from December 31 to September 30.
(2) The financial information for the fiscal periods prior to, and including, 1991 is based on the financial information
for the Fixed Income Strategy Fund of the Trust which was reorganized into the U.S. Government Allocation Fund on
January 2, 1992.
(3) The Fund commenced operations on March 31, 1987.
(4) Ratio includes income and expenses charged to the Master Portfolio.
(5) Represents portfolio activity for the Fund's stand-alone period only. The portfolio turnover rate for the U.S.
Government Allocation Master Portfolio for the period from April 28, 1996 to September 30, 1996 was 87%.
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1990(2) 1989(2) 1988(2) 1987(2,3)
-------- -------- -------- --------
<S> <C><C> <C> <C> <C>
Net asset value, beginning of period................. $12.49 $11.05 $10.34 $10.00
Income from investment operations:
Net investment income (loss)......................... 0.92 0.93 0.87 0.64
Net realized and unrealized gain (loss) on
investments......................................... (0.27) 0.51 (0.16) (0.30)
Total from investment operations..................... 0.65 1.44 0.71 0.34
Less distributions:
Dividends from net investment income................. 0.00 0.00 0.00 0.00
Distributions from net realized gain................. 0.00 0.00 0.00 0.00
Total from distributions............................. 0.00 0.00 0.00 0.00
Net asset value, end of period....................... $13.14 $12.49 $11.05 $10.34
Total return (not annualized)........................ 5.20% 13.03% 6.87% 3.50%
Ratios/supplemental data:
Net assets, end of period (000)...................... $19,777 $14,367 $10,330 $7,469
Ratios to average net assets (annualized):
Ratio of expenses to average net assets.............. 1.03% 1.05% 0.99% 0.99%
Ratio of net investment income to average net
assets.............................................. 7.34% 7.90% 8.04% 6.33%
Portfolio turnover................................... 558% 17% 42% 21%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses................. N/A N/A N/A N/A
Ratio of net investment income to average net assets
prior to waived fees and reimbursed expenses........ N/A N/A N/A N/A
- ---------------
(1) The Fund changed its fiscal year end from Decembe
(2) The financial information for the fiscal periods
for the Fixed Income Strategy Fund of the Trust w
January 2, 1992.
(3) The Fund commenced operations on March 31, 1987.
(4) Ratio includes income and expenses charged to the
(5) Represents portfolio activity for the Fund's stan
Government Allocation Master Portfolio for the pe
</TABLE>
PROSPECTUS 12
<PAGE> 174
U.S. GOVERNMENT ALLOCATION FUND
FOR A CLASS B SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD YEAR
ENDED ENDED
SEPT. 30, DEC. 31,
1996(1) 1995(2)
--------- --------
<S> <C> <C>
Net asset value, beginning of period................................ $10.91 $10.00
Income from investment operations:
Net investment income (loss)........................................ 0.36 0.49
Net realized and unrealized gain (loss) on investments.............. (0.37) 0.91
Total from investment operations.................................... 0.01 1.40
Less distributions:
Dividends from net investment income................................ (0.36) (0.49)
Distributions from net realized gain................................ 0.00 0.00
Total from distributions............................................ (0.36) (0.49)
Net asset value, end of period...................................... $10.54 $10.91
Total return (not annualized)....................................... 0.11% 14.11%
Ratios/supplemental data:
Net assets, end of period (000)..................................... $6,406 $4,077
Ratios to average net assets (annualized):
Ratio of expenses to average net assets............................. 1.92%(3) 1.65%
Ratio of net investment income to average net assets................ 4.60%(3) 4.31%
Portfolio turnover.................................................. 31%(4) 292%
Ratio of expenses to average net assets prior to waived fees and
reimbursed expenses................................................ 2.21%(3) 2.36%
Ratio of net investment income to average net assets prior to waived
fees and
reimbursed expenses................................................ 4.31%(3) 3.60%
</TABLE>
- ---------------
(1) The Fund changed its fiscal year-end from December 31 to September 30.
(2) Class B shares commenced operations on January 1, 1995.
(3) Ratio includes income and expenses charged to the Master Portfolio.
(4) Represents portfolio activity for the Fund's stand-alone period only. The
portfolio turnover rate for the U.S. Government Allocation Master Portfolio
for the period from April 28, 1996 to September 30, 1996 was 87%.
13 PROSPECTUS
<PAGE> 175
HOW THE FUNDS WORK
INVESTMENT OBJECTIVE AND POLICIES
ASSET ALLOCATION FUND
The Asset Allocation Fund's investment objective is to seek over the long term
a high level of total return, including net realized and unrealized capital
gains and net investment income, consistent with reasonable risk. This
investment objective is fundamental and cannot be changed without shareholder
approval. The Fund seeks to achieve its investment objective by investing all of
its assets in the Asset Allocation Master Portfolio, which has the same
fundamental investment objective as the Fund. As with all mutual funds, there
can be no assurance that the Fund or the Master Portfolio, which is a
diversified portfolio, will achieve their investment objectives. The Master
Portfolio seeks to achieve its objective by pursuing a strategy of allocating
and reallocating investments among three asset classes -- common stocks, U.S.
Treasury bonds, and money market instruments. This strategy is based upon the
premise that asset classes from time to time are undervalued or overvalued
relative to each other by the market and that undervalued asset classes
represent relatively better long-term, risk-adjusted investment opportunities.
Timely, low-cost shifts among these asset classes (as determined by their
perceived relative overvaluation or undervaluation) can therefore produce
attractive investment returns. Using this strategy, BGFA regularly determines
the appropriate mix of asset classes and the portfolio of the Master Portfolio
is periodically adjusted to achieve this mix.
In determining the recommended mix, BGFA uses an investment model (an
"Investment Model" or "Model") developed over the past 18 years, which is
presently used as a basis for managing large employee benefit trust funds and
other institutional accounts. The Model, which is proprietary to BGFA, analyzes
extensive financial data from numerous sources and recommends a portfolio
allocation among common stocks, U.S. Treasury bonds and money market
instruments. As further described in the "Prospectus Appendix -- Additional
Investment Policies," BGFA implements the Model's recommendations and monitors
the performance of the Model based on its assessment of current economic
conditions and investment opportunities. The allocation of investments within
the portfolio of the Master Portfolio is based solely on the recommendation of
the Model. No person is primarily responsible for recommending the mix of asset
classes held by the Master Portfolio or the mix of securities within any such
asset class. Decisions relating to the Investment Model are made by various BGFA
investment committees.
At any given time, substantially all of the Master Portfolio's assets may be
invested in a single asset class and the relative allocation among the asset
classes may shift significantly from time to time. The Master Portfolio may use
stock index futures and
PROSPECTUS 14
<PAGE> 176
options thereon, and interest rate futures and options thereon, as a substitute
for a comparable market position in the underlying securities.
The Asset Allocation Master Portfolio's assets will be invested as follows:
Stock Investments. In making its stock investments, the Master Portfolio
invests in the common stocks which comprise the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500 Index")* using, to the extent feasible, the same
weighting formula used by that index. The Master Portfolio does not individually
select common stocks on the basis of traditional investment analysis.
Bond Investments. The Master Portfolio purchases U.S. Treasury bonds with
maturities greater than 20 years. The bond portion of the portfolio of the
Master Portfolio is generally managed to attain an average maturity of between
22 and 28 years for the U.S. Treasury bonds held. This form of debt instrument
has been selected by BGFA because of the relatively low transaction costs of
buying and selling U.S. Treasury bonds and because of the low default risk
associated with such instruments.
Money Market Investments. The money market instrument portion of the portfolio
of the Master Portfolio generally will be invested in high-quality money market
instruments, including U.S. Government obligations, obligations of domestic and
foreign banks, short-term corporate debt instruments and repurchase agreements.
A more complete description of the Model and the Master Portfolio's
investments and investment activities is contained in the "Prospectus
Appendix -- Additional Investment Policies" and in the SAI.
U.S. GOVERNMENT ALLOCATION FUND
The U.S. Government Allocation Fund's investment objective is to seek over the
long term a high level of total return, including net realized and unrealized
capital gains and net investment income, consistent with reasonable risk. This
investment objective is fundamental and cannot be changed without shareholder
approval. The Fund seeks to achieve its investment objective by investing all of
its assets in the U.S. Government Allocation Master Portfolio. The U.S.
Government Allocation Master Portfolio has the same fundamental investment
objective as the Fund. As with all mutual funds, there can be no assurance that
the Fund or the Master Portfolio will achieve their investment
- ---------------
* The S&P 500 Index is an unmanaged index of stocks comprised of 500
companies, including industrial, financial, utility and transportation
companies. "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)" and "Standard &
Poor's 500" are trademarks of McGraw-Hill, Inc. Neither the Asset Allocation
Master Portfolio nor the Asset Allocation Fund is sponsored, endorsed, sold
or promoted by Standard & Poor's and Standard & Poor's makes no
representation regarding the advisability of investing in the Fund or Master
Portfolio.
15 PROSPECTUS
<PAGE> 177
objectives. The Master Portfolio seeks to achieve its objective by pursuing a
strategy of allocating and reallocating its investments among the following
three classes of debt instruments: long-term U.S. Treasury bonds,
intermediate-term U.S. Treasury notes, and short-term money market instruments.
This strategy is based upon the premise that these asset classes from time to
time are overvalued or undervalued relative to each other by the market and that
undervalued asset classes represent relatively better long-term investment
opportunities. Timely, low-cost shifts among these asset classes (as determined
by their perceived relative overvaluation or undervaluation) can therefore
produce attractive long-term investment returns. Using this strategy, BGFA
regularly determines the recommended mix of asset classes and the portfolio of
the Master Portfolio is periodically adjusted to achieve this mix. Under normal
market conditions, the Master Portfolio will invest at least 65% of the value of
its total assets in U.S. Government obligations.
In determining the recommended mix, BGFA uses an investment model (also, an
"Investment Model" or "Model") which is presently used as a basis for managing
large employee benefit trust funds and other institutional accounts. The Model,
which is proprietary to BGFA, analyzes risk, correlation and expected return
data and recommends a portfolio allocation among the three classes of debt
instruments. As further described in the "Prospectus Appendix -- Additional
Investment Policies," BGFA implements the Model's recommendations and monitors
the performance of the Model based on its assessment of current economic
conditions and investment opportunities. The allocation of investments within
the portfolio of the Master Portfolio is based solely on the recommendation of
the Investment Model. No person is primarily responsible for recommending the
mix of asset classes held by the Master Portfolio or the mix of securities
within any such asset class. Decisions relating to the Investment Model are made
by various BGFA investment committees.
At any given time, substantially all of the Master Portfolio's assets may be
invested in a single asset class and the relative allocation among the asset
classes may shift significantly from time to time. The Master Portfolio is not
designed to profit from short-term market changes. Instead, it is designed for
investors with investment horizons of five years and greater.
The U.S. Government Allocation Fund's assets will be invested and reinvested
in the following types of debt instruments:
Long-Term Investments. The Master Portfolio purchases U.S. Treasury bonds with
maturities greater than 20 years. This portion of the portfolio of the Master
Portfolio is generally managed to attain an average maturity of between 22 and
28 years.
Intermediate-Term Investments. The Master Portfolio purchases U.S. Treasury
notes with maturities generally ranging from 5 to 7 years. This portion of the
portfolio of the Master Portfolio is generally managed to attain an average
maturity of approximately 6 years.
PROSPECTUS 16
<PAGE> 178
Short-Term Investments. The Master Portfolio purchases short-term money market
instruments with remaining maturities of one year or less. This portion of the
portfolio of the Master Portfolio may be invested in various types of short-term
money market instruments, including U.S. Government obligations, commercial
paper, bankers' acceptances, certificates of deposit, fixed time deposits, and
repurchase agreements. Obligations of both domestic and foreign banks may be
included.
U.S. Government obligations have been selected by Wells Fargo Bank as the
Master Portfolio's principal investments because of their relatively low
purchase and sale transaction costs and because of the low default risk
associated with them (i.e., they are issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or instrumentalities, including
government-sponsored enterprises). The Master Portfolio may use interest rate
futures and options thereon as a substitute for a comparable market position in
the underlying securities.
A key component of the U.S. Government Allocation Model is a set of
assumptions concerning expected risk and return and investor attitudes toward
risk, which are incorporated into the allocation decision. The principal inputs
of financial data to the model currently are: (i) yields on 90-day U.S. Treasury
bills, 5-year U.S. Treasury notes and 30-year U.S. Treasury bonds; (ii) the
expected statistical standard deviation in investment returns for each class of
fixed income instrument; and (iii) the expected statistical correlation of
investment return among the various classes of fixed income instruments. Using
these and other data, the model is run daily to determine the recommended
allocation. The model's recommendations are presently implemented in 10%
increments. Because the Master Portfolio may shift its investment allocations
significantly from time to time, its performance may differ from funds which
invest in one asset class or from funds with a constant mix of assets.
A more complete description of the Model and the Master Portfolio's
investments and investment activities is contained in the "Prospectus
Appendix -- Additional Investment Policies" and in the SAI.
Asset Allocation and U.S. Government Allocation Master Portfolios
Each Fund currently invests all of its assets in a Master Portfolio with a
corresponding investment objective. Prior to April 29, 1996, each Fund invested
directly in a portfolio of securities. Whenever a Fund, as a Master Portfolios'
interestholder, is requested to vote on matters submitted to interest holders of
the Master Portfolio, the Funds will hold a meeting of its shareholders to
consider such matters and the Fund will cast its votes in proportion to the
votes received from Fund shareholders. Each Fund will vote Master Portfolio
shares for which it receives no voting instructions in the same proportion as
the votes received from Fund shareholders. If a Master Portfolio's investment
objective or policies are changed, the corresponding Fund could subsequently
change its objective or policies to correspond to those of the Master Portfolio.
The Fund may also elect to redeem its interests in the Master Portfolios and
either seek a new investment company
17 PROSPECTUS
<PAGE> 179
with a substantially matching objective in which to invest or retain its own
investment adviser to manage the Fund's portfolio in accordance with its
objective. In the latter case, 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.
RISK FACTORS
The price per share 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.
Because each Master Portfolio may shift its investment allocations
significantly from time to time, the performance of the Master Portfolio and its
corresponding Fund may differ from funds which invest in one asset class or from
funds with a stable mix of assets. Further, shifts among asset classes may
result in relatively high portfolio turnover rates, which may, in turn, result
in increased brokerage and transaction costs, and/or increased short-term
capital gains or losses.
The portfolio debt instruments of the Master Portfolios 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
instruments in which a Master Portfolio invests and hence the value of your
investment in the Fund which invests in such Master Portfolio. The value of
instruments held by the Master Portfolios generally changes inversely to changes
in market interest rates. During those periods in which a high percentage of the
portfolio of a Master Portfolio is invested in long-term bonds, its exposure to
interest rate risk will be greater because the longer maturity of those
instruments means they generally are more sensitive to interest rate
fluctuations than shorter-term debt instruments. Credit risk is the risk that
the issuer of a debt instrument is unable, due to financial constraints, to make
timely payments on its outstanding obligations. The portfolio equity investments
of the Master Portfolios are subject to equity market risk. Equity market risk
is the risk that common stock prices will fluctuate or decline over short or
even extended periods. The U.S. stock market tends to be cyclical, with periods
when stock prices generally rise and periods when prices generally decline. 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.
As with all mutual funds, there can be no assurance that the Funds or the
Master Portfolios will achieve their investment objectives. Investors should be
prepared to accept that risk, as well as the risk that a Fund may underperform
(over the short and/or long term) one or more of the three classes of securities
in which the corresponding Master Portfolio invests.
PROSPECTUS 18
<PAGE> 180
PERFORMANCE
The performance of each class of shares of the Asset Allocation Fund may be
advertised in terms of average annual total return. The performance of each
class of shares of the U.S. Government Allocation Fund may be advertised in
terms of average annual total return and yield. These performance figures are
based on historical results and are not intended to indicate future performance.
Performance figures are calculated separately for each class of shares of a
Fund. Each Fund's performance corresponds directly to the investment performance
of the corresponding Master Portfolio.
Average annual total return of the shares of a class of a Fund is based on the
overall dollar or percentage change in value of a hypothetical investment in the
class and assumes that all dividends and capital gain distributions are
reinvested in shares of that class. Yield of the shares of each class is
calculated by dividing the net investment income per class share earned during a
specified period (usually 30 days) by net asset value per share, on the last day
of such period and annualizing the result. In addition to presenting a
standardized total return, at times, each class also may present nonstandardized
total returns, yield information and distribution rates.
Because of differences in the fees and/or expenses borne by Class B shares of
the Funds, the net performance quotations on such shares can be expected, at any
given time, to be lower than the net performance quotations on Class A shares.
Standardized performance quotations are computed separately for Class A and
Class B shares.
Additional information about the performance of each Fund is contained in the
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 in the Stagecoach Family of Funds. The Company
was organized as a Maryland corporation on September 9, 1991, and currently
offers shares of 23 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 at NAV. Each class of shares represents an equal,
proportionate interest in a Fund with other shares of the same class.
Shareholders of each class bear their pro rata portion of a Fund's operating
expenses except for certain class-specific expenses that are allocated to a
particular class and, accordingly, may affect performance. For information on
another fund or a class of shares, please call
19 PROSPECTUS
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Stagecoach Shareholder Services at 1-800-222-8222 or write the Company at the
address shown on the front cover of the Prospectus.
The Company's Board of Directors supervises the Funds' activities and monitors
their contractual arrangements with various service providers. Although the
Company is not required to hold annual shareholder meetings, special meetings
may be requested 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 shareholder of a Fund, you receive one vote for
each share you own and fractional votes for fractional shares owned. A more
detailed description of the voting rights and attributes of the shares is
contained in the "Capital Stock" section of the SAI.
MANAGEMENT
Wells Fargo Bank is the Master Portfolios' investment adviser. In addition,
Wells Fargo Bank is the Funds' administrator, transfer and dividend disbursing
agent, 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 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. 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 five other
registered, open-end management investment companies. Wells Fargo Bank, a wholly
owned subsidiary of Wells Fargo & Company, is located at 420 Montgomery Street,
San Francisco, California 94104.
BGFA, located at 45 Fremont Street, San Francisco, California 94105, serves as
sub-adviser to the Master Portfolios. BGFA is a wholly owned subsidiary of BGI
and an indirect subsidiary of Barclays. BGFA was created by the reorganization
of Wells Fargo Nikko Investment Advisors ("WFNIA"), a former affiliate of Wells
Fargo Bank, with and into an affiliate of Wells Fargo Institutional Trust
Company, N.A. BGFA also serves as investment adviser or sub-adviser to five
other registered, open-end, management investment companies. As of October 31,
1996, BGFA and BGI managed or provided investment advice for assets aggregating
in excess of $336 billion.
Morrison & Foerster LLP, counsel to the Company and MIT and special counsel to
Wells Fargo Bank and BGFA, has advised the Company, MIT, Wells Fargo Bank and
BGFA that Wells Fargo Bank and BGFA and their respective 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
PROSPECTUS 20
<PAGE> 182
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,
you may call 1-800-222-8222.
After an application has been processed and an account has been established,
subsequent purchases of different funds of the Company under the same umbrella
account do not require the completion of additional applications. A separate
application must be processed for each different umbrella account number (even
if the registration is the same). Call the number on your confirmation statement
to obtain information about what is required to change registration.
To invest in the Funds through a tax-deferred retirement plan, please contact
a Shareholder Servicing Agent or a Selling Agent to receive information and the
required separate application. See "Tax-Deferred Retirement Plans" below.
The Company or Stephens may make the Prospectus available in an electronic
format. Upon request, 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 a class of the Funds is its "net asset value" or NAV.
Wells Fargo Bank calculates the NAV of each class 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 for business on each day the NYSE
is open for trading (a "Business Day"). The NAV per share for each class of the
Funds is the value of total net assets attributable to such class divided by the
number of outstanding shares of that class. The value of the net assets per
class is determined daily by adjusting the net assets per class at the beginning
of the day by the value of each class's shareholder activity, net
21 PROSPECTUS
<PAGE> 183
investment income and net realized and unrealized gains or losses for that day.
Net investment income is calculated each day for each class by attributing to
each class a pro rata share of daily income and common expenses, and by
assigning class-specific expenses to each class as appropriate.
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
Class A and Class B shares of the Funds are offered continuously at the
applicable offering price (NAV plus the applicable sales charge) next determined
after a purchase order is received in the form specified for the purchase method
being used, as described in the following sections. Payment for shares purchased
through a selling agent is not due from the selling agent until the settlement
date, normally three Business Days after the order is placed. It is the
responsibility of the selling agent to forward payment for shares being
purchased to a Fund promptly. Payment must accompany orders placed directly
through the transfer agent.
Payments for shares of each class of a Fund will be invested in full and
fractional shares of such class at the applicable offering price. If shares are
purchased by a check which does not clear, the Company reserves the right to
cancel the purchase and hold the investor responsible for any losses or fees
incurred. In addition, the 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 amount is generally $1,000. The minimum
investment amount is $100 by the AutoSaver Plan purchase method (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. However, if the value of your investment in
the shares you are exchanging has been reduced below the minimum initial
investment amount by changes in market conditions or sales charges (and not by
redemptions), you may carry over the lesser amount into one of the Funds. Plan
Accounts that invest in the Fund through Wells Fargo ExpressInvest(TM)
(available to certain Wells Fargo tax-deferred retirement plans) are not subject
to the minimum initial investment amount or the subsequent investment amount
requirements. 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
PROSPECTUS 22
<PAGE> 184
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 any 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.
SALES CHARGES
Set forth below is a Front-end Sales Charge Schedule listing the front-end
sales charges applicable to purchases of Class A shares of the Funds. As shown
below, reductions in the rate of front-end sales charges ("Volume Discounts")
are available as you purchase additional Class A shares (contingent-deferred
sales charges applicable to Class B shares are described below). You should
consider the front-end sales charge information set forth below and the other
information contained in this Prospectus when making your investment decisions.
FRONT-END SALES CHARGE SCHEDULE
CLASS A SHARES
<TABLE>
<CAPTION>
FRONT-END FRONT-END
SALES CHARGE SALES CHARGE DEALER ALLOWANCE
AS% OF AS% OF NET AS% OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- -------------------------------------- --------------- ----------------
<S> <C> <C> <C>
Less than $50,000....... 4.50% 4.71% 4.00%
$50,000 up to
$100,000................ 4.00 4.17 3.55
$100,000 up to
$249,999................ 3.50 3.63 3.125
$250,000 up to
$499,999................ 2.50 2.56 2.00
$500,000 up to
$999,999................ 2.00 2.04 1.75
$1,000,000 and over..... 0.00(1) 0.00 1.00
</TABLE>
- -------------------------------
(1) Class A shares that are redeemed within one year from the receipt of a
purchase order for such shares are subject to a contingent deferred sales
charge of 1.00% of the dollar amount equal to the lesser of the NAV at the
time of purchase or the NAV of such shares at the time of redemption.
A selling agent or shareholder servicing agent and any other person entitled
to receive compensation for selling or servicing shares may receive different
compensation for selling or servicing Class A shares as compared with Class B
shares.
If Class A shares are purchased through a selling agent, Stephens reallows the
portion of the front-end sales charge shown above as the Dealer Allowance.
Stephens also compensates Selling Agents for sales of Class B shares, and is
then reimbursed out of applicable Rule 12b-1 fees and contingent-deferred sales
charges to such shares. When shares are purchased directly through the Transfer
Agent and no Selling Agent is involved with the purchase, the entire front-end
sales charge is paid to Stephens.
23 PROSPECTUS
<PAGE> 185
REDUCED SALES CHARGE -- CLASS A SHARES
Discounts described below pertaining to reduced sales charges for Class A
shares are based on your holdings or purchases of shares on which you have paid
or will pay a front-end sales charge. Because Class B shares are not subject to
front-end sales charges, you may not consider the amount of any Class B shares
you hold in determining any Volume Discount.
Volume Discounts
The Volume Discounts described in the Front-end Sales Charge Schedule are
available to you based on the combined dollar amount you invest in Class A
shares of one or more of the Company's funds that assess a front-end sales
charge (the "Load Funds").
Right of Accumulation
The Right of Accumulation allows you to combine the amount you invest in Class
A shares of a Fund with the total NAV of shares (other than Class B Shares) in
any of the Load Funds to determine reduced front-end sales charges in accordance
with the above Front-end Sales Charge Schedule. In addition, you also may
combine the total NAV of shares (other than Class B Shares) which you currently
have invested in any other mutual fund that assesses a front-end sales charge
and is advised or sub-advised by Wells Fargo Bank and sponsored by Stephens. For
example, if you own Class A shares of the Load Funds with an aggregate NAV of
$90,000 and you invest an additional $20,000 in Class A shares of a Load Fund,
the front-end sales charge on the additional $20,000 investment would be 3.50%
of the applicable offering price. To obtain such discount, you must provide
sufficient information at the time of your purchase to verify that your purchase
qualifies for the reduced front-end sales charge. Confirmation of the order is
subject to such verification. The Right of Accumulation may be modified or
discontinued at any time without prior notice with respect to all subsequent
shares purchased.
Letter of Intent
A Letter of Intent allows you to purchase Class A shares of a Fund over a
13-month period at a reduced front-end sales charge based on the total amount of
Class A shares you intend to purchase plus the total NAV of shares (other than
Class B shares) in any of the Load Funds you already own. Each investment in
Class A shares that you make during the period may be made at the reduced
front-end sales charge that is applicable to the total amount you intend to
invest. If you do not invest the total amount within the period, you must pay
the difference between the higher front-end sales charge rate that would have
been applied to the purchases you made and the reduced sales charge rate you
have paid. The minimum initial investment for a Letter of Intent is 5% of the
total amount you intend to purchase, as specified in the Letter. Shares of a
Fund equal to 5% of the amount you intend to invest will be held in escrow and,
if you do not pay the difference within 20 days following the mailing of a
request, a sufficient amount of
PROSPECTUS 24
<PAGE> 186
escrowed shares will be redeemed for payment of the additional front-end sales
charge. Dividend and capital gains paid on such shares held in escrow will be
reinvested in additional Fund shares.
Reinvestment
You may reinvest proceeds from a redemption of Class A shares in Class A
shares of a Fund or in shares of another of the Company's funds registered in
your state of residence at NAV, without a front-end sales charge, within 120
days after your redemption. However, if the other investment portfolio charges a
front-end sales charge that is higher than the sales load that you have paid in
connection with the Class A shares you have redeemed, you must pay the
difference between the dollar amount of the two front-end sales charges. You may
reinvest at this NAV price up to the total amount of the redemption proceeds. A
written purchase order for the shares must be delivered to the Company, a
Selling Agent, a Shareholder Servicing Agent, or the Transfer Agent at the time
of reinvestment.
Reductions for Families or Fiduciaries
Reductions in front-end sales charges apply to purchases by a single "person,"
including an individual, members of a family unit, consisting of a husband, wife
and children under the age of 21 purchasing securities for their own account, or
a trustee or other fiduciary purchasing for a single fiduciary account or single
trust estate.
Waivers for Investments of Proceeds From Other Investments
Purchases may be made at NAV, without a front-end sales charge, to the extent
that: (i) you are investing proceeds from a redemption of shares of another
open-end investment company on which you paid a front-end sales charge, and (ii)
such redemption occurred within thirty (30) days prior to the date of the
purchase order. You must notify the Fund and/or the Transfer Agent at the time
you place such purchase order of your eligibility for the waiver of front-end
sales charges and provide satisfactory evidence thereof (e.g., a confirmation of
the redemption and the sales charges paid). Front-end sales charges will not be
waived to the extent the investment proceeds are from a redemption of shares of
another open-end investment company that is affiliated with the Company on which
you paid a contingent-deferred sales charge upon redemption.
Reductions for Qualified Groups
Reductions in front-end sales charges also apply to purchases by individual
members of a "qualified group." The reductions are based on the aggregate dollar
amount of Class A shares purchased by all members of the qualified group. For
purposes of this paragraph, a qualified group consists of a "company," as
defined in the 1940 Act, which has been in existence for more than six months
and which has a primary purpose other
25 PROSPECTUS
<PAGE> 187
than acquiring shares of a Fund at a reduced sales charge, and the "related
parties" of such company. For purposes of this paragraph, a "related party" of a
company is: (i) any individual or other company who directly or indirectly owns,
controls or has the power to vote 5% or more of the outstanding voting
securities of such company; (ii) any other company of which such company
directly or indirectly owns, controls or has the power to vote 5% or more of its
outstanding voting securities; (iii) any other company under common control with
such company; (iv) any executive officer, director or partner of such company or
of a related party; and (v) any partnership of which such company is a partner.
Investors seeking to rely on their membership in a qualified group to purchase
shares at a reduced sales load must provide evidence satisfactory to the
Transfer Agent of the existence of a bona fide qualified group and their
membership therein.
Waivers for Certain Parties
Class A shares of a Fund may be purchased at NAV, without payment of a
front-end sales charge, by directors, officers and employees (and their spouses,
parents, children and siblings) of the Company, Stephens, its affiliates and
Selling Agents. Class A shares of a Fund also may be purchased at NAV, without a
front-end sales charge, by present and retired directors, officers and employees
(and their spouses, parents, children and siblings) of Wells Fargo Bank and its
affiliates if Wells Fargo Bank and/or the respective affiliates agree. Class A
shares of a Fund also may be purchased at NAV, without a front-end sales charge,
by employee benefit and thrift plans for such persons and by any investment
advisory, trust or other fiduciary account, including certain Plan Accounts,
that are maintained, managed or advised by Wells Fargo Bank or its affiliates
("Fiduciary Accounts"). In addition, you may purchase Class A shares of a Fund
at NAV, without a front-end sales charge, with proceeds from a required minimum
distribution from any Individual Retirement Account ("IRA"), Simplified Employee
Pension Plan or other self-directed retirement plan for which Wells Fargo Bank
serves as trustee, provided that the proceeds are invested in the Funds within
30 days of such distribution and such distribution is required as a result of
reaching age 70 1/2.
CONTINGENT-DEFERRED SALES CHARGES -- CLASS B SHARES
Class B shares may be subject to a contingent-deferred sales charge ("CDSC").
A CDSC is an amount you pay if you redeem your shares within a specified period.
The CDSC will be equal to a percentage of the lesser of the NAV of your shares
at the time of purchase or the NAV of your shares at redemption.
Except as described below, if you purchase Class B shares and redeem such
shares within six years of the date of purchase the Class B shares are subject
to a CDSC as follows:
<TABLE>
<CAPTION>
Redemption Within: 1 Year 2 Years 3 Years 4 Years 5 Years 6 Years
- ------------------ ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CDSC: 5% 4% 3% 3% 2% 1%
</TABLE>
PROSPECTUS 26
<PAGE> 188
Class B shares of a Fund purchased prior to March 3, 1997, are subject to a
CDSC if redeemed within four years of purchase. For so long as you hold Class B
shares of such Fund, any new Class B shares of the Fund that you acquire are
subject to a CDSC if redeemed within four years. In addition, if you exchange
Class B shares of the Fund for Class B shares of another fund, upon redemption
the CDSC applicable to the original Class B shares of the Fund will apply. The
CDSCs applicable to such shares are as follows:
<TABLE>
<CAPTION>
Redemption Within: 1 Year 2 Years 3 Years 4 Years
- ------------------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
CDSC: 3% 2% 1% 1%
</TABLE>
Contingent-deferred sales charge will not be imposed on amounts representing
increases in NAV above the NAV at the time of purchase. Contingent-deferred
sales charges will not be assessed on Class B shares purchased through
reinvestment of dividends or capital gain distributions. Class B shares
automatically convert into Class A shares of the same Fund six years after the
end of the month in which such Class B shares were acquired.
The amount of a contingent-deferred sales charge, if any, paid upon redemption
of Class B shares is determined in a manner designed to result in the lowest
sales charge rate being assessed. When a redemption request is made, Class B
shares acquired pursuant to the reinvestment of dividends and capital gain
distributions are considered to be redeemed first. After this, Class B shares
are considered redeemed on a first-in, first-out basis so that Class B shares
held for a longer period of time are considered redeemed prior to more recently
acquired Class B shares. For a discussion of the interaction between the
optional Exchange Privilege and contingent-deferred sales charges on Class B
shares, see "Additional Shareholder Services -- Exchange Privilege."
Contingent-deferred sales charges are waived on redemptions of Class B Shares
of a Fund (i) following the death or disability (as defined in the Internal
Revenue Code of 1986, as amended (the "Code")) of a shareholder, (ii) to the
extent that the redemption represents a scheduled distribution from an
individual retirement account or other retirement plan to a shareholder who has
reached age 59 1/2, (iii) effected pursuant to the Company's right to liquidate
a shareholder's account if the aggregate NAV of the shareholder's account is
less than the minimum account size, or (iv) in connection with the combination
of the Company with any other registered investment company by a merger,
acquisition of assets, or by any other transaction.
In deciding whether to purchase Class A or Class B shares, you should compare
the fees assessed on Class A shares (including front-end sales charges) against
those assessed on Class B shares (including potential contingent-deferred sales
charges and higher Rule 12b-1 fees than Class A shares) in light of the amount
to be invested and the anticipated time that the shares will be owned. If your
purchase order would qualify you for a reduced sales charge on Class A shares,
you should consider carefully whether
27 PROSPECTUS
<PAGE> 189
you would pay lower fees ultimately on Class A shares or Class B shares. See
"Investing in the Funds -- Sales Charges" for information on reduced sales
charges for Class A shares.
You may buy shares of the Funds 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 A or Class B)
Account Name(s): Name(s) in which to be registered
Account Number: (if investing into an existing account)
3. A completed Account Application should be mailed, or sent by telefacsimile
with the original subsequently mailed, to the following address immediately
after the funds are wired and must be received and accepted by the Transfer
Agent before an account can be opened:
Wells Fargo Bank, N.A.
Stagecoach Shareholder Services
P.O. Box 7066
San Francisco, California 94120-7066
Telefacsimile: 1-415-543-9538
4. Share purchases are effected at the public offering price or, in the case of
Class B shares, at the NAV next determined after the Account Application is
received and accepted.
INITIAL PURCHASES BY MAIL
1. Complete an Account Application. Indicate the services to be used.
2. Mail the Account Application and a check for $1,000 or more payable to
"Stagecoach Funds (Name of Fund) (designate Class A or Class B)," to the
address above.
PROSPECTUS 28
<PAGE> 190
3. Share purchases are effected at the public offering price or, in the case of
Class B shares, at the NAV next determined after the Account Application is
received and accepted.
AUTOSAVER PLAN PURCHASES
The Company's AutoSaver Plan provides you with a convenient way to establish
and automatically add to a Fund account on a monthly basis. To participate in
the AutoSaver Plan, you must specify an amount ($100 or more) to be withdrawn
automatically by the Transfer Agent on a monthly basis from an account with a
bank, which is designated in your Account Application and is approved by the
Transfer Agent ("Approved Bank Account"). You may open an Approved Bank Account
with Wells Fargo Bank. The Transfer Agent withdraws and uses this amount to
purchase specified Fund shares on your behalf on or about the day that you have
selected or, if you have not selected a day, on or about the 20th day of each
month. 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.
There are no separate fees charged to you by the Company for participating in
the AutoSaver Purchase Plan.
You may change your investment amount or the date on which your AutoSaver
Purchase is effected, suspend purchases or terminate your election at any time
by 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 of 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 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
29 PROSPECTUS
<PAGE> 191
not be available to individuals or entities who invest through a tax-deferred
retirement plan.
ADDITIONAL PURCHASES
You may make additional purchases of $100 or more by instructing a Fund's
Transfer Agent to debit your Approved Bank Account, by wire by instructing the
wiring bank to transmit the specified amount as directed above for initial
purchases, or by mail with a check payable to "Stagecoach Funds (Name of Fund)
(designate Class A or B)" to the address set forth in "Initial Purchases by
Wire". Write your Fund account number on the check and include the detachable
stub from your Statement of Account or a letter providing your Fund account
number.
PURCHASES THROUGH SELLING AGENTS
You may place a purchase order for Class A or Class B shares of a Fund through
a broker/dealer or financial institution which has entered into a Selling
Agreement with Stephens, as the Funds' Distributor ("Selling Agent"). If your
order is placed by the close of the NYSE, the purchase order generally will be
executed on the same day if the order is received by the Transfer Agent before
the close of business. If your purchase order is received by a Selling Agent
after the close of the NYSE or by the Transfer Agent after the close of
business, then your purchase order will be executed on the next Business Day
following the day your order is placed. The Selling Agent is responsible for the
prompt transmission of your purchase order to the Fund. Because payment for
shares of the Funds will not be due until settlement date, the Selling Agent
might benefit from temporary use of your payment. 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 Class A or Class B shares of the Funds may be transmitted
to the transfer agent through any entity that has entered into a shareholder
servicing agreement with the Funds ("Shareholder Servicing Agent"), such as
Wells Fargo Bank. See "Management, Distribution and Servicing
Fees -- Shareholder Servicing Agent." The Shareholder Servicing Agent may
transmit a purchase order to the Transfer Agent, on your behalf, including a
purchase order for which payment is to be transferred from your Approved Bank
Account or wired from a financial institution. If your order is transmitted by
the Shareholder Servicing Agent, on your behalf, to the Transfer Agent before
the close of the NYSE, the purchase order generally will be executed on the same
day. If your Shareholder Servicing Agent transmits your purchase order to the
Transfer Agent after the close of the NYSE, then your order generally will be
executed on the next
PROSPECTUS 30
<PAGE> 192
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, 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.
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
The Asset Allocation Fund intends to declare a quarterly dividend and the U.S.
Government Allocation Fund intends to declare a daily dividend of substantially
all of their respective net investment income to shareholders of record.
Dividends declared by the U.S. Government Allocation Fund in a month generally
are distributed on the last Business Day of each month to shareholders of
record. With regard to the U.S. Government Allocation Fund, dividends for a
Saturday, Sunday or Holiday are declared payable to shareholders of record as of
the preceding Business Day. The Funds will 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 will 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.
Net investment income available for distribution to the holders of Class B
Shares is reduced by the amount of the higher Rule 12b-1 Fee payable on such
shares. Expenses that are attributable to a particular class also may affect the
relative dividends and/or capital-gain distributions of Class A and Class B
shares.
31 PROSPECTUS
<PAGE> 193
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 will remit redemption proceeds,
net of any contingent-deferred sales charge applicable with respect to Class B
shares (the "net redemption proceeds"), within seven days after your redemption
order is received in proper form, unless the SEC permits a longer period under
extraordinary circumstances. Such extraordinary circumstances could include a
period during which an emergency exists as a result of which (a) disposal by a
Fund of securities owned by it is not reasonably practicable or (b) it is not
reasonably practicable for a Fund fairly to determine the value of its net
assets, or a period during which the SEC by order permits deferral of
redemptions for the protection of security holders of such Fund. In addition, 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 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 an
amount equal to or greater than the applicable minimum balance. Plan Accounts
are not subject to minimum Fund account
PROSPECTUS 32
<PAGE> 194
balance requirements. For a discussion of applicable minimum balance
requirements, see "Investing in the Funds -- How To Buy Shares."
REDEMPTIONS BY TELEPHONE
Telephone redemption or exchange privileges are made available to you
automatically upon opening an account, unless you specifically decline the
privileges. Telephone redemption privileges authorize the Transfer Agent to act
on telephone instructions from any person representing himself or herself to be
the investor and reasonably believed by the Transfer Agent to be genuine. The
Company will require the Transfer Agent to employ reasonable procedures, such as
requiring a form of personal identification, to confirm that instructions are
genuine and, if it does not follow such procedures, the Company and the Transfer
Agent may be liable for any losses due to unauthorized or fraudulent
instructions. Neither the Company nor the Transfer Agent will be liable for
following telephone instructions reasonably believed to be genuine.
REDEMPTIONS BY MAIL
1. Write a letter of instruction. Indicate the class and the dollar amount or
number of Fund shares you want to redeem. Refer to your Fund account number
and give your 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
yourself at your address of record or your Approved Bank Account, or other
unusual circumstances exist which cause the Transfer Agent to determine that
a signature guarantee is necessary or prudent to protect against unauthorized
redemption requests. If required, a signature must be guaranteed by an
"eligible guarantor institution," which includes a commercial bank that is an
FDIC member, a trust company, a member firm of a domestic stock exchange, a
savings association, or a credit union 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.
33 PROSPECTUS
<PAGE> 195
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 the Fund's receipt of
your redemption request would be expedited. You may request expedited redemption
by telephone only if the total value of the shares redeemed is $100 or more.
You may request expedited redemption by telephone by calling the Transfer
Agent at the telephone number listed on your transaction confirmation or by
calling 1-800-222-8222.
You may request expedited redemption by mail by mailing your expedited
redemption request to the Transfer Agent at the mailing address set forth under
"Investing in the Funds -- Initial Purchases by Wire."
Upon request, net redemption proceeds of your expedited redemptions of $5,000
or more will be wired or credited to 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 account with an Approved Bank or Selling Agent that you
have not predesignated in your Account Application, your expedited redemption
request must be made by letter and the signature(s) on the letter may be
required to be guaranteed, regardless of the amount of the redemption. If your
expedited redemption request is received by the Transfer Agent by the close of
the NYSE on a Business Day, your redemption proceeds will be transmitted to your
designated account with an Approved Bank 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 the 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 Funds
reserve the right to modify or terminate the expedited telephone redemption
privilege at any time.
PROSPECTUS 34
<PAGE> 196
SYSTEMATIC WITHDRAWAL PLAN
The Company's Systematic Withdrawal Plan provides you with a convenient way to
redeem Fund shares from your account and have the net redemption proceeds
distributed to you on a monthly basis. You may participate in the Systematic
Withdrawal Plan only if you have a Fund account valued at $10,000 or more as of
the date of your election to participate, your dividends and capital gain
distributions are being reinvested automatically and you are not participating
in the AutoSaver Plan at any time while participating in the Systematic
Withdrawal Plan. You specify an amount ($100 or more) to be distributed by check
to your address of record or deposited in your Approved Bank Account. The
Transfer Agent redeems sufficient shares and mails or deposits your net
redemption proceeds as instructed on or about the fifth Business Day prior to
the end of each month. There are no separate fees charged to you by the Funds
for participating in the Systematic Withdrawal Plan. However, you should not
participate in the Systematic Withdrawal Plan if you also are purchasing shares
of a fund that is subject to a front-end sales charge.
It may take up to ten (10) days after receipt of your request to establish
your participation in the Systematic Withdrawal Plan. You may change your
withdrawal amount, suspend withdrawals or terminate your election at any time by
notifying the Transfer Agent at least five (5) Business Days prior to any
scheduled transaction. Your participation in the Systematic Withdrawal Plan is
terminated automatically if your Fund account is closed or, in some cases, if
your Approved Bank Account is closed.
REDEMPTIONS THROUGH SELLING AGENTS
If your redemption order is received by a Selling Agent before the close of
the NYSE and received by the Transfer Agent before the close of business on the
same day, the order will be executed at the NAV determined as of the close of
the NYSE on that day. If your redemption order is received by a Selling Agent
after the close of the NYSE, or not received by the Transfer Agent prior to the
close of business, your order will be executed at the NAV determined as of the
close of the NYSE on the next Business Day. The Selling Agent is responsible for
the prompt transmission of your redemption order to the Funds.
Unless you have made other arrangements with the Selling Agent, and the
Transfer Agent has been informed of such arrangements, net redemption proceeds
of a redemption order made by you through a Selling Agent will be credited to
your Approved Bank Account. If no such account is designated, a check for the
net redemption proceeds will be mailed to your address of record or, if such
address is no longer valid, the net redemption proceeds will be credited to your
account with the Selling Agent. You may request a check from the Selling Agent
or elect to retain the net redemption proceeds in such account. The Selling
Agent may charge you a service fee. In addition, the Selling Agent may benefit
from the use of your redemption proceeds until
35 PROSPECTUS
<PAGE> 197
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
will be executed at the NAV determined as of the close of the NYSE on that day.
If your Shareholder Servicing Agent transmits your redemption order to the
Transfer Agent after the close of the NYSE, then your order will be executed on
the next Business Day following the date your order is received. The Shareholder
Servicing Agent is responsible for the prompt transmission of your redemption
order to the Funds.
Unless you have made other arrangements with your Shareholder Servicing Agent,
and the Transfer Agent has been informed of such arrangements, net redemption
proceeds of a redemption order made by you through your Shareholder Servicing
Agent are credited to your Approved Bank Account. If no such account is
designated, a check for the net redemption proceeds will be mailed to your
address of record or, if such address is no longer valid, the net redemption
proceeds will be credited to your account with your Shareholder Servicing Agent
or to another account designated in your agreement with your Shareholder
Servicing Agent. The Shareholder Servicing Agent may charge you a fee. In
addition, the Shareholder Servicing Agent may benefit from the use of proceeds
credited to your account until any check it issues to you has cleared or until
such proceeds have been disbursed or reinvested on your behalf.
ADDITIONAL SHAREHOLDER SERVICES
In addition to the optional services described above, the Funds offer you
several dividend and distribution payment options and an exchange privilege,
which are described below. If you have any questions about the dividend and
distribution payment 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
dividend and distribution options:
A. The AUTOMATIC REINVESTMENT OPTION provides for the reinvestment of your
dividends and capital-gain distributions in additional shares of the same class
of the Fund which paid such dividends or capital-gain distributions. Dividends
and distributions declared in a month generally are reinvested at NAV on the
last Business Day of such
PROSPECTUS 36
<PAGE> 198
month. You are assigned this option automatically if you make no choice on your
Account Application.
B. The FUND PURCHASE OPTION lets you use your dividends and/or capital-gain
distributions from the Funds to purchase, at NAV, shares of another fund in the
Stagecoach Family of Funds with which you have an established account that has
met the applicable minimum initial investment requirement. Dividends and
distributions paid on Class A or Class B Shares may be invested in Class A or
Class B Shares, respectively, of another fund, in Retail Shares of another fund,
in Class A Shares of the Government Money Market Mutual, Money Market Mutual,
Prime Money Market Mutual or Treasury Money Market Mutual Funds or in shares of
the California Tax-Free Money Market Mutual or National Tax-Free Money Market
Mutual Funds (collectively, the "Money Market Mutual Funds"). Dividends and
distributions paid on Class A Shares may also be invested in shares of a
non-money market fund of the Stagecoach Family of Funds with a single class of
shares (a "single class fund"). Dividends and distributions paid on Class B
Shares may not be invested in shares of a single class fund.
C. The AUTOMATIC CLEARING HOUSE OPTION permits you to have dividends and
capital-gain distributions deposited in your Approved Bank Account. In the event
your Approved Bank Account is closed and such distribution is returned to the
Funds' dividend disbursing agent, the distribution will be reinvested in your
Fund account at the NAV next determined after the distribution has been
returned. Your Automatic Clearing House Option will be converted to the
Automatic Reinvestment Option.
D. The CHECK PAYMENT OPTION lets you receive a check for all dividends and/or
capital-gain distributions, which generally is mailed either to your designated
address or your Approved Bank Account shortly following declaration. If the U.S.
Postal Service cannot deliver such checks, or if such checks remain uncashed for
six months, those checks will be reinvested in your Fund account at the NAV next
determined after the earlier of the date the checks have been returned to the
dividend disbursing agent or the date six months after the payment of such
dividend or distribution. Your Check Payment Option will be converted to the
Automatic Reinvestment Option.
The Company forwards moneys to the dividend disbursing agent so that it may
issue you dividend 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.
37 PROSPECTUS
<PAGE> 199
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 A shares and a Money Market Mutual Fund........... X
Class A shares and Class A shares....................... X
Class B shares and a Money Market Mutual Fund........... X
Class B shares and Class B shares....................... X
Class A shares of a non-Money Market Mutual Fund and
Class B shares........................................ X
</TABLE>
Important factors that you should consider:
- You will need to read the prospectus of the fund into which you want to
exchange.
- Every exchange is a redemption of shares of one fund and a purchase of
shares of another fund. 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.
- If you exchange Class A shares, you will need to pay any difference between
a load that you have already paid and the load that you are subject to in
the new fund (less the difference between any load already paid under the
maximum 3% load schedule and the maximum 4.50% schedule).
- You will not pay a contingent deferred sales charge on any exchange from
Class B shares into other Class B shares or a Money Market Mutual Fund. The
new shares will continue to age while they are in the new fund and will be
charged the contingent deferred sales charge applicable to the original
shares upon redemption.
- If you exchange Class A or Class B shares for shares of a Money Market
Mutual Fund, you may not re-exchange shares of the Money Market Mutual Fund
for shares other than the original exchanged class.
- 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.
PROSPECTUS 38
<PAGE> 200
You may exchange shares by writing the Transfer Agent or, if you have
telephone privileges, you may call the Transfer Agent. Exchanges are subject to
the procedures and conditions applicable to purchasing and redeeming shares.
CONVERSION
Class B shares of a 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, will no longer be
subject to the higher Rule 12b-1 fees applicable to Class B shares. Such
conversion is effected on the basis of the relative NAV of the two Classes,
without the imposition of any sales charge or other charge except that the lower
Rule 12b-1 Fees applicable to Class A shares shall thereafter be applied to such
converted shares. Because the per share NAV of the Class A shares may be higher
than that of the Class B shares at the time of conversion, a shareholder may
receive fewer Class A shares than the number of Class B shares converted,
although the dollar value will be the same. Reinvestments of dividends and
distributions on Class B shares will be considered new purchases for purposes of
the conversion feature. A conversion should not produce a gain or loss for
federal tax purposes.
If a shareholder effects one or more exchanges among Class B shares of any
fund or among shares of a Money Market Mutual Fund during the six-year period
and exchanges back into Class B shares, the holding period for shares so
exchanged will be counted toward the six-year period and any Class B shares held
at the end of six years will be converted into Class A shares.
MANAGEMENT, DISTRIBUTION AND
SERVICING FEES
INVESTMENT ADVISER
Subject to the overall supervision of MIT's Board of Trustees, Wells Fargo
Bank, as the Master Portfolios' investment adviser, provides investment guidance
and policy direction in connection with the management of the Master Portfolios'
assets. Wells Fargo Bank also furnishes the Board of Trustees with periodic
reports on the Master Portfolios' investment strategy and performance. For these
services, Wells Fargo Bank is entitled to a monthly advisory fee at the annual
rate of 0.50% of the first $250 million of each Master Portfolio's average daily
net assets, 0.40% of the next $250 million, and 0.30% of the average daily net
assets in excess of $500 million.
Wells Fargo Bank has delegated certain advisory responsibilities to BGFA.
Nevertheless, Wells Fargo Bank has retained authority over the management of
each
39 PROSPECTUS
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Master Portfolio, and the investment and disposition of each Master Portfolio's
assets, and Wells Fargo Bank may reject any investment recommendations or
decisions for a Master Portfolio if Wells Fargo Bank determines that such
recommendations or decisions are not consistent with the best interests of the
Master Portfolio. Wells Fargo Bank pays BGFA for its sub-advisory services
annual fees equal to 0.20% of the average daily net assets of the Asset
Allocation Master Portfolio and $40,000 plus 0.15% of the average daily net
assets of the U.S. Government Allocation Master Portfolio.
Prior to April 29, 1996 and the Funds' investment in the Master Portfolios,
Wells Fargo Bank provided investment advisory services directly to the Funds.
For its services as investment adviser, Wells Fargo Bank was entitled to receive
a monthly fee at the annual rate of 0.50% of the first $250 million of each
Fund's average daily net assets, 0.40% of the next $250 million, and 0.30% of
each Fund's average daily net assets in excess of $500 million. Prior to January
1, 1996, Wells Fargo Nikko Investment Advisors ("WFNIA"), an affiliate of Wells
Fargo Bank served as sub-adviser to the Funds. WFNIA was entitled to receive
from Wells Fargo Bank annual sub-advisory fees equal to 0.20% of the average
daily net assets of the Asset Allocation Fund and $40,000 plus 0.15% of the
average daily net assets of the U.S. Government Allocation Fund.
Advisory Fees Paid
For the nine-month period ended September 30, 1996, Wells Fargo Bank was paid
an amount equal to 0.37% of the average daily net assets of the Asset Allocation
Fund and 0.50% of the average daily net assets of the U.S. Government Allocation
Fund for its services as investment adviser. This includes both amounts paid by
the Funds and the Master Portfolios. For the nine-month period ended September
30, 1996, Wells Fargo Bank paid an amount equal to 0.20% of the average daily
net assets of the Asset Allocation Fund and 0.18% of the average daily net
assets of the U.S. Government Allocation Fund to BGFA for its services as
sub-adviser.
For the year ended December 31, 1995, the Company paid amounts equal to 0.37%
and 0.50% of the average daily net assets of the Asset Allocation Fund and U.S.
Government Allocation Fund, respectively, to Wells Fargo Bank for its services
as investment adviser to such Funds. For the year ended December 31, 1995, Wells
Fargo Bank paid amounts equal to 0.20% and 0.18% of the average daily net assets
of the Asset Allocation Fund and U.S. Government Allocation Fund, respectively,
to WFNIA for its services as sub-adviser to such Funds.
From time to time, each of the Funds, consistent with its investment
objectives, policies and restrictions, may invest in securities of companies
with which Wells Fargo Bank or BGI has a lending relationship.
PROSPECTUS 40
<PAGE> 202
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
BGI serves as the custodian to the Funds and Master Portfolios. BGI, located
at 45 Fremont Street, San Francisco, California 94105, is a special purpose
trust company that is owned indirectly by Barclays Bank PLC. BGFA is a wholly
owned subsidiary of BGI.
Wells Fargo Bank serves as the Funds' transfer and dividend disbursing agent.
Wells Fargo Bank performs the transfer and dividend disbursing agency activities
at 525 Market Street, San Francisco, California 94105.
SHAREHOLDER SERVICING AGENT
The Funds have entered into Shareholder Servicing Agreements with Wells Fargo
Bank on behalf of each class of shares of the Funds, and may enter into similar
agreements with other entities. Under such agreements, Shareholder Servicing
Agents (including Wells Fargo Bank) agree, as agents for their customers, to
provide various administrative services with respect to Fund shares, such as
maintaining shareholder accounts and records, assisting shareholders with
purchases, exchanges and redemptions and to provide such other related services
as the Company or a shareholder may reasonably request. For these services, a
Shareholder Servicing Agent receives a fee, as calculated on an annualized basis
for each Fund's then-current fiscal year, up to (1) 0.30% of the average daily
net assets attributable to the Class A or Class B shares, as the case may be,
owned during the period for which payment is being made by investors with whom
the Shareholder Servicing Agent maintains a servicing relationship, or (2) an
amount which equals the maximum amount payable to the Shareholder Servicing
Agent under applicable laws, regulations or rules, including the Conduct Rules
of the NASD ("NASD Rules"). In no event will the portion of such fees that
constitutes a "service fee," as that term is used by the NASD, exceed 0.25% of
the average NAV attributable to the Class A or Class B shares of each Fund.
A Shareholder Servicing Agent also may impose certain conditions on its
customers, subject to the terms of this Prospectus, in addition to or different
from those imposed by the Funds, such as requiring a higher minimum initial
investment or payment of a separate fee for additional services. Each
Shareholder Servicing Agent will be required to agree to disclose any fees it
may directly charge its customers who are shareholders of a Fund and to notify
them in writing at least 30 days before it imposes any transaction fees.
ADMINISTRATOR AND CO-ADMINISTRATOR
Well Fargo Bank serves as administrator and Stephens serves as
co-administrator to the Company and MIT subject to the overall supervision of
the Board of Directors of the Company and the Board of Trustees of MIT,
respectively. Wells Fargo Bank and Stephens provide the Funds with
administrative services, including general supervision of each Fund's operation,
coordination of the other services provided to each Fund, compilation
41 PROSPECTUS
<PAGE> 203
of information for reports to the SEC and the state securities commissions,
preparation of proxy statements and shareholder reports, and general supervision
of data compilation in connection with preparing periodic reports to the
Company's Directors and officers. Stephens also furnishes office space and
certain facilities to conduct each Fund's business, and compensates the
Company's Directors, officers and employees who are affiliated with Stephens.
For these 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 do not
receive a separate administration fee from the Master Portfolios. 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 Asset Allocation and U.S. Government Allocation Funds paid administrative
fees to Stephens at the annual rates of 0.03% and 0.03%, respectively, of each
Funds average daily net assets.
SPONSOR AND DISTRIBUTOR
Stephens is the Company's 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 Class A and Class B shares of the
Funds. The Company also has adopted a Distribution Plan on behalf of each Class
of shares of the Funds under the SEC's Rule 12b-1 ("Plans"). Under the Class A
Plans for each Fund, each Fund may defray all or part of the cost of preparing
and printing prospectuses and other promotional materials and of delivering
prospectuses and those materials to prospective Class A shareholders by paying
on an annual basis up to 0.05% of the average daily net assets attributable to
the Class A shares of the Funds. The Class A Plans provide only for the
reimbursement of actual expenses. Under the Class B Plans, each Fund may defray
all or part of such costs and pay compensation to the Distributor and Selling
Agents for sales support services. The Class B Plans provide for payments, on an
annual basis, of up to 0.70% of the average daily net assets attributable to the
Class B Shares of each Fund.
The Distribution Agreement provides that Stephens shall act as agent for the
Funds for the sale of their shares, and may enter into Selling Agreements with
Selling Agents that wish to make available shares of the Funds to their
respective customers. The Funds may participate in joint distribution activities
with any of the other funds of the
PROSPECTUS 42
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Company, in which event expenses reimbursed out of the assets of the Fund may be
attributable, in part, to the distribution-related activities of another fund of
the Company. Generally, the expenses attributable to joint distribution
activities will be allocated among 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, Stephens has established a non-cash compensation
program, pursuant to which broker/dealers or financial institutions that sell
shares of the Funds may earn additional compensation in the form of trips to
sales seminars or vacation destinations, tickets to sporting events, theater or
other entertainment, opportunities to participate in golf or other outings and
gift certificates for goods or merchandise.
In addition, the Plans contemplate that, to the extent any fees payable
pursuant to a Shareholder Servicing Agreement (discussed above) are deemed to be
for distribution-related services, such payments are approved and payable
pursuant to the Plans subject to any limits under applicable law, regulations or
rules, including the NASD Rules. Financial institutions acting as Selling
Agents, Shareholder Servicing Agents, or in certain other capacities may be
required to register as dealers pursuant to applicable state securities laws
which may differ from federal law and any interpretations expressed herein.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective
fees owed by each Fund or the pro rata share of the fees owed by each Master
Portfolio in whole or in part and reimburse expenses payable to others. Any such
waivers or reimbursements will reduce a Fund's expenses and, accordingly, have a
favorable impact on such Fund's performance. Except for the expenses borne by
Wells Fargo Bank and Stephens, the Company bears its pro rata share of all costs
of its operations, including advisory, shareholder servicing, transfer agency,
custody and administration fees, payments pursuant to any Plans, fees and
expenses of its independent auditors and legal counsel, and any extraordinary
expenses. Expenses attributable to each Fund or Class are charged against the
assets of the Fund or Class. General expenses of the Company and MIT are
allocated among all of the funds of the Company, or all of the portfolios of
MIT, 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 or
Trustees of the Company or MIT 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 be
43 PROSPECTUS
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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 44
<PAGE> 206
PROSPECTUS APPENDIX -
ADDITIONAL INVESTMENT POLICIES
Set forth below is a description of certain investments and additional
investment policies for the Funds, except where otherwise indicated. The Asset
Allocation and U.S. Government Allocation Funds each seek to achieve its
investment objective by investing all of its assets in the corresponding Master
Portfolios. REFERENCES TO THE INVESTMENTS AND INVESTMENT POLICIES AND
RESTRICTIONS OF THE FUNDS, UNLESS OTHERWISE INDICATED, SHOULD BE UNDERSTOOD AS
REFERENCES TO THE INVESTMENTS AND INVESTMENT POLICIES AND RESTRICTIONS OF THE
CORRESPONDING MASTER PORTFOLIOS.
Money Market Instruments and Temporary Investments
In accordance with its investment policies, the Funds may invest varying
percentages of their assets in money market instruments. In addition, the Funds
may have temporary cash balances on account of new purchases, dividends,
interest and reserves for redemptions, and which the Funds may invest in the
following high-quality money market instruments: (i) obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, including
government-sponsored enterprises ("U.S. Government obligations"); (ii)
negotiable certificates of deposit, bankers' acceptances and fixed time deposits
and other obligations of domestic banks (including foreign branches) that have
more than $1 billion in total assets at the time of investment and are members
of the Federal Reserve System or are examined by the Comptroller of the Currency
or whose deposits are insured by the FDIC; (iii) commercial paper rated at the
date of purchase "P-1" by Moody's Investors Service, Inc. ("Moody's") or "A-1+"
or "A-1" by S&P, or, if unrated, of comparable quality as determined by Wells
Fargo Bank, as investment adviser; (iv) nonconvertible corporate debt securities
(e.g., bonds and debentures) with remaining maturities 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;
(v) repurchase agreements; and (vi) short-term, U.S. dollar-denominated
obligations of foreign banks (including U.S. branches) that at the time of
investment: (a) have more than $10 billion, or the equivalent in other
currencies, in total assets; (b) are among the 75 largest foreign banks in the
world as determined on the basis of assets; (c) have branches or agencies in the
United States; and (d) in the opinion of Wells Fargo Bank, as investment
adviser, are of comparable quality to obligations of U.S. banks which may be
purchased by a Fund.
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
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(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.
Short-Term Corporate Debt Instruments
The Funds may invest in commercial paper (including variable amount master
demand notes), which refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations that 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.
The Funds also may invest in nonconvertible corporate debt securities (e.g.,
bonds and debentures) with no more than one year remaining to maturity at the
date of settlement. The Funds will invest only in such corporate bonds and
debentures that are rated at the time of purchase at least "Aa" by Moody's or
"AA" by S&P.
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. Inverse floaters have rates that move in the
opposite direction of a benchmark. This feature makes the market value of
inverse floaters more volatile Floating- and variable-rate instruments are
subject to interest-rate risk and credit risk.
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,
PROSPECTUS A- 2
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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.
Futures Contracts and Options Transactions -- General
A futures transaction involves a firm agreement to buy or sell a commodity or
financial instrument at a particular price on a specified future date, while an
option transaction generally involves a right, which may or may not be
exercised, to buy or sell a commodity or financial instrument at a particular
price on a specified future date. Futures contacts and options are standardized
and exchange-traded, where the exchange serves as the ultimate counterparty for
all contracts. Consequently, the only credit risk on futures contracts is the
creditworthiness of the exchange. Futures contracts, however, are subject to
market risk (i.e., exposure to adverse price changes).
The Funds may trade futures contracts and options on futures contracts in U.S.
domestic markets, such as the Chicago Board of Trade and the International
Monetary Market of the Chicago Mercantile Exchange.
The Funds' futures transactions must constitute permissible transactions
pursuant to regulations promulgated by the Commodity Futures Trading Commission.
In addition, the Funds may not engage in futures transactions if the sum of the
amount of initial margin deposits and premiums paid for unexpired options on
futures contracts, other than those contracts entered into for bona fide hedging
purposes, would exceed 5% of the liquidation value of a Fund's assets, after
taking into account unrealized profits and unrealized losses on such contracts;
provided, however, that in the case of an option on a futures contract that is
in-the-money at the time of purchase, the in-the-money amount may be excluded in
calculating the 5% liquidation amount. Pursuant to regulations and/or published
positions of the SEC, each Fund may be required to segregate cash, U.S.
Government obligations or other high-quality debt instruments in connection with
its futures transactions in an amount generally equal to the entire value of the
underlying commitment.
Initially, when purchasing or selling futures contracts a Fund will be
required to deposit with its custodian in the broker's name an amount of cash or
cash equivalents up to approximately 10% of the contract amount. This amount is
subject to change by the exchange or board of trade on which the contract is
traded, and members of such exchange or board of trade may impose their own
higher requirements. This amount is known as "initial margin" and is in the
nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures
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position, assuming all contractual obligations have been satisfied. Subsequent
payments, known as "variation margin", to and from the broker will be made daily
as the price of the index or securities underlying the futures contract
fluctuates, making the long and short positions in the futures contract more or
less valuable. At any time prior to the expiration of a futures contract, a Fund
may elect to close the position by taking an opposite position, at the then
prevailing price, thereby terminating its existing position in the contract.
Although the Funds intend to purchase or sell futures contracts only if there
is an active market for such contracts, no assurance can be given that a liquid
market will exist for any particular contract at any particular time. Many
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single trading day. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a price
beyond that limit or trading may be suspended for specified periods during the
trading day. Futures contracts prices could move to the limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and potentially subjecting a Fund to
substantial losses. If it is not possible, or a Fund determines not to close a
futures position in anticipation of adverse price movements, the Fund will be
required to make daily cash payments of variation margin.
An option on a futures contract gives the purchaser the right, in return for
the premium paid, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option exercise period. The writer (i.e.,
seller) of the option is required upon exercise to assume an offsetting futures
position (a short position if the option is a call and a long position if the
option is a put). Upon exercise of the option, the assumption of offsetting
futures positions by both the writer and the holder of the option will be
accompanied by delivery of the accumulated cash balance in the writer's futures
margin account in the amount by which the market price of the futures contract,
at exercise, exceeds (in the case of a call) or is less than (in the case of a
put) the exercise price of the option on the futures contract.
Stock Index Options. The Fund may purchase and write (i.e., sell) put and call
options on stock indices as a substitute for comparable market positions in the
underlying securities. A stock index fluctuates with changes in the market
values of the stocks included in the index. The aggregate premiums paid on all
options purchased may not exceed 20% of a Fund's total assets and the value of
the options written may not exceed 10% of the value of the Fund's total assets.
The effectiveness of purchasing or writing stock index options will depend
upon the extent to which price movements in a Fund's portfolio correlate with
price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether a Fund will realize a gain or loss from purchasing
or writing stock index options depends
PROSPECTUS A- 4
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upon movements in the level of stock prices in the stock market generally or, in
the case of certain indices, in an industry or market segment, rather than
movements in the price of particular stock.
When a Fund writes an option on a stock index, the Fund will place in a
segregated account with its custodian cash, U.S. Government obligations or other
high-quality debt instruments in an amount at least equal to the market value of
the underlying stock index and will maintain the account while the option is
open or otherwise will cover the transaction.
Stock Index Futures and Options on Stock Index Futures. Each Fund may invest
in stock index futures and options on stock index futures as a substitute for a
comparable market position in the underlying securities. A stock index future
obligates the seller to deliver (and the purchaser to take), effectively, an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. No physical delivery of
the underlying stocks in the index is made. With respect to stock indices that
are permitted investments, each Fund intends to purchase and sell futures
contracts on the stock index for which it can obtain the best price with
consideration also given to liquidity.
Interest-Rate Futures Contracts and Options on Interest-Rate Futures
Contracts. Each Fund may invest in interest-rate futures contracts and options
on interest-rate futures contracts as a substitute for a comparable market
position in the underlying securities. Each Fund may also sell options on
interest-rate futures contracts as part of closing purchase transactions to
terminate its options positions. No assurance can be given that such closing
transactions can be effected or the degree of correlation between price
movements in the options on interest rate futures and price movements in the
Fund's securities which are the subject of the transaction.
Interest-Rate and Index Swaps. Each Fund may enter into interest-rate and
index swaps in pursuit of its investment objective. Interest-rate swaps involve
the exchange by a Fund with another party of their respective commitments to pay
or receive interest (for example, an exchange of floating-rate payments for
fixed-rate payments). Index swaps involve the exchange by the Fund with another
party of cash flows based upon the performance of an index of securities or a
portion of an index of securities that usually include dividends or income. In
each case, the exchange commitments can involve payments to be made in the same
currency or in different currencies. Each Fund will usually enter into swaps on
a net basis. In so doing, the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. If a Fund enters into a swap, it will maintain a segregated account on
a gross basis, unless the contract provides for a segregated account on a net
basis. If there is a default by the other party to such a transaction, the Fund
will have contractual remedies pursuant to the agreements related to the
transaction.
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The use of interest-rate and index swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio security transactions. There is no limit, except as
provided below, on the amount of swap transactions that may be entered into by a
Fund. These transactions generally do not involve the delivery of securities or
other underlying assets or principal. Accordingly, the risk of loss with respect
to swaps generally is limited to the net amount of payments that the Fund is
contractually obligated to make. There is also a risk of a default by the other
party to a swap, in which case the Fund may not receive net amount of payments
that the Fund contractually is entitled to receive.
The permissible investments described herein are considered "derivative"
securities because their value is derived, at least in part, from the price of
another security or a specified asset, index or rate. The futures contracts and
options on futures contracts that the Fund may purchase are considered
derivatives. The Funds may only purchase or sell these contracts or options as
substitutes for comparable market positions in the underlying securities. Also,
asset-backed securities issued or guaranteed by U.S. Government agencies or
instrumentalities and certain floating- and variable-rate instruments can be
considered derivatives. Some derivatives may be more sensitive than direct
securities to changes in interest rates or sudden market moves. Some derivatives
also may be susceptible to fluctuations in yield or value due to their structure
or contract terms.
Wells Fargo Bank and BGFA use a variety of internal risk management procedures
to ensure that derivatives use is consistent with a Fund's investment objective,
does not expose such Fund to undue risk and is closely monitored. These
procedures include providing periodic reports to the Board of Trustees of MIT
and the Board of Directors of the Company concerning the use of derivatives.
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 a Fund use certain
derivatives without establishing adequate "cover" in compliance with SEC
positions regarding the use of leverage.
Foreign Obligations
Each Fund may invest up to 25% of its respective 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
PROSPECTUS A- 6
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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.
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 -- THE FUNDS
Each Fund's investment objective, as set forth in the first paragraph of the
"How The Funds Work -- Investment Objectives and Policies" section, is
fundamental; that is, it may not be changed without approval by the vote of the
holders of a majority of a Fund's outstanding voting securities, as described
under "Capital Stock" in the SAI for each Fund. In addition, any fundamental
investment policy may not be changed without such shareholder approval. If the
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.
Fundamental Investment Policies
As matters of fundamental policy, each Fund may: (i) not purchase securities
of any issuer (except securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities) if as a result more than 5% of the value of
the 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, provided that a Fund may invest all its assets in a diversified,
open-end management investment company, or a series thereof, with the same
investment objective, policies and restrictions as such Fund, without regard to
the limitations set forth in this clause (i); (ii) borrow from banks up to 20%
of the current value of its net assets for temporary purposes only in order to
meet
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redemptions, and these borrowings may be secured by the pledge of up to 20% of
the current value of its net assets (but investments may not be purchased while
any such outstanding borrowings exceed 5% of its net assets); (iii) make loans
of portfolio securities in accordance with its investment policies; and (iv) not
invest 25% or more of its assets (i.e., concentrate) in any particular industry,
except that (a) each Fund may invest 25% or more of its assets in obligations of
the U.S. Government, its agencies or instrumentalities, and (b) the Asset
Allocation Fund is permitted to concentrate its assets in any industry for the
same period as does the S&P 500 Index, (c) the Asset Allocation Fund's money
market investments may be invested in the banking industry and in obligations of
the U.S. Government, its agencies or instrumentalities, (d) such investments
may, from time to time, represent 25% or more of the Asset Allocation Fund's
total assets, and (e) each Fund may invest all of its assets in a diversified,
open-end management investment company or a series thereof, with the same
investment objective, policies and restrictions as the Fund, without regard to
these limitations. However, the Asset Allocation Fund's money market investments
in the banking industry will not represent 25% or more of its total assets
unless the SEC staff has confirmed that it does not object to the Fund reserving
freedom of action to concentrate investments in the banking industry. With
respect to paragraph (ii) above, each Fund presently does not intend to put at
risk more than 5% of its assets during the coming year. With respect to
paragraph (iii) above, the Asset Allocation Fund presently does not intend to
put at risk more than 5% of its assets during the coming year. 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.
Non-Fundamental Investment Policies
As a matter of nonfundamental policy, each Fund may not invest more than 15%
of the current value of its net assets in illiquid securities, including
repurchase agreements having maturities of more than seven days.
INVESTMENT POLICIES -- THE MASTER PORTFOLIOS
Fundamental Investment Policies
As matters of fundamental policy, each Master Portfolio may: (i) not purchase
securities of any issuer (except securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if as a result more than 5% of
the value of the Master Portfolio's total assets would be invested in the
securities of such issuer or the Master Portfolio would own more than 10% of the
outstanding voting securities of such issuer; (ii) borrow from banks up to 20%
of the current value of its net assets for temporary purposes only in order to
meet redemptions, and these borrowings may be secured by the pledge of up to 20%
of the current value of its net assets (but investments may not be purchased
while any such outstanding borrowings exceed 5% of its net assets); (iii) make
loans of portfolio securities in accordance with its investment policies; and
(iv) not invest 25% or more of its assets (i.e., concentrate) in any particular
industry,
PROSPECTUS A- 8
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except that (a) each Master Portfolio may invest 25% or more of its assets in
obligations of the U.S. Government, its agencies or instrumentalities, and (b)
the Asset Allocation Master Portfolio is permitted to concentrate its assets in
any industry for the same period as does the S&P 500 Index, (c) the Asset
Allocation Master Portfolio's money market investments may be invested in the
banking industry and in obligations of the U.S. Government, its agencies or
instrumentalities, and (d) such investments may, from time to time, represent
25% or more of the Asset Allocation Master Portfolio's total assets. However,
the Asset Allocation Master Portfolio's money market investments in the banking
industry will not represent 25% or more of its total assets unless the SEC staff
has confirmed that it does not object to the Fund reserving freedom of action to
concentrate investments in the banking industry. With respect to paragraph (ii)
above, each Master Portfolio presently does not intend to put at risk more than
5% of its assets during the coming year. With respect to paragraph (iii) above,
the Asset Allocation Master Portfolio presently does not intend to put at risk
more than 5% of its assets during the coming year. With respect to paragraph
(i), it may be possible that MIT would own more than 10% of the outstanding
voting securities of an issuer.
Non-Fundamental Investment Policies
As a matter of nonfundamental policy, each Master Portfolio may not invest
more than 15% of the current value of its net assets in illiquid securities,
including repurchase agreements having maturities of more than seven days.
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Advised by WELLS FARGO BANK, N.A.
Sponsored/Distributed by
Stephens Inc., Member NYSE/SIPC
LOGO
NOT FDIC INSURED
<PAGE> 216
LOGO
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH FUNDS:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- 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 LOGO
principal
</TABLE>
LOGO
Printed on Recycled Paper SC0203 (2/97)
<PAGE> 217
LOGO
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PROSPECTUS
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GINNIE MAE FUND
INTERMEDIATE BOND FUND
SHORT-INTERMEDIATE U.S. GOVERNMENT
INCOME FUND
CLASS A AND CLASS B
FEBRUARY 1, 1997
<PAGE> 218
STAGECOACH FUNDS(R)
GINNIE MAE, INTERMEDIATE BOND AND SHORT-INTERMEDIATE
U.S. GOVERNMENT INCOME FUNDS
CLASS A AND CLASS B SHARES
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about Class A and Class B shares
of the GINNIE MAE and INTERMEDIATE BOND FUNDS and Class A shares of the SHORT-
INTERMEDIATE U.S. GOVERNMENT INCOME FUND -- (each, a "Fund" and, collectively,
the "Funds").
The GINNIE MAE FUND seeks to provide investors with a long-term total rate of
return through preserving capital and earning high interest income by investing
principally in a portfolio of U.S. Government mortgage pass-through securities,
consisting primarily of securities issued by the Government National Mortgage
Association (popularly called "Ginnie Maes"), Federal National Mortgage
Association and Federal Home Loan Mortgage Corporation. The INTERMEDIATE BOND
FUND seeks to provide investors with a high level of current income consistent
with the preservation of capital and maintenance of liquidity. The
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND seeks to provide investors with
current income, while preserving capital, by investing primarily in a portfolio
consisting of short- to intermediate-term securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities.
Please read this Prospectus 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 February 1, 1997, containing additional information
about each 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.
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.
PROSPECTUS DATED FEBRUARY 1, 1997
PROSPECTUS
<PAGE> 219
ALTHOUGH CERTAIN PORTFOLIO INSTRUMENTS HELD BY THE GINNIE MAE AND SHORT-
INTERMEDIATE U.S. GOVERNMENT INCOME FUNDS MAY BE INSURED OR GUARANTEED BY THE
UNITED STATES OR ANY FEDERAL AGENCY OR INSTRUMENTALITY, SHARES OF THE FUNDS ARE
NOT.
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
<PAGE> 220
TABLE OF CONTENTS
-------
PROSPECTUS SUMMARY 1
SUMMARY OF FUND EXPENSES 4
FINANCIAL HIGHLIGHTS 10
HOW THE FUNDS WORK 16
THE FUNDS AND MANAGEMENT 24
INVESTING IN THE FUNDS 27
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS 37
HOW TO REDEEM SHARES 38
ADDITIONAL SHAREHOLDER SERVICES 43
MANAGEMENT, DISTRIBUTION AND SERVICING FEES 46
TAXES 50
PROSPECTUS APPENDIX - ADDITIONAL INVESTMENT POLICIES A-1
PROSPECTUS
<PAGE> 221
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
Prospectus and SAI.
Q. WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
A. The GINNIE MAE FUND seeks to provide investors with a long-term total rate of
return through preserving capital and earning high interest income by
investing principally in a portfolio of U.S. Government mortgage
pass-through securities, consisting primarily of securities issued by the
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC").
Under normal market conditions, the Fund will invest at least 65% of its
assets in securities issued by GNMA.
The INTERMEDIATE BOND FUND seeks to provide investors with a high level of
current income consistent with the preservation of capital and maintenance
of liquidity. In pursuing its investment objective, the Fund may invest in a
broad range of corporate debt obligations, such as fixed- and variable-rate
bonds, zero coupon bonds, debentures, obligations convertible into common
stock, and various types of demand instruments, obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
U.S. dollar-denominated debt obligations of foreign issuers, including
foreign corporations and foreign governments, and money market instruments.
The Fund also may acquire obligations issued by state and local governments
("municipal obligations"), mortgage-backed and certain other asset-backed
securities. Under normal market conditions, the Fund expects to maintain a
dollar-weighted average portfolio maturity between three and ten years and
the policy of the Fund is to invest at least 65% of the total value of its
assets in corporate and government bonds.
The SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND seeks to provide
investors with current income, while preserving capital, by investing
primarily in a portfolio consisting of short- to intermediate-term
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. The Fund invests primarily in U.S. Treasury securities,
notes and bonds and obligations issued or guaranteed by federal agencies or
instrumentalities, including government-sponsored enterprises such as GNMA
and FNMA. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in U.S. Government obligations and the
dollar-weighted effective average maturity of the portfolio is expected to
be between two and five years. The Fund may also invest in investment-grade
1 PROSPECTUS
<PAGE> 222
corporate debt obligations. The Fund is designed for investors with
investment horizons of two to five years.
See "How the Funds Work -- 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. 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 the
Fund's shares. Therefore, you should be prepared to accept some risk with
the money you invest in a 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 Funds invest are
subject to extension 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 Funds' shares. Each Fund may also 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
Funds 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 Intermediate Bond and Short-Intermediate U.S.
Government Income Funds may invest in certain dollar-denominated debt
instruments of foreign issuers. Investing in the securities of issuers in
any foreign country involves special risks and considerations not typically
associated with investing in U.S. companies.
The Ginnie Mae and Short-Intermediate U.S. Government Income Funds each
invests primarily in U.S. Government obligations, including securities
issued or
PROSPECTUS 2
<PAGE> 223
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 a Fund will achieve
its investment objective. See "How the Funds Work -- Investment Objectives
and Policies -- Risk Factors" below 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 administrative, transfer agency, dividend
disbursing agency and custodial services to the Funds. In addition, Wells
Fargo Bank is a shareholder servicing agent and a selling agent of the
Funds. See "The Funds and Management" and "Management, Distribution and
Servicing Fees" for further information.
Q. HOW DO I INVEST?
A. You may invest by purchasing shares of the Funds at their public offering
price, which is the net asset value ("NAV") per share plus any applicable
sales charge. The Class A shares of the Ginnie Mae and Intermediate Bond
Funds are subject to a maximum front-end sales charge of 4.50% and Class A
shares of the Short-Intermediate U.S. Government Income Fund are subject to
a maximum front-end sales charge of 3.00%. Class B shares of the Ginnie Mae
and Intermediate Bond Funds that are redeemed within six years of purchase
are subject to a maximum contingent-deferred sales charge of 5.00% of the
lesser of NAV at purchase or NAV at redemption. In some cases, such as for
investments by certain fiduciary or retirement accounts, the front-end or
contingent-deferred sales charges may be
3 PROSPECTUS
<PAGE> 224
waived or reduced. 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 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 of the Funds are declared daily and distributed monthly. Any
capital gains are distributed at least annually. Distributions paid by the
Funds are automatically reinvested in shares of the same class of the
respective 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. Except for any contingent-deferred sales charge
applicable to Class B shares, the Company imposes no charge for redeeming
shares. The Company reserves the right to impose charges for wiring
redemption proceeds. See "How To Redeem Shares" and "How to Purchase
Shares -- Contingent-Deferred Sales Charges -- Class B Shares" for more
details, 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 floating- and 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.
PROSPECTUS 4
<PAGE> 225
Q. WHAT STEPS DO THE FUNDS TAKE TO CONTROL DERIVATIVES-RELATED RISKS?
A. Wells Fargo Bank, as investment adviser to the Funds, 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 the 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."
5 PROSPECTUS
<PAGE> 226
SUMMARY OF FUND EXPENSES
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE
GINNIE MAE INTERMEDIATE U.S. GOVERNMENT
FUND BOND FUND INCOME FUND
---------- ------------ ------------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases
(as a percentage of offering
price)............................ 4.50% 4.50% 3.00%
Maximum Sales Charge on Reinvested
Distributions..................... None None None
Maximum Sales Charge on
Redemptions....................... None None None
Exchange Fees....................... None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE
GINNIE MAE INTERMEDIATE U.S. GOVERNMENT
FUND BOND FUND INCOME FUND
---------- ------------ ------------------
<S> <C> <C> <C>
Management Fee (after waivers or
reimbursements)................... 0.50% 0.40%(1) 0.50%
Rule 12b-1 Fee...................... 0.05% 0.05% 0.05%
Other Expenses (after waivers or
reimbursements)(2)................ 0.27% 0.35% 0.16%
---- ---- ----
TOTAL FUND OPERATING EXPENSES (after
waivers or reimbursements)(3)..... 0.82% 0.80% 0.71%
==== ==== ====
</TABLE>
- -------------------
(1) Management Fees (before waivers or reimbursements) would be 0.50%.
(2) Other Expenses (before waivers or reimbursements) would be 0.64%, 0.59% and
0.69%, respectively.
(3) Total Fund Operating Expenses (before waivers or reimbursements) would be
1.19%, 1.14% and 1.24%, respectively.
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment in Class A shares of the
Funds, assuming a 5% annual return and
redemption at the end of each time period
indicated:
Ginnie Mae Fund....................... $ 53 $70 $88 $142
Intermediate Bond Fund................ $ 53 $69 $87 $140
Short-Intermediate U.S. Government
Income Fund........................... $ 37 $52 $68 $116
</TABLE>
PROSPECTUS 6
<PAGE> 227
SUMMARY OF FUND EXPENSES
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
GINNIE MAE INTERMEDIATE
FUND BOND FUND
---------- ------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price)....................... None None
Maximum Sales Charge on Reinvested Dividends.......... None None
Maximum Sales Charge on Redemptions................... 5.00% 5.00%
Exchange Fees......................................... None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
GINNIE MAE INTERMEDIATE
FUND BOND FUND
---------- ------------
<S> <C> <C>
Management Fee (before waivers or reimbursements)..... 0.50% 0.40%(1)
Rule 12b-1 Fee........................................ 0.70% 0.75%
Other Expenses (after waivers or reimbursements)(2)... 0.27% 0.35%
---- ----
TOTAL FUND OPERATING EXPENSES (after waivers or
reimbursements)(3).................................. 1.47% 1.50%
</TABLE>
- -------------------
(1) Management Fee (before waivers or reimbursements) would be 0.50%.
(2) Other Expenses (before waivers or reimbursements) would be 0.73% and 0.59%,
respectively.
(3) Total Fund Operating Expenses (before waivers or reimbursements) would be
1.93% and 1.84%, respectively.
7 PROSPECTUS
<PAGE> 228
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment in Class B shares of the
Funds, assuming a 5% annual return and
redemption at the end of each time period
indicated:
Ginnie Mae Fund....................... $ 65 $76 $ 100 $142
Intermediate Bond Fund................ $ 65 $77 $ 102 $143
You would pay the following expenses on a
$1,000 investment in Class B shares of the
following Funds, assuming a 5% annual
return and no redemption:
Ginnie Mae Fund....................... $ 15 $46 $ 80 $142
Intermediate Bond Fund................ $ 15 $47 $ 82 $143
</TABLE>
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 the Funds.
SHAREHOLDER TRANSACTION EXPENSES are charges incurred when you buy or sell
Fund shares. You are subject to a front-end sales charge on purchases of Class A
shares of the Funds. You may be subject to a contingent-deferred sales charge on
Class B shares of the Ginnie Mae or Intermediate Bond Funds if you redeem such
shares within a specified period. In certain instances, you may qualify for a
reduction or waiver of the front-end sales charge. 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 for the Funds, except as indicated below, are
based on applicable contract amounts and amounts incurred during the most recent
fiscal year. These amounts have been adjusted to reflect voluntary fee waivers
and expense reimbursements that are expected to reduce expenses during the
current year. The amounts shown under "Other Expenses" for the Intermediate Bond
Fund are based on estimated/restated amounts expected to be in effect during the
current fiscal year. Wells Fargo Bank and Stephens have each agreed to waive or
reimburse all or a portion of
PROSPECTUS 8
<PAGE> 229
their respective fees charged to, or expenses paid by, the Ginnie Mae,
Intermediate Bond and Short-Intermediate U.S. Government Income Funds to ensure
that the "Total Fund Operating Expenses" do not exceed, on an annual basis,
0.82%, 0.80% or 0.71% of the average daily net assets of each Fund's Class A
shares, respectively, through August 31, 1997. Any waivers or reimbursements
will 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 such Fund, such as requiring a higher minimum initial investment or
payment of a separate fee for additional services. Long-term shareholders of a
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 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 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.
The Funds offer 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 and Management" and "Management, Distribution and Servicing
Fees" and in the SAI under "Management," Distributions Plans" and "Servicing
Plans."
9 PROSPECTUS
<PAGE> 230
FINANCIAL HIGHLIGHTS
INTERMEDIATE BOND FUND
The following information for the Intermediate Bond Fund has been derived from
the Financial Highlights in the Fund's financial statements for the year ended
September 30, 1996. This information is provided to assist you in evaluating the
Fund's historical performance. Except as set forth below, the Fund's financial
statements were audited by KPMG Peat Marwick LLP. The financial statements and
report thereon for the year ended September 30, 1996 are incorporated by
reference into the SAI. The financial information for the periods prior to
October 1, 1995 has been audited by other auditors. On September 6, 1996, the
Investor class shares of a portfolio of Pacifica Funds Trust were reorganized as
the Class A shares. The information for periods prior to September 6, 1996
reflects the performance of the predecessor portfolio. This information should
be read in conjunction with the Fund's 1996 financial statements and the notes
thereto. The Fund's SAI is incorporated by reference into this prospectus.
PROSPECTUS 10
<PAGE> 231
INTERMEDIATE BOND FUND(1)
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A INSTITUTIONAL SHARES
---------- ---------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED MAY 31,
SEPT. 30, SEPT. 30, -------------------------------------------------------------------
1996 1995(2) 1995 1994 1993 1992 1991 1990 1989
---------- ------------ ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of
period............................ $14.76 $ 14.77 $ 14.36 $ 15.72 $ 15.69 $ 15.52 $ 15.08 $ 15.13 $ 15.00
Income from investment operations:
Net investment income (loss)...... 0.87 0.30 0.91 0.99 1.17 1.14 1.25 1.26 1.22
Net realized and unrealized gain
(loss) on investments........... (0.25) (0.01) 0.47 (0.90) 0.40 0.65 0.54 (0.05) 0.08
------ ------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations.... 0.62 0.29 1.38 0.09 1.57 1.79 1.79 1.21 1.30
------ ------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment
income.......................... (0.87) (0.30) (0.97) (0.85) (1.04) (1.41) (1.25) (1.26) (1.17)
Distributions from net realized
gain............................ (0.01)(3) (0.00) (0.00) (0.60) (0.50) (0.21) (0.10) -- --
------ ------- ------- ------- ------- ------- ------- ------- -------
Total from distributions:....... (0.88) (0.30) (0.97) (1.45) (1.54) (1.62) (1.35) (1.26) (1.17)
------ ------- ------- ------- ------- ------- ------- ------- -------
Net asset value -- end of period.... $14.50 $ 14.76 $ 14.77 $ 14.36 $ 15.72 $ 15.69 $ 15.52 $ 15.08 $ 15.13
====== ======= ======= ======= ======= ======= ======= ======= =======
Total return (not annualized)... 4.15% 6.14%(4) 10.13% 0.35% 10.42% 11.96% 12.36% 8.25% 9.07%
Ratios/Supplemental Data:
Net assets, end of period (000)..... $2,481 $ 55,628 $56,087 $58,199 $61,207 $54,203 $54,074 $79,471 $74,002
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets.......................... 0.85% 0.89% 0.81% 0.79% 0.76% 0.68% 0.66% 0.68% 0.69%
Ratio of net investment income to
average net assets.............. 5.82% 5.94% 6.35% 5.33% 6.01% 7.14% 8.00% 8.25% 8.25%
Portfolio turnover................ 96% 54% 76% 163% 146% 102% 78% 32% 36%
Ratio of expenses to average prior
to waived fees and reimbursed
expenses........................ 1.11% 0.94% 0.85% 0.82% 0.79% 0.73% 0.71% 0.73% 0.74%
Ratio of net investment income to
average net assets prior to
waived fees and reimbursed
expenses........................ 5.56% 5.89% 6.31% 5.30% 5.98% 7.09% 7.95% 8.20% 8.20%
</TABLE>
- ---------------
(1) The Fund operated as the Bonds Plus Fund of Westcore Trust and was advised
by First Interstate Bank of Oregon, N.A. from its commencement of operations
on June 1, 1988, until its reorganization as a portfolio of Pacifica Funds
Trust on October 1, 1995, when First Interstate Capital Management, Inc.
("FICM") assumed investment advisory responsibilities. In connection with
the reorganization, existing Institutional shares were converted into
Investor shares of the Pacifica Fund which was reorganized as a series of
the Company on September 6, 1996. In connection with the second
reorganization, existing Investor shares were converted into Class A shares
of the Fund. In connection with the merger of First Interstate Bancorp into
Wells Fargo & Company on April 1, 1996, FICM was renamed Wells Fargo
Investment Management, Inc.
(2) The Fund changed its fiscal year-end from May 31 to September 30.
(3) Represents tax return of capital.
(4) Annualized.
11 PROSPECTUS
<PAGE> 232
INTERMEDIATE BOND FUND
FOR A CLASS B SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD
ENDED
SEPT. 30,
1996(1)
---------
<S> <C>
Net asset value, beginning of period.............................. $ 10.00
Income from investment operations:
Net investment income (loss)...................................... 0.00
Net realized and unrealized gain (loss) on investments............ 0.07
---------
Total from investment operations.................................. 0.07
Less distributions:
Dividends from net investment income.............................. 0.00
Distributions from net realized gain.............................. 0.00
---------
Total from distributions.......................................... 0.00
---------
Net asset value, end of period.................................... $ 10.07
---------
Total return (not annualized)..................................... 0.70%
Ratios/supplemental data:
Net assets, end of period (000)................................... $ 0
Ratios to average net assets (annualized):
Ratio of expenses to average net assets........................... 0.00%
Ratio of net investment income to average net assets.............. 2.43%
Portfolio turnover................................................ 96%
Ratio of expenses to average net assets prior to waived fees and
reimbursed expenses............................................. 0.00%
Ratio of net investment income to average net assets prior to
waived fees and reimbursed
expenses........................................................ 2.43%
</TABLE>
- ---------------
(1) Class B shares of the Fund commenced operations on September 6, 1996.
PROSPECTUS 12
<PAGE> 233
GINNIE MAE AND SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUNDS
The following information for the Ginnie Mae and Short-Intermediate U.S.
Government Income Funds has been derived from the Financial Highlights in the
Fund's financial statements for the fiscal period ended September 30, 1996. This
information is provided to assist you in evaluating the Funds' historical
performance. Except for periods ending prior to January 1, 1992, which were
audited by other auditors, the financial information has been audited by KPMG
Peat Marwick LLP. The financial statements and the report thereon for the period
ended September 30, 1996 are incorporated by reference into the SAIs. This
information should be read in conjunction with the Funds' 1996 financial
statements and the notes thereto. The SAI for each Fund has been incorporated by
reference into this Prospectus.
GINNIE MAE FUND
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
SEPT. 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996(1) 1995 1994 1993 1992 1991(2)
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period.................. $11.15 $10.18 $11.31 $11.34 $11.42 $10.00
Income from investment
operations:
Net investment income
(loss)..................... 0.55 0.76 0.77 0.83 0.83 0.83
Net realized and unrealized
gain (loss) on
investments................ (0.52) 0.97 (1.13) (0.03) (0.08) 0.59
----- ----- ----- ----- ----- -----
Total from investment
operations................. 0.03 1.73 (0.36) 0.80 0.75 1.42
Less distributions:
Dividends from net
investment income.......... (0.55) (0.76) (0.77) (0.83) (0.83) 0.00
Distributions from net
realized gain.............. 0.00 0.00 0.00 0.00 0.00 0.00
----- ----- ----- ----- ----- -----
Total from distributions.... (0.55) (0.76) (0.77) (0.83) (0.83) 0.00
Net asset value, end of
period..................... $10.63 $11.15 $10.18 $11.31 $11.34 $11.42
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
Total return (not
annualized)................ 0.36% 17.53% (3.23)% 7.19% 6.86% 14.30%
Ratios/supplemental data:
Net assets, end of period
(000)...................... $147,712 $166,157 $171,288 $303,530 $184,692 $4,870
Ratios to average net assets
(annualized):
Ratio of expenses to average
net
assets..................... 0.83% 0.82% 0.73% 0.46% 0.46% 1.04%
Ratio of net investment
income to average net
assets..................... 6.85% 7.09% 7.20% 7.19% 7.93% 7.66%
Portfolio turnover.......... 183% 118% 69% 121% 73% 241%
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses................... 1.19% 1.15% 1.07% 1.02% 1.26% 1.05%
Ratio of net investment
income to average net
assets prior to waived fees
and reimbursed expenses.... 6.49% 6.76% 6.86% 6.63% 7.13% 7.65%
</TABLE>
- -------------------
(1) The Fund changed its fiscal year end from December 31 to September 30.
(2) The Fund commenced operations on January 3, 1991. The financial information
for the fiscal period ended December 31, 1991 is based on the financial
information for the Ginnie Mae Fund the Wells Fargo Investment Trust for
Retirement Programs which was reorganized into the Ginnie Mae Fund on
January 1, 1992.
13 PROSPECTUS
<PAGE> 234
GINNIE MAE FUND
FOR A CLASS B SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD
ENDED YEAR ENDED
SEPT. 30, DEC. 31,
1996(1) 1995(2)
--------- ----------
<S> <C> <C>
Net asset value, beginning of period................. $10.97 $10.00
Income from investment operations:
Net investment income (loss)......................... 0.49 0.66
Net realized and unrealized gain (loss) on
investments........................................ (0.51) 0.97
----- -----
Total from investment operations..................... (0.02) 1.63
Less distributions:
Dividends from net investment income................. (0.49) (0.66)
Distributions from net realized capital gain......... 0.00 0.00
----- -----
Total from distributions............................. (0.49) (0.66)
----- -----
Net asset value, end of period....................... $10.46 $10.97
----- -----
----- -----
Total return (not annualized)........................ (0.12)% 16.69%
Ratios/supplemental data:
Net assets, end of period (000)...................... $21,141 $12,227
Ratios to average net assets (annualized):
Ratio of expenses to average net assets.............. 1.48% 1.47%
Ratio of net investment income to average net
assets............................................. 6.16% 6.01%
Portfolio turnover................................... 183% 118%
Ratio of expenses to average net assets prior to
waived fee and reimbursed expenses................. 1.93% 2.12%
Ratio of net investment income to average net assets
prior to waived fees and reimbursed expenses....... 5.71% 5.36%
</TABLE>
- ---------------
(1) The Fund changed its fiscal year end from December 31 to September 30.
(2) Class B shares of the Fund commenced operations on January 1, 1995.
PROSPECTUS 14
<PAGE> 235
SHORT-INTERMEDIATE U.S. GOVERNMENT
INCOME FUND
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
SEPT. 30, DEC. 31, DEC. 31, DEC. 31,
1996(1) 1995 1994 1993(2)
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period..... $10.00 $ 9.39 $ 9.99 $10.00
Income from investment operations:
Net investment income.................... 0.41 0.55 0.46 0.06
Net realized and unrealized gain (loss)
on investments......................... (0.27) 0.61 (0.60) (0.01)
----- ----- ----- -----
Total from investment operations......... 0.14 1.16 (0.14) 0.05
Less distributions:
Dividends from net investment income..... (0.41) (0.55) (0.46) (0.06)
Distributions from net realized gains.... 0.00 0.00 0.00 0.00
----- ----- ----- -----
Total distributions...................... (0.41) (0.55) (0.46) (0.06)
Net asset value, end of period........... $ 9.73 $10.00 $ 9.39 $ 9.99
----- ----- ----- -----
----- ----- ----- -----
Total return (not annualized)............ 1.34% 12.67% (1.42)% 0.40%
Ratios/supplemental data:
Net assets, end of period (000).......... $37,465 $39,928 $11,602 $8,557
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets................................. 0.76% 0.71% 0.25% 0.00%
Ratio of net investment income to average
net assets............................. 5.60% 5.64% 4.75% 3.49%
Portfolio turnover....................... 389% 472% 288% N/A
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses............................... 1.21% 1.67% 2.28% 2.45%
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses.................... 5.15% 4.68% 2.72% 1.04%
</TABLE>
- -------------------
(1) The Fund changed its fiscal year end from December 31 to September 30.
(2) The Fund commenced operations on October 27, 1993.
15 PROSPECTUS
<PAGE> 236
HOW THE FUNDS WORK
INVESTMENT OBJECTIVES AND POLICIES
GINNIE MAE FUND
The Ginnie Mae Fund seeks to provide investors with a long-term total rate of
return through preserving capital and earning high interest income by investing
principally in a portfolio of U.S. Government mortgage pass-through securities,
consisting primarily of securities issued by GNMA, FNMA and FHLMC. This
investment objective is fundamental and cannot be changed without shareholder
approval. Under normal market conditions, the Fund will invest at least 65% of
its total assets in GNMA securities. These securities may bear interest at rates
that are not fixed ("floating- and variable-rate instruments") or may be
purchased on a "when-issued" or "firm commitment basis."
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 Ginnie Mae 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 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.
PROSPECTUS 16
<PAGE> 237
INTERMEDIATE BOND FUND
The Intermediate Bond Fund seeks to provide investors with a high level of
current income consistent with the preservation of capital and maintenance of
liquidity. In pursuing its investment objective, the Fund may invest in a broad
range of corporate debt obligations such as fixed- and variable-rate bonds, zero
coupon bonds, debentures, obligations convertible into common stock and various
types of demand instruments, obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, dollar-denominated debt
obligations of foreign issuers, including foreign corporations and foreign
governments, and money market instruments. The Fund also is permitted to acquire
obligations issued by state and local governments ("municipal obligations"). The
purchase of municipal obligations may be advantageous when, as a result of
prevailing economic, regulatory or other circumstances, the yield of such
securities, on a pre-tax basis, is comparable to that of corporate or U.S.
Government obligations. The Fund also may purchase mortgage-backed and certain
other asset-backed securities. During normal market conditions, the Fund will
maintain a dollar-weighted average portfolio maturity between three and ten
years.
In acquiring particular portfolio securities, Wells Fargo Bank considers,
among other things, historical yield relationships between corporate and
government bonds, intermarket yield relationships among various industry
sectors, current economic cycles and the attractiveness and creditworthiness of
particular issuers. Depending upon its analysis of these and other factors, the
Fund's holdings in issuers in particular industry sectors may be overweighted
when compared to the relative industry weightings in the Lehman Brothers
Intermediate Government-Corporate Index or other recognized indices.
The policy of the Fund is to invest at least 65% of the total value of its
assets in corporate and government bonds during normal market conditions. Debt
obligations acquired by the Fund will be investment grade at the time of
purchase -- that is, obligations rated "AAA", "AA", "A" or "BBB" by Standard &
Poor's Ratings Group ("S&P") or "Aaa", "Aa", "A" or "Baa" by Moody's Investors
Service, Inc. ("Moody's"). Debt obligations may also be unrated but deemed by
Wells Fargo Bank to be comparable in quality to instruments that are so rated.
The Fund's dollar-weighted average portfolio quality of the corporate bond
portion of the Fund's portfolio is expected to be "A" or better. Obligations
rated in the lowest of the top four rating categories ("Baa" by Moody's or "BBB"
by S&P) are considered to have speculative characteristics. See the Appendix in
the SAI for a description of applicable S&P and Moody's debt ratings.
The Fund also may invest in obligations convertible into common stocks, and
may purchase common stocks, warrants or other rights to buy shares if they are
attached to a fixed income obligation. As a general matter, however, the Fund
will not invest in common stocks. Common stock received through the conversion
of convertible debt
17 PROSPECTUS
<PAGE> 238
obligations will normally be sold in an orderly manner as soon as possible. Up
to 20% of the total assets of the Fund may be invested directly in
dollar-denominated debt obligations of foreign issuers. These obligations may
include obligations of foreign corporations as well as investments in
obligations of foreign governments and their political subdivisions (which will
be limited to direct government obligations and government-guaranteed
securities). The Fund may invest no more than 5% of its net assets at the time
of purchase in warrants (other than those that have been acquired in units or
attached to other securities) and not more than 2% of its net assets in warrants
which are not listed on the New York or American Stock Exchange.
The Fund also may hold short-term U.S. Government obligations, money market
instruments, repurchase agreements, securities issued by other investment
companies within the limits prescribed by the 1940 Act, and cash, pending
investment, to meet anticipated redemption requests or if, in the opinion of the
Advisor, suitable investments for a Fund are unavailable. Such investments may
be made in such proportions as, in the opinion of the Advisor, existing
circumstances may warrant, and may include obligations of foreign banks and
foreign branches of U.S. banks.
In addition, the Fund may purchase zero coupon bonds (i.e., discount debt
obligations that do not make periodic interest payments) which are subject to
greater market fluctuations from changing interest rates than debt obligations
of comparable maturities which make current distributions of interest. A more
complete description of the Fund's investments and investment activities is
contained in "Prospectus Appendix -- Additional Investment Policies" and in the
SAI.
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
The Short-Intermediate U.S. Government Income Fund (sometimes, the "Income
Fund") seeks to provide investors with current income, while preserving capital,
by investing primarily in a portfolio consisting of short- to intermediate-term
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. This investment objective is fundamental and cannot be
changed without shareholder approval.
The Income Fund may invest in obligations of any maturity. Under ordinary
circumstances, the dollar-weighted effective average maturity of the Fund's
portfolio is generally expected to be between two and five years and at least
65% of the value of its total assets will be invested in U.S. Government
obligations. The Fund seeks to enhance its total return by shortening the
average maturity of portfolio securities when interest rates are expected to
increase and lengthening the maturity of such portfolio securities when interest
rates are expected to decline. Portfolio turnover generally involves some
expense to the Fund, including dealer mark-ups.
PROSPECTUS 18
<PAGE> 239
The Income Fund's assets will be invested and reinvested in U.S. Government
obligations and in investment-grade corporate debt obligations rated at the date
of purchase in the top four rating groups by S&P or Moody's, i.e., "AAA"/"Aaa",
"AA"/"Aa", "A"/"A", and "BBB"/"Baa" by S&P and Moody's, respectively. Securities
rated "BBB"/"Baa" are considered to have speculative characteristics. In
addition, it is possible that securities in which the Fund may invest could be
downgraded by a ratings group subsequent to purchase by the Fund. The Fund will
not hold more than 5% of its assets in securities that have been downgraded
below investment grade subsequent to purchase.
The Income Fund also may purchase "stripped securities" which represent the
interest portion or the principal portion (sometimes referred to as "STRIPs") of
securities in which the Fund may otherwise invest. STRIPs have significantly
different investment characteristics than the instruments from which they
derive. S&P and Moody's assign ratings based upon their judgment of the risk of
default of the securities underlying the STRIPs. STRIPs are issued at a discount
to their "face value" and may exhibit greater price volatility than ordinary
debt obligations because of the manner in which their principal and interest are
paid to investors. However, investors should understand that most of the risk of
these securities comes from interest-rate risk and not from the risk of default.
STRIPs may have significantly greater interest-rate risk than traditional
government securities with identical ratings.
The Income Fund may invest in adjustable-rate mortgage securities ("ARMS")
whose interest rates are periodically reset when market rates change. ARMS are
pass-through certificates representing ownership interests in a pool of
adjustable rate mortgages and the resulting cash flow from those mortgages. The
ARMS in which the Fund may invest are issued or guaranteed by GNMA, FNMA or
FHLMC. Unlike conventional debt securities, which provide for periodic (usually
semi-annual) payments of interest and payments of principal at maturity or on
specified call dates, ARMS provide for monthly payments based on a pro rata
share of both periodic interest and principal payments and prepayments of
principal on the underlying mortgage pool (less GNMA's, FNMA's or FHLMC's fees
and any applicable loan servicing fees.)
The Income Fund also may invest in the adjustable rate portions of
collateralized mortgage obligations ("CMOs") issued by government agencies,
instrumentalities or government-sponsored enterprises including, primarily, FNMA
and FHLMC, and collateralized by pools of mortgage loans. Payments of principal
and interest on the collateral mortgages are used to pay debt service on the
CMOs. All CMOs purchased by the Fund will be rated, at the time of purchase, AAA
by S&P or Aaa by Moody's.
The Income Fund, on a temporary basis, may invest cash balances in shares of
unaffiliated, registered open-end investment companies, subject to the
limitations of the 1940 Act. The Fund also may invest in U.S. Treasury bills,
engage in repurchase agreements and lend its portfolio securities, provided the
value of such loans of portfolio securities does not exceed one-third of the
current value of its total assets. Such
19 PROSPECTUS
<PAGE> 240
temporary investments would most likely be made when there is an unexpected or
abnormal level of investor purchases or redemptions of Fund shares or because of
unusual market conditions.
A more complete description of the Fund's investments and investment
activities is contained in "Prospectus Appendix -- Additional Investment
Policies" and in the SAI.
RISK FACTORS
The price per share of each class 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 the Fund and the value of an investment in a
Fund may increase or decrease.
The Funds may invest in illiquid securities which 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 a 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 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 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.
There is, of course, no assurance that each 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 abut investment policies and risks.
INTERMEDIATE BOND FUND
The market value of the Intermediate Bond 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
PROSPECTUS 20
<PAGE> 241
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 will not affect cash income
from such securities, but will be reflected in the Fund's net asset value.
The Intermediate Bond Fund may invest up to 25% of its assets in "Yankee
Bonds." Yankee Bonds are U.S. dollar-denominated debt obligations issued in the
U.S. by foreign banks and corporations. Such investments may involve 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 instability which 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.
The Fund's investments 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. See the SAI for further information about foreign
securities.
GINNIE MAE AND SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUNDS
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 Funds' daily net asset value is based, will fluctuate. The Funds are 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 Funds invest, and
hence the value of your investment in the Funds. The value of the securities in
which a Fund invests generally changes inversely to changes in interest rates.
However, the adjustable-rate feature of the mortgages underlying the ARMS and
the CMOs in which the Income Fund may invest should reduce, but will not
eliminate, price fluctuations in such securities, particularly during periods of
extreme fluctuations in market 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
21 PROSPECTUS
<PAGE> 242
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 either Fund, which are diversified
funds, 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 Funds may
invest may be prepaid in advance of maturity. Such prepayments tend to increase
when interest rates decline and may present a 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 U.S. Government Income
Fund invests may be prepaid in advance of maturity; these prepayments tend to
increase when interest rates decline, presenting the Fund with more principal to
invest at lower rates. The converse also tends to be the case when interest
rates rise.
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., the risk that market interest rates may adversely
affect the value of the securities in which a 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.
U.S. Government obligations have been selected by Wells Fargo Bank as the
Income Fund's principal investments because of their relatively low purchase and
sale transaction costs and because of the low default risk associated with them
(i.e., they are issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities).
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.
PROSPECTUS 22
<PAGE> 243
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 for Class A shares assumes that you have paid the
maximum front-end sales charge and, as calculated for Class B 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
a Fund. Because of the effects of compounding, effective yields are slightly
higher than yields.
For purposes of advertising, from time to time, a 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
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.
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 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.
23 PROSPECTUS
<PAGE> 244
THE FUNDS AND MANAGEMENT
THE FUNDS
The Funds are three 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 22 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 at NAV. 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 a fund's operating expenses, except for certain class-specific expenses that
are allocated to a particular class and, accordingly, may affect performance.
Please contact Stagecoach Shareholder Services at 1-800-222-8222 if you would
like additional information about investment options in the Stagecoach Family of
Funds.
The Company's Board of Directors supervises each Fund's activities and
monitors its contractual arrangements with various service-providers. Although
the Company is not required to hold annual shareholder meetings, special
meetings may be 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). 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 under "Capital Stock" in the SAI.
MANAGEMENT
Wells Fargo Bank serves as the Funds' 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 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 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. Wells Fargo Bank also serves as the 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
PROSPECTUS 24
<PAGE> 245
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 portfolios.
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
Oregon, N.A, a subsidiary of First Interstate Bancorp and an affiliate of First
Interstate Capital Management, Inc., served as investment adviser to the
predecessor portfolio.
PORTFOLIO MANAGERS
Ms. Tamyra Thomas assumed responsibility as a co-portfolio manager for the
day-to-day management of the Ginnie Mae Fund and the Intermediate Bond Fund as
of July 16, 1996 and September 6, 1996, respectively. 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
portfolio of the Ginnie Mae Fund on May 1, 1995. Mr. Single has managed taxable
bond portfolios for over a decade, and has specific expertise in mortgage-backed
securities. Prior to joining Wells Fargo Bank, in early 1988, he was a senior
portfolio manager for Benham Capital Management Group. Mr. Single received his
B.S. from Springfield College.
Mr. Jeff Weaver assumed responsibility as a co-portfolio manager for the
day-to-day management of the portfolio of the Short-Intermediate U.S. Government
Income Fund as of July 16, 1996. Mr. Weaver joined Wells Fargo Bank in February
of 1994, after three years as a short-term fixed income trader and portfolio
manager in the investment management group of Bankers Trust Company in New York.
He holds a B.A. in economics from the University of Colorado and is a chartered
financial analyst candidate.
Ms. Madeline Gish also assumed responsibility as a co-portfolio manager for
the day-to-day management of the portfolio of the Short-Intermediate U.S.
Government Income
25 PROSPECTUS
<PAGE> 246
Fund as of July 16, 1996. Ms. Gish joined Wells Fargo Bank in 1989 as the
portfolio coordinator for the Mutual Funds Division and played an integral part
in the rapid growth of the Overland Express Funds. Since joining the
fixed-income group in 1992, Ms. Gish has assisted in the research and trading
for various portfolios and is currently managing taxable liquidity portfolios.
She holds a bachelor of science degree in business administration from the
University of Kansas and is a chartered financial analyst candidate.
Mr. Scott Smith assumed responsibility as a co-portfolio manager for the
day-to-day management of the Intermediate Bond Fund as of the commencement of
operations of the Fund. Mr. Smith has also been responsible for the day-to-day
management of the portfolio of the Short-Intermediate U.S. Government Income
Fund since 1993 and has been responsible for the management of the portfolio of
the Ginnie Mae Fund since May 1, 1995. He joined Wells Fargo Bank in 1988 as a
taxable money market portfolio specialist. Currently, Mr. Smith holds the
position of liquidity management specialist/portfolio manager with Wells Fargo
Bank. His experience includes a position with a private money management firm
with mutual fund investment operations. Mr. Smith holds a B.A. degree from the
University of San Diego and is a Chartered Financial Analyst.
Morrison & Foerster LLP, counsel to the Company and special counsel to Wells
Fargo Bank has advised the Company and Wells Fargo Bank that Wells Fargo Bank
and its affiliates may perform the services contemplated by the Advisory
Contracts and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
PROSPECTUS 26
<PAGE> 247
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 registration is the same). Call the number on your confirmation statement
to obtain information about what is required to change registration.
To invest in the Funds through tax-deferred retirement plans through which the
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 a Fund 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 hereinafter as "the close of the NYSE"), which is currently 1:00
p.m. (Pacific time). The Funds are 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 Funds are 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 Funds are valued at
current market prices, or if such prices are not readily available, at fair
value as determined in good faith
27 PROSPECTUS
<PAGE> 248
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
forwarding payment for shares being purchased to a Fund promptly. Payment must
accompany orders placed directly through the transfer agent.
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 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 28
<PAGE> 249
SALES CHARGES
Set forth below are Front-end Sales Charge Schedules listing the front-end
sales charges applicable to purchases of the Funds' Class A shares. As shown
below, reductions in the rate of front-end sales charges ("Volume Discounts")
are available as you purchase additional Class A shares (contingent-deferred
sales charges applicable to Class B shares are described below). You should
consider the front-end sales charge information set forth below and the other
information contained in this Prospectus when making your investment decisions.
GINNIE MAE AND INTERMEDIATE BOND FUNDS
FRONT-END SALES CHARGE SCHEDULE --
CLASS A SHARES
<TABLE>
<CAPTION>
FRONT-END FRONT-END DEALER
SALES CHARGE SALES CHARGE ALLOWANCE
AS% OF AS% OF NET AS% OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ----------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Less than $50,000............ 4.50% 4.71% 4.00%
$50,000 up to $100,000....... 4.00 4.17 3.55
$100,000 up to $249,999...... 3.50 3.63 3.125
$250,000 up to $499,999...... 2.50 2.56 2.00
$500,000 up to $999,999...... 2.00 2.04 1.75
$1,000,000 and over.......... 0.00(1) 0.00 1.00
</TABLE>
- ---------------------
(1)Class A shares that are redeemed within one year from the receipt of a
purchase order for such shares are subject to a contingent-deferred sales
charge of 1.00% of the dollar amount equal to the lesser of the NAV at the
time of purchase or the NAV of such shares at the time of redemption.
SHORT-INTERMEDIATE U.S. GOVERNMENT
INCOME FUND
FRONT-END SALES CHARGE SCHEDULE --
CLASS A SHARES
<TABLE>
<CAPTION>
FRONT-END FRONT-END DEALER
SALES CHARGE SALES CHARGE ALLOWANCE
AS% OF AS% OF NET AS% OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ----------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Less than $100,000........... 3.00% 3.09% 2.65%
$100,000 up to $249,999...... 2.25 2.30 2.00
$250,000 up to $499,999...... 1.50 1.52 1.30
$500,000 up to $999,999...... 0.60 0.60 0.50
$1,000,000 and over.......... 0.00(1) 0.00 0.25
</TABLE>
- ---------------------
(1)Class A shares that are redeemed within one year from the receipt of a
purchase order for such shares are subject to a contingent-deferred sales
charge of 1.00% of the dollar amount equal to the lesser of the NAV at the
time of purchase or the NAV of such shares at the time of redemption.
29 PROSPECTUS
<PAGE> 250
If Class A shares are purchased through a selling agent, Stephens reallows the
portion of the front-end sales charge shown above as the Dealer Allowance.
Stephens also compensates selling agents for sales of Class B shares and is then
reimbursed out of Rule 12b-1 fees and contingent-deferred sales charges
applicable to such shares. When shares are purchased directly through the
transfer agent and no selling agent is involved with the purchase, the entire
sales charge is paid to Stephens.
A selling agent or shareholder servicing agent and any other person entitled
to receive compensation for selling or servicing shares may receive different
compensation for selling or servicing Class A shares as compared with Class B
shares of the same fund.
REDUCED SALES CHARGE -- CLASS A SHARES
Discounts described below pertaining to reduced sales charges for Class A
shares are based on your holdings or purchases of shares on which you have paid
or will pay a front-end sales charge. Because Class B shares are not subject to
a front-end sales charge, the amount of Class B shares you hold is not
considered in determining any reduced sales charges on Class A shares described
below.
Volume Discounts
The Volume Discounts described in the Front-end Sales Charge Schedule are
available to you based on the combined dollar amount you invest in Class A
shares of one or more of the Company's funds that assess a front-end sales
charge (the "Load Funds").
Right of Accumulation
The Right of Accumulation allows you to combine the amount you invest in a
Fund's Class A shares with the total NAV of Class A shares in other Load Funds
to determine reduced front-end sales charges in accordance with the above
Front-end Sales Charge Schedule. In addition, you also may combine the total NAV
of Class A shares that you currently have invested in any other mutual fund that
assesses a front-end sales charge and is advised or sub-advised by Wells Fargo
Bank and sponsored by Stephens. For example, if you own Class A shares of the
Load Funds with an aggregate NAV of $90,000 and you invest an additional $20,000
in Class A shares of a Load Fund, the front-end sales charge on the additional
$20,000 investment would be 3.50% of the applicable offering price for the
Ginnie Mae and Intermediate Bond Funds and 2.25% for the Short-Intermediate U.S.
Government Income Fund. To obtain such a discount, you must provide sufficient
information at the time of your purchase to verify that your purchase qualifies
for the reduced front-end sales charge. Confirmation of the order is subject to
such verification. The Right of Accumulation may be modified or discontinued at
any time without prior notice on all subsequent shares purchased.
PROSPECTUS 30
<PAGE> 251
Letter of Intent
A Letter of Intent allows you to purchase a Fund's Class A shares over a
13-month period at a reduced front-end sales charge based on the total amount
you intend to purchase plus the total NAV of Class A shares in any of the Load
Funds you already own. Each investment you make during the period may be made at
the reduced front-end sales charge that is applicable to the total amount you
intend to invest. If you do not invest the total amount within the period, you
must pay the difference between the higher front-end sales charge rate that
would have been applicable to the purchases you made and the reduced front-end
sales charge rate you have paid. The minimum initial investment for a Letter of
Intent is 5% of the total amount you intend to purchase, as specified in the
Letter. Class A shares of a Fund equal to 5% of the amount you intend to invest
will be held in escrow and, if you do not pay the difference within 20 days
following the mailing of a request, a sufficient amount of escrowed shares will
be redeemed for payment of the additional front-end sales charge. Dividends and
capital gains paid on Class A shares held in escrow are reinvested in additional
Class A shares of the Fund.
Reinvestment
You may reinvest proceeds from a redemption of a Fund's Class A shares in
Class A shares of the Fund or in shares of another of the Company's funds
registered in your state of residence at NAV, without payment of a front-end
sales charge, within 120 days after your redemption. However, if the other
investment portfolio charges a front-end sales charge that is higher than the
one you paid in connection with the shares you have redeemed, you must pay the
difference between the dollar amount of the two front-end sales charges. You may
reinvest at this NAV price up to the total amount of the redemption proceeds. A
written purchase order for the shares must be delivered to the Company, a
selling agent, a shareholder servicing agent, or the transfer agent at the time
of reinvestment.
Reductions for Families or Fiduciaries
Reductions in front-end sales charges apply to purchases by a single "person,"
including an individual, members of a family unit, consisting of a husband, wife
and children under the age of 21 purchasing securities for their own account, or
a trustee or other fiduciary purchasing for a single fiduciary account or single
trust estate.
Waivers for Investments of Proceeds From Other Investments
Purchases may be made at NAV, without payment of a front-end sales charge, to
the extent that: (i) you are investing proceeds from a redemption of shares of
another open-end investment company on which you paid a front-end sales charge,
and (ii) such redemption occurred within thirty (30) days prior to the date of
the purchase order. You
31 PROSPECTUS
<PAGE> 252
must notify the Fund and/or the transfer agent at the time you place such
purchase order of your eligibility for the waiver of front-end sales charges and
provide satisfactory evidence thereof (e.g., a confirmation of the redemption
and the sales charges paid). Such purchases may not be made at net asset value
to the extent the proceeds are from a redemption of shares of another open-end
investment company that is affiliated with the Company on which you paid a
contingent-deferred sales charge upon redemption.
Reductions for Qualified Groups
Reductions in front-end sales charges also apply to purchases by individual
members of a "qualified group." The reductions are based on the aggregate dollar
amount of Class A shares purchased by all members of the qualified group. For
purposes of this paragraph, a qualified group consists of a "company", as
defined in the 1940 Act, which has been in existence for more than six months
and which has a primary purpose other than acquiring Fund shares at a reduced
sales charge, and the "related parties" of such company. For purposes of this
paragraph, a "related party" of a company is: (i) any individual or other
company who directly or indirectly owns, controls or has the power to vote 5%
percent or more of the outstanding voting securities of such company; (ii) any
other company of which such company directly or indirectly owns, controls or has
the power to vote 5% or more of its outstanding voting securities; (iii) any
other company under common control with such company; (iv) any executive
officer, director or partner of such company or of a related party; and (v) any
partnership of which such company is a partner. Investors seeking to rely on
their membership in a qualified group to purchase shares at a reduced sales load
must provide evidence satisfactory to the transfer agent of the existence of a
bona fide qualified group and their membership therein.
Waivers for Certain Parties
Class A shares of a Fund may be purchased at NAV, without payment of a
front-end sales charge, by directors, officers and employees (and their spouses,
parents, children and siblings) of the Company, Stephens, its affiliates and
selling agents. Shares of a Fund also may be purchased at NAV, without payment
of a front-end sales charge, by present and retired directors, officers and
employees (and their spouses, parents, children and siblings) of Wells Fargo
Bank and its affiliates. The Funds' Class A shares also may be purchased at NAV,
without a front-end sales charge, by employee benefit and thrift plans for such
persons and by any investment advisory, trust or other fiduciary account,
including a Plan Account, that is maintained, managed or advised by Wells Fargo
Bank or its affiliates. In addition, you may purchase shares of a Fund at NAV,
without payment of a front-end sales charge, with proceeds from a required
minimum distribution from any Individual Retirement Account ("IRA"), Simplified
Employee Pension Plan or other self-directed retirement plan for which Wells
Fargo Bank serves as trustee, provided that the proceeds are invested in the
Fund within 30 days of such distribution and such distribution is required as a
result of reaching age 70 1/2.
PROSPECTUS 32
<PAGE> 253
CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES
Class B shares may be subject to a contingent-deferred sales charge ("CDSC").
A CDSC is an amount you pay if you redeem your shares within a specified period.
The CDSC will be equal to a percentage of the lesser of the NAV of your shares
at the time of purchase or the NAV of your shares at redemption.
Except as described below, if you purchase Class B shares and redeem such
shares within six years of the date of purchase the Class B shares are subject
to a CDSC as follows:
<TABLE>
<CAPTION>
Redemption Within: 1 Year 2 Years 3 Years 4 Years 5 Years 6 Years
-------------------------------- ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CDSC: 5% 4% 3% 3% 2% 1%
</TABLE>
Class B shares of a Fund purchased prior to March 3, 1997, are subject to a
CDSC if redeemed within four years of purchase. For so long as you hold Class B
shares of such Fund, any new Class B shares of the Fund that you acquire are
subject to a CDSC if redeemed within four years. In addition, if you exchange
Class B shares of the Fund for Class B shares of another fund, upon redemption
the CDSC applicable to the original Class B shares of the Fund will apply. The
CDSCs applicable to such shares are as follows:
<TABLE>
<CAPTION>
Redemption Within: 1 Year 2 Years 3 Years 4 Years
---------------------------------------------- ------ ------- ------- -------
<S> <C> <C> <C> <C>
CDSC: 3% 2% 1% 1%
</TABLE>
Contingent deferred sales charges are not imposed on amounts representing
increases in NAV above the NAV at the time of purchase and are not assessed on
Class B shares purchased through reinvestment of dividends or capital gains
distributions. Class B shares automatically convert to Class A shares of the
same Fund six years after the end of the month in which such Class B shares were
acquired, and such conversions are ordinarily not taxable.
The amount of any contingent-deferred sales charge, if any, paid upon
redemption of Class B shares is determined in a manner designed to result in the
lowest sales charge rate being assessed. When a redemption request is made,
Class B shares acquired pursuant to the reinvestment of dividends and
capital-gain distributions are considered to be redeemed first. After this,
Class B shares are considered redeemed on a first-in, first-out basis so that
Class B shares held for a longer period of time are considered redeemed prior to
more recently acquired Class B shares. For a discussion of the interaction
between the optional Exchange Privilege and contingent-deferred sales charges on
Class B shares, see "Additional Shareholder Services -- Exchange Privilege."
Contingent-deferred sales charges are waived on redemptions of Class B shares
(i) following the death or disability (as defined in the Internal Revenue Code
of 1986, as
33 PROSPECTUS
<PAGE> 254
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 A or Class B shares, you should compare
the fees assessed on Class A shares (including front-end sales charges) against
those assessed on Class B shares (including potential contingent-deferred sales
charges and higher Rule 12b-1 fees than Class A shares) in light of the amount
to be invested and the anticipated time that the shares will be owned. If your
purchase amount would qualify you for a reduced sales charge on Class A shares,
you should consider carefully whether you would pay lower fees ultimately on
Class A or Class B shares. See "Investing In The Funds -- Sales Charges" for
information on reduced sales charges for Class A shares.
You may buy shares on any Business Day by any of the methods described below.
The Company reserves the right to reject any purchase order or suspend sales at
any time. Payment for orders that are not received is returned after prompt
inquiry. The issuance of shares is recorded on the Company's books, and share
certificates are not issued.
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 A or Class B)
Account Name(s): Name(s) in which to be registered
Account Number: (if investing into an existing account)
PROSPECTUS 34
<PAGE> 255
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: 1-415-543-9538
4. Share purchases are effected at the public offering price or, in the case of
Class B shares, at the NAV next determined after the Account Application is
received and accepted.
INITIAL PURCHASES BY MAIL
1. Complete an Account Application. Indicate the services to be used.
2. Mail the Account Application and a check for $1,000 or more payable to
"Stagecoach Funds (Name of Fund) (designate Class A or Class B)" to the
address set forth in "Initial Purchases by Wire."
3. Share purchases are effected at the public offering price or, in the case of
Class B shares, at the NAV next determined after the Account Application is
received and accepted.
AUTOSAVER PLAN PURCHASES
The Company's AutoSaver Plan provides you with a convenient way to establish
and automatically add to your Fund account on a monthly basis. To participate in
the 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.
35 PROSPECTUS
<PAGE> 256
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 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-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 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.
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 A or Class B)" to the address set forth under "Initial
Purchases by Wire." Write your Fund account number on the check and include the
detachable stub from your 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 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
PROSPECTUS 36
<PAGE> 257
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 Fund is not due
until settlement date, the Selling Agent might benefit from the temporary use of
your payment. A financial institution that acts as a Selling Agent, shareholder
servicing agent or in certain other capacities may be required to register as a
dealer pursuant to applicable state securities laws, which may differ from
federal law and any interpretations expressed herein.
PURCHASES THROUGH SHAREHOLDER SERVICING AGENTS
Purchase orders for Fund shares may be transmitted to the transfer agent
through any entity that has entered into a shareholder servicing agreement with
the 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.
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 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
37 PROSPECTUS
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effective and continue to earn dividends through the day you redeem your shares.
The Funds intend 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 Class A and Class B
shares.
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 applicable to Class B shares (the "net
redemption proceeds"), within seven days after your redemption order is received
in proper form, unless the SEC permits a longer period under extraordinary
circumstances. Such extraordinary circumstances could include a period during
which an emergency exists as a result of which (a) disposal by a Fund of
securities owned by it is not reasonably practicable or (b) it is not reasonably
practicable for a Fund fairly to determine the value of its net assets, or a
period during which the SEC by order permits deferral of redemptions for the
protection of the security holders of such Fund. In addition, the Funds may hold
payment on your redemptions until reasonably satisfied that your investments
made by check have been collected (which can take up to 10 days from the
purchase date). To ensure acceptance of your redemption request, please follow
the procedures described below. 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
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
PROSPECTUS 38
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irrevocable without the prior approval of the SEC and is a fundamental policy of
the Fund that may not be changed without shareholder approval. In the case of
redemption requests by shareholders in excess of such amounts, the Board of
Directors reserves the right to have the Fund make payment, in whole or in part,
in securities or other assets, in case of an emergency or any time a cash
distribution would impair the liquidity of the Fund to the detriment of the
existing shareholders. In this event, the securities would be valued in the same
manner as the securities of the Fund are valued. If the recipient were to sell
such securities, he or she would incur brokerage costs in converting such
securities to cash.
Due to the high cost of maintaining Fund accounts with small balances, the
Company reserves the right to close your account and send you the proceeds if
the balance falls below the applicable minimum balance because of a redemption
(including a redemption of shares of the Fund after 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 Funds -- How To Buy Shares."
REDEMPTIONS BY TELEPHONE
Telephone redemption or exchange privileges are made available to you
automatically upon opening an account, unless you specifically decline the
privileges. Telephone redemption privileges authorize the transfer agent to act
on telephone instructions from any person representing himself or herself to be
the investor and reasonably believed by the transfer agent to be genuine. The
Company 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.
39 PROSPECTUS
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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 a 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 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
PROSPECTUS 40
<PAGE> 261
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 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 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. However, you should not
participate in the Systematic Withdrawal Plan if you also are purchasing shares
of a Fund that are subject to a front-end sales charges.
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.
41 PROSPECTUS
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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 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
PROSPECTUS 42
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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 A or Class B shares may be invested in Class A or Class B shares,
respectively, of another fund, in Retail shares of a fund offered by another
investment company in the Stagecoach Family of Funds, in Class A shares of the
Government Money Market Mutual, Money Market Mutual, Prime Money Market Mutual
or Treasury Money Market Mutual Funds or in shares of the California Tax-Free
Money Market Mutual or National Tax-Free Money Market Mutual Funds
(collectively, the "Money Market Mutual Funds"). Distributions paid on Class A
shares may also be invested in shares of a non-money market fund with a single
class of shares (a "single class fund"). Distributions paid on Class B shares
may not be invested in shares of a single class fund.
C. The AUTOMATIC CLEARING HOUSE OPTION permits you to have dividend and
capital gain distributions deposited in your Approved Bank Account. In the event
your Approved Bank Account is closed, and such distribution is returned to the
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.
43 PROSPECTUS
<PAGE> 264
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 A shares and a Money Market Mutual Fund........... X
Class A shares and Class A shares....................... X
Class B shares and a Money Market Mutual Fund........... X
Class B shares and Class B shares....................... X
Class A shares of a non-Money Market Mutual Fund and
Class B shares........................................ X
</TABLE>
Important factors that you should consider:
- You will need to read the prospectus of the fund into which you want to
exchange.
- Every exchange is a redemption of shares of one fund and a purchase of
shares of another fund. 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.
- If you exchange Class A shares, you will need to pay any difference between
a load that you have already paid and the load that you are subject to in
the new fund (less
PROSPECTUS 44
<PAGE> 265
the difference between any load already paid under the maximum 3% load
schedule and the maximum 4.50% schedule).
- You will not pay a contingent deferred sales charge on any exchange from
Class B shares into other Class B shares or a Money Market Mutual Fund. The
new shares will continue to age while they are in the new fund and will be
charged the contingent deferred sales charge applicable to the original
shares upon redemption.
- If you exchange Class A or Class B shares for shares of a Money Market
Mutual Fund, you may not re-exchange shares of the Money Market Mutual Fund
for shares other than the original exchanged class.
- 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.
You may exchange shares by writing the Transfer Agent or, if you have
telephone privileges, you may call the Transfer Agent. Exchanges are subject to
the procedures and conditions applicable to purchasing and redeeming shares.
CONVERSION
Class B shares that have been outstanding for six years after the end of the
month in which the shares were initially purchased automatically convert to
Class A shares of the same Fund and, consequently, will no longer be subject to
the higher Rule 12b-1 fees applicable to Class B shares of the Fund. Such
conversion is effected on the basis of the relative NAV of the two classes,
without the imposition of any sales charge or other charge except that the lower
Rule 12b-1 fees applicable to Class A shares shall thereafter be applied to such
converted shares. Because the NAV of the Class A shares may be higher than that
of the Class B shares at the time of conversion, a shareholder may receive fewer
Class A shares than the number of Class B shares converted, although the dollar
value will be the same. Reinvestments of distributions in Class B shares are
considered new purchases for purposes of the conversion feature.
If a shareholder effects one or more exchanges among Class B shares of any
Fund or shares of a Money Market Mutual Fund during the six-year period and
exchanges back into Class B shares, the holding period for the shares so
exchanged is counted toward the six-year period, and any Class B shares held at
the end of six years are converted into Class A shares.
45 PROSPECTUS
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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' 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 its services as investment adviser to
the Intermediate Bond and Short-Intermediate U.S. Government Income Funds, Wells
Fargo Bank is entitled to monthly investment advisory fees at the annual rate of
0.50% of the Funds average daily net assets. For its services as investment
adviser to the Ginnie Mae 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 million,
and 0.30% in excess of $500 million. From time to time, a 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 Ginnie Mae and Short-
Intermediate U.S. Government Income Funds paid advisory fees to Wells Fargo bank
at the annual rates of 0.50% and 0.50%, respectively, of their average daily net
assets. For the fiscal year ended September 30, 1996, the Intermediate Bond Fund
paid advisory fees at the annual rate of 0.50% of its average daily net assets.
For the periods prior to September 6, 1996, this includes amounts paid to Wells
Fargo Investment Management, Inc. by the predecessor portfolio.
For the year ended December 31, 1995, the Ginnie Mae and the
Short-Intermediate U.S. Government Income Funds paid advisory fees to Wells
Fargo Bank at the annual rates of 0.50% and 0.27%, respectively, of their
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, each Fund may, at times, borrow
money from Wells Fargo Bank as needed to satisfy temporary liquidity needs.
Wells Fargo Bank charges interest on such overdrafts at a rate determined
pursuant to each Fund's Custody Agreement. Wells Fargo Bank performs its
custodial and transfer and dividend disbursing agency services at 525 Market
Street, San Francisco, California 94105.
PROSPECTUS 46
<PAGE> 267
SHAREHOLDER SERVICING AGENT
The Funds have entered into shareholder servicing agreements with Wells Fargo
Bank, on behalf of each class of Fund shares, and may enter into similar
agreements with other entities. Under such agreements, Shareholder Servicing
Agents (including Wells Fargo Bank) agree, as agent for their customers, to
provide 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 for the Intermediate Bond Fund is entitled to
receive a fee, at the annual rate of up to 0.25% of the average daily net assets
attributable to the Class A or Class B shares, as the case may be, for which
payment is being made, owned during the period 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").
For its services, a Shareholder Servicing Agent for the Short-Intermediate
U.S. Government Income Fund receives a fee, as calculated on an annualized basis
for the Fund's then-current fiscal year, up to (1) 0.30% of the average daily
net assets of the Fund represented by shares owned during the period for which
payment is being made by investors with whom the Shareholder Servicing Agent
maintains a servicing relationship, or (2) an amount which equals the maximum
amount payable to the Shareholder Servicing Agent under applicable laws,
regulations or rules, including the NASD Rules. In no event will shareholder
servicing fees for the Ginnie Mae Fund, as calculated on an annualized basis for
the Fund's then-current fiscal year, exceed the lesser of (1) 0.30% of the
average daily net assets of the Fund represented by Class A or Class B Shares,
as the case may be, owned during the period for which payment is being made by
investors with whom the Shareholder Servicing Agent maintains a servicing
relationship, or (2) an amount which equals the maximum amount payable to the
Shareholder Servicing Agent under applicable laws, regulations or rules,
including the NASD Rules. In no event will the portion of such fees that
constitutes a "service fee," as that term is used by the NASD, exceed 0.25% of
each such Fund's average NAV.
A Shareholder Servicing Agent also may impose certain conditions and/or fees
on its customers, subject to the terms of this Prospectus, in addition to or
different from those imposed by the Funds, such as requiring a higher minimum
initial investment or payment of a separate fee for additional services. Each
Shareholder Servicing Agent has agreed to disclose any fees it may directly
charge its customers who are shareholders of the Fund and to notify them in
writing at least 30 days before it imposes any transaction fees.
47 PROSPECTUS
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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 each Fund
with administrative services, including general supervision of each Fund's
operation, coordination of other services provided to a 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 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
each 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 Funds. For the nine-month period ended September 30, 1996,
the Ginnie Mae and Short-Intermediate U.S. Government Income Funds paid
administrative fees to Stephens at the annual rates of 0.03% and 0.03%,
respectively, of each Fund s average daily net assets. For the year ended
September 30, 1996, the Intermediate Bond 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 to the Intermediate Bond 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 the shares of the Funds. The
Company also has adopted a Distribution Plan on behalf of each of the Funds
under the SEC's Rule 12b-1 ("Plans"). Under the Plan for the Class A shares of
the Intermediate Bond Fund, the Fund may defray all or part of the cost of
preparing and printing prospectuses and other promotional materials and of
delivering prospectuses and those materials to prospective Class A shareholders
and may pay compensation to the Distributor and Selling Agents for sales support
service. The Class A Plan provides for payments at an annual rate of up
PROSPECTUS 48
<PAGE> 269
to 0.05% of the average daily net assets attributable to the Class A shares. The
Class B Plan is similar but provides for payments, at an annual rate, of up to
0.75% of the average daily net assets attributable to the Class B shares of the
Fund. Other 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 the Fund's shares.
Under the Plan for the Class A Shares of the Ginnie Mae Fund, the Fund may
defray all or part of the cost of preparing and printing prospectuses and other
promotional materials and of delivering prospectuses and those materials to
prospective Class A shareholders by paying on an annual basis up to 0.05% of the
average daily net assets attributable to Class A Shares of such Fund. Under the
Plan for the Class A shares of the Short-Intermediate U.S. Government Income
Fund, the Fund may defray all or a part of the cost of preparing and printing
prospectuses and other promotional material to prospective shareholders by
paying on an annual basis up to 0.05% of the average daily net assets
attributable to the Fund. The Plan for the Class A shares of the Short-
Intermediate U.S. Government Income Fund provides only for the reimbursement of
actual expenses. Under the Class B Plan for the Ginnie Mae Fund, the Fund may
defray all or part of such costs and pay compensation to the Distributor and
Selling Agents for sales support services. The Class B Plan for the Ginnie Mae
Fund provides for payments, on an annual basis, of up to 0.70% of the average
daily net assets attributable to the Class B Shares of the Fund.
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 Funds, 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 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
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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 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 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.
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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.
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PROSPECTUS APPENDIX --
ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
Temporary Investments
The Funds 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.
Mortgage-Related Securities
The Funds 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
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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 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 may also 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.
Other Asset-Backed Securities
The Funds 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
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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 a Fund experiencing difficulty in valuing or
liquidating such securities.
Derivative Securities
The Intermediate Bond and Short-Intermediate U.S. Government Income 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 reference to changes in the value of other interest rates,
indices or financial indicators ("References") or the relative change in two or
more References. These 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 issuer 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 embedded 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. As new types of derivative 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 derivative securities.
Stripped Obligations
The Ginnie Mae, Intermediate Bond and Short-Intermediate U.S. Government
Income Funds may purchase Treasury receipts and other "stripped" securities that
evidence ownership in either the future interest payments or the future
principal 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
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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.
Custodial Receipts for Treasury Securities
The Intermediate Bond Fund 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 the Fund in
such participations will not exceed 5% of the value of the Fund's total assets.
Forward Commitments, When-Issued Purchases and Delay-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, 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.
During the period between commitment and settlement, no payment is made by the
Fund and no interest accrues to the Fund. In some instances, a 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 a 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
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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.
Commercial Paper
The Funds may invest in commercial paper (including variable amount master
demand notes) which refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations which permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes.
Investments by the Intermediate Bond Fund in commercial paper (including
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 instruments issued by government agencies and
instrumentalities) will consist of issues that are rated in one of the two
highest rating categories by a NRSRO. Commercial paper may include variable- and
floating-rate instruments.
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.
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
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advised by Wells Fargo Bank. See "Additional Permitted Investment Activities" in
the SAI for additional information.
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.
Illiquid Securities
The Funds 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 a Fund.
Foreign Obligations
Each 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.
Additional Investments -- Ginnie Mae Fund
FHLMC issues two types of mortgage pass-through securities: mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA certificates in that each PC represents a pro rata
share of all interest and principal payments made and owed on the underlying
pool of mortgages. GMCs also represent a pro rata interest in a pool of
mortgages. These instruments, however, pay interest semiannually and return
principal once a year in guaranteed minimum payments.
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These mortgage-backed securities differ from bonds in that principal is paid
back by the borrower over the length of the loan rather than returned in a lump
sum at maturity. They are called "pass-through" securities because both interest
and principal payments, including prepayments, are passed through to the holder
of the security. The GNMA securities in which the Ginnie Mae Fund will invest
are of the "modified" type, which entitles the holder of such certificates to
receive its share of all interest and principal payments owed on the underlying
pool of mortgage loans, regardless of whether or not the mortgagors actually
make the payments.
The payment of principal on the underlying mortgages may exceed the minimum
required by the schedule of payments for the mortgages. Such prepayments are
made at the option of the mortgagors for a wide variety of reasons reflecting
their individual circumstances. For example, mortgagors may speed up the rate at
which they prepay their mortgages when interest rates decline sufficiently to
encourage refinancing. The Ginnie Mae Fund, when such prepayments are passed
through to it, may be able to reinvest them only at a lower rate of interest. As
a result, if the Fund purchases such securities at a premium, a prepayment rate
that is faster than expected will reduce yield to maturity, while a prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity. Conversely, if the Fund purchased such securities at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce, yield to maturity. Accelerated prepayments on
securities purchased by the Fund at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is repaid in full. In choosing specific issues, Wells Fargo Bank, as
investment adviser, will have made assumptions about the likely speed of
prepayment. Actual experience may vary from this assumption resulting in a
higher or lower investment return than anticipated.
Additional Investments -- Short-Intermediate U.S. Government Income Fund
The mortgages underlying ARMS guaranteed by GNMA are fully insured or
guaranteed by the Federal Housing Administration, the Veterans Administration or
the Farmers Home Administration, while those underlying ARMS issued by FNMA or
FHLMC are typically conventional residential mortgages which are not so insured
or guaranteed, but which conform to specific underwriting, size and maturity
standards.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specified
coupon rate and has a stated maturity or final distribution date. The principal
and interest payment on the underlying mortgages may be allocated among the
classes of CMOs in several ways. Typically, payments of principal, including any
prepayments, on the underlying mortgages are applied to the classes in the order
of their respective stated maturities or final distribution dates, so that no
payment of principal is made on CMOs of a class until
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all CMOs of other classes having earlier stated maturities or final distribution
dates have been paid in full. One or more classes of CMOs may have coupon rates
that reset periodically based on an index, such as the London Interbank Offered
Rate ("LIBOR").
The interest rates on the mortgages underlying the ARMS and the CMOs in which
the Short-Intermediate U.S. Government Income Fund may invest generally are
readjusted at intervals of one year or less in response to changes in a
predetermined interest rate index. There are two main categories of indices:
those based on U.S. Treasury securities and those derived from a calculated
measure, such as cost-of-funds index or a moving average of mortgage rates.
Commonly utilized indices include the one-year and five-year constant maturity
U.S. Treasury note rates, the three-month U.S. Treasury bill rate, the 180-day
U.S. Treasury bill rate, rates on longer-term U.S. Treasury securities, the
National Median Cost of Funds, the one-month, three-month, six-month or one-year
LIBOR, a published prime rate, or commercial paper rates. Certain of these
indices follow overall market interest rates more closely than others.
Adjustable-rate mortgages, an increasingly common form of residential
financing, generally are originated by banks and thrift institutions and have a
specified maturity date. Most provide for amortization of principal in a manner
similar to fixed-rate mortgages but have interest payment amounts that change in
response to changes in a specified interest rate index. The rate of interest due
on such a mortgage is calculated by adding an agreed-upon "margin" to the
specified index, although there generally are limitations or "caps" on interest
rate movements in any given period or over the life of the mortgage. To the
extent that the interest rates on adjustable rate mortgages underlying the ARMS
or the CMOs in which the Short-Intermediate U.S. Government Income Fund may
invest cannot be adjusted in response to interest rate changes because of such
caps, the ARMS or CMOs are likely to respond to changes in market rates more
like fixed-rate securities. In other words, interest rate increases in excess of
such caps can be expected to cause the ARMS or CMOs backed by mortgages that
have such caps to decline in value to a greater extent than would be the case in
the absence of such caps. Conversely, interest rate decreases below such floors
can be expected to cause the ARMS or CMOs backed by mortgages that have such
floors to increase in value to a greater extent than would be the case in the
absence of such floors.
Since the interest rates on many mortgages underlying ARMS and CMOs are reset
on an annual basis and generally are subject to caps, it can be expected that
the prices of such ARMS and CMOs will fluctuate to the extent prevailing market
interest rates are not reflected in the interest rates payable on the underlying
adjustable rate mortgages or the CMO. In this regard, the NAV of the
Short-Intermediate U.S. Government Income Fund's shares could fluctuate to the
extent interest rates on underlying mortgages differ from prevailing market
interest rates during interim periods between interest rate reset dates.
Accordingly, investors could experience some principal loss or less gain than
might otherwise be achieved if they redeem their Fund shares before the interest
rates on
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the mortgages underlying the Fund's portfolio securities are adjusted to reflect
prevailing market interest rate.
The holder of ARMS and certain CMOs receives not only monthly scheduled
payments of principal and interest but also may receive unscheduled principal
payments representing prepayments on the underlying mortgages. An investor,
therefore, may have to reinvest the periodic payments and any unscheduled
prepayments of principal it receives at a rate of interest which is lower than
the rate on the ARMS and CMOs held by it.
The Short-Intermediate U.S. Government Income Fund also may invest cash
balances temporarily in U.S. Treasury bills, which are short-term U.S.
Government obligations with maturities which do not exceed one year.
INVESTMENT POLICIES AND RESTRICTIONS
Each Fund's investment objective, as set forth in "How the Funds
Work -- 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 such
Fund's outstanding voting securities, as described under "Capital Stock" in the
SAI for each Fund. If the Board of Directors determines 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 a matter of fundamental policy for the Intermediate Bond Fund, the Fund may
not purchase or sell commodity contracts or invest in oil, gas or mineral
exploration or development programs, except that the Fund may enter into futures
contracts and related options. The Fund may not 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. The
Fund may not purchase securities of companies for the purpose of exercising
control. The Fund may not acquire any other investment company except in
connection with a merger, consolidation, reorganization or acquisition of assets
or where otherwise permitted by the 1940 Act. The Fund may not act as an
underwriter of securities within the meaning of the Securities Act of 1933. The
Fund may not write or sell put options, call options, straddles, spreads, or any
combination thereof, except that the Fund may enter into transactions in options
on securities, futures contracts and options on futures contracts. The Fund may
not 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 up to 10% of the value of the total assets at the time of such
borrowing. The Fund may not purchase securities (except U.S. Government
securities and repurchase agreements collateralized
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by such securities) if more than 5% of its total assets at the time of purchase
will be invested in securities of any one issuer, except that up to 25% of a
Fund's total assets may be invested without regard to this 5% limitation.
Subject to the foregoing 25% exception, the Fund may not purchase more than 10%
of the outstanding voting securities of any issuer. The 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. The Fund may not
borrow money except in amounts up to 10% of the value of its total assets at the
time of borrowing.
For the Funds, 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, each Fund will not at any time have more
than 15% (10% for the Ginnie Mae Fund) of its net assets invested in illiquid
securities.
As matters of fundamental policy for the Ginnie Mae and Short-Intermediate
U.S. Government Income Funds, a Fund may: (i) not purchase securities of any
issuer (except U.S. Government obligations) if as a result more than 5% of the
value of a Fund's total assets would be invested in the securities of such
issuer or a Fund would own more than 10% of the outstanding voting securities of
such issuer; (ii) make loans of portfolio securities in accordance with its
investment policies; and (iii) not invest 25% or more of its assets (i.e.,
concentrate) in any particular industry, except that the Fund may invest 25% or
more of its assets in U.S. Government obligations. In addition, as a matter of
fundamental policy, the Short-Intermediate U.S. Government Income Fund may
borrow from banks up to 10% of the current value of its net assets for temporary
purposes only in order to meet redemptions, and these borrowings may be secured
by the pledge of up to 10% of the current value of its net assets. As a matter
of fundamental policy, the Ginnie Mae Fund may borrow from banks up to 20% of
the current value of its net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 20% of
the current value of its net assets. Each Fund may not purchase investments
while any such outstanding borrowing exceeds 5% of such Fund's net assets.
With respect to fundamental investment policy (i) above, the
Short-Intermediate U.S. Government Income Fund is subject to this restriction
only with respect to 75% of the Fund's assets, and, with regard to both Funds,
it may be possible that the Company would own more than 10% of the outstanding
voting securities of the issuer. With respect to fundamental investment policy
concerning bank borrowing above, the Ginnie Mae Fund presently does not intend
to put at risk more than 5% of its assets during the coming year. With respect
to fundamental investment policy (ii) above, the Short-Intermediate U.S.
Government Income Fund does not intend to make loans of its portfolio securities
during the coming year, and the Ginnie Mae Fund does not intend to put at risk
more than 5% of its assets during the coming year.
PROSPECTUS A- 10
<PAGE> 282
Nonfundamental Investment Policies
As a matter of nonfundamental policy, the Ginnie Mae Fund may invest up to 10%
of the current value of its net assets in repurchase agreements having
maturities of more than seven days, illiquid securities and fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days.
As a matter of nonfundamental policy, the Short-Intermediate U.S. Government
Income Fund may invest up to 15% of the current value of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
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- 11 PROSPECTUS
<PAGE> 283
Advised by WELLS FARGO BANK, N.A.
Sponsored/Distributed by
Stephens Inc., Member NYSE/SIPC
LOGO
NOT FDIC INSURED
<PAGE> 284
LOGO
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH FUNDS:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- 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 LOGO
principal
</TABLE>
LOGO
Printed on Recycled Paper SC0207 (2/97)
<PAGE> 285
LOGO
------------------------------
PROSPECTUS
------------------------------
AGGRESSIVE GROWTH FUND
BALANCED FUND
CORPORATE STOCK FUND
DIVERSIFIED INCOME FUND
EQUITY VALUE FUND
GROWTH AND INCOME FUND
SMALL CAP FUND
CLASS A AND CLASS B
FEBRUARY 1, 1997
<PAGE> 286
STAGECOACH FUNDS(R)
AGGRESSIVE GROWTH, BALANCED, CORPORATE STOCK,
DIVERSIFIED INCOME, EQUITY VALUE, GROWTH AND INCOME
AND SMALL CAP FUNDS
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about Class A and Class B (except
for the Corporate Stock Fund) shares offered in seven funds of the Stagecoach
Family of Funds -- the AGGRESSIVE GROWTH, BALANCED, CORPORATE STOCK, DIVERSIFIED
INCOME, EQUITY VALUE, GROWTH AND INCOME and SMALL CAP FUNDS (each, a "Fund" and,
collectively, the "Funds"). The Corporate Stock Fund offers a single class of
shares (sometimes referred to in this Prospectus with the Class A shares of the
other Funds as "Class A" shares).
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
February 1, 1997 has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this Prospectus. The SAI is
available free of charge by writing to Stagecoach Funds, Inc., c/o Stagecoach
Shareholder Services, Wells Fargo Bank, N.A., P.O. Box 7066, San Francisco, CA
94120-7066, or by calling the Company at 1-800-222-8222. If you hold shares in
an IRA, please call 1-800-BEST-IRA (1-800-237-8472) for information or
assistance.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK, N.A. ("WELLS FARGO BANK"), BARCLAYS GLOBAL
INVESTORS, N.A. ("BGI") OR ANY OF THEIR 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.
PROSPECTUS DATED FEBRUARY 1, 1997
PROSPECTUS
<PAGE> 287
The AGGRESSIVE GROWTH FUND seeks to provide investors with an above-average
level of capital appreciation. The BALANCED FUND seeks to provide investors with
both capital appreciation and current income resulting in a high total
investment return consistent with prudent investment risk and a balanced
investment approach. The CORPORATE STOCK FUND seeks to approximate to the extent
practicable the total rate of return of substantially all of the common stocks
comprising the Standard & Poor's 500 Composite Stock Price Index. The
DIVERSIFIED INCOME FUND seeks to earn current income and a growing stream of
income over time, consistent with preservation of capital. The EQUITY VALUE FUND
seeks to provide investors with long-term capital appreciation. The GROWTH AND
INCOME FUND seeks to earn current income and achieve long-term capital
appreciation by investing primarily in common stocks, and preferred stocks and
debt securities that are convertible into common stocks. The 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.
Each of the Aggressive Growth, Corporate Stock and Small Cap Funds seeks to
achieve its investment objective by investing all of its assets in the Capital
Appreciation, Corporate Stock and Small Cap Master Portfolios (each, a "Master
Portfolio" and, collectively, the "Master Portfolios"), respectively, of Master
Investment Trust ("MIT"), an open-end management investment company. The
performance of each such Fund corresponds directly to the performance of the
corresponding Master Portfolio in which it invests. References to the
investments and investment policies and risks of these Funds, unless otherwise
indicated, should be understood as references to the investments and investment
policies and risks of the corresponding Master Portfolios.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND ADMINISTRATOR, AND IS
COMPENSATED FOR PROVIDING THE FUNDS AND MASTER PORTFOLIOS WITH CERTAIN OTHER
SERVICES. BARCLAYS GLOBAL FUND ADVISORS ("BGFA") IS SUB-ADVISER TO THE CORPORATE
STOCK MASTER PORTFOLIO. BGI IS CUSTODIAN TO THE CORPORATE STOCK FUND AND
CORPORATE STOCK MASTER PORTFOLIO. STEPHENS INC. ("STEPHENS"), WHICH IS NOT
AFFILIATED WITH WELLS FARGO BANK, BGFA OR BGI, IS THE SPONSOR, CO-ADMINISTRATOR
AND DISTRIBUTOR FOR THE FUNDS.
PROSPECTUS
<PAGE> 288
TABLE OF CONTENTS
-------
PROSPECTUS SUMMARY 1
SUMMARY OF FUND EXPENSES 6
FINANCIAL HIGHLIGHTS 12
HOW THE FUNDS WORK 26
THE FUNDS AND MANAGEMENT 38
INVESTING IN THE FUNDS 42
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS 53
HOW TO REDEEM SHARES 54
ADDITIONAL SHAREHOLDER SERVICES 58
MANAGEMENT, DISTRIBUTION AND SERVICING FEES 61
TAXES 67
PROSPECTUS APPENDIX -- ADDITIONAL INVESTMENT POLICIES A-1
PROSPECTUS
<PAGE> 289
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 this
Prospectus and each Fund's SAI.
Q. WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
A. The AGGRESSIVE GROWTH FUND seeks to provide investors with an above-average
level of capital appreciation. The Fund pursues this objective by investing
all of its assets in the Capital Appreciation Master Portfolio. The Capital
Appreciation Master Portfolio has the same investment objective as the Fund.
The Master Portfolio pursues this investment objective through the active
management of a broadly diversified portfolio of equity securities of
companies expected to experience strong growth in revenues, earnings and
assets. The Fund and Master Portfolio are designed to provide above-average
capital growth for investors willing to assume above-average risk.
The BALANCED FUND seeks to provide investors with both capital appreciation
and current income resulting in high total investment return consistent with
prudent investment risk and a balanced investment approach. The Fund pursues
this objective by investing in equity securities and debt instruments
through a balanced and diversified program. The Fund normally invests
between 30% and 70% of its assets in common stocks that are considered by
the investment adviser to have better than average prospects for growth of
capital and income. The Fund invests primarily in domestic equity securities
but may invest up to 5% of its assets in equity securities listed or traded
exclusively on a foreign exchange. The Fund's remaining assets are invested
in senior fixed-income securities, including corporate debt securities,
commercial paper and mortgage-backed and asset-backed securities, based on
the relative stability of income and principal of such securities. Debt
instruments in which the Fund invests are rated at least investment grade or
deemed comparable.
The CORPORATE STOCK FUND seeks to approximate to the extent practicable the
total rate of return of substantially all of the common stocks comprising
the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index"). The
Fund pursues this objective by investing all of its assets in the Corporate
Stock Master Portfolio, which has the same investment objective as the Fund.
The Master Portfolio pursues this objective by investing in most of the
common stocks which comprise the S&P 500 Index.
1 PROSPECTUS
<PAGE> 290
The DIVERSIFIED INCOME FUND seeks to earn current income and a growing
stream of income over time, consistent with preservation of capital. The
Fund pursues this objective by investing primarily in income-producing debt
instruments and equity securities, including common stocks, and preferred
stocks and debt instruments that are convertible into common stocks. Debt
instruments include obligations issued or guaranteed by the U.S. Government,
its agencies and instrumentalities, high quality bonds and a broad range of
other debt instruments, such as bonds and other debt securities of domestic
companies, U.S. dollar-denominated debt obligations of foreign issuers,
including foreign corporations and foreign governments, and various
asset-backed securities. Common stocks are selected on the basis of strong
earnings growth trend, above-average prospects for future earnings growth
and diversification among industries and companies. Convertible securities
are selected on the basis of strong earnings and credit record, the ability
to provide current income and the characteristics described above with
respect to common stocks.
The EQUITY VALUE FUND seeks to provide investors with long-term capital
appreciation. The Fund pursues this objective by investing primarily in
common stocks and may invest in debt securities that are convertible into
common stocks of both domestic and foreign companies. The Fund may invest in
large, well-established companies and smaller companies with market
capitalizations exceeding $50 million. The Fund may invest up to 5% of its
assets in foreign equity securities. Income generation is a secondary
consideration in selecting investments. The Fund may purchase dividend
paying stocks of particular issuers when the issuer's dividend record may,
in the investment adviser's opinion, have a favorable influence on the
market value of the securities. The Fund also may purchase convertible
securities with the same characteristics as common stocks. Under normal
market conditions, the Fund invests at least 65% of its total assets in
common stocks and securities convertible into common stocks.
The GROWTH AND INCOME FUND seeks to earn current income and achieve
long-term capital appreciation by investing primarily in common stocks, and
preferred stocks and debt securities that are convertible into common
stocks. Common stocks are selected on the basis of strong earnings growth
trend, above-average prospects for future earnings growth and
diversification among industries and companies. Convertible securities are
selected on the basis of strong earnings and credit record, the ability to
provide current income and the same characteristics described above with
respect to common stocks.
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 by investing all of its
assets in the Small Cap Master Portfolio. The Master Portfolio has the same
investment objective as the Fund. The Master
PROSPECTUS 2
<PAGE> 291
Portfolio pursues this investment 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 Master Portfolio intends to sell the common
stock of any company in its investment portfolio after such Company's market
capitalization exceeds $2 billion.
See "How the Funds Work," "Prospectus Appendix -- Additional Investment
Policies" and the SAI for further information on investments.
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF INVESTMENT?
A. An investment in 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 Capital Appreciation, Small Cap and Growth and Income Funds each 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.
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the Funds' and the Master Portfolios' investment
adviser, manages your investments. Wells Fargo Bank also provides
administrative, transfer
3 PROSPECTUS
<PAGE> 292
and dividend disbursing agency services to the Funds and serves as custodian
to the Aggressive Growth, Balanced, Diversified Income, Equity Value, Growth
and Income and Small Cap Funds. In addition, Wells Fargo Bank is a
shareholder servicing agent and a selling agent and provides certain of
these services to the Master Portfolios. BGFA serves as sub-adviser to the
Corporate Stock Master Portfolio. BGI serves as custodian to the Corporate
Stock Fund and Corporate Stock Master Portfolio. See "The Funds and
Management" and "Management, Distribution and Servicing Fees."
Q. HOW DO I INVEST?
A. You may invest by purchasing shares of the Funds at their public offering
price, which is the net asset value ("NAV") plus any applicable sales
charge. Class A shares are subject to a maximum front-end sales charge of
5.25%. Class B shares that are redeemed within six years of purchase are
subject to a maximum contingent deferred sales charge of 5.00% of the lesser
of NAV at purchase or NAV at redemption. Shares of the Corporate Stock Fund
are not subject to front-end or contingent deferred sales charges. In some
cases, such as for investments by certain fiduciary or retirement accounts,
the front-end sales charge may be waived. In other cases, the front-end
sales charge may be reduced. You may open an account by investing at least
$1,000 and may add to your account by making additional investments of at
least $100, although certain exceptions to these minimums may be available.
Shares may be purchased by wire, by mail or by an automatic investment
feature called the AutoSaver Plan on any day the New York Stock Exchange is
open. See "Investing in the Funds." For more details, contact Stephens (the
Funds' sponsor and distributor), a shareholder servicing agent or a selling
agent (such as Wells Fargo Bank).
Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends of the Balanced, Corporate Stock, Diversified Income, Equity Value
and Growth and Income Funds are declared and distributed quarterly.
Dividends of the Aggressive Growth and Small Cap Funds are declared and
distributed annually. Any capital gains are distributed by 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."
PROSPECTUS 4
<PAGE> 293
Q. HOW MAY I REDEEM SHARES?
A. You may redeem shares by telephone, by letter or by an automatic feature
called the Systematic Withdrawal Plan on any day the Fund is open for
business. Contingent deferred sales charges may be charged upon redemption
of Class B shares. The Company does not charge a fee for redemption of Class
A shares. In addition, the Company reserves the right to impose charges for
wiring redemption proceeds. See "How To Redeem Shares" and "How to Purchase
Shares -- Contingent Deferred Sales Charges -- Class B shares." For more
details, contact Stephens, a shareholder servicing agent or a selling agent
(such as Wells Fargo Bank).
Q. WHAT ARE DERIVATIVES AND DO THE FUNDS USE THEM?
A. Derivatives are financial instruments whose value is derived, at least in
part, from the price of another security or a specified asset, index or
rate. Some of the permissible investments described in this Prospectus, such
as 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."
5 PROSPECTUS
<PAGE> 294
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
CLASS A SHARES
<TABLE>
<CAPTION>
SMALL
AGGRESSIVE BALANCED CORPORATE DIVERSIFIED EQUITY GROWTH AND CAP
GROWTH FUND FUND STOCK FUND INCOME FUND VALUE FUND INCOME FUND FUND
----------- -------- ---------- ----------- ---------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge on Purchase (as a
percentage of offering price)............. 5.25% 5.25% None 5.25% 5.25% 5.25% 5.25%
Maximum Sales Charge on Reinvested
Dividends................................. None None None None None None None
Maximum Sales Charge Imposed on
Redemptions............................... None None None None None None None
Exchange Fees............................... None None None None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
CLASS A SHARES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
SMALL
AGGRESSIVE(1) BALANCED CORPORATE(1) DIVERSIFIED EQUITY GROWTH AND CAP(1)
GROWTH FUND FUND STOCK FUND INCOME FUND VALUE FUND INCOME FUND FUND
------------- -------- ------------ ----------- ---------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee.............................. 0.50% 0.60% 0.47% 0.50% 0.50% 0.50% 0.60%
Rule 12b-1 Fee.............................. 0.10% 0.10% 0.05% 0.05% 0.10% 0.05% 0.10%
Other Expenses (after waivers or
reimbursements)(2)........................ 0.79% 0.35% 0.49% 0.55% 0.45% 0.63% 0.40%
---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING EXPENSES (after waivers
or reimbursements)(3)..................... 1.39% 1.05% 1.01% 1.10% 1.05% 1.18% 1.10%
==== ==== ==== ==== ==== ==== ====
</TABLE>
- -------------------
(1) Other mutual funds may invest in the Capital Appreciation, Corporate Stock
and Small Cap Master Portfolios. Such other funds' expenses and,
accordingly, their investment returns may differ from those of the
corresponding Funds. The expenses below summarize expenses charged at the
Master Portfolio level as well as at the Fund level.
(2) Other Expenses (before waivers or reimbursements) would be 1.00%, 0.67%,
0.56%, 0.71%, 0.50%, 0.64% and 1.00% for shares of the Aggressive Growth,
Balanced, Corporate Stock, Diversified Income, Equity Value, Growth and
Income and Small Cap Funds, respectively.
(3) Total Fund Operating Expenses (before waivers or reimbursements) would be
1.60%, 1.37%, 1.08%, 1.26%, 1.10%, 1.19% and 1.70% for shares of the
Aggressive Growth, Balanced, Corporate Stock, Diversified Income, Equity
Value, Growth and Income and Small Cap Funds, respectively.
PROSPECTUS 6
<PAGE> 295
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment in Class A shares of the
following Funds, assuming a 5% annual
return and redemption at the end of each
time period indicated:
Aggressive Growth Fund................ $ 66 $94 $ 125 $211
Balanced Fund......................... $ 63 $84 $ 107 $174
Corporate Stock Fund.................. $ 10 $32 $ 56 $124
Diversified Income Fund............... $ 63 $86 $ 110 $179
Equity Value Fund..................... $ 63 $84 $ 107 $174
Growth and Income Fund................ $ 64 $88 $ 114 $188
Small Cap Fund........................ $ 63 $86 $ 110 $179
</TABLE>
7 PROSPECTUS
<PAGE> 296
SHAREHOLDER TRANSACTION EXPENSES
CLASS B SHARES
<TABLE>
<CAPTION>
SMALL
AGGRESSIVE BALANCED DIVERSIFIED EQUITY VALUE GROWTH AND CAP
GROWTH FUND FUND INCOME FUND FUND INCOME FUND FUND
----------- -------- ----------- ------------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge on Purchase (as a percentage of
offering price)...................................... None None None None None None
Maximum Sales Charge on Reinvested Dividends........... None None None None None None
Maximum Sales Charge Imposed on Redemptions............ 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Exchange Fees.......................................... None None None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
CLASS B SHARES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
SMALL
AGGRESSIVE(1) BALANCED DIVERSIFIED EQUITY VALUE GROWTH AND CAP(1)
GROWTH FUND FUND INCOME FUND FUND INCOME FUND FUND
------------- -------- ----------- ------------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Management Fee......................................... 0.50% 0.60% 0.50% 0.50% 0.50% 0.60%
Rule 12b-1 Fee......................................... 0.75% 0.75% 0.70% 0.75% 0.70% 0.75%
Other Expenses (after waivers or reimbursements)(2).... 0.79% 0.35% 0.54% 0.45% 0.63% 0.40%
---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING EXPENSES (after waivers or
reimbursements)(3)................................... 2.04% 1.70% 1.74% 1.70% 1.83% 1.75%
==== ==== ==== ==== ==== ====
</TABLE>
- -------------------
(1) Other mutual funds may invest in the Capital Appreciation and Small Cap
Master Portfolios. Such other funds' expenses and, accordingly, investment
returns may differ from those of the corresponding Funds. The expenses below
summarize expenses charged at the Master Portfolio level as well as at the
Fund level.
(2) Other Expenses (before waivers or reimbursements) would be 1.00%, 0.47%,
0.88%, 0.47%, 0.83% and 1.00% for the Aggressive Growth, Balanced,
Diversified Income, Equity Value, Growth and Income and Small Cap Funds,
respectively.
(3) Total Fund Operating Expenses (before waivers or reimbursements) would be
2.25%, 1.82%, 2.08%, 1.72%, 2.03% and 2.35% for the Aggressive Growth,
Balanced, Diversified Income, Equity Value, Growth and Income and Small Cap
Funds, respectively.
PROSPECTUS 8
<PAGE> 297
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment in
Class B shares of the following
Funds, assuming (A) a 5% annual
return and (B) redemption at the
end of each time period indicated:
Aggressive Growth.............. $ 71 $ 94 $ 130 $205
Balanced Fund.................. $ 67 $ 84 $ 112 $168
Diversified Income Fund........ $ 68 $ 85 $ 114 $173
Equity Value Fund.............. $ 67 $ 84 $ 112 $168
Growth and Income Fund......... $ 69 $ 88 $ 119 $182
Small Cap Fund................. $ 68 $ 85 $ 115 $173
You would pay the following
expenses on a $1,000 investment in
Class B shares of a Fund, assuming
a 5% annual return and no
redemption:
Aggressive Growth.............. $ 21 $ 64 $ 110 $205
Balanced Fund.................. $ 17 $ 54 $ 92 $168
Diversified Income Fund........ $ 18 $ 55 $ 94 $173
Equity Value Fund.............. $ 17 $ 54 $ 92 $168
Growth and Income Fund......... $ 19 $ 58 $ 99 $182
Small Cap Fund................. $ 18 $ 55 $ 95 $173
</TABLE>
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 reflect expenses at both the Fund and Master Portfolio levels
where applicable, but 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 you pay when you buy or sell Fund
shares. You are subject to a front-end sales charge on purchases of a Fund's
Class A shares (except for shares of the Corporate Stock Fund) and may be
subject to a contingent deferred sales charge on a Fund's Class B shares if you
redeem such shares within a specified period. The Company reserves the right to
impose a charge for wiring redemption proceeds. In certain instances, you may
qualify for a reduction or waiver of
9 PROSPECTUS
<PAGE> 298
the front-end sales charge. There are no exchange fees. See "Investing in the
Funds -- Sales Charges."
ANNUAL FUND OPERATING EXPENSES for the Funds, except as indicated below, are
based on applicable contract amounts and amounts incurred during the most recent
fiscal year. These amounts 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 shares of the Aggressive Growth, Balanced, Equity Value and Small Cap 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 fiscal year. Wells Fargo Bank and Stephens each
have agreed to waive or reimburse all or a portion of their respective fees
charged to, or expenses paid by, the Balanced or Equity Value Funds to ensure
that "Total Fund Operating Expenses" do not exceed, on an annual basis, 1.05% of
average daily net assets for Class A and 1.70% for Class B shares of such Funds
through August 31, 1997. Wells Fargo Bank and Stephens at their sole discretion
may waive or reimburse all or a portion of their respective fees charged to, or
expenses paid by, a Fund or a Master Portfolio. Any waivers or reimbursements
would reduce a Fund's or Master Portfolio's total expenses.
Long-term shareholders of the Funds could pay more in sales charges than the
economic equivalent of the maximum front-end sales charges applicable to mutual
funds sold by members of the National Association of Securities Dealers, Inc.
("NASD"). For more complete descriptions of the various costs and expenses you
can expect to incur as a shareholder in each Fund, 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%. 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.
With regard to the combined fees and expenses of the Aggressive Growth,
Corporate Stock and Small Cap Funds and such Funds' corresponding Master
Portfolios, the Company's Board of Directors has considered whether various
costs and benefits of investing all of such Fund's assets in a corresponding
Master Portfolio rather than directly in a portfolio of securities would be more
or less than if such Fund invested in portfolio securities directly. The
Company's Board of Directors believes that the aggregate per share expenses of a
Fund will not be more than the expenses incurred by such Fund if the Fund
invested directly in the type of securities held by the corresponding Master
Portfolio. The Company's Board of Directors believes that if other investors
invest their assets in the Master Portfolios, certain economic efficiencies may
PROSPECTUS 10
<PAGE> 299
be realized with respect to the Master Portfolios. For example, fixed expenses
that otherwise would have been borne solely by a Fund would be spread across a
larger asset base provided by more than one fund investing in a Master
Portfolio. There can be no assurance that these economic efficiencies will be
achieved. In addition, each Master Portfolio may sell its interests to other
mutual funds or accredited investors. Some of the Funds offer certain classes of
shares not described herein. The expenses and corresponding returns of these
other classes and funds may differ from the expenses and returns of the shares
described herein. Information regarding these and any other investment options
in the Funds or the Master Portfolios may be obtained by calling Stephens at
1-800-643-9691. Additional information regarding the Funds' expenses is included
in this Prospectus under "The Funds and Management" and "Management,
Distribution and Servicing Fees" and in the SAIs under "Management,"
Distributions Plans" and "Servicing Plans."
11 PROSPECTUS
<PAGE> 300
FINANCIAL HIGHLIGHTS
AGGRESSIVE GROWTH FUND
The following information for the Aggressive Growth Fund has been derived from
the Financial Highlights in the Fund's financial statements for the fiscal
period ended September 30, 1996. This information is provided to assist you in
evaluating the historical performance of the Fund. The financial statements were
audited by KPMG Peat Marwick LLP. The financial statements and the report
thereon are incorporated by reference into the SAI. This information should be
read in conjunction with the Fund's 1996 financial statements and the notes
thereto. The SAI is incorporated by reference into this Prospectus.
AGGRESSIVE GROWTH FUND --
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD
ENDED
SEPT. 30,
1996(1)
---------
<S> <C>
Net asset value, beginning of period......................... $17.75
Income from investment operations:
Net investment loss........................................ (0.05)
Net realized and unrealized gain (loss) on investments..... 1.70
Total from investment operations............................. 1.65
Less distributions:
Dividends from net investment income....................... 0.00
Distributions from net realized gain (loss)................ 0.00
Total from distributions..................................... 0.00
Net asset value, end of period............................... $19.40
Total return (not annualized)................................ 9.85%
Ratios/supplemental data:
Net assets, end of period (000)............................ $26,902
Ratios to average net assets (annualized):
Ratio of expenses to average net assets(2)................. 1.23%
Ratio of net investment income (loss) to average net
assets(2)................................................ (0.79)%
Portfolio turnover(3)........................................ 75%
Average commission rate paid(3).............................. $0.0785
Ratio of expenses to average net assets(2)................... 1.23%
Ratio of net investment loss to average net assets prior to
waived fees and
reimbursed(2).............................................. (1.16)%
- -------------------
(1) The Fund commenced operations on March 5, 1996.
(2) Ratio includes income and expenses allocated from the
Master Portfolio.
(3) Represents portfolio activity of the Master Portfolio.
</TABLE>
PROSPECTUS 12
<PAGE> 301
AGGRESSIVE GROWTH FUND --
FOR A CLASS B SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD
ENDED
SEPT. 30,
1996(1)
---------
<S> <C>
Net asset value, beginning of period.............................. $21.90
Income from investment operations:
Net investment income (loss).................................... (0.10)
Net realized and unrealized gain (loss) on investments.......... 2.06
Total from investment operations.................................. 1.96
Less distributions:
Dividends from net investment income............................ 0.00
Distributions from net realized gain............................ 0.00
Total from distributions.......................................... 0.00
Net asset value, end of period.................................... $23.86
Total return (not annualized)..................................... 9.50%
Ratios/supplemental data:
Net assets, end of period (000)................................. $14,544
Ratios to average net assets (annualized):
Ratio of expenses to average net assets(2)...................... 1.91%
Ratio of net investment income (loss) to average net
assets(2)..................................................... (1.45)%
Portfolio turnover(3)............................................. 75%
Average commission rate paid(3)................................... $0.0785
Ratio of expenses to average net assets prior to waived fees and
reimbursed expenses(2).......................................... 2.29%
Ratio of net investment loss to average net assets prior to waived
fees and
reimbursed expenses(2).......................................... (1.83)%
- -------------------
(1) The Fund commenced operations on March 5, 1996.
(2) Ratio includes income and expenses allocated from the Master
Portfolio.
(3) Represents portfolio activity of the Master Portfolio.
</TABLE>
13 PROSPECTUS
<PAGE> 302
BALANCED AND EQUITY VALUE FUNDS
The following information for the Balanced and Equity Value Funds has been
derived from the Financial Highlights in the Funds' financial statements for the
year ended September 30, 1996. This information is provided to assist you in
evaluating the historical performance of each Fund. Except as set forth below,
the Fund's financial statements were audited by KPMG Peat Marwick LLP. The
financial information for the periods prior to October 1, 1995 were each audited
by other auditors. On September 6, 1996, the Investor class shares of the
Balanced and Equity Value Funds of Pacifica Funds Trust were reorganized as the
Class A shares of the Funds. The information presented for periods prior to
September 6, 1996 reflects the performance of the Investor Class shares. The
financial statements and the report thereon for the year ended September 30,
1996 are incorporated by reference into the SAI. This information should be read
in conjunction with the Funds' 1996 financial statements and notes thereto. The
SAI is incorporated by reference into this Prospectus.
PROSPECTUS 14
<PAGE> 303
BALANCED FUND(1)
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, PERIOD ENDED
---------------------------------------------------------------- SEPT. 30,
1996 1995 1994 1993 1992 1991 1990(2)
------- ------- -------- -------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of period.......... $11.84 $11.67 $12.71 $11.18 $10.80 $ 9.50 $10.00
Income from investment operations:
Net investment income......................... 0.36 0.46(3) 0.43(3) 0.44(3) 0.42(3) 0.52 0.14
Net realized and unrealized gain (loss) on
investments................................. 0.89 0.68(3) (0.13)(3) 1.72(3) 0.53(3) 1.40 (0.64)
---- ---- ---- ---- ---- ---- ------
Total from investment operations............ 1.25 1.14 0.30 2.16 0.95 1.92 (0.50)
---- ---- ---- ---- ---- ---- ------
Less distributions:
Dividends from net investment income.......... (0.35) (0.47) (0.46) (0.43) (0.43) (0.62) --
Distributions from net realized gain............ (1.28) (0.50) (0.88) (0.20) (0.14) -- --
---- ---- ---- ---- ---- ---- ------
Total from distributions.................... (1.63) (0.97) (1.34) (0.63) (0.57) (0.62) --
---- ---- ---- ---- ---- ---- ------
Net asset value -- end of period.............. $11.46 $11.84 $11.67 $12.71 $11.18 $10.80 $9.50
---- ---- ---- ---- ---- ---- ------
---- ---- ---- ---- ---- ---- ------
Total return (not annualized)................... 10.51% 10.62% 2.30% 19.83% 9.03% 20.78% (5.00)%
Ratios/supplemental data:
Net assets, end of period (000)............... $32,640 $89,034 $108,290 $104,434 $65,226 $50,038 $33,185
Ratios to average net assets (annualized):
Ratio of expenses to average net assets....... 1.31% 1.03% 1.09% 1.01% 1.02% 0.96% 0.93%
Ratio of net investment income to average net
assets...................................... 2.98% 4.05% 3.55% 3.62% 3.76% 5.88% 5.87%
Portfolio turnover............................ 131% 90% 35% 60% 49% 30% 12%
Average commission rate paid(4)............... $0.0603 -- -- -- -- -- --
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses........... 1.48% 1.05% 1.11% 1.06% 1.10% 1.18% 1.60%
Ratio of net investment income to average net
assets prior to waived fees and reimbursed
expenses...................................... 2.81% 4.03% 3.53% 3.57% 3.68% 5.66% 5.20%
</TABLE>
- ---------------
(1) The Fund operated as a series of Pacifica Funds Trust from its commencement
of operations until it was reorganized as a series of the Company on
September 6, 1996. In connection with the reorganization, existing Investor
shares were converted into Class A shares of the Fund. Prior to April 1,
1996, the Fund was advised by First Interstate Capital Management, Inc.
("FICM"). In connection with the merger of First Interstate Bancorp into
Wells Fargo & Company on April 1, 1996, FICM was renamed Wells Fargo
Investment Management, Inc.
(2) The predecessor fund commenced operations on July 2, 1990.
(3) Per share data are based upon average monthly shares outstanding.
(4) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
15 PROSPECTUS
<PAGE> 304
BALANCED FUND
FOR A CLASS B SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD
ENDED
SEPT. 30,
1996(1)
---------
<S> <C>
Net asset value, beginning of period................................. $10.00
Income from investment operations:
Net investment income.............................................. 0.00
Net realized and unrealized gain (loss) on investments............. 0.24
Total from investment operations................................. 0.24
Less distributions:
Dividends from net investment income............................... 0.00
Distributions from net realized gain............................... 0.00
Total from distributions......................................... 0.00
Net asset value, end of period..................................... $10.24
Total return (not annualized).................................... 2.40%
Ratios/supplemental data:
Net assets, end of period (000).................................... $2
Ratios to average net assets (annualized):
Ratio of expenses to average net assets............................ 0.00%
Ratio of net investment income to average net assets............... 3.09%
Portfolio turnover................................................. 131%
Average commission rate paid(2).................................... $0.0603
Ratio of expenses to average net assets prior to waived fees and
reimbursed expenses.............................................. 0.66%
Ratio of net investment income (loss) to average net assets prior
to waived fees and reimbursed expenses........................... 2.43%
</TABLE>
- ---------------------------------
(1) Class B shares of the Fund commenced operations on September 6, 1996.
(2) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
PROSPECTUS 16
<PAGE> 305
EQUITY VALUE FUND(1)
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED SEPTEMBER 30, ENDED
------------------------------------------------------------------- SEPT. 30,
1996 1995 1994 1993 1992 1991 1990(2)
-------------- -------- -------- -------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of period............ $13.27 $12.36 $13.17 $10.73 $10.45 $ 8.48 $10.00
Income from Investment Operations:
Net investment income........................... 0.20 0.24(3) 0.20(3) 0.21(3) 0.20 0.28 0.08
Net realized and unrealized gain (loss) on
investments).................................. 1.60 1.63(3) 0.74(3) 2.75(3) 0.49(3) 1.98 (1.60)
Total from investment operations.............. 1.80 1.87 0.94 2.96 0.69 2.26 (1.52)
Less Distributions:
Dividends from net investment income............ (0.19) (0.25) (0.21) (0.23) (0.22) (0.29) --
Distributions from net realized gain............ (2.22) (0.71) (1.54) (0.29) (0.19) -- --
Total from distributions...................... (2.41) (0.96) (1.75) (0.52) (0.41) (0.29) --
Net asset value -- end of period................ $12.66 $13.27 $12.36 $13.17 $10.73 $10.45 $ 8.48
Total return (not annualized)................. 14.27% 16.58% 7.49% 28.22% 6.81% 27.05% (15.20)%
Ratios/supplemental data:
Net assets, end of period (000)................. $18,453 $170,406 $168,852 $140,551 $92,915 $68,412 $26,100
Ratios to average net assets (annualized):
Ratio of expenses to average net assets......... 1.18% 0.96% 0.99% 0.98% 1.02% 0.98% 0.91%
Ratio of net investment income to average net
assets........................................ 1.73% 1.97% 1.60% 1.73% 1.86% 2.69% 3.38%
Portfolio turnover rate......................... 91% 75% 41% 82% 78% 36% 21%
Average commission rate paid(4)................. $0.0558 -- -- -- -- -- --
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses............. 1.22% 0.98% 1.01% 0.99% 1.02% 1.11% 1.86%
Ratio of net investment income to average net
assets prior to waived fees and reimbursed
expenses........................................ 1.69% 1.95% 1.58% 1.72% 1.86% 2.56% 2.43%
</TABLE>
- -------------------
<TABLE>
<S> <C>
(1) The Fund operated as a series of Pacifica Funds Trust from its commencement of operations until it was reorganized as a
series of the Company on September 6, 1996. In connection with the reorganization, existing Investor Shares were converted
into Class A shares of the Fund. Prior to April 1, 1996, the Fund was advised by First Interstate Capital Management, Inc.
("FICM"). In connection with the merger of First Interstate Bancorp into Wells Fargo & Company on April 1, 1996, FICM was
renamed Wells Fargo Investment Management, Inc.
(2) The predecessor fund commenced operations on July 2, 1990.
(3) Per share data are based upon average monthly shares outstanding.
(4) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per
share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund
depending on the mix of trades executed in various markets where trading practices and commission rate structures may
differ.
</TABLE>
17 PROSPECTUS
<PAGE> 306
EQUITY VALUE FUND
FOR A CLASS B SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD
ENDED
SEPT. 30,
1996(1)
---------
<S> <C>
Net asset value, beginning of period................................. $10.00
Income from investment operations:
Net investment income (loss)....................................... 0.00
Net realized and unrealized gain (loss) on investments............. 0.34
-----
Total from investment operations................................. 0.34
Less distributions:
Dividends from net investment income............................... 0.00
Distributions from net realized gain............................... 0.00
Total from distributions......................................... 0.00
-----
Net asset value, end of period..................................... $10.34
-----
-----
Total return (not annualized).................................... 3.40%
Ratios/supplemental data:
Net assets, end of period (000).................................... $0
Ratios to average net assets (annualized):
Ratio of expenses to average net assets............................ 0.00%
Ratio of net investment income (loss) to average net assets........ 1.83%
Portfolio turnover................................................. 91%
Average commission rate paid(2).................................... $0.0558
Ratio of expenses to average net assets prior to waived fees and
reimbursed expenses.............................................. 0.00%
Ratio of net investment income to average net assets prior to
waived fees and reimbursed expenses.............................. 1.83%
</TABLE>
- -------------------
(1) Class B shares of the Fund commenced operations on September 6, 1996.
(2) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
PROSPECTUS 18
<PAGE> 307
CORPORATE STOCK, DIVERSIFIED INCOME, GROWTH AND INCOME AND SMALL CAP FUNDS
The following information for the Corporate Stock, Diversified Income, Growth
and Income and Small Cap Funds has been derived from the Financial Highlights in
the Funds' financial statements for the fiscal period ended September 30, 1996.
This information is provided to assist you in evaluating the historical
performance of each Fund. Except for periods ending prior to January 1, 1992 for
the Corporate Stock and Growth and Income Funds, which were audited by other
auditors, the financial information for the Funds was audited by KPMG Peat
Marwick LLP. The financial statements and the report thereon for the period
ended September 30, 1996 are incorporated by reference into the SAI. This
information should be read in conjunction with the Funds' 1996 financial
statements and notes thereto. The SAI is incorporated by reference into this
Prospectus.
CORPORATE STOCK FUND
FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
SEPT. 30 DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996(1) 1995 1994 1993 1992 1991(2)
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $41.45 $31.42 $33.00 $31.40 $30.38 $23.60
Income from investment
operations:
Net investment income (loss)... 0.42 0.59 0.63 0.59 0.62 0.62
Net realized and unrealized
gain (loss) on investments... 4.79 10.65 (0.50) 2.19 1.35 6.16
----- ----- ----- ----- ----- -----
Total from investment
operations..................... 5.21 11.24 0.13 2.78 1.97 6.78
Less distributions:
Dividends from net investment
income....................... (0.42) (0.59) (0.63) (0.59) (0.62) 0.00
Distributions from net realized
gain......................... 0.00 (0.62) (1.08) (0.59) (0.33) 0.00
----- ----- ----- ----- ----- -----
Total from distributions........ (0.42) (1.21) (1.71) (1.18) (0.95) 0.00
Net asset value, end of
period......................... $46.24 $41.45 $31.42 $33.00 $31.40 $30.38
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
Total return (not annualized)... 12.60% 35.99% 0.42% 8.91% 6.59% 28.72%
Ratios/supplemental data:
Net assets, end of period
(000)........................ $370,439 $327,208 $236,265 $258,327 $230,457 $204,926
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets................... 1.01% (3) 0.96% 0.97% 0.97% 0.93% 0.97%
Ratio of net investment income
(loss) to average net
assets....................... 1.28% (3) 1.59% 1.92% 1.81% 2.05% 2.30%
Portfolio turnover.............. 1% (4) 6% 7% 5% 4% 4%
Average commission rate
paid(5)........................ $0.0248 (4) -- -- -- -- --
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses............ 1.08% (3) 1.00% 1.00% 0.99% 1.00% N/A
Ratio of net investment income
to average net assets prior to
waived fees and reimbursed
expenses....................... 1.21% (3) 1.55% 1.89% 1.79% 1.98% N/A
</TABLE>
- -------------------
(1) The fund changed its fiscal year end from December 31 to September 30.
(2) The financial information for the fiscal periods prior to, and including,
1991 is based on the financial information for the Corporate Stock Fund of
the Wells Fargo Investment Trust for Retirement Programs which was
reorganized into the Corporate Stock Fund on January 1, 1992.
(3) Ratio includes income and expenses allocated from the Master Portfolio.
(4) Represents portfolio activity for the Fund's stand alone period only. The
portfolio turnover and average commission rates for the Corporate Stock
Master Portfolio for the period from April 28, 1996 to September 30, 1996
were 3% and $0.0265, respectively.
(5) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
19 PROSPECTUS
<PAGE> 308
CORPORATE STOCK FUND
FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1990(1) 1989(1) 1988(1) 1987(1) 1986(1,2)
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period... $24.57 $18.93 $16.44 $15.93 $13.65
Income from investment
operations:
Net investment income
(loss).............. 0.64 0.60 0.57 0.45 0.43
Net realized and
unrealized gain/
(loss) on
investments......... (1.61) 5.04 1.92 0.06 1.85
----- ----- ----- ----- -----
Total from investment
operations............ (0.97) 5.64 2.49 0.51 2.28
Less distributions:
Dividends from net
investment income... 0.00 0.00 0.00 0.00 0.00
Distributions from net
realized gain....... 0.00 0.00 0.00 0.00 0.00
----- ----- ----- ----- -----
Total from
distributions......... 0.00 0.00 0.00 0.00 0.00
Net asset value, end of
period................ $23.60 $24.57 $18.93 $16.44 $15.93
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Total return (not
annualized)........... (3.95)% 29.79% 15.15% 3.20% 16.70%
Ratios/supplemental
data:
Net assets, end of
period (000)........ $151,742 $153,126 $115,119 $119,155 $33,667
Ratios to average net
assets (annualized):
Ratio of expenses to
average net
assets.............. 0.97% 1.04% 1.02% 1.05% 1.02%
Ratio of net
investment income
loss to average net
assets.............. 2.71% 2.69% 3.17% 2.43% 2.75%
Portfolio turnover...... 6% 6% 3% 12% 15%
Ratio of expenses to
average net assets
prior to waived fees
and reimbursed
expenses.............. N/A N/A N/A N/A N/A
Ratio of net investment
income to average net
assets prior to waived
fees and reimbursed
expenses.............. N/A N/A N/A N/A N/A
</TABLE>
- -------------------
1 The financial information for the fiscal periods prior to, and including, 1991
is based on the financial information for the Corporate Stock Fund of the
Wells Fargo Investment Trust for Retirement Programs which commenced
operations on January 25, 1984 and was reorganized into the Corporate Stock
Fund on January 1, 1992.
PROSPECTUS 20
<PAGE> 309
DIVERSIFIED INCOME FUND
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
SEPT. 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996(1) 1995 1994 1993 1992(2)
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 13.34 $10.76 $11.08 $10.29 $10.00
Income from investment
operations:
Net investment income
(loss).................... 0.25 0.35 0.33 0.30 0.02
Net realized and unrealized
gain (loss) on
investments............... 1.39 2.86 (0.32) 0.96 0.29
-------- -------- -------- ------- -------
Total from investment
operations.............. 1.64 3.21 0.01 1.26 0.31
Less distributions:
Dividends from net
investment income......... (0.25) (0.35) (0.33) (0.30) (0.02)
Distributions from net
realized gain (loss)...... 0.00 (0.28) 0.00 (0.17) 0.00
-------- -------- -------- ------- -------
Total from
distributions........... (0.25) (0.63) (0.33) (0.47) (0.02)
Net asset value, end of
period.................... $ 14.73 $13.34 $10.76 $11.08 $10.29
======== ======== ======== ======= =======
Total return (not
annualized)............. 12.35% 30.17% 0.08% 12.33% 3.10%
Ratios/supplemental data:
Net assets, end of period
(000)..................... $134,648 $79,977 $45,178 $26,704 $1,379
Ratios to average net assets
(annualized):
Ratio of expenses to average
net asset................. 1.10% 1.10% 1.06% 0.46% 0.00%
Ratio of net investment
income (loss) to average
net assets................ 2.57% 3.02% 3.16% 3.51% 4.09%
Portfolio turnover.......... 43% 70% 62% 46% 1%
Average commission rate
paid(3)................... $ 0.0793% -- -- -- --
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses.................. 1.26% 1.31% 1.34% 1.66% 3.49%
Ratio of net investment
income to average not
assets prior to waived
fees and reimbursed
expenses.................. 2.41% 2.81% 2.88% 2.31% 0.60%
</TABLE>
- ---------------------
(1) The Fund changed its fiscal year end from December 31 to September 30.
(2) The Fund commenced operations on November 18, 1992.
(3) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
21 PROSPECTUS
<PAGE> 310
DIVERSIFIED INCOME FUND
FOR A CLASS B SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD YEAR
ENDED ENDED
SEPT. 30, DEC. 31,
1996(1) 1995
---------- --------
<S> <C> <C>
Net asset value, beginning of period....................... $12.49 $10.00
Income from investment operations:
Net investment income (loss)............................. 0.17 0.20
Net realized and unrealized gain (loss) on investments... 1.30 2.75
Total from investment operations....................... 1.47 2.95
Less distributions:
Dividends from net investment income..................... (0.17) (0.20)
Distributions from net realized gain (loss).............. (0.00) (0.26)
Total from distributions............................... 0.17 (0.46)
Net asset value, end of period........................... $13.79 $12.49
Total return (not annualized).......................... 11.76% 29.64%
Ratios/supplemental data:
Net assets, end of period (000).......................... $17,045 $5,339
Ratios to average net assets (annualized):
Ratio of expenses to average net assets.................. 1.74% 1.73%
Ratio of net investment income (loss) to average net
assets................................................. 2.01% 2.40%
Portfolio turnover....................................... 43% 70%
Average commission rate paid(2).......................... $0.0793 --
Ratio of expenses to average net assets prior to waived
fees and reimbursed
expenses............................................... 2.08% 2.57%
Ratio of net investment income to average net assets
prior to waived fees and reimbursed expenses........... 1.67% 1.57%
</TABLE>
- ---------------------------------
(1) The Fund changed its fiscal year end from December 31 to September 30.
(2) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
PROSPECTUS 22
<PAGE> 311
GROWTH AND INCOME FUND
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
SEPT. 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996(1) 1995 1994 1993 1992 1991(2) 1990(3)
--------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................. $17.26 $14.10 $14.75 $13.88 $12.84 $10.29 $10.00
Income from investment operations:
Net investment income (loss)........................ 0.07 0.19 0.22 0.23 0.27 0.41 0.26
Net realized and unrealized gain (loss) on
investments....................................... 2.00 3.87 (0.27) 0.93 1.44 2.14 0.03
Total from investment operations.................. 2.07 4.06 (0.05) 1.16 1.71 2.55 0.29
Less Distributions:
Dividends from net investment income................ (0.07) (0.19) (0.22) (0.23) (0.27) 0.00 0.00
Distributions from net realized gain................ (1.35) (0.71) (0.38) (0.06) (0.40) 0.00 0.00
Total distributions............................... (1.42) (0.90) (0.60) (0.29) (0.67) 0.00 0.00
Net asset value, end of period...................... $17.91 $17.26 $14.10 $14.75 $13.88 $12.84 $10.29
Total return (not annualized)..................... 12.45% 28.90% (0.29)% 8.44% 13.45% 24.77% 2.90%
Ratios/supplemental data:
Net assets, end of period (000)..................... $254,498 $178,488 $113,525 $112,236 $44,883 $10,323 $430
Ratios to average net assets (annualized):
Ratio of expenses to average net assets............. 1.18% 1.18% 1.11% 0.93% 0.42% 0.05% 0.00%
Ratio of net investment income to average net
assets............................................ 0.56% 1.23% 1.51% 1.72% 2.31% 3.50% 2.51%
Portfolio turnover.................................. 83% 100% 71% 55% 80% 13% 0%
Average commission rate paid(4)..................... $0.0702 -- -- -- -- -- --
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses............... 1.19% 1.21% 1.15% 1.11% 1.10% 1.16% N/A
Ratio of net investment income to average net assets
prior to waived fees and reimbursed expenses...... 0.55% 1.20% 1.47% 1.54% 1.63% 2.39% N/A
</TABLE>
- -------------------
<TABLE>
<S> <C>
(1) The Fund changed its fiscal year end from December 31 to September 30.
(2) The financial information for the fiscal periods prior to, and including, 1991 is based on the financial information for
the Select Stock Fund of the Wells Fargo Investment Trust for Retirement Programs which was reorganized into the Growth
Stock Fund on January 2, 1992.
(3) The Fund commenced operations on August 2, 1990.
(4) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per
share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund
depending on the mix of trades executed in various markets where trading practices and commission rate structures may
differ.
</TABLE>
23 PROSPECTUS
<PAGE> 312
GROWTH AND INCOME FUND
FOR A CLASS B SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD
ENDED YEAR ENDED
SEPT. 30, DEC. 31,
1996(1) 1995
--------- ----------
<S> <C> <C>
Net asset value, beginning of period..................... $12.29 $10.00
Income from investment operations:
Net investment income (loss)........................... (0.01) 0.05
Net realized and unrealized gain (loss) on
investments.......................................... 1.42 2.79
----- ------
Total from investment operations......................... 1.41 2.84
Less Distributions:
Dividends from net investment income................... 0.00 (0.05)
Distributions from net realized gain (loss)............ (0.96) (0.50)
----- ------
Total from distributions................................. (0.96) (0.55)
Net asset value, end of period........................... $12.74 $12.29
----- ------
----- ------
Total return (not annualized)............................ 11.89% 28.47%
Ratios/supplemental data:
Net assets, end of period (000)........................ $12,832 $4,682
Ratios to average net assets (annualized):
Ratio of expenses to average net assets................ 1.93% 1.87%
Ratio of net investment income to average net assets... (0.12)% 0.43%
Portfolio turnover..................................... 83% 100%
Average commission rate paid(2)........................ $0.0702 --
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses......................... 2.03% 2.21%
Ratio of net investment income to average net assets
prior to waived fees and reimbursed expenses......... (0.22)% 0.09%
</TABLE>
- -------------------
(1) The Fund changed its fiscal year end from December 31 to September 30.
(2) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
PROSPECTUS 24
<PAGE> 313
SMALL CAP FUND
FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
CLASS A CLASS B
--------- ---------
PERIOD PERIOD
ENDED ENDED
SEPT. 30, SEPT. 30,
1996(1) 1996(1)
--------- ---------
<S> <C> <C>
Net asset value, beginning of period........................ $22.01 $22.02
Income from investment operations:
Net investment income (loss).............................. 0.00 0.00
Net realized and unrealized gain (loss) on investments.... .44 0.44
----- -----
Total from investment operations............................ 0.44 0.44
Less Distributions:
Dividends from net investment income...................... 0.00 0.00
Distributions from net realized gain...................... 0.00 0.00
----- -----
Total from distributions.................................... 0.00 0.00
----- -----
Net asset value, end of period.............................. $22.45 $22.46
----- -----
----- -----
Total return (not annualized)............................... 2.00% 2.00%
Ratios/supplemental data:
Net assets, end of period (000)........................... $96 $0
Ratio to average net assets (annualized):
Ratio of expenses to average net assets................... 1.03%(2) 0.00%
Ratio of net investment income (loss) to average net
assets.................................................. (0.59)%(2) 0.00%
Portfolio turnover........................................ N/A(3) N/A(3)
Average commission rate paid(4)........................... N/A(3) N/A(3)
Ratio of expenses to average net assets prior to waived
fees and reimbursed
expenses................................................ 38.54%(2) 0.00%
Ratio of net investment income to average net assets prior
to waived fees and reimbursed expenses.................. (38.10)%(2) 0.00%
</TABLE>
- -------------------
(1) The Fund commenced operations on September 16, 1996.
(2) Ratio includes income and expenses allocated from the Master Portfolio.
(3) The portfolio turnover and average commission rates for the Small Cap Master
Portfolio during the period were 10% and $0.0800, respectively.
(4) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
25 PROSPECTUS
<PAGE> 314
HOW THE FUNDS WORK
INVESTMENT OBJECTIVES AND POLICIES
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 by investing all of its assets in the Capital Appreciation
Master Portfolio, which has the same investment objective as the Fund. The
Master Portfolio seeks to achieve this objective through the active management
of a broadly-diversified portfolio of equity securities of companies expected to
experience strong growth in revenues, earnings and assets. The Fund and Master
Portfolio are designed to provide above-average capital growth for investors
willing to assume above-average risk. See "Management -- Master/Feeder
Structure" in the SAI for additional information regarding the Fund's investment
in the Master Portfolio.
The Master Portfolio invests primarily in common stocks that Wells Fargo Bank,
as investment adviser, believes have better-than-average prospects for
appreciation. Under normal market conditions, the Master Portfolio will hold at
least 20 common stock issues spread across multiple industry groups, with the
majority of these holdings consisting of established growth companies,
turnaround or acquisition candidates, or attractive larger capitalization
companies. The Master Portfolio 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 Master Portfolio 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 Master Portfolio 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 Master Portfolio's assets will be invested in these highly aggressive
issues at one time.
Though the Master Portfolio will hold a number of larger capitalization
stocks, under normal market conditions more than 50% of the Master Portfolio'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 December 1996, the capitalization range for
the S&P Small Cap 600 was from $40 million to $2.6 billion. The capitalization
range for the S&P Small Cap 600 Index is expected to change frequently. The
Master Portfolio may invest in companies with a market
PROSPECTUS 26
<PAGE> 315
capitalization under $40 million if the investment adviser to the Master
Portfolio believes such investments to be in the best interest of the Master
Portfolio.
Under ordinary market conditions, at least 65% of the value of the total
assets of the Master Portfolio will be invested in common stocks and in
securities which are convertible into common stocks that Wells Fargo Bank, as
investment adviser, believes have better-than-average prospects for
appreciation. The Master Portfolio also may invest in convertible debt
securities. At most, 5% of the Master Portfolio's net assets will be invested in
convertible debt securities that are 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 Master Portfolio's basic investment strategy
inconsistent with the best interests of the Master Portfolio's investors, the
Fund may use temporary alternative strategies, primarily designed to reduce
fluctuations in the value of the Master Portfolio's assets. In implementing
these temporary "defensive" strategies, the Master Portfolio may invest in
preferred stock or investment-grade debt securities that are convertible into
common stock and in money market instruments. Generally, these temporary
"defensive" investments will not exceed 30% of the Master Portfolio's total
assets.
A more complete description of the Master Portfolio's investments and
investment activities is contained in "Prospectus Appendix -- Additional
Investment Policies" and in the SAI.
CORPORATE STOCK FUND
The Corporate Stock Fund seeks to approximate to the extent practicable the
total rate of return of substantially all the common stocks comprising the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index"). The
Corporate Stock Fund seeks to achieve its investment objective by investing all
of its assets in the Corporate Stock Master Portfolio, which has the same
investment objective as the Fund. Because the Master Portfolio invests in a
number of different companies, its investments are broadly "diversified" thereby
tending to reduce the effect of the performance of a single investment on the
performance of the overall portfolio. Prior to April 29, 1996 the Fund invested
directly in a portfolio of securities and not in the Corporate Stock Master
Portfolio. See "Management -- Master/Feeder Structure" in the SAI for additional
information regarding the Fund's investment in the Master Portfolio.
The Master Portfolio seeks to create, to the extent feasible, a portfolio that
substantially replicates the total return of the securities comprising the S&P
500 Index. Precise replication of the performance of the securities comprising
the S&P 500 Index is not
27 PROSPECTUS
<PAGE> 316
feasible, but the Master Portfolio seeks a high correlation of at least 95%
between the price and total return performance of securities comprising the S&P
Index and the investment results of the Master Portfolio before expenses, in
both rising and falling markets. A correlation of 100% would indicate a perfect
correlation, which would be achieved when the net asset value of the Master
Portfolio, including the value of its dividend and capital-gain distributions,
increases or decreases in exact proportion to changes in the S&P 500 Index. The
Master Portfolio's ability to track the S&P 500 Index, however, may be affected
by, among other things, transaction costs and the timing of interestholder
purchases and redemptions. The Master Portfolio attempts to achieve a 95%
correlation by using a statistical process known as "sampling" to select and
hold in its portfolio a representative sample of securities in the S&P 500
Index. BGFA regularly monitors the correlation of the Master Portfolio's
investments to the composition and performance of the S&P 500 Index and seeks to
adjust the Master Portfolio's investments to the extent necessary to achieve a
95% correlation between the investment results of the Master Portfolio and the
performance of the S&P 500 Index.
The Master Portfolio may invest some of its assets in high-quality money
market instruments, which include U.S. Government obligations, obligations of
domestic and foreign banks, repurchase agreements, commercial paper (including
variable amount master demand notes) and short-term corporate debt obligations.
Such investments are made on an ongoing basis to provide liquidity and, to a
greater extent on a temporary basis, when there is an unexpected or abnormal
level of investor purchases or redemptions of Master Portfolio shares or because
of unusual market conditions which limit the Master Portfolio's ability to
invest effectively its assets in accordance with its investment strategies. The
Master Portfolio may invest up to 25% of its assets in American Depositary
Receipts and similar instruments. In addition, the Master Portfolio may use
stock index futures and options thereon as a substitute for a comparable market
position in the underlying securities.
A more complete description of the Master Portfolio's investments and
investment activities is contained in the "Prospectus Appendix -- Additional
Investment Policies" and in the SAI.
EQUITY VALUE FUND AND BALANCED FUND
The EQUITY VALUE FUND'S investment objective is to seek to provide investors
with long-term capital appreciation. The Fund pursues this objective by
investing primarily in equity securities, including common stocks and may invest
in debt instruments that are convertible into common stocks of both domestic and
foreign companies. The Fund may invest in large, well-established companies and
smaller companies with market capitalization exceeding $50 million. The Fund may
invest up to 25% of its assets in American Depositary Receipts and similar
instruments. Income generation is a secondary consideration. The Fund may
purchase dividend paying stocks of particular issuers
PROSPECTUS 28
<PAGE> 317
when the issuer's dividend record may, in the investment adviser's opinion, have
a favorable influence on the market value of the securities. The Fund also may
purchase convertible securities with the same characteristics as common stocks.
As with all mutual funds, there can be no assurance that the Fund, which is a
diversified portfolio, will achieve its investment objective.
The BALANCED FUND'S investment objective is to seek to provide investors with
both capital appreciation and current income resulting in a high total
investment return consistent with prudent investment risk and a balanced
investment approach. The Fund pursues this objective by investing in equity
securities and debt instruments through a balanced and diversified program. The
Fund normally invests between 30% and 70% of its assets in common stocks that
are considered by the investment adviser to have better than average prospects
for growth of capital and income. The Fund invests primarily in domestic equity
securities but may invest up to 25% of its assets in American Depositary
Receipts and similar instruments. The remaining balance of the Fund's assets is
invested in senior fixed-income securities, including corporate debt securities,
commercial paper and mortgage-backed and asset-backed securities, based on the
relative stability of income and principal of such securities. Debt instruments
in which the Fund may invest are rated at least investment grade or deemed
comparable.
In selecting senior fixed-income securities for the Balanced Fund, the adviser
seeks to select those debt instruments that appear best calculated to achieve
the Fund's investment objective within the credit and risk tolerances
established for the Fund. In accordance with those policies, the Balanced Fund
may purchase commercial paper rated "A-2" or better by S&P or "Prime-2" or
better by Moody's, corporate debt securities rated "BBB" or better by S&P or
"Baa" or better by Moody's (which contain some speculative characteristics) and
mortgage-backed and asset-backed securities rated "AA" or better by S&P or "Aa"
or better by Moody's (or the foregoing types of debt securities given equivalent
ratings by at least two other nationally recognized statistical rating
organizations ("NRSROs"), or, if any such securities are not rated, are of
comparable quality in the adviser's opinion).
The Balanced Fund may also 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.
In selecting equity investments (which may include common stocks of both
domestic and foreign companies) for the Equity Value and Balanced Funds, the
adviser selects companies for investment using both quantitative and qualitative
analysis to identify those issuers that, in the adviser's opinion, exhibit
below-average valuation multiples, above-average financial strength, a strong
position in their industry and a history of steady profit growth.
29 PROSPECTUS
<PAGE> 318
The adviser also may select other equity securities in addition to common
stocks for investment by the Equity Value and Balanced Funds. Such other equity
securities are preferred stocks, high grade securities convertible into common
stocks, and warrants. Neither the Equity Value nor Balanced Fund will invest
more than 5% of its net assets in warrants, no more than 2% of which will be
invested in warrants which are not listed on the New York or American Stock
Exchanges. For temporary defensive purposes, however, both the Equity Value and
Balanced Funds may invest in U.S. Government obligations (as defined below),
certificates of deposit, bankers' acceptances, commercial paper, repurchase
agreements (maturing in seven days or less) and debt obligations of corporations
(corporate bonds, debentures, notes and other similar corporate debt
instruments) that are rated investment grade or better by S&P or Moody's.
The Equity Value and Balanced Funds also may hold short-term U.S. Government
obligations, money market instruments, repurchase agreements, securities issued
by other investment companies within the limits prescribed by the Investment
Company Act of 1940, as amended (the "1940 Act"), and cash, pending investment,
to meet anticipated redemption requests or if the investment adviser deems
suitable investments for a Fund to be unavailable. Such investments may be made
in such proportions as, in the opinion of the investment adviser, existing
circumstances may warrant, and may include obligations of foreign banks and
foreign branches of U.S. banks.
A more complete description of the Funds' investments and investment
activities is contained in the "Prospectus Appendix -- Additional Investment
Policies" and in the SAI.
DIVERSIFIED INCOME FUND
The Diversified Income Fund's investment objective is to seek current income
and a growing stream of income over time, consistent with preservation of
capital. The Fund pursues this objective by investing primarily in
income-producing debt instruments and equity securities, including common
stocks, and preferred stocks and debt instruments that are convertible into
common stocks. The Fund invests, under normal market conditions, substantially
all of its total assets in income-producing securities, including both debt
instruments and equity securities, and, under normal market conditions, at least
50% of its total assets in equity securities.
The Diversified Income Fund invests in common stocks of issuers that, in the
opinion of Wells Fargo Bank, as the Fund's investment adviser, exhibit a strong
earnings growth trend and are believed by Wells Fargo Bank to have above-average
prospects for future earnings growth. The Fund's common stocks are diversified
among industries and companies. Emphasis is placed on common stocks that are
trading at low price-to-earnings ratios, either relative to the overall market
or to the security's historic price-to-earnings relationship, and in common
stocks of issuers that have historically paid above-average dividends.
PROSPECTUS 30
<PAGE> 319
Under normal market conditions, at least 90% of the Diversified Income Fund's
equity securities, including, for this purpose, the convertible securities
described below, are issued by large companies. Some investments also may be
made in equity securities of medium- and smaller-size companies which may have
the potential to generate high levels of future revenue and earnings growth and
where the investment opportunity may not be fully reflected in the price of the
securities but which may involve greater risks than investments in larger
companies. The Fund may invest up to 25% of its assets in American Depositary
Receipts and similar instruments securities.
The debt instruments held by the Diversified Income Fund may include
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities (including government-sponsored enterprises) ("U.S. Government
obligations") and a broad range of other debt instruments, as described in this
Prospectus or in the SAI, such as bonds and other debt securities of domestic
companies, U.S. dollar-denominated debt obligations of foreign issuers,
including foreign corporations and foreign governments, and various asset-backed
securities. Most of the debt instruments acquired by the Fund are issued by
companies or governmental entities located within the United States. All of the
nonconvertible debt instruments acquired by the Fund are rated within the four
highest rating categories by one or more NRSROs, such as Moody's or S&P, or are
unrated instruments determined by Wells Fargo Bank to be of comparable quality.
Up to 20% of the assets of the Fund that are invested in debt instruments may be
rated, at the time of purchase, in the lowest of these four rating categories
(i.e., rated "BBB" by S&P or "Baa" by Moody's).
The Diversified Income Fund may temporarily hold assets in cash or make
short-term investments to the extent appropriate to maintain adequate liquidity
for redemption requests or other cash management needs, or for temporary
defensive purposes. The short-term investments that the Fund may purchase for
liquidity purposes include U.S. Treasury bills, shares of other mutual funds and
repurchase agreements (as described below).
A more complete description of the Fund's investments and investment
activities is contained in "Prospectus Appendix -- Additional Investment
Policies" and in the SAI.
GROWTH AND INCOME FUND
The Growth and Income Fund seeks to earn current income and achieve long-term
capital appreciation by investing primarily in common stocks, and preferred
stocks and debt securities that are convertible into common stocks. There can be
no assurance that the Fund, which is a diversified portfolio, will achieve its
investment objective. Under normal market conditions, the Fund will invest at
least 65% of its total assets in common stocks and securities which are
convertible into common stocks and at least 65% of its total assets in
income-producing securities. Up to 25% of the Fund's assets may be invested in
American Depositary Receipts and similar instruments.
31 PROSPECTUS
<PAGE> 320
The Growth and Income Fund invests in common stocks of issuers that, in the
opinion of Wells Fargo Bank, as the Fund's investment adviser, exhibit a strong
earnings growth trend and that are believed by Wells Fargo Bank to have
above-average prospects for future earnings growth. The Fund maintains a
portfolio of common stocks diversified among industries and companies. The Fund
may invest in common stocks of large companies which Wells Fargo Bank believes
offer the potential for long-term earnings growth or above-average dividend
yield. Emphasis may be placed on common stocks which are trading at low
price-to-earnings ratios, either relative to the overall market or to the
security's historic price-to-earnings relationship, and on common stocks of
issuers that have historically paid above-average dividends. Some investments
also may be made in common stocks of medium- and smaller-size companies which
may have the potential to generate high levels of future revenue and earnings
growth and where the investment opportunity may not be fully reflected in the
price of the securities but which may involve greater risks than investments in
larger companies. The Fund may also invest in equity securities of companies in
emerging or less developed markets.
The Growth and Income Fund intends to invest less than 50% of its assets in
the securities of medium- and smaller-size companies and the remainder in
securities of larger-size companies. However, the actual percentages may vary
according to changes in market conditions and the judgment of the adviser of how
best to achieve the Fund's investment objective.
The Growth and Income Fund may temporarily hold assets in cash or make
short-term investments to the extent appropriate to maintain adequate liquidity
for redemption requests or other cash management needs, or for temporary
defensive purposes. The short-term investments that the Fund may purchase for
liquidity purposes include U.S. Treasury bills, shares of other mutual funds and
repurchase agreements (as described below).
A more complete description of the Fund's investments and investment
activities is contained in "Prospectus Appendix -- Additional Investment
Policies" and in the SAI.
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 Small Cap Fund seeks to achieve its investment objective by investing
all its assets in the Small Cap Master Portfolio, which has the same investment
objective as the Fund. The Fund and Master Portfolio seek to provide
above-average capital growth for investors willing to assume above-average risk.
See "Management -- Master/Feeder Structure" in the SAI for additional
information regarding the Fund's investment in the Master Portfolio.
PROSPECTUS 32
<PAGE> 321
The Master Portfolio seeks to achieve its investment objective through the
active management of a broadly diversified portfolio of growth-oriented common
stocks. Under normal market conditions, the Master Portfolio 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 Master Portfolio
will sell the common stock of any company in its investment portfolio after such
company's market capitalization exceeds $2 billion. The Master Portfolio 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 Master Portfolio 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 Master Portfolio 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
Master Portfolio's assets will be invested in these highly aggressive issues at
one time. The Master Portfolio also may invest in securities of foreign
governmental or private issuers or in equity securities of companies in emerging
or less developed markets. The Master Portfolio may invest up to 25% of its
assets in American Depositary Receipts and similar instruments. The equity
securities in the Master Portfolio'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 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 Master Portfolio's net
assets will be invested in convertible debt securities that are not either rated
in the four highest rating categories by one or more 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.
33 PROSPECTUS
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From time to time Wells Fargo Bank may determine that conditions in the
securities markets make pursuing the Small Cap Master Portfolio's basic
investment strategy inconsistent with the best interests of the Master
Portfolio's investors. At such times, Wells Fargo Bank may use temporary
alternative strategies, primarily designed to reduce fluctuations in the value
of the Master-Portfolio's assets. In implementing these temporary "defensive"
strategies, the Master Portfolio may invest in preferred stock or
investment-grade debt securities and in money market securities. It is expected
that these temporary "defensive" investments will not exceed 35% of the Master
Portfolio's total assets.
The Small Cap Master Portfolio pursues an active trading investment strategy,
and the length of time the Master Portfolio has held a particular security is
not generally a consideration in investment decisions. Accordingly, the Master
Portfolio's portfolio turnover rate may be higher than that of other funds that
do not pursue an active trading investment strategy. Portfolio turnover
generally involves some expense to the Master Portfolio, including brokerage
commissions or dealer mark-ups and other transactions costs on the sale of
securities and the reinvestment in other securities. Portfolio turnover also can
generate capital gains tax consequences. These expenses and capital gain tax
consequences will be passed on to the Fund.
A more complete description of the Fund's investments and investment
activities is contained in "Prospectus Appendix -- Additional Investment
Policies" in the SAI.
The Master Portfolios
Whenever the Aggressive Growth, Corporate Stock or Small Cap Fund, as an
interestholder of its corresponding 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. 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 to find a substitute investment company in which to invest or
equivalent management services could adversely affect shareholders' investments
in the Fund.
The Small Cap Master Portfolio 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
PROSPECTUS 34
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prior to the commencement of the Fund's operations, the assets of the Collective
Investment Fund were purchased by the Master Portfolio and the Collective
Investment Trust redeemed all of its outstanding interests and ceased operating
as a trust. The Master Portfolio manages its investments in a manner identical
in all material respects to the operation of the Collective Investment Fund.
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.
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
35 PROSPECTUS
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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.
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.
PROSPECTUS 36
<PAGE> 325
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 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 Capital Appreciation and Small Cap Master Portfolios pursue an active
trading investment strategy, and the length of time a Master Portfolio has held
a particular security is not generally a consideration in investment decisions.
Accordingly, the portfolio turnover rate for such Master Portfolios 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 Master
Portfolio, including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gains tax
consequences. These expenses and capital gain consequences will be passed on to
the Funds.
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
37 PROSPECTUS
<PAGE> 326
for Class A shares, assumes that you have paid the maximum sales charge and, as
calculated for Class B shares, assumes that you have paid the maximum applicable
contingent deferred sales charge on your hypothetical investment. Cumulative
total return is calculated similarly except that the return figure is aggregated
over the relevant period instead of annualized.
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 on Class A shares is
calculated assuming you have paid the maximum front-end sales charge and, on
Class B shares assuming you have paid the maximum applicable contingent deferred
sales charge. 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.
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 seven 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 eighteen 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 at NAV. Each class of shares
represents an equal, proportionate interest in a Fund with other shares of the
same class. Shareholders of each class bear their pro rata portion of a Fund's
operating expenses except for certain class-specific expenses that are allocated
to a particular class and, accordingly, may affect performance. Please contact
Stagecoach Shareholder
PROSPECTUS 38
<PAGE> 327
Services at 1-800-222-8222 if you would like additional information about
investment options in the Stagecoach Family of Funds.
The Company's Board of Directors supervises the 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). 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
Wells Fargo Bank is the investment adviser to the Funds and Master Portfolios.
In addition, Wells Fargo Bank serves as the Funds' 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
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. 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 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 acquisition by Wells Fargo & Company of First Interstate Bancorp
on April 1, 1996, Wells Fargo Investment Management, Inc. ("WFIM") (formerly,
First Interstate Capital Management, Inc.) served as investment adviser to the
predecessor funds of the Balanced and Equity Value Funds. 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 March 18, 1994, such predecessor funds' investment adviser was
San Diego Financial Capital Management, Inc. (predecessor to First Interstate
Capital Management, Inc.) which was acquired by First Interstate Bancorp through
its merger with San Diego Financial Corporation.
BGFA, located at 45 Fremont Street, San Francisco, California 94105, serves as
sub-adviser to the Corporate Stock Master Portfolio. BGFA is a wholly owned
subsidiary of BGI and an indirect subsidiary of Barclays Bank PLC. As of October
31, 1996, BGFA and
39 PROSPECTUS
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BGI managed or provided investment advice for assets aggregating in excess of
$336 billion.
PORTFOLIO MANAGERS
Mr. Brian Mulligan is responsible, as co-manager, for the day-to-day
management of the portfolio of the Growth and Income Fund. Mr. Mulligan has been
co-manager since October 1, 1995. Mr. Mulligan joined Wells Fargo Bank in 1986
through its acquisition of Crocker National Bank, where he had been a portfolio
manager. He is a Vice-President and Manager of the San Francisco Investment
Office, where he is primarily responsible for personal accounts including
individuals, charitable foundations and IRAs. He also covers, from a research
standpoint, the telecommunications and electric utility industries. He graduated
from Skidmore College with a B.S. degree in business management. He is a
chartered financial analyst and serves as a member of the staff of graders. In
addition, Mr. Mulligan is a former member of the Board of Governors for the Los
Angeles Society of Financial Analysts and a present member of the San Francisco
Security Analysts Society.
Ms. Kelli Hill, as co-manager, has been responsible for the day-to-day
management of the portfolio of the Growth and Income Fund since February 1,
1997. Ms. Hill joined Wells Fargo Bank in 1987 and manages client portfolios.
Prior to joining Wells Fargo Bank, Ms. Hill worked as an institutional equity
trader for E.F. Hutton. Ms. Hill holds a B.A. from the University of Southern
California in international relations and economics and is working toward her
chartered financial analyst designation.
Mr. Rex Wardlaw, as co-manager, has been responsible for the day-to-day
management of the portfolios of the Balanced, Equity Value and Diversified
Income Funds since February 1, 1997. Mr. Wardlaw joined Wells Fargo Bank in 1986
and has eight years of investment experience. He is the Private Client Services
investment manager for the Portland office and is responsible for stock market
research in healthcare, basic industries and transportation sectors. He holds an
M.B.A. from the University of Oregon and a B.A. from Northwest Nazarene College.
Mr. Wardlaw is a chartered financial analyst and a member of the Portland
Society of Financial Analysts. He is also a member of the Association for
Investment management and Research and the American Association of Individual
Investors.
Mr. Allen Wisniewski has been responsible, as co-manager, for the day-to-day
management of the portfolio of the Diversified Income Fund since November 1992.
Mr. Wisniewski is also responsible, as co-manager, for the day-to-day management
of the portfolio of the Equity Value Fund. He also is responsible for managing
equity and balanced accounts for high-net-worth individuals and pensions. Mr.
Wisniewski joined Wells Fargo Bank in April 1987 with the acquisition of Bank of
America's consumer trust services, where he was a portfolio manager. He received
his B.A. degree and M.B.A. degree in economics and finance from the University
of California at Los Angeles. He is a member of the Los Angeles Society of
Financial Analysts.
PROSPECTUS 40
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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.
Ms. Tamyra Thomas assumed responsibility as a co-portfolio manager for the
day-to-day management of the bond portion of the Balanced Fund as of September,
1996. She is a Senior Vice-President and the Chief Fixed Income Investment
Officer of the Investment Management Group of Wells Fargo Bank. She is also
Chair of the Investment Management Group Policy Committee. 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 early
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.
---------------------
Morrison & Foerster LLP, counsel to the Company and MIT and special counsel to
Wells Fargo Bank and BGFA, has advised the Company, MIT, Wells Fargo Bank and
BGFA
41 PROSPECTUS
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that Wells Fargo Bank and BGFA and their affiliates may perform the services
contemplated by the Advisory Contracts and this Prospectus without violation of
the Glass-Steagall Act. Such counsel has pointed out, however, that there are no
controlling judicial or administrative interpretations or decisions and that
future judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such statutes,
regulations and judicial or administrative decisions or interpretations, could
prevent such entities from continuing to perform, in whole or in part, such
services. If any such entity were prohibited from performing any such 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.
PROSPECTUS 42
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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 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' and Master Portfolios' 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
43 PROSPECTUS
<PAGE> 332
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(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,
please call 1-800-222-8222. If you have questions regarding ExpressInvest(TM),
please call 1-800-237-8472. For additional information on tax-deferred accounts,
please refer to the section "How to Buy Shares" under Tax-Deferred Retirement
Plans or contact a shareholder servicing agent or selling agent.
SALES CHARGES
Set forth below is a Front-end Sales Charge Schedule listing the front-end
sales charges applicable to purchases of Class A shares of the Aggressive
Growth, Balanced, Diversified Income, Equity Value, Growth and Income and Small
Cap Funds. Front-end sales charges are not charged on purchases of the Corporate
Stock Fund. As shown below, reductions in the rate of front-end sales charges
("Volume Discounts") are available as you purchase additional shares
(contingent-deferred sales charges applicable to Class B shares are described
below). You should consider the front-end sales charge information set forth
below and the other information contained in this Prospectus when making your
investment decisions.
FRONT-END SALES CHARGE SCHEDULE
CLASS A SHARES
<TABLE>
<CAPTION>
DEALER
FRONT-END FRONT-END ALLOWANCE
SALES CHARGE SALES CHARGE AS% OF
AS% OF AS% OF NET OFFERING
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED PRICE
- ------------------------------------ -------------- --------------- ---------
<S> <C> <C> <C>
Less than $50,000................... 5.25% 5.54% 4.75%
$50,000 up to $99,999............... 4.50 4.71 3.75
$100,000 up to $249,999............. 3.50 3.63 2.75
$250,000 up to $499,999............. 2.50 2.56 2.00
$500,000 up to $999,999............. 2.00 2.04 1.75
$1,000,000 and over................. 0.00(1) 0.00 1.00
</TABLE>
- ---------------
(1) Class A shares that are redeemed within one year from the receipt of a
purchase order for such shares are subject to a contingent deferred sales
charge of 1.00% of the dollar amount equal to the lesser of the NAV at the
time of purchase or the NAV of such shares at the time of redemption.
PROSPECTUS 44
<PAGE> 333
If Class A shares are purchased through a selling agent, Stephens reallows the
portion of the front-end sales charge shown above as the Dealer Allowance.
Stephens also compensates selling agents for sales of Class B shares and is then
reimbursed out of Rule 12b-1 Fees and contingent-deferred sales charges
applicable to such shares. When shares are purchased directly through the
transfer agent and no selling agent is involved with the purchase, the entire
sales charge is paid to Stephens.
A selling agent or shareholder servicing agent and any other person entitled
to receive compensation for selling or servicing shares may receive different
compensation for selling or servicing Class A shares as compared with Class B
shares of the same fund.
REDUCED SALES CHARGES -- CLASS A SHARES
Discounts described below pertaining to reduced sales charge for Class A
shares are based on your holdings or purchases of shares on which you have paid
or will pay a front-end sales charge. Because Class B shares do not assess a
front-end sales charge, the amount of Class B shares you hold is not considered
in determining any Volume Discount.
Volume Discounts
The Volume Discounts described in the Front-end Sales Charge Schedule are
available to you based on the combined dollar amount you invest in shares
(including the Funds' Class A shares) of one or more of the Company's funds
which assess a front-end sales charge (the "Load Funds").
Right of Accumulation
The Right of Accumulation allows you to combine the amount you invest in a
Fund's Class A shares with the total NAV of shares in other Load Funds to
determine reduced front-end sales charges in accordance with the above Front-end
Sales Charge Schedule. In addition, you also may combine the total NAV of shares
that you currently have invested in any other mutual fund that assesses a
front-end sales charge and is advised or sub-advised by Wells Fargo Bank and
sponsored by Stephens. For example, if you own Class A shares of the Load Funds
with an aggregate NAV of $90,000 and you invest an additional $20,000 in Class A
shares of another Load Fund, the front-end sales charge on the additional
$20,000 investment would be 3.50% of the offering price. To obtain the discount,
you must provide sufficient information at the time of your purchase to verify
that your purchase qualifies for the reduced front-end sales charge.
Confirmation of the order is subject to such verification. The Right of
Accumulation may be modified or discontinued at any time without prior notice
with respect to all subsequent shares purchased.
45 PROSPECTUS
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Letter of Intent
A Letter of Intent allows you to purchase shares of a Load Fund over a
13-month period at a reduced front-end sales charge based on the total amount of
Class A shares you intend to purchase plus the total NAV of shares in the Load
Funds that you already own. Each investment in shares of a Load Fund that you
make during the period may be made at the reduced front-end sales charge that is
applicable to the total amount you intend to invest. If you do not invest the
total amount within the period, you must pay the difference between the higher
front-end sales charge rate that would have been applied to the purchases you
made and the reduced front-end sales charge rate you have paid. The minimum
initial investment for a Letter of Intent is 5% of the total amount you intend
to purchase, as specified in the Letter. Shares of the Load Fund you purchased
equal to 5% of the total amount you intend to invest will be held in escrow and,
if you do not pay the difference within 20 days following the mailing of a
request, a sufficient amount of escrowed shares will be redeemed for payment of
the additional front-end sales charge. Dividends and capital gains paid on such
shares held in escrow are reinvested in additional Fund shares.
Reinvestment
You may reinvest proceeds from a redemption of Class A shares in Class A
shares of the Fund or shares of another of the Company's funds registered in
your state of residence at NAV, without a front-end sales charge, within 120
days after your redemption. However, if the other investment portfolio charges a
front-end sales charge that is higher than the front-end sales charge that you
paid in connection with the Class A shares you redeemed, you must pay the
difference between the dollar amount of the two front-end sales charges. You may
reinvest at this NAV price up to the total amount of your redemption proceeds. A
written purchase order for the shares must be delivered to the Company, a
selling agent, a shareholder servicing agent, or the transfer agent at the time
of reinvestment.
Reductions for Families or Fiduciaries
Reductions in front-end sales charges apply to purchases by a single "person,"
including an individual, members of a family unit, consisting of a husband, wife
and children under the age of 21 purchasing securities for their own account, or
a trustee or other fiduciary purchasing for a single fiduciary account or single
trust estate.
Waivers for Investments of Proceeds From Other Investments
Purchases may be made at NAV, without payment of a front-end sales charge, to
the extent that: (i) you are investing proceeds from a redemption of shares of
another open-end investment company on which you paid a front-end sales charge,
and (ii) such redemption occurred within thirty (30) days prior to the date of
the purchase order. You
PROSPECTUS 46
<PAGE> 335
must notify the Fund and/or the transfer agent at the time you place such
purchase order of your eligibility for the waiver of front-end sales charges and
provide satisfactory evidence thereof (e.g., a confirmation of the redemption
and the sales charges paid). Front-end sales charges will not be waived to the
extent the redemption proceeds are from a redemption of shares of another
open-end investment company that is affiliated with the Company on which you
paid a contingent deferred sales charge upon redemption.
Reductions for Qualified Groups
Reductions in front-end sales charges also apply to purchases by individual
members of a "qualified group." The reductions are based on the aggregate dollar
amount of Class A shares purchased by all members of the qualified group. For
purposes of this paragraph, a qualified group consists of a "company," as
defined in the 1940 Act, which has been in existence for more than six months
and which has a primary purpose other than acquiring shares of a Fund at a
reduced sales charge, and "related parties" of such company. For purposes of
this paragraph, a "related party" of a company is: (i) any individual or other
company who directly or indirectly owns, controls or has the power to vote 5%
percent or more of the outstanding voting securities of such company; (ii) any
other company of which such company directly or indirectly owns, controls or has
the power to vote 5% or more of its outstanding voting securities; (iii) any
other company under common control with such company; (iv) any executive
officer, director or partner of such company or of a related party; and (v) any
partnership of which such company is a partner. Investors seeking to rely on
their membership in a qualified group to purchase shares at a reduced sales load
must provide evidence satisfactory to the transfer agent of the existence of a
bona fide qualified group and their membership therein.
47 PROSPECTUS
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Reductions for Certain Existing Shareholders
As of the date of this Prospectus, investors who held Class A shares as of the
close of business on February 28, 1997, are entitled to purchase additional
shares of such Fund at the reduced sales charges indicated below. Such
shareholders are entitled to the reduced sale charges for so long as they
continuously hold Class A shares.
<TABLE>
<CAPTION>
DEALER
FRONT-END FRONT-END ALLOWANCE
SALES CHARGE SALES CHARGE AS% OF
AS% OF AS% OF NET OFFERING
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED PRICE
- ------------------------------------ -------------- --------------- ---------
<S> <C> <C> <C>
Less than $50,000................... 4.50% 4.71% 4.00%
$50,000 up to $100,000.............. 4.00 4.17 3.55
$100,000 up to $249,999............. 3.50 3.63 3.125
$250,000 up to $499,999............. 2.50 2.56 2.00
$500,000 up to $999,999............. 2.00 2.04 1.75
$1,000,000 and over................. 0.00(1) 0.00 1.00
</TABLE>
- ---------------
(1) Class A shares that are redeemed within one year from the receipt of a
purchase order for such shares are subject to a contingent deferred sales
charge of 1.00% of the dollar amount equal to the lesser of the NAV at the
time of purchase or the NAV of such shares at the time of redemption.
Waivers for Certain Parties
Class A shares of a Fund may be purchased at NAV, without a front-end sales
charge, by: (i) directors, officers and employees (and their spouses, parents,
children and siblings) of the Company, Stephens, its affiliates and selling
agents; (ii) present and retired directors, officers and employees (and their
spouses, parents, children and siblings) of Wells Fargo Bank and its affiliates
if Wells Fargo Bank and/or the respective affiliates agree; (iii) employee
benefit and thrift plans for such persons and investment advisory, trust or
other fiduciary accounts, including certain Plan Accounts that are maintained,
managed or advised by Wells Fargo Bank or its affiliates ("Fiduciary Accounts");
and (iv) investors using proceeds from a required minimum distribution from any
Individual Retirement Account ("IRA"), Simplified Employee Pension Plan, Savings
Incentive Match Plan for Employees (a "SIMPLE Plan") or other self-directed
retirement plan for which Wells Fargo Bank serves as trustee, provided that the
proceeds are invested in the Funds within 30 days of such distribution and such
distribution is required as a result of reaching age 70 1/2. Class A shares of
the Aggressive Growth Fund are available, without a front-end sales charge, to
institutions purchasing shares for the sole purpose of creating a unit
investment trust for exclusive distribution through Wells Fargo Securities, Inc.
CONTINGENT-DEFERRED SALES CHARGE -- CLASS B SHARES
Class B shares may be subject to a contingent-deferred sales charge ("CDSC").
A CDSC is an amount you pay if you redeem your shares within a specified period.
The
PROSPECTUS 48
<PAGE> 337
CDSC will be equal to a percentage of the lesser of the NAV of your shares at
the time of purchase or the NAV of your shares at redemption.
Except as described below, if you purchase Class B shares and redeem such
shares within six years of the date of purchase, the Class B shares are subject
to a CDSC as follows:
<TABLE>
<CAPTION>
Redemption Within: 1 Year 2 Years 3 Years 4 Years 5 Years 6 Years
---------------------- ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CDSC: 5% 4% 3% 3% 2% 1%
</TABLE>
Class B shares of a Fund purchased prior to March 3, 1997, are subject to a
CDSC if redeemed within four years of purchase. For so long as you hold Class B
shares of such Fund, any new Class B shares of the Fund that you acquire are
subject to a CDSC if redeemed within four years. In addition, if you exchange
Class B shares of the Fund for Class B shares of another fund, upon redemption
the CDSC applicable to the original Class B shares of the Fund will apply. The
CDSCs applicable to such shares are as follows:
<TABLE>
<CAPTION>
Redemption Within: 1 Year 2 Years 3 Years 4 Years
--------------------------------- ------ ------- ------- -------
<S> <C> <C> <C> <C>
CDSC: 3% 2% 1% 1%
</TABLE>
Contingent-deferred sales charges are not imposed on amounts representing
increases in NAV above the NAV at the time of purchase and are not assessed on
Class B shares purchased through reinvestment of dividends or capital-gain
distributions. Class B shares automatically convert into Class A shares of the
same Fund six years after the end of the month in which such Class B shares were
acquired.
The amount of any contingent-deferred sales charge, if any, paid upon
redemption of Class B shares is determined in a manner designed to result in the
lowest sales charge rate being assessed. When a redemption request is made,
Class B shares acquired pursuant to the reinvestment of dividends and
capital-gain distributions are considered to be redeemed first. After this,
Class B shares are considered redeemed on a first-in, first-out basis so that
Class B shares held for a longer period of time are considered redeemed prior to
more recently acquired Class B shares. For a discussion of the interaction
between the optional Exchange Privilege and contingent-deferred sales charges on
Class B shares, see "Additional Shareholder Services -- Exchange Privilege."
Contingent-deferred sales charges are waived on redemptions of Class B shares
of a Fund (i) following the death or disability (as defined in the Internal
Revenue Code of 1986, as amended (the "Code")) of a shareholder, (ii) to the
extent that the redemption represents a scheduled distribution from an
individual retirement account or other retirement plan to a shareholder who has
reached age 59 1/2, (iii) effected pursuant to the Company's right to liquidate
a shareholder's account if the aggregate NAV of the shareholder's account is
less than the minimum account size, or (iv) in
49 PROSPECTUS
<PAGE> 338
connection with the combination of the Company with any other registered
investment company by a merger, acquisition of assets or any other transaction.
In deciding whether to purchase Class A or Class B shares, you should compare
the fees assessed on Class A shares (including front-end sales charges) against
those assessed on Class B shares (including potential contingent-deferred sales
charges and higher Rule 12b-1 fees) in light of the amount to be invested and
the time that you anticipate owning the shares. If your purchase amount would
qualify you for a reduced sales charge on Class A shares, you should consider
carefully whether you would pay lower fees ultimately on Class A shares or on
Class B shares. See "Investing In The Funds -- Sales Charges" for information on
reduced sales charges for Class A shares.
You may buy shares on any Business Day by any of the methods described below.
The Company reserves the right to reject any purchase order or suspend sales at
any time. Payment for orders that are not received is returned after prompt
inquiry. The issuance of shares is recorded on the Company's books, and share
certificates are not issued.
INITIAL PURCHASES BY WIRE
1. Complete an Account Application.
2. Instruct the wiring bank to transmit the specified amount in federal funds
($1,000 or more) to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number: 121000248
Wire Purchase Account Number: 4068-000587
Attention: Stagecoach Funds (Name of Fund) (designate Class A or Class B)
Account Name(s): Name(s) in which to be registered
Account Number: (if investing into an existing account)
3. A completed Account Application should be mailed, or sent by telefacsimile
with the original subsequently mailed, to the following address immediately
after the funds are wired, and must be received and accepted by the transfer
agent before an account can be opened:
Wells Fargo Bank, N.A.
Stagecoach Shareholder Services
P.O. Box 7066
San Francisco, California 94120-7066
Telefacsimile: 1-415-543-9538
4. Share purchases are effected at the public offering price or, in the case of
Class B shares, at the NAV next determined after the Account Application is
received and accepted.
PROSPECTUS 50
<PAGE> 339
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 A or Class B)," to the
address set forth in "Initial Purchases by Wire."
3. Share purchases are effected at the public offering price or, in the case of
Class B shares, at the NAV next determined after the Account Application is
received and accepted.
AUTOSAVER PLAN PURCHASES
The Company's AutoSaver Plan provides you with a convenient way to establish
and automatically add to your Fund account on a monthly basis. To participate in
the 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-deferred
51 PROSPECTUS
<PAGE> 340
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 A or Class B)" to the address set forth under "Initial
Purchases by Wire." Write your Fund account number on the check and include the
detachable stub from your Statement of Account or a letter providing your Fund
account number.
PURCHASES THROUGH SELLING AGENTS
You may place a purchase order for shares of the 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
PROSPECTUS 52
<PAGE> 341
may transmit a purchase order to the transfer agent, on your behalf, including a
purchase order for which payment is to be transferred from your Approved Bank
Account or wired from a financial institution. If your order is transmitted by
the Shareholder Servicing Agent, on your behalf, to the transfer agent before
the close of the NYSE, the purchase order generally will be executed on the same
day. If your Shareholder Servicing Agent transmits your purchase order to the
transfer agent after the close of the NYSE, then your order generally is
executed on the next Business Day following the day your order is received. The
Shareholder Servicing Agent is responsible for the prompt transmission of your
purchase order to the transfer agent.
STATEMENTS AND REPORTS
The Company, or a Shareholder Servicing Agent on its behalf, typically sends
you a confirmation or statement of your account after every transaction that
affects your share balance or your Fund account registration. Every January, you
will be provided a 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 (other than the Aggressive Growth and Small Cap Funds) intend to
distribute quarterly dividends of substantially all of their net investment
income. The Aggressive Growth and Small Cap 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 Class A and Class B
shares.
53 PROSPECTUS
<PAGE> 342
HOW TO REDEEM SHARES
You may redeem Fund shares on any Business Day. Your shares are redeemed at
the NAV next calculated after the Company has received your redemption request
in proper form. The Company ordinarily remits redemption proceeds, net of any
contingent deferred sales charge applicable with respect to Class B shares (the
"redemption proceeds"), within seven days after your redemption order is
received in proper form, unless the SEC permits a longer period under
extraordinary circumstances. Such extraordinary circumstances could include a
period during which an emergency exists as a result of which (a) disposal by 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 the Funds -- How To Buy Shares."
PROSPECTUS 54
<PAGE> 343
REDEMPTIONS BY TELEPHONE
Telephone redemption or exchange privileges are made available to you
automatically upon opening an account, unless you specifically decline the
privileges. Telephone redemption privileges authorize the transfer agent to act
on telephone instructions from any person representing himself or herself to be
the investor and reasonably believed by the transfer agent to be genuine. The
Company requires the transfer agent to employ reasonable procedures, such as
requiring a form of personal identification, to confirm that instructions are
genuine and, if it does not follow such procedures, the Company and the transfer
agent may be liable for any losses due to unauthorized or fraudulent
instructions. Neither the Company nor the transfer agent will be liable for
following telephone instructions reasonably believed to be genuine.
REDEMPTIONS BY MAIL
1. Write a letter of instruction. Indicate the class, if applicable, and the
dollar amount or number of Fund shares you want to redeem. Refer to your Fund
account number and give your taxpayer identification number ("TIN"), which
generally is your social security or employer identification number.
2. Sign the letter in exactly the same way the account is registered. If there
is more than one owner of the shares, all must sign.
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
55 PROSPECTUS
<PAGE> 344
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.
You may request expedited redemption by telephone by calling the transfer
agent at the telephone number listed on your transaction confirmation or by
calling 1-800-222-8222.
You may request expedited redemption by mail by mailing your expedited
redemption request to the transfer agent at the mailing address set forth under
"Investing in the Funds -- Initial Purchases by Wire."
Upon request, net redemption proceeds of your expedited redemptions of $5,000
or more 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
PROSPECTUS 56
<PAGE> 345
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. However, you should not
participate in the Systematic Withdrawal Plan if you also are purchasing shares
of a Fund subject to a sales charge.
It may take up to ten (10) days after receipt of your request to establish
your participation in the Systematic Withdrawal Plan. You may change your
withdrawal amount, suspend withdrawals or terminate your election at any time by
notifying the transfer agent at least five (5) Business Days prior to any
scheduled transaction. Your participation in the Systematic Withdrawal Plan is
terminated automatically if your Fund account is closed, or, in some cases, if
your Approved Bank Account is closed.
REDEMPTIONS THROUGH SELLING AGENTS
If your redemption order is received by a Selling Agent before the close of
the NYSE and received by the transfer agent before the close of business on the
same day, the 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.
57 PROSPECTUS
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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 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
PROSPECTUS 58
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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 A or Class B shares may be invested in Class A or Class B shares,
respectively, of another fund, in Retail shares of a fund offered by another
investment company in the Stagecoach Family of Funds, in Class A shares of the
Government Money Market Mutual, Money Market Mutual, Prime Money Market Mutual
or Treasury Money Market Mutual Funds or in shares of the California Tax-Free
Money Market Mutual or National Tax-Free Money Market Mutual Funds
(collectively, the "Money Market Mutual Funds"). Distributions paid on Class A
shares may also be invested in shares of a non-money market fund with a single
class of shares (a "single class fund"). Distributions paid on Class B shares
may not be invested in shares of a single class fund. Distributions paid on
shares of the Corporate Stock Fund may be invested in Class A shares, shares of
a single class fund or shares of one of the Money Market Mutual Funds.
C. The AUTOMATIC CLEARING HOUSE OPTION permits you to have 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.
59 PROSPECTUS
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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 A shares and a Money Market Mutual Fund........... X
Class A shares and Class A shares....................... X
Class B shares and a Money Market Mutual Fund........... X
Class B shares and Class B shares....................... X
Class A shares of a non-Money Market Mutual Fund and
Class B shares........................................ X
</TABLE>
Important factors that you should consider:
- You will need to read the prospectus of the fund into which you want to
exchange.
- Every exchange is a redemption of shares of one fund and a purchase of
shares of another fund. 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.
- If you exchange Class A shares, you will need to pay any difference between
a load that you have already paid and the load that you are subject to in
the new fund (less the difference between any load already paid under the
maximum 3% load schedule and the maximum 4.50% schedule).
- You will not pay a contingent deferred sales charge on any exchange from
Class B shares into other Class B shares or a Money Market Mutual Fund. The
new shares will continue to age while they are in the new fund and will be
charged the contingent deferred sales charge applicable to the original
shares upon redemption.
- If you exchange Class A or Class B shares for shares of a Money Market
Mutual Fund, you may not re-exchange shares of the Money Market Mutual Fund
for shares other than the original exchanged class.
- The Company may limit the number of times shares may be exchanged or may
reject any telephone exchange order. Subject to limited exceptions, the
Company will notify you 60 days before discontinuing or modifying the
exchange privilege.
PROSPECTUS 60
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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.
CONVERSION
Class B shares that have been outstanding for six years after the end of the
month in which the shares were initially purchased automatically convert to
Class A shares of such Fund and, consequently, will no longer be subject to the
higher Rule 12b-1 Fees applicable to Class B shares. Such conversion is on the
basis of the relative NAV of the two Classes, without the imposition of any
sales charge or other charge except that the lower Rule 12b-1 Fees applicable to
Class A shares shall thereafter be applied to such converted shares. Because the
per share NAV of the Class A shares may be higher than that of the Class B
shares at the time of conversion, a shareholder may receive fewer Class A shares
than the number of Class B shares converted, although the dollar value will be
the same. Reinvestments of dividends and distributions on Class B shares are
considered new purchases for purposes of the conversion feature.
If a shareholder effects one or more exchanges among Class B shares of any
Fund or among shares of a Money Market Mutual Fund during the six-year period,
and exchanges back into Class B shares, the holding period for shares so
exchanged is counted toward the six-year period, and any Class B shares held at
the end of six years are converted into Class A shares.
MANAGEMENT, DISTRIBUTION AND
SERVICING FEES
INVESTMENT ADVISER
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank, as the Funds' investment adviser provides investment guidance and
policy direction in connection with the management of the Funds' assets and
furnishes the Company's Board of Directors with periodic reports on the Funds'
investment strategies and performance.
For its services as investment adviser to the Balanced Fund and Small Cap
Master Portfolio, Wells Fargo Bank is entitled to monthly investment advisory
fees at the annual rate of 0.60% of the Fund's and Master Portfolio's respective
average daily net assets. For its services as investment adviser to the Capital
Appreciation Master Portfolio and Diversified Income and Equity Value Funds,
Wells Fargo Bank is entitled to monthly investment advisory fees at the annual
rate of 0.50% of the Master Portfolio's and Funds'
61 PROSPECTUS
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respective average daily net assets. For its services as investment adviser to
the Corporate Stock Master Portfolio and the Growth and Income Fund, Wells Fargo
Bank is entitled to monthly investment advisory fees at the annual rate of 0.50%
of the first $250 million of such Master Portfolio's or Fund's average daily net
assets, 0.40% of the next $250 million, and 0.30% of the average daily net
assets in excess of $500 million. From time to time, Wells Fargo Bank may waive
its advisory fees in whole or in part. Any such waiver will reduce expenses of
the Funds, and, accordingly, have a favorable impact on the Funds' performance.
From time to time, each of the Funds, consistent with its investment objective,
policies and restrictions, may invest in securities of companies with which
Wells Fargo Bank has a lending relationship. The Corporate Stock Master
Portfolio, in accordance with its investment objective, may invest in stock of
Wells Fargo & Company so long as Wells Fargo & Company is included in the S&P
500 Index.
Wells Fargo Bank has delegated certain advisory responsibilities relating to
the Corporate Stock Master Portfolio to BGFA. Nevertheless, Wells Fargo Bank has
retained continuing and exclusive authority over the management of such Master
Portfolio, and the investment and disposition of the Master Portfolio's assets,
and Wells Fargo Bank may reject any investment recommendations or decisions for
the Master Portfolio if Wells Fargo Bank determines that such recommendations or
decisions are not consistent with the best interests of the Master Portfolio.
Wells Fargo Bank has agreed to pay BGFA for its sub-advisory services an annual
fee equal to $40,000 plus .08% of the average daily net assets of the Master
Portfolio.
Advisory Fees Paid
For the nine-month period ended September 30, 1996 and the year ended December
31, 1995, the Diversified Income and Growth and Income Funds each paid advisory
fees to Wells Fargo Bank at the annual rates of 0.50% and 0.50%, respectively,
of their average daily net assets.
For the year ended September 30, 1996, the Balanced and Equity Value Funds
paid advisory fees at the annual rates of 0.60% and 0.59%, respectively, of
their average daily net assets. For periods prior to September 6, 1996, this
includes advisory fees paid to Wells Fargo Investment Management, Inc. by the
predecessor portfolios to the Balanced and Equity Value Funds.
For the nine-month period ended September 30, 1996, Wells Fargo Bank was paid
advisory fees at an annual rate of 0.47% of the Corporate Stock Fund's average
daily net assets. This includes amounts paid by the Fund and the Master
Portfolio. Prior to the Corporate Stock Fund's conversion to master/feeder
structure, Wells Fargo Bank provided investment advisory services directly to
the Fund. For the year ended December 31, 1995, the Company paid to Wells Fargo
Bank, on behalf of the Corporate Stock Fund, an amount equal to 0.50% of the
average daily net assets of the Fund as compensation for its services as
investment adviser to the Fund. For the nine-month
PROSPECTUS 62
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period ended September 30, 1996 and the year ended December 31, 1995, Wells
Fargo Bank paid an amount equal to 0.09% and 0.09%, respectively, of the Fund's
average daily net assets to BGFA as compensation for its services as sub-adviser
to the Fund.
For the period from commencement of operations (February 20, 1996) to
September 30, 1996, 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 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, other than the Corporate
Stock Fund, for which BGI serves as Custodian. BGI, located at 45 Fremont
Street, San Francisco, California 94105, is a special purpose trust company that
is owned indirectly by Barclays Bank PLC. BGFA is a wholly owned subsidiary of
BGI. 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 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 on behalf of each Fund or class, and may enter into similar agreements with
other entities. Under such agreements, Shareholder Servicing Agents (including
Wells Fargo Bank) agree, as agents for their customers, to provide
administrative services with respect to Fund shares, which include aggregating
and transmitting shareholder orders for purchases, exchanges and redemptions;
maintaining shareholder accounts and records, aggregating and placing purchase,
exchange and redemption transactions, and providing such other related services
as the Company or a shareholder may reasonably request. For these services, a
Shareholder Servicing Agent is entitled to receive a fee at an annual rate of up
to (i) 0.30% of the average daily net assets attributable to the shares of the
Corporate Stock Fund or the Class A or Class B shares of the Diversified Income
and Growth and Income Funds, or (ii) 0.25% of the average daily net assets
attributable to the Class A or B shares of the Aggressive Growth, Balanced,
Equity Value and Small Cap Funds, owned during the period by investors with whom
the Shareholder Servicing Agent maintains a servicing relationship. With regard
to shares of the Corporate Stock Fund and Class A or B shares of the other
Funds, in no event will the
63 PROSPECTUS
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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"). In no event will the portion of such fees that constitutes
a "service fee," as that term is used by the NASD, exceed 0.25% of the average
net asset value attributable to the Class A and Class B shares of the
Diversified Income and Growth and Income Funds or shares of the Corporate Stock
Fund.
Shareholder Servicing Agents also may impose certain conditions on their
customers, subject to the terms of this Prospectus, in addition to or different
from those imposed by the 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.
Stephens previously provided substantially the same services as sole
administrator to the Funds. For the period ended September 30, 1996, the
Aggressive Growth, Corporate Stock, Diversified Income, Growth and Income and
Small Cap Funds paid administrative fees to Stephens at the annual rates of
0.03%, 0.03%, 0.03%, 0.03% and 0.05%, respectively, of each Fund's average daily
net assets. For the year ended September 30, 1996, the Balanced and Equity Value
Funds paid administrative fees at the annual rates of 0.10% and 0.10%,
respectively, of each Funds average daily net assets. For the period prior to
September 6, 1996, this includes amounts paid to Furman Selz LLC by the
predecessor portfolios to the Balanced and Equity Value Funds.
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
PROSPECTUS 64
<PAGE> 353
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 Plan for the Corporate Stock
Fund and Class A Plan for the other Funds, each Fund may defray all or part of
the cost of preparing and printing prospectuses and other promotional materials
and of delivering prospectuses and those materials to prospective Class A
shareholders paying on an annual basis up to 0.05% of the average daily net
assets attributable to such shares of the Corporate Stock, Diversified Income
and Growth and Income Funds, and up to 0.10% of the average daily net assets
attributable to the Class A shares of the Aggressive Growth, Balanced, Equity
Value and Small Cap Funds. The Class A Plans for the Balanced, Equity Value, and
Small Cap Funds provide for payments to compensate the Distribution and Selling
Agents for sales support services also. Under the Class B Plans, each Fund may
defray all or part of such costs and pay compensation to the Distributor and
Selling Agents for sales support services. The Class B Plans provide for
payments, on an annual basis, of up to 0.70% of the average daily net assets
attributable to the Class B shares of the Diversified Income and Growth and
Income Funds, and up to 0.75% of the average daily net assets attributable to
the Class B shares of the Aggressive Growth, Balanced, Equity Value and Small
Cap Funds. Other 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 state
65 PROSPECTUS
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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. The Aggressive Growth, Corporate
Stock and Small Cap Funds also bear a pro rata portion of the costs of the
Master Portfolio in which each Fund invests.
PROSPECTUS 66
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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 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.
67 PROSPECTUS
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PROSPECTUS APPENDIX --
ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
Set forth below is a description of certain investments and additional
investment policies for each Fund, except as otherwise indicated. Each of the
Aggressive Growth, Corporate Stock, and Small Cap Funds seeks to achieve its
investment objective by investing all of its assets in the Capital Appreciation,
Corporate Stock and Small Cap Master Portfolios, respectively. REFERENCES TO THE
INVESTMENTS AND INVESTMENT POLICIES AND RESTRICTIONS OF THESE FUNDS, UNLESS
OTHERWISE INDICATED, SHOULD BE UNDERSTOOD AS REFERENCES TO THE INVESTMENTS AND
INVESTMENT POLICIES AND RESTRICTIONS OF THE CORRESPONDING MASTER PORTFOLIOS.
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.
A- 1 PROSPECTUS
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Certain types of U.S. Government obligations are subject to fluctuations in
yield or value due to their structure or contract terms.
Floating- and Variable-Rate Instruments
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.
The Balanced and Equity Value Funds may also hold floating- and variable-rate
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
issuer 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. The market value of these instruments may be more volatile than other
types of debt instruments and may present greater potential for capital-gain or
loss. 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. 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
PROSPECTUS A- 2
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have a strong earnings and credit record. The Funds may purchase convertible
securities that are fixed-income debt securities or preferred stocks, and which
may be converted at a stated price within a specified period of time into a
certain quantity of the common stock of the same issuer. Convertible securities,
while usually subordinate to similar nonconvertible securities, are senior to
common stocks in an issuer's capital structure. Convertible securities offer
flexibility by providing the investor with a steady income stream (which
generally yield a lower amount than similar nonconvertible securities and a
higher amount than common stocks) as well as the opportunity to take advantage
of increases in the price of the issuer's common stock through the conversion
feature. Fluctuations in the convertible security's price can reflect changes in
the market value of the common stock or changes in market interest rates. At
most, 5% of each Fund's net assets will be invested, at the time of purchase, in
convertible securities that are not rated in the four highest rating categories
by one or more NRSROs, such as Moody's or S&P, or unrated but determined by the
Adviser to be of comparable quality.
Other Investment Companies
The Funds 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,
the Aggressive Growth, Balanced, Corporate Stock, Equity Value and Small Cap
Funds may each invest all of its assets in the securities of a single open-end,
management investment company with substantially the same fundamental investment
objective, policies and limitations as such Fund.
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
A- 3 PROSPECTUS
<PAGE> 359
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
in, the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries.
Emerging Markets
The Aggressive Growth, Small Cap, Diversified Income and Growth and Income
Funds each 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 Aggressive Growth, Small Cap, Diversified Income and Growth and
Income 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
PROSPECTUS A- 4
<PAGE> 360
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.
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.
A- 5 PROSPECTUS
<PAGE> 361
Options
The Aggressive Growth, Balanced, Corporate Stock, Equity Value and Small Cap
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 Equity Value, and Small Cap
Funds 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). Each of the Balanced and Equity
Value Funds may purchase put and call options listed on a national securities
exchange and issued by the Options Clearing Corporation in an amount not
exceeding 5% of its net assets.
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 as "illiquid" and therefore
subject to the Fund's policy of not investing more than 15% of its net assets in
illiquid securities.
The Balanced, Equity Value and Small Cap Funds 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 25% of the value of the assets of the Balanced
or Equity Value Funds or 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.
PROSPECTUS A- 6
<PAGE> 362
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 Corporate Stock and Small Cap Funds may each 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.
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.
A- 7 PROSPECTUS
<PAGE> 363
Mortgage-Related Securities
The Balanced and Diversified Income Funds 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 a 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 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 Balanced Fund may also 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 a Fund's investment
objective, policies and quality standards, consider making investments in such
new types of mortgage-related securities.
Other Asset-Backed Securities
The Balanced, Diversified Income, Equity Value and Growth and Income Funds may
purchase asset-backed securities 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
PROSPECTUS A- 8
<PAGE> 364
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 a Fund experiencing difficulty in valuing or liquidating
such securities.
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
A- 9 PROSPECTUS
<PAGE> 365
contemplated at the time of the investment, in which case, unless such offers or
proposals are replaced by equivalent or increased offers or proposals which are
consummated, the Funds may sustain a loss.
Stock Index Futures and Options on Stock Index Futures
The Corporate Stock Fund may invest in stock index futures and options on
stock index futures as a substitute for a comparable market position in the
underlying securities. The Balanced and Equity Value Funds may each invest in
stock index futures in order to protect the value of common stock investments or
to maintain liquidity, provided not more than 5% of a Fund's net assets are
committed to such transactions. A stock index future obligates the seller to
deliver (and the purchaser to take), effectively, an amount of cash equal to a
specific dollar amount times the difference between the value of a specific
stock index at the close of the last trading day of the contract and the price
at which the agreement is made. No physical delivery of the underlying stocks in
the index is made. With respect to stock indices that are permitted investments,
the Fund intends to purchase and sell futures contracts on the stock index for
which it can obtain the best price with consideration also given to liquidity.
There can be no assurance that a liquid market will exist at the time when a
Fund seeks to close out a futures contract or a futures option position. Lack of
a liquid market may prevent liquidation of an unfavorable position.
Interest-Rate Futures Contracts and Options on Interest-Rate Futures Contracts
The Corporate Stock Fund may invest in interest-rate futures contracts and
options on interest-rate futures contracts as a substitute for a comparable
market position in the underlying securities. The Fund may also sell options on
interest-rate futures contracts as part of closing purchase transactions to
terminate its options positions. No assurance can be given that such closing
transactions can be effected or the degree of correlation between price
movements in the options on interest rate futures and price movements in the
Fund's portfolio securities which are the subject of the transaction.
Interest-Rate and Index Swaps
The Corporate Stock Fund enter into interest-rate and index swaps in pursuit
of its investment objective. Interest-rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest (for example, an exchange of floating-rate payments for fixed-rate
payments). Index swaps involve the exchange by the Fund with another party of
cash flows based upon the performance of an index of securities or a portion of
an index of securities that usually include dividends or income. In each case,
the exchange commitments can involve payments to be made in the same currency or
in different currencies. The Fund will usually enter into swaps on a net basis.
In so doing, the two payment streams are netted out, with the Fund receiving
PROSPECTUS A- 10
<PAGE> 366
or paying, as the case may be, only the net amount of the two payments. If the
Fund enters into a swap, it will maintain a segregated account on a gross basis,
unless the contract provides for a segregated account on a net basis. If there
is a default by the other party to such a transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction.
The use of interest-rate and index swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio security transactions. There is no limit, except as
provided below, on the amount of swap transactions that may be entered into by
the Fund. These transactions generally do not involve the delivery of securities
or other underlying assets or principal. Accordingly, the risk of loss with
respect to swaps generally is limited to the net amount of payments that the
Fund is contractually obligated to make. There is also a risk of a default by
the other party to a swap, in which case the Fund may not receive net amount of
payments that the Fund contractually is entitled to receive.
The permissible investments described herein are considered "derivative"
securities because their value is derived, at least in part, from the price of
another security or a specified asset, index or rate. The futures contracts and
options on futures contracts that the Fund may purchase are considered
derivatives. The Fund may only purchase or sell these contracts or options as
substitutes for comparable market positions in the underlying securities. Also,
asset-backed securities issued or guaranteed by U.S. Government agencies or
instrumentalities and certain floating- and variable-rate instruments can be
considered derivatives. Some derivatives may be more sensitive than direct
securities to changes in interest rates or sudden market moves. Some derivatives
also may be susceptible to fluctuations in yield or value due to their structure
or contract terms.
Wells Fargo Bank and BGFA use a variety of internal risk management procedures
to ensure that derivatives use is consistent with the investment objectives of
the Fund, does not expose the Fund to undue risk and is closely monitored. These
procedures include providing periodic reports to the Board of Trustees of MIT
and the Board of Directors of the Company concerning the use of derivatives.
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
A- 11 PROSPECTUS
<PAGE> 367
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 (securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities for the
Corporate Stock Fund), 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 Corporate Stock Fund may invest all its assets in a diversified,
open-end management investment company, or a series thereof, with the same
investment objective, policies and restrictions as such Fund, without regard to
the limitations set forth in such clause (i); (ii) each such Fund may borrow
from banks up to 10% (20% for the Corporate Stock Fund) 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% (20% for the
Corporate Stock Fund) 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) the Corporate Stock Fund is permitted to concentrate
its assets in any one industry for the same period as does the S&P 500 Index,
and (b) a Fund may invest 25% or more of its assets in U.S. Government
obligations
PROSPECTUS A- 12
<PAGE> 368
(securities issued or guaranteed by the U.S. Government, its agencies of
instrumentalities for the Corporate Stock Fund). With respect to fundamental
investment policy (i) above, the Aggressive Growth, Diversified Income and Small
Cap Funds are subject to this restriction only with respect to 75% of their
respective assets, and, with regard to the Funds, it may be possible that the
Company would own more than 10% of the outstanding voting securities of the
issuer. With respect to fundamental investment policy (iii) above, the
Diversified Income Fund does not intend to make loans of its portfolio
securities during the coming year. The Corporate Stock Fund may invest all of
its assets in a diversified, open-end management investment company or a series
thereof, with the same investment objective, policies and restrictions as the
Fund, without regard to these limitations. With respect to fundamental policy
(ii) above, the Corporate Stock Fund presently does not intend to put at risk
more than 5% of its assets during the coming year. 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, the Diversified Income Fund and Growth
and Income Fund may each invest up to 10% of the current value of its respective
net assets in illiquid securities. The Aggressive Growth Fund, Balanced Fund,
Corporate Stock Fund, Equity Value Fund and Small Cap Fund may each 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.
A- 13 PROSPECTUS
<PAGE> 369
Advised by WELLS FARGO BANK, N.A.
Sponsored/Distributed by
Stephens Inc., Member NYSE/SIPC
LOGO
NOT FDIC INSURED
<PAGE> 370
LOGO
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH FUNDS:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- are NOT insured by the FDIC or U.S. Government
- are NOT obligations or deposits of Wells Fargo Bank nor
guaranteed by the Bank
- involve investment risk, including possible loss of LOGO
principal
</TABLE>
LOGO
Printed on Recycled Paper SC0201 (2/97)
<PAGE> 371
LOGO
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PROSPECTUS
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ARIZONA TAX-FREE FUND
CALIFORNIA TAX-FREE BOND FUND
CALIFORNIA TAX-FREE INCOME FUND
NATIONAL TAX-FREE FUND
OREGON TAX-FREE FUND
CLASS A AND CLASS B
FEBRUARY 1, 1997
<PAGE> 372
STAGECOACH FUNDS(R)
ARIZONA TAX-FREE, CALIFORNIA TAX-FREE BOND,
CALIFORNIA TAX-FREE INCOME, NATIONAL TAX-FREE,
AND OREGON TAX-FREE FUNDS
CLASS A AND CLASS B SHARES
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about the ARIZONA TAX-FREE FUND,
CALIFORNIA TAX-FREE BOND FUND, NATIONAL TAX-FREE FUND AND OREGON TAX-FREE FUND
and the Class A shares of the CALIFORNIA TAX-FREE INCOME FUND (each, a "Fund"
and, collectively, the "Funds").
The ARIZONA TAX-FREE FUND seeks to provide investors with income exempt from
federal income tax and Arizona personal income tax. The CALIFORNIA TAX-FREE BOND
FUND seeks to provide investors with a high level of income exempt from federal
income taxes and California personal income taxes, while preserving capital, by
investing in medium- to long-term, investment-grade municipal securities. The
CALIFORNIA TAX-FREE INCOME FUND seeks to provide investors with a high level of
income exempt from federal income taxes and California personal income taxes,
while preserving capital. The NATIONAL TAX-FREE FUND seeks to provide investors
with income exempt from federal income tax. The OREGON TAX-FREE FUND seeks to
provide investors with income exempt from federal income tax and Oregon personal
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 February 1, 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.
PROSPECTUS DATED FEBRUARY 1, 1997
PROSPECTUS
<PAGE> 373
Under normal market conditions, substantially all of a State Tax-Free Fund's
assets consist of municipal obligations the interest on which is exempt from
federal income tax and the applicable state's personal income tax.
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.
THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL NOR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF SECURITIES THAT ARE NOT REGISTERED
IN A STATE WHERE SUCH OFFER WOULD BE UNLAWFUL UNDER THE SECURITIES LAWS OF THE
STATE.
PROSPECTUS
<PAGE> 374
TABLE OF CONTENTS
-------
PROSPECTUS SUMMARY 1
SUMMARY OF FUND EXPENSES 4
FINANCIAL HIGHLIGHTS 8
HOW THE FUNDS WORK 18
THE FUNDS AND MANAGEMENT 25
INVESTING IN THE FUNDS 27
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS 38
HOW TO REDEEM SHARES 39
ADDITIONAL SHAREHOLDER SERVICES 43
MANAGEMENT, DISTRIBUTION AND SERVICING FEES 46
TAXES 50
PROSPECTUS APPENDIX - ADDITIONAL INVESTMENT POLICIES A-1
PROSPECTUS
<PAGE> 375
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 ARIZONA TAX-FREE FUND seeks to provide investors with income exempt from
federal income tax and Arizona personal income tax.
The CALIFORNIA TAX-FREE BOND FUND seeks to provide investors with a high
level of income exempt from federal income taxes and California personal
income taxes, while preserving capital, by investing in medium- to
long-term, investment-grade municipal securities.
The CALIFORNIA TAX-FREE INCOME FUND seeks to provide investors with a high
level of income exempt from federal income taxes and California personal
income taxes, while preserving capital.
The NATIONAL TAX-FREE FUND seeks to provide investors with income exempt
from federal income tax.
The OREGON TAX-FREE FUND seeks to provide investors with income exempt from
federal income tax and Oregon personal 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 State Tax-Free Funds, exempt from each respective state's
personal income tax; and except during temporary defensive periods or when
acceptable securities are unavailable for investment by a Fund, at least 65%
of each State Tax-Free Fund's total net assets will be invested in municipal
obligations of issuers exempt from each respective state's 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
1 PROSPECTUS
<PAGE> 376
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.
Since each State Tax-Free Fund invests primarily in securities issued by
Arizona, California or Oregon, and its respective agencies and
municipalities, events in those states are more likely to affect the
respective 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.
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. As with
all mutual funds, there can be no assurances that a Fund will achieve its
investment objective.
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. The Funds' Class A shares are subject to a maximum front-end sales
charge of 4.50% (except the California Tax-Free Income Fund, which is
subject to a maximum sales charge of 3.00%). Class B shares that are
redeemed within six years of purchase are subject to a maximum
contingent-deferred sales charge of 5.00% of the lesser of NAV at purchase
or NAV at redemption. In some cases, the front-end or contingent-deferred
sales charges may be waived or reduced. 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
PROSPECTUS 2
<PAGE> 377
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 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. Except for any contingent-deferred sales charge applicable to
Class B shares, the Company imposes no charge for redeeming shares. The
Company reserves the right to impose charges for wiring redemption proceeds.
See "How To Redeem Shares" and "How to Purchase
Shares -- Contingent-Deferred Sales Charges -- Class B Shares" for more
details, 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
3 PROSPECTUS
<PAGE> 378
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."
SUMMARY OF FUND EXPENSES
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA CALIFORNIA NATIONAL OREGON
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
FUND BOND FUND INCOME FUND FUND FUND
-------- --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Maximum Sales Charge on
Purchases (as a percentage
of offering price)........ 4.50% 4.50% 3.00% 4.50% 4.50%
Maximum Sales Charge on
Reinvested
Distributions............. None None None None None
Maximum Sales Charge on
Redemptions............... None None None None None
Exchange Fees............... None None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA CALIFORNIA NATIONAL OREGON
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
FUND BOND FUND INCOME FUND FUND FUND
-------- --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Management Fee (after
waivers or
reimbursements)........... 0.15%(1) 0.50% 0.50% 0.00%(1) 0.15%(1)
Rule 12b-1 Fee.............. 0.05% 0.05% 0.05% 0.00% 0.05%
Other Expenses (after
waivers or
reimbursements)(2)........ 0.40% 0.13% 0.10% 0.35% 0.40%
TOTAL FUND OPERATING
EXPENSES (after waivers or
reimbursements)(3)........ 0.60% 0.68% 0.65% 0.35% 0.60%
</TABLE>
- -------------------------------
(1) Management Fees (before waivers or reimbursements) would be 0.50%.
(2) Other Expenses (before waivers or reimbursements) would be 0.61%, 0.52%,
0.59%, 0.60%, and 0.58%, respectively.
(3) Total Fund Operating Expenses (before waivers or reimbursements) would be
1.16%, 1.07%, 1.14%, 1.10% and 1.13%, respectively.
PROSPECTUS 4
<PAGE> 379
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment in Class A shares of the
following Funds, assuming a 5% annual
return and redemption at the end of each
time period indicated:
Arizona Tax-Free Fund................. $ 51 $63 $77 $117
California Tax-Free Bond Fund......... $ 52 $66 $81 $126
California Tax-Free Income Fund....... $ 36 $50 $65 $109
National Tax-Free Fund................ $ 48 $56 $64 $ 87
Oregon Tax-Free Fund.................. $ 51 $63 $77 $117
</TABLE>
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA NATIONAL OREGON
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
FUND BOND FUND FUND FUND
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
Maximum Sales Charge on Purchases (as
a percentage of offering price)... None None None None
Maximum Sales Charge on Reinvested
Dividends......................... None None None None
Maximum Sales Charge on Redemptions... 5.00% 5.00% 5.00% 5.00%
Exchange Fees......................... None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA NATIONAL OREGON
TAX-FREE TAX-FREE TAX-FREE TAX-FREE
FUND BOND FUND FUND FUND
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
Management Fee (after waivers or
reimbursements)..................... 0.15%(1) 0.50% 0.00%(1) 0.15%(1)
Rule 12b-1 Fee........................ 0.75% 0.70% 0.75% 0.75%
Other Expenses(2)..................... 0.40% 0.13% 0.35% 0.40%
-------- ----- -------- --------
TOTAL FUND OPERATING EXPENSES (after
waivers or reimbursements)(3)..... 1.30% 1.33% 1.10% 1.30%
========= ========== ========= =========
</TABLE>
- -------------------------------
<TABLE>
<S> <C>
(1) Management Fees (before waivers or reimbursements) would be
0.50%.
(2) Other Expenses (before waivers or reimbursements) would be 0.61%,
0.53%, 0.60%, and 0.58%, respectively.
(3) Total Fund Operating Expenses (before waivers or reimbursements)
would be 1.86%, 1.73%, 1.85%, and 1.83%, respectively.
</TABLE>
5 PROSPECTUS
<PAGE> 380
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment in
Class B shares of the following
Funds, assuming a 5% annual return
and redemption at the end of each
time period indicated:
Arizona Tax-Free Fund.......... $ 63 $71 $91 $120
California Tax-Free Bond
Fund........................... $ 64 $72 $93 $126
National Tax-Free Fund......... $ 61 $65 $81 $ 94
Oregon Tax-Free Fund........... $ 63 $71 $91 $120
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment in
Class B shares of the following
Funds, assuming a 5% annual return
and no redemption:
Arizona Tax-Free Fund.......... $ 13 $41 $71 $120
California Tax-Free Bond
Fund........................... $ 14 $42 $73 $126
National Tax-Free Fund......... $ 11 $35 $61 $ 94
Oregon Tax-Free Fund........... $ 13 $41 $71 $120
</TABLE>
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 are subject to a front-end sales charge on purchases of a
Fund's Class A shares and may be subject to a contingent-deferred sales charge
on purchases of a Fund's Class B shares if you redeem such shares within a
specified period. In certain instances, you may qualify for a reduction or
waiver of the front-end sales charge. 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 for the Class A and Class B shares of the
California Tax-Free Bond Fund and the Class A shares of the other Funds, except
as indicated below, are based on applicable contract amounts and amounts
incurred during the most
PROSPECTUS 6
<PAGE> 381
recent fiscal year. These amounts 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 "Other Expenses" for
the Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds are based on
estimated/restated amounts expected to be in effect during the current fiscal
year. Wells Fargo Bank and Stephens have agreed to waive or reimburse all or a
portion of the respective fees charged to, or expenses paid by, each Fund to
ensure that the "Total Fund Operating Expenses" do not exceed, on an annual
basis, 0.60%, 0.68%, 0.65%, 0.35% and 0.60% of the average daily net assets of
Class A Shares of the Arizona Tax-Free, California Tax-Free Bond, California
Tax-Free Income, National Tax-Free and Oregon Tax-Free Funds, respectively,
through August 31, 1997. 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 or future expenses; actual expenses and returns may be
greater or lesser than those shown.
The Funds offer 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 and Management" and "Management, Distribution and Servicing
Fees" and in the SAI under "Management," Distributions Plans" and "Servicing
Plans."
7 PROSPECTUS
<PAGE> 382
FINANCIAL HIGHLIGHTS
For the California Tax-Free Bond and California Tax-Free Income Funds, the
following information has been derived from the Financial Highlights in the
Funds' financial statements for the fiscal period ended September 30, 1996. This
information is provided to assist you in evaluating the historical performance
of each Fund. The financial statements were audited by KPMG Peat Marwick LLP.
The financial statements and the report thereon for the period ended September
30, 1996 are incorporated by reference into the SAI. This information should be
read in conjunction with the California Funds' 1996 financial statements and
notes thereto. The California Tax-Free Bond and Tax-Free Income Funds are
sometimes referred to as the "California Funds."
For the Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds, the
following information has been derived from the Financial Highlights in each
Fund's financial statements for the year ended September 30, 1996. This
information is provided to assist you in evaluating the historical performance
of each Fund. Except as set forth below, the Fund's financial statements were
audited by KPMG Peat Marwick LLP. The financial statements and the report
thereon are incorporated by reference into the SAI. The financial information
for the periods prior to October 1, 1995 was audited by other auditors. On
September 6, 1996, the Investor class shares of predecessor portfolios of
Pacifica Funds Trust were reorganized as the Class A shares of the Arizona,
National and Oregon Tax-Free Funds. The information for periods prior to
September 6, 1996 reflects the performance of the Investor class shares. This
information should be read in conjunction with the Fund's 1996 financial
statements and the notes thereto. Each Fund's SAI is incorporated by reference
into this prospectus.
PROSPECTUS 8
<PAGE> 383
ARIZONA TAX-FREE FUND(1)
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
A SHARES INVESTOR SHARES
--------- -------------------------------------------------
YEAR PERIOD PERIOD
ENDED ENDED YEAR ENDED MAY 31, ENDED
SEPT. 30, SEPT. 30, --------------------------- MAY 31,
1996 1995(2) 1995 1994 1993 1992
--------- --------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset
value -- beginning of
period................. $10.71 $10.68 $10.48 $10.64 $10.09 $10.00
Income from investment
operations:
Net investment income
(loss)............... 0.48 0.17 0.51 0.50 0.49 0.09
Net realized and
unrealized gain
(loss) on
investments.......... (0.09) 0.06 0.23 (0.15) 0.55 0.08
Total from investment
operations............. 0.39 0.23 0.74 0.35 1.04 0.17
Less distributions:
Dividends from net
investment income.... (0.48) (0.20) (0.53) (0.50) (0.49) (0.08)
Distributions from net
realized gain........ (0.17) (0.00) (0.01) (0.01) 0.00 0.00
Total from
distributions...... (0.65) (0.20) (0.54) (0.51) (0.49) (0.08)
Net asset value -- end
of period............ $10.45 $10.71 $10.68 $10.48 $10.64 $10.09
========== ========== ======= ======= ======= =========
Total return............. 3.60% 6.55%(3) 7.35% 3.28% 10.50% 7.02% (3)
Ratios/supplemental data:
Net assets, end of
period (000)......... $7,331 $24,622 $24,581 $25,153 $22,430 $4,690
Ratio of expenses to
average net assets... 0.78% 0.45% 0.40% 0.31% 0.20% 0.68%
Ratio of net investment
income to average net
assets............... 4.45% 4.73% 4.89% 4.72% 4.98% 4.32%
Ratio of expenses to
average net assets
prior to waived fees
and reimbursed
expenses............. 1.46% 1.35% 1.13% 1.00% 1.18% 2.08%
Ratio of net investment
income to average net
assets prior to
waived fees and
reimbursed
expenses............. 3.77% 3.83% 4.16% 4.03% 4.00% 2.92%
- -------------------
</TABLE>
(1) The Fund operated as the Arizona Intermediate Tax-Free Fund of Westcore
Trust and was advised by First Interstate Bank of Oregon, N.A. from its
commencement of operations on March 2, 1992 until its reorganization as a
portfolio of Pacifica Funds Trust on October 1, 1995 when First Interstate
Capital Management, Inc. ("FICM") assumed investment advisory
responsibilities. The Fund operated as a series of Pacifica Funds Trust
until it was reorganized as a series of the Company on September 6, 1996. In
connection with the reorganization, existing Investor shares were converted
into Class A shares of the Fund. In connection with the merger of First
Interstate Bancorp with Wells Fargo & Company on April 1, 1996, FICM was
renamed Wells Fargo Investment Management, Inc.
(2) The Fund changed its fiscal year-end from May 31 to September 30.
(3) Annualized.
9 PROSPECTUS
<PAGE> 384
ARIZONA TAX-FREE FUND
FOR A CLASS B SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD ENDED
SEPT. 30,
1996(1)
------------
<S> <C>
Net asset value, beginning of period........................... $10.00
Income from investment operations:
Net investment income (loss)................................. 0.01
Net realized and unrealized gain (loss) on investments....... 0.07
Total from investment operations............................... 0.08
Less distributions:
Dividends from net investment income......................... 0.01
Distributions from net realized gain......................... 0.00
Total from distributions....................................... (0.01)
Net asset value, end of period................................. $10.07
Total return (not annualized).................................. 0.76%
Ratios/supplemental data:
Net assets, end of period (000).............................. $20
Ratios to average net assets (annualized):
Ratio of expenses to average net assets...................... 1.16%
Ratio of net investment income to average net assets......... 3.59%
Portfolio turnover........................................... 42%
Ratio of expenses to average net assets prior to waived fees
and reimbursed expenses...................................... 1.81%
Ratio of net investment income to average net assets prior to
waived fees and reimbursed expenses.......................... 2.94%
</TABLE>
- -------------------
(1) Class B shares of the Fund commenced operations on September 6, 1996.
PROSPECTUS 10
<PAGE> 385
CALIFORNIA TAX-FREE BOND FUND
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR
PERIOD ENDED ENDED ENDED ENDED ENDED
SEPT. 30 DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996(1) 1995 1994 1993 1992
------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period..................... $11.05 $9.84 $11.20 $10.41 $10.00
Income from investment
operations:
Net investment income
(loss)................... 0.40 0.55 0.56 0.56 0.53
Net realized and unrealized
gain (loss) on
investments.............. (0.27) 1.21 (1.36) 0.84 0.41
Total from investment
operations................. 0.13 1.76 (0.80) 1.40 0.94
Less distributions:
Dividends from net
investment income........ (0.40) (0.55) (0.56) (0.56) (0.53)
Distributions from net
realized gains........... 0.00 0.00 0.00 (0.05) 0.00
Total from distributions..... (0.40) (0.55) (0.56) (0.61) (0.53)
Net asset value, end of
period................... $10.78 $11.05 $ 9.84 $11.20 $10.41
Total return (not
annualized)................ 1.27% 18.24% (7.27)% 13.82% 10.35%
Ratios/supplemental data:
Net assets, end of period
(000).................... $300,702 $296,417 $305,847 $532,848 $242,409
Ratios to average net assets
(annualized):
Ratio of expenses to
average net
assets................... 0.69% 0.68% 0.65% 0.64% 0.19%
Ratio of net investment
income to average net
assets................... 4.99% 5.18% 5.35% 5.05% 5.67%
Portfolio turnover......... 22% 9% 3% 7% 18%
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses................... 1.07% 1.07% 1.06% 1.01% 1.07%
Ratio of net investment
income to average net
assets prior to waived fees
and reimbursed expenses.... 4.61% 4.79% 4.94% 4.68% 4.79%
</TABLE>
- -------------------
(1) The Fund changed its fiscal year-end from December 31 to September 30.
11 PROSPECTUS
<PAGE> 386
CALIFORNIA TAX-FREE BOND FUND
FOR A CLASS B SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
SEPT. 30, DEC. 31,
1996(1) 1995(2)
------------ ----------
<S> <C> <C>
Net asset value beginning of period......... $11.26 $10.00
Income from investment operations:
Net investment income (loss).............. 0.35 0.48
Net realized and unrealized gain (loss) on
investments............................. (0.28) 1.26
Total from investment operations............ 0.07 1.74
Less distributions:
Dividends from net investment income...... (0.35) (0.48)
Distributions from net realized gain...... 0.00 0.00
Total distributions......................... (0.35) (0.48)
Net asset value, end of period.............. $10.98 $11.26
Total return (not annualized)............... 0.73% 17.72%
Ratios/supplemental data:
Net assets, end of period (000)........... $40,099 $26,916
Ratios to average net assets (annualized):
Ratio of expenses to average net assets... 1.35% 1.32%
Ratio of net investment income to average
net assets.............................. 4.32% 4.31%
Portfolio turnover........................ 22% 9%
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses................................ 1.73% 1.72%
Ratio of net investment income to average
net assets prior to waived fees and
reimbursed expenses..................... 3.94% 3.91%
</TABLE>
- -------------------
(1) The Fund changed its fiscal year-end from December 31 to September 30.
(2) Class B shares of the Fund commenced operations on January 1, 1995.
PROSPECTUS 12
<PAGE> 387
CALIFORNIA TAX-FREE INCOME FUND
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
SEPT., 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996(1) 1995 1994 1993 1992(2)
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period.............. $10.35 $9.84 $10.36 $10.05 $10.00
Income from investment
operations:
Net investment
income............ 0.29 0.38 0.40 0.39 0.02
Net realized and
unrealized capital
gains (losses) on
investments....... (0.09) 0.51 (0.52) 0.31 0.05
Total from investment
operations.......... 0.20 0.89 (0.12) 0.70 0.07
Less distributions:
Dividends from net
investment
income............ (0.29) (0.38) (0.40) (0.39) (0.02)
Distributions from
net realized
capital gains..... 0.00 0.00 0.00 0.00 0.00
Total distributions... (0.29) (0.38) (0.40) (0.39) (0.02)
Net asset value, end
of period........... $10.26 $10.35 $9.84 $10.36 $10.05
Total return (not
annualized)......... 2.01% 9.14% (1.10)% 7.10% 0.84%
Ratios/supplemental
data:
Net assets, end of
period (000)...... $82,359 $77,965 $48,998 $52,873 $7,821
Ratios to average net
assets (annualized):
Ratio of expenses to
average net
assets............ 0.65% 0.65% 0.16% 0.34% 0.00%
Ratio of net
investment income
to average net
assets............ 3.83% 3.70% 4.03% 3.74% 3.56%
Portfolio
turnover.......... 48% 31% 33% 11% 0%
Ratio of expenses to
average net assets
prior to waived
fees and
reimbursed
expenses.......... 1.14% 1.22% 1.21% 1.23% 1.55%
Ratio of net
investment income
to average net
assets prior to
waived fees and
reimbursed
expenses.......... 3.34% 3.13% 2.98% 2.85% 2.01%
</TABLE>
- -------------------
(1) The Fund changed its fiscal year-end from December 31 to September 30.
(2) The Fund commenced operations on November 18, 1992.
13 PROSPECTUS
<PAGE> 388
NATIONAL TAX-FREE FUND(1)
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
A SHARES INVESTOR SHARES
--------- ------------------------------------------
YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
SEPT. 30, SEPT. 30, MAY 31, MAY 31, MAY 31,
1996 1995(2) 1995 1994 1993(3)
--------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value
Beginning of Period...... $ 15.34 $ 15.28 $14.98 $15.17 $15.00
Income from Investment
Operations:
Net Investment Income
(Loss)................. 0.72 0.24 0.68 0.64 0.17
Net Realized and
Unrealized Gain (Loss)
on Investments......... (0.10) 0.08 0.32 (0.17) 0.15
--------- --------- ------- ------- -------
Total From Investment
Operations............... 0.62 0.32 1.00 0.47 0.32
Less Distributions:
Dividends From Net
Investment Income...... (0.72) (0.26) (0.70) (0.64) (0.15)
Distributions From Net
Realized Gain.......... 0.00 0.00 0.00 (0.02) 0.00
--------- --------- ------- ------- -------
Total From Distributions... (0.72) (0.26) (0.70) (0.66) (0.15)
--------- --------- ------- ------- -------
Net Asset Value -- End Of
Period................... $ 15.24 $ 15.34 $15.28 $14.98 $15.17
========== ========== ========= ========= =========
Total return............... 4.03% 6.53%(3) 6.97% 3.07% 5.65% (3)
Ratios/Supplemental Data:
Net Assets, End of Period
(000).................. $ 4,827 $14,305 $14,458 $13,600 $7,457
Ratios to Average Net
Assets (Annualized):
Ratio of Expenses to
Average Net
Assets................. 0.42% 0.35% 0.35% 0.27% 0.25%
Ratio of Net Investment
Income to Average Net
Assets................. 4.69% 4.65% 4.59% 4.29% 3.88%
Portfolio Turnover....... 73% 86% 23% 19% 18%
Ratio of Expenses to
Average Net Assets
Prior to Waived Fees
and Reimbursed
Expenses............... 1.42% 1.85% 1.51% 1.58% 1.99%
Ratio of Net Investment
Income to Average Net
Assets Prior to Waived
Fees and Reimbursed
Expenses............... 3.69% 3.15% 3.43% 2.99% 2.14%
</TABLE>
- -------------------
(1) The Fund operated as the Quality Tax-Exempt Income Fund of Westcore Trust
and was advised by First Interstate Bank of Oregon, N.A. from its
commencement of operations on January 15, 1993 until its reorganization as a
portfolio of Pacifica Funds Trust on October 1, 1995 when First Interstate
Capital Management, Inc. ("FICM") assumed investment advisory
responsibilities. The Fund operated as a series of Pacifica Funds Trust
until it was reorganized as a series of the Company on September 6, 1996. In
connection with the reorganization, existing Investor shares were converted
into Class A shares of the Fund. In connection with the merger of First
Interstate Bancorp with Wells Fargo & Company on April 1, 1996, FICM was
renamed Wells Fargo Investment Management, Inc.
(2) The Fund changed its fiscal year-end from May 31 to September 30.
(3) Annualized.
PROSPECTUS 14
<PAGE> 389
NATIONAL TAX-FREE FUND
FOR A CLASS B SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD
ENDED
SEPT. 30,
1996(1)
---------
<S> <C>
Net asset value, beginning of period...................... $10.00
Income from investment operations:
Net investment income (loss)............................ 0.00
Net realized and unrealized gain (loss) on
investments........................................... 0.06
Total from investment operations.......................... 0.06
Less distributions:
Dividends from net investment income.................... 0.00
Distributions from net realized gain.................... 0.00
Total from distributions.................................. 0.00
Net asset value, end of period............................ $10.06
Total return (not annualized)2............................ 0.60%
Ratios/supplemental data:
Net assets, end of period (000)......................... $0
Ratios to average net assets (annualized):
Ratio of expenses to average net assets................. 0.00%
Ratio of net investment income to average net assets.... 1.83%
Portfolio turnover...................................... 73%
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses.......................... 0.00%
Ratio of net investment income to average net assets
prior to waived fees and reimbursed expenses.......... 1.83%
</TABLE>
- -------------------
(1) Class B shares of the Fund commenced operations on September 6, 1996.
15 PROSPECTUS
<PAGE> 390
OREGON TAX-FREE FUND(1)
FOR A CLASS A SHARE OUTSTANDING
<TABLE>
<CAPTION>
A SHARES INVESTOR SHARES
--------- -------------------------------------------------------------------------------------
YEAR PERIOD
ENDED ENDED YEAR ENDED MAY 31,
SEPT. 30, SEPT. 30, -------------------------------------------------------------------------
1996 1995(2) 1995 1994 1993 1992 1991 1990 1989
--------- --------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of
period....................... $16.38 $16.47 $16.17 $16.79 $16.07 $15.74 $15.27 $15.35 $15.00
Income from investment
operations:
Net investment income (loss)... 0.79 0.28 0.82 0.84 0.86 0.91 0.94 0.93 0.93
Net realized and unrealized
gain (loss) on investments... 0.04 (0.08) 0.39 (0.43) 0.76 0.38 0.47 (0.06) 0.31
------- ------- ------- ------- ------- ------- ------- ------ ------
Total from investment
operations................... 0.83 0.20 1.21 0.41 1.62 1.29 1.41 0.87 1.24
Less Distributions:
Dividends from net investment
income....................... (0.79) (0.29) (0.87) (0.82) (0.86) (0.92) (0.94) (0.93) (0.89)
Distributions from net realized
gain on investments.......... 0.00 0.00 (0.04) (0.21) (0.04) (0.04) 0.00 (0.02) 0.00
------- ------- ------- ------- ------- ------- ------- ------ ------
Total distributions............ (0.79) (0.29) (0.91) (1.03) (0.90) (0.96) (0.94) (0.95) (0.89)
------- ------- ------- ------- ------- ------- ------- ------ ------
Net asset value -- end of
period....................... $16.42 $16.38 $16.47 $16.17 $16.79 $16.07 $15.74 $15.27 $15.35
======= ======= ======= ======= ======= ======= ======= ====== ======
Total return (not
annualized).................. 5.03% 3.67%(3) 7.92% 2.33% 10.36% 8.45% 9.58% 5.80% 8.55%
Ratios/supplemental data:
Net assets, end of period
(000)........................ $33,676 $50,077 $52,245 $53,846 $45,435 $25,002 $14,607 $7,550 $3,175
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets................... 0.85% 0.70% 0.70% 0.62% 0.60% 0.60% 0.55% 0.50% 0.50%
Ratio of net investment income
to average net assets........ 4.87% 5.01% 5.19% 4.90% 5.34% 5.81% 6.27% 6.26% 6.64%
Portfolio turnover............. 27% 57% 15% 22% 6% 17% 23% 94% 9%
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses..................... 1.15% 1.01% 0.90% 0.84% 0.91% 0.98% 1.03% 1.35% 3.29%
Ratio of net investment income
to average net assets prior
to waived fees and reimbursed
expenses..................... 4.57% 4.70% 4.99% 4.69% 5.03% 5.43% 5.79% 5.41% 3.85%
</TABLE>
- -------------------
(1) The Fund operated as the Oregon Tax-Exempt Fund of Westcore Trust and was
advised by First Interstate Bank of Oregon, N.A. from its commencement of
operations on June 1, 1988 until its reorganization as a portfolio of
Pacifica Funds Trust on October 1, 1995 when First Interstate Capital
Management, Inc. ("FICM") assumed investment advisory responsibilities. The
Fund operated as a series of Pacifica Funds Trust until it was reorganized
as a series of the Company on September 6, 1996. In connection with the
reorganization, existing Investor shares were converted into Class A shares
of the Fund. In connection with the merger of First Interstate Bancorp with
Wells Fargo & Company on April 1, 1996, FICM was renamed Wells Fargo
Investment Management, Inc.
(2) The Fund changed its fiscal year-end from May 31 to September 30.
(3) Annualized.
PROSPECTUS 16
<PAGE> 391
OREGON TAX-FREE FUND
FOR A CLASS B SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD ENDED
SEPT. 30,
1996(1)
------------
<S> <C>
Net asset value, beginning of period................... $10.00
Income from investment operations:
Net investment income (loss)......................... 0.00
Net realized and unrealized gain (loss) on
investments........................................ 0.07
Total from investment operations....................... 0.07
Less distributions:
Dividends from net investment income................. 0.00
Distributions from net realized gain................. 0.00
Total from distributions............................... 0.00
Net asset value, end of period......................... $10.07
Total return (not annualized).......................... 0.70%
Ratios/supplemental data:
Net assets, end of period (000)...................... $0
Ratios to average net assets (annualized):
Ratio of expenses to average net assets.............. 0.00%
Ratio of net investment income to average net
assets............................................. 1.83%
Portfolio turnover................................... 27%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses................ 0.00%
Ratio of net investment income to average net assets
prior to waived fees and reimbursed expenses....... 1.83%
- -------------------
(1) Class B Shares of the Fund commenced operations on
September 6, 1996.
</TABLE>
17 PROSPECTUS
<PAGE> 392
HOW THE FUNDS WORK
INVESTMENT OBJECTIVES AND POLICIES
As stated above, the investment objectives of the ARIZONA TAX-FREE, NATIONAL
TAX-FREE, and OREGON TAX-FREE FUNDS are to seek to provide investors with income
exempt from federal income tax and, for the Arizona Tax-Free and Oregon Tax-Free
Funds, exempt from Arizona or Oregon personal income tax, respectively. The
Arizona Tax-Free, National Tax-Free, and Oregon Tax-Free Funds have no
restrictions as to the minimum or maximum maturity of any individual security
held by it. Each 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.
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.
The CALIFORNIA TAX-FREE INCOME FUND seeks to provide investors with a high level
of income exempt from federal income taxes and California personal income taxes,
while preserving capital. It pursues this objective by investing primarily in
short- and intermediate-term, investment-grade municipal securities. Short-term
securities are securities with remaining maturities of less than 2 years.
Intermediate-term securities are securities with remaining maturities of 2 to 10
years.
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"). Each of the State Tax-Free
Funds expects that, except during temporary defensive periods or when acceptable
securities are unavailable for investment by the Fund, at least 65% of such
Fund's total assets will be invested in municipal obligations of issuers located
in a particular state ("Arizona Obligations," "California Obligations," or
"Oregon Obligations," respectively), and issuers of the Virgin Islands, Guam and
Puerto Rico, which are exempt from Arizona, California and Oregon personal
income tax. The amount of each Fund's assets invested in such obligations may
vary from time to time.
As a matter of general operating policy, however, each California 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, and at least 65% of the California Tax-Free
Income Fund's total assets are invested in short- and intermediate-term
municipal obligations. As a matter of general operating
PROSPECTUS 18
<PAGE> 393
policy, the California Tax-Free Income Fund intends that, under normal market
conditions, the average expected duration of its portfolio securities will be
from one to five years.
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.
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
State Tax-Free Funds may purchase investment-grade obligations within the fourth
highest category when acceptable obligations with higher ratings are unavailable
for investment by such Funds. 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. No more than 10% of the
Arizona Tax-Free Fund's total assets will be invested in municipal obligations
that are rated at the time of purchase below one of the three highest
categories.
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
19 PROSPECTUS
<PAGE> 394
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.
Each Fund 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. Each Fund 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, each Fund 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 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"). Each Fund 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
Funds, certain repurchase agreements. The California Funds may make loans of
portfolio securities. Such temporary investments would most likely be made when
there is an unexpected or abnormal level of investor purchases or redemptions of
shares of a Fund or because of unusual market conditions. The income from these
temporary investments and investment activities may be subject to federal income
tax and Arizona, California or Oregon 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 description of tax-free
municipal obligations, taxable money market instruments, and other investment
activities is contained in the "Prospectus Appendix -- Additional Investment
Policies" and in the SAI.
The investment objectives for the Arizona Tax-Free, National Tax-Free and
Oregon Tax-Free Funds, as indicated in the first paragraph of this section, are
not fundamental and may be changed without shareholder approval. The investment
objectives for the
PROSPECTUS 20
<PAGE> 395
California Funds, as stated in the second paragraph of this section, are
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"). For additional descriptions of
tax-free municipal obligations, taxable money market instruments, and other
investment activities, see the "Prospectus Appendix -- Additional Investment
Policies."
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
As noted above and discussed further in the SAI, some of the securities
purchased by the State Tax-Free Funds 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 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.
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
21 PROSPECTUS
<PAGE> 396
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
Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds 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 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 State Tax-Free Funds in municipal obligations of
particular states 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.
The State Tax-Free Funds have constitutional and/or statutory restrictions
that affect government revenues. Because of the nature of the various
restrictions, certain possible ambiguities and inconsistencies in their terms
and the scope of various exemptions and exceptions, as well as the impossibility
of predicting the level of future appropriations for state and local
governmental entities, it is not presently possible to determine the impact of
these restrictions and related measures on the ability of governmental issuers
in Oregon and Arizona to pay interest or repay principal on their obligations.
There have, however, been certain adverse developments with respect to municipal
obligations of governmental issuers in these states over the past several years.
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
PROSPECTUS 22
<PAGE> 397
times. Similarly, there is a relatively small active market for Arizona
Obligations, California Obligations and Oregon Obligations and the market price
of such bonds may therefore be volatile. If any of the State Tax-Free Funds were
forced to sell a large volume of Arizona Obligations, California Obligations or
Oregon 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 such 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 shortfalls. The
Funds' investment adviser continues to monitor and evaluate a 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.
A more detailed description of special factors affecting investment in Arizona
Obligations, California Obligations or Oregon Obligations is set forth in
"Special Considerations Affecting Arizona Municipal Securities," "Special
Considerations Affecting California Municipal Securities" and "Special
Considerations Affecting Oregon Municipal Securities" 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
23 PROSPECTUS
<PAGE> 398
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 a class of shares is calculated by dividing the net investment
income per share earned during a specified period (usually 30 days or one month)
for Class A shares by its public offering price per share (which includes the
maximum sales charge), or for Class B shares 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.
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 shares assuming on a one-year investment, you have
paid the maximum contingent-deferred sales charge, on your hypothetical
investment.
PROSPECTUS 24
<PAGE> 399
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 the performance of each Fund 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 five funds of the Stagecoach Family of Funds. The Company was
organized as a Maryland corporation on September 9, 1991 and currently offers
shares of 20 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 at NAV. 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 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.
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
25 PROSPECTUS
<PAGE> 400
owned. 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, 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 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. 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 portfolios of
the Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds. 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, affiliates of First
Interstate Capital Management, Inc. served as investment advisers to the
predecessor portfolios as follows: First Interstate Bank of Oregon, N.A, served
as investment adviser to the Oregon Tax-Exempt Fund; First Interstate Bank of
Arizona, N.A. served as investment adviser to the Arizona Tax-Exempt Fund; and
First Interstate Bank of Washington, N.A. served as co-investment advisers to
the National Tax-Exempt Fund.
PORTFOLIO MANAGERS
Ms. Laura Milner assumed responsibility for the day-to-day management of the
portfolios of the Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds
as of September 1996 and assumed sole responsibility for the day-to-day
management of the California Tax-Free Income Fund on June 1, 1995. Ms. Milner
had been a co-manager of the California Tax-Free Income Fund since November
1992. 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.
PROSPECTUS 26
<PAGE> 401
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.
Mary Gail Walton is also responsible for the day-to-day portfolio management
of the Arizona Tax-Free, California Tax-Free Income, National Tax-Free and
Oregon Tax-Free Funds. Ms. Walton joined Wells Fargo Bank in 1996 from First
Interstate Capital Management and has been co-portfolio manager of the Funds
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.
27 PROSPECTUS
<PAGE> 402
After an application has been processed and an account has been established,
subsequent purchases of different funds of the Company under the same umbrella
account do not require the completion of additional applications. A separate
application must be processed for each different umbrella account number (even
if the registration is the same). Call the number on your confirmation statement
to obtain information about what is required to change registration.
The Company or Stephens may make the Prospectus available in an electronic
format. Upon receipt of a request from you or your representative, the Company
or Stephens will transmit or cause to be transmitted promptly, without charge, a
paper copy of the electronic Prospectus.
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 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 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 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
Class A and Class B shares of the Funds 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 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 forwarding payment for shares being purchased to the Funds
promptly. Payment must accompany orders placed directly through the transfer
agent.
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
PROSPECTUS 28
<PAGE> 403
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. 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.
29 PROSPECTUS
<PAGE> 404
SALES CHARGES
Set forth below are Front-end Sales Charge Schedules listing the front-end
sales charges applicable to purchases of the Funds' Class A shares. As shown
below, reductions in the rate of front-end sales charges ("Volume Discounts")
are available as you purchase additional Class A shares (contingent-deferred
sales charges applicable to Class B shares are described below). You should
consider the front-end sales charge information set forth below and the other
information contained in this Prospectus when making your investment decisions.
ARIZONA TAX-FREE, CALIFORNIA TAX-FREE BOND,
NATIONAL TAX-FREE AND OREGON TAX-FREE FUNDS
FRONT-END SALES CHARGE SCHEDULE --
CLASS A SHARES
<TABLE>
<CAPTION>
FRONT-END FRONT-END DEALER
SALES CHARGE SALES CHARGE ALLOWANCE
AS% OF AS% OF NET AS% OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ----------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Less than $50,000............ 4.50% 4.71% 4.00%
$50,000 up to $100,000....... 4.00 4.17 3.55
$100,000 up to $249,999...... 3.50 3.63 3.125
$250,000 up to $499,999...... 2.50 2.56 2.00
$500,000 up to $999,999...... 2.00 2.04 1.75
$1,000,000 and over.......... 0.00(1) 0.00 1.00
</TABLE>
- ---------------
(1) Class A shares that are redeemed within one year from the receipt of a
purchase order for such shares are subject to a contingent-deferred sales
charge of 1.00% of the dollar amount equal to the lesser of the NAV at the
time of purchase or the NAV of such shares at the time of redemption.
CALIFORNIA TAX-FREE INCOME FUND
FRONT-END SALES CHARGE SCHEDULE --
CLASS A SHARES
<TABLE>
<CAPTION>
FRONT-END FRONT-END DEALER
SALES CHARGE SALES CHARGE ALLOWANCE
AS% OF AS% OF NET AS% OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ----------------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Less than $100,000........... 3.00% 3.09% 2.65%
$100,000 up to $249,999...... 2.25 2.30 2.00
$250,000 up to $499,999...... 1.50 1.52 1.30
$500,000 up to $999,999...... 0.60 0.60 0.50
$1,000,000 and over.......... 0.00(1) 0.00 0.25
</TABLE>
- ---------------
(1) Class A shares that are redeemed within one year from the receipt of a
purchase order for such shares are subject to a contingent-deferred sales
charge of 1.00% of the dollar amount equal to the lesser of the NAV at the
time of purchase or the NAV of such shares at the time of redemption.
PROSPECTUS 30
<PAGE> 405
If Class A shares are purchased through a selling agent, Stephens reallows the
portion of the front-end sales charge shown above as the Dealer Allowance.
Stephens also compensates selling agents for sales of Class B shares and is then
reimbursed out of Rule 12b-1 fees and contingent-deferred sales charges
applicable to such shares. When shares are purchased directly through the
transfer agent and no selling agent is involved with the purchase, the entire
sales charge is paid to Stephens.
A selling agent or shareholder servicing agent and any other person entitled
to receive compensation for selling or servicing shares may receive different
compensation for selling or servicing Class A shares as compared with Class B
shares of the same fund.
REDUCED SALES CHARGES -- CLASS A SHARES
Discounts described below pertaining to reduced sales charges for Class A
shares are based on your holdings or purchases of shares on which you have paid
or will pay a front-end sales charge. Because Class B shares are not subject to
a front-end sales charge, the amount of Class B shares you hold is not
considered in determining any reduced sales charges on Class A shares described
below.
Volume Discounts
The Volume Discounts described in the Front-end Sales Charge Schedules are
available to you based on the combined dollar amount you invest in Class A
shares of one or more of the Company's funds that assess a front-end sales
charge (the "Load Funds").
Right of Accumulation
The Right of Accumulation allows you to combine the amount you invest in a
Fund's Class A shares with the total NAV of Class A shares in other Load Funds
to determine reduced front-end sales charges in accordance with the above
Front-end Sales Charge Schedule. In addition, you also may combine the total NAV
of Class A shares that you currently have invested in any other mutual fund that
assesses a front-end sales charge and is advised or sub-advised by Wells Fargo
Bank and sponsored by Stephens. For example, if you own Class A shares of the
Load Funds with an aggregate NAV of $90,000 and you invest an additional $20,000
in Class A shares of a Load Fund, the front-end sales charge on the additional
$20,000 investment would be 3.50% of the offering price. To obtain such a
discount, you must provide sufficient information at the time of your purchase
to verify that your purchase qualifies for the reduced front-end sales charge.
Confirmation of the order is subject to such verification. The Right of
Accumulation may be modified or discontinued at any time without prior notice on
all subsequent shares purchased.
31 PROSPECTUS
<PAGE> 406
Letter of Intent
A Letter of Intent allows you to purchase a Fund's Class A shares over a
13-month period at a reduced front-end sales charge based on the total amount of
Class A shares you intend to purchase plus the total NAV of Class A shares in
any of the Load Funds you already own. Each investment in Class A shares that
you make during the period may be made at the reduced front-end sales charge
that is applicable to the total amount you intend to invest. If you do not
invest the total amount within the period, you must pay the difference between
the higher front-end sales charge rate that would have been applicable to the
purchases you made and the reduced front-end sales charge rate you have paid.
The minimum initial investment for a Letter of Intent is 5% of the total amount
you intend to purchase, as specified in the Letter. Class A shares of the Fund
equal to 5% of the amount you intend to invest will be held in escrow and, if
you do not pay the difference within 20 days following the mailing of a request,
a sufficient amount of escrowed shares will be redeemed for payment of the
additional front-end sales charge. Dividends and capital gains paid on the Class
A shares held in escrow will be reinvested in additional Class A shares of the
Fund.
Reinvestment
You may reinvest proceeds from a redemption of a Fund's Class A shares in
Class A shares of the Fund, or in shares of another of the Company's funds
registered in your state of residence at NAV, without payment of a front-end
sales charge, within 120 days after your redemption. However, if the other
investment portfolio charges a front-end sales charge that is higher than the
one you paid in connection with the shares you have redeemed, you must pay the
difference between the dollar amount of the two front-end sales charges. You may
reinvest at this NAV price up to the total amount of the redemption proceeds. A
written purchase order for the shares must be delivered to the Company, a
selling agent, a shareholder servicing agent, or the transfer agent at the time
of reinvestment.
Reductions for Families or Fiduciaries
Reductions in front-end sales charges apply to purchases by a single "person,"
including an individual, members of a family unit, consisting of a husband, wife
and children under the age of 21 purchasing securities for their own account, or
a trustee or other fiduciary purchasing for a single fiduciary account or single
trust estate.
Waivers for Investments of Proceeds From Other Investments
Purchases may be made at NAV, without payment of a front-end sales charge, to
the extent that: (i) you are investing proceeds from a redemption of shares of
another open-end investment company on which you paid a front-end sales charge,
and (ii) such redemption occurred within thirty (30) days prior to the date of
the purchase order. You
PROSPECTUS 32
<PAGE> 407
must notify the Fund and/or the transfer agent at the time you place such
purchase order of your eligibility for the waiver of front-end sales charges and
provide satisfactory evidence thereof (e.g., a confirmation of the redemption
and the sales charges paid). Such purchases may not be made at net asset value
to the extent the proceeds are from a redemption of shares of another open-end
investment company that is affiliated with the Company on which you paid a
contingent-deferred sales charge upon redemption.
Reductions for Qualified Groups
Reductions in front-end sales charges also apply to purchases by individual
members of a "qualified group." The reductions are based on the aggregate dollar
amount of Class A shares purchased by all members of the qualified group. For
purposes of this paragraph, a qualified group consists of a "company", as
defined in the 1940 Act, which has been in existence for more than six months
and which has a primary purpose other than acquiring Fund shares at a reduced
front-end sales charge, and the "related parties" of such company. For purposes
of this paragraph, a "related party" of a company is: (i) any individual or
other company who directly or indirectly owns, controls or has the power to vote
5% or more of the outstanding voting securities of such company; (ii) any other
company of which such company directly or indirectly owns, controls or has the
power to vote 5% or more of its outstanding voting securities; (iii) any other
company under common control with such company; (iv) any executive officer,
director or partner of such company or of a related party; and (v) any
partnership of which such company is a partner. Investors seeking to rely on
their membership in a qualified group to purchase shares at a reduced sales load
must provide evidence satisfactory to the transfer agent of the existence of a
bona fide qualified group and their membership therein.
Waivers for Certain Parties
The Funds' Class A shares may be purchased at NAV, without payment of a
front-end sales charge, by directors, officers and employees (and their spouses,
parents, children, and siblings) of the Company, Stephens, its affiliates and
selling agents. The Funds' Class A shares also may be purchased at NAV, without
payment of a front-end sales charge, by present and retired directors, officers
and employees (and their spouses, parents, children, and siblings) of Wells
Fargo Bank and its affiliates. The Funds' Class A shares also may be purchased
at NAV, without payment of a front-end sales charge, by employee benefit and
thrift plans for such persons and by any investment advisory, trust or other
fiduciary account, including certain Plan Accounts, that are maintained, managed
or advised by Wells Fargo Bank or its affiliates. In addition, you may purchase
Class A shares at NAV, without payment of a sales charge, with proceeds from a
required minimum distribution from any Individual Retirement Account ("IRA"),
Simplified Employee Pension Plan or other self-directed retirement plan for
which Wells Fargo Bank serves as trustee, provided that the proceeds are
invested in the Funds within
33 PROSPECTUS
<PAGE> 408
30 days of such distribution and such distribution is required as a result of
reaching age 70 1/2.
CONTINGENT-DEFERRED SALES CHARGE -- CLASS B SHARES
Class B shares may be subject to 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 your shares
at the time of purchase or the NAV of your shares at redemption.
Except as described below, if you purchase Class B shares and redeem such
shares within six years of the date of purchase the Class B shares are subject
to a CDSC as follows:
<TABLE>
<CAPTION>
Redemption Within: 1 Year 2 Years 3 Years 4 Years 5 Years 6 Years
- ---------------------- ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CDSC:................. 5% 4% 3% 3% 2% 1%
</TABLE>
Class B shares of a Fund purchased prior to March 3, 1997, are subject to a
CDSC if redeemed within four years of purchase. For so long as you hold Class B
shares of such Fund, any new Class B shares of the Fund that you acquire are
subject to a CDSC if redeemed within four years. In addition, if you exchange
Class B shares of the Fund for Class B shares of another fund, upon redemption
the CDSC applicable to the original Class B shares of the Fund will apply. The
CDSCs applicable to such shares are as follows:
<TABLE>
<CAPTION>
Redemption Within: 1 Year 2 Years 3 Years 4 Years
- ------------------------------------ ------ ------- ------- -------
<S> <C> <C> <C> <C>
CDSC:............................... 3% 2% 1% 1%
</TABLE>
Contingent-deferred sales charges are not imposed on amounts representing
increases in NAV above the NAV at the time of purchase and are not assessed on
Class B shares purchased through reinvestment of dividends or capital gain
distributions. Class B shares automatically convert to Class A shares of the
same Fund six years after the end of the month in which such Class B shares were
acquired, and such conversions are ordinarily not taxable.
The amount of any contingent-deferred sales charge, if any, paid upon
redemption of Class B shares is determined in a manner designed to result in the
lowest sales charge rate being assessed. When a redemption request is made,
Class B shares acquired pursuant to the reinvestment of dividends and
capital-gain distributions are considered to be redeemed first. After this,
Class B shares are considered redeemed on a first-in, first-out basis so that
Class B shares held for a longer period of time are considered redeemed prior to
more recently acquired Class B shares. For a discussion of the interaction
between the optional Exchange Privilege and contingent-deferred sales charges on
Class B shares, see "Additional Shareholder Services -- Exchange Privilege."
PROSPECTUS 34
<PAGE> 409
Contingent-deferred sales charges are waived on redemptions of Class B shares
(i) following the death or disability (as defined in the Internal Revenue Code
of 1986, as amended (the "Code")) of a shareholder, (ii) to the extent that the
redemption 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 A or Class B shares, you should compare
the fees assessed on Class A shares (including front-end sales charges) against
those assessed on Class B shares (including potential contingent-deferred sales
charges and higher Rule 12b-1 fees than Class A shares) in light of the amount
to be invested and the anticipated time that the shares will be owned. If your
purchase amount would qualify you for a reduced sales charge on Class A shares,
you should consider carefully whether you would pay lower fees ultimately on
Class A shares or on Class B shares. See "Investing In The Funds -- Sales
Charges" for information on reduced sales charges for Class A shares.
You may buy shares 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 A or Class B)
Account Name(s): Name(s) in which to be registered
Account Number: (if investing into an existing account)
35 PROSPECTUS
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3. A completed Account Application should be mailed, or sent by telefacsimile
with the original subsequently mailed, to the following address immediately
after funds are wired and must be received and accepted by the transfer agent
before an account can be opened:
Wells Fargo Bank, N.A.
Stagecoach Shareholder Services
P.O. Box 7066
San Francisco, California 94120-7066
Telefacsimile: 1-415-543-9538
4. Share purchases are effected at the public offering price or, in the case of
Class B shares, at the NAV next determined after the Account Application is
received and accepted.
INITIAL PURCHASES BY MAIL
1. Complete an Account Application. Indicate the services to be used.
2. Mail the Account Application and a check for $1,000 or more, payable to
"Stagecoach Funds (Name of Fund) (designate Class A or Class B)" to the
address set forth in "Initial Purchases by Wire."
3. Share purchases are effected at the public offering price or, in the case of
Class B shares, at the NAV next determined after the Account Application is
received and accepted.
AUTOSAVER PLAN PURCHASES
The Company's AutoSaver Plan provides you with a convenient way to establish
and automatically add to your Fund account on a monthly basis. To participate in
the 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 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.
PROSPECTUS 36
<PAGE> 411
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.
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 A or Class B)" to the address set forth in "Initial Purchases
by Wire." Write your Fund account number on the check and include the detachable
stub from your 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 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
37 PROSPECTUS
<PAGE> 412
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, that are attributable to a
particular class may affect the relative dividend and/or capital gain
distributions of Class A shares and Class B shares.
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. They are
discussed under "Additional Shareholder Services -- Dividend and Capital Gain
Distribution Options."
PROSPECTUS 38
<PAGE> 413
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 applicable to Class B shares (the
"net redemption proceeds"), within seven days after your redemption order is
received in proper form, unless the SEC permits a longer period under
extraordinary circumstances. Such extraordinary circumstances could include a
period during which an emergency exists as a result of which (a) disposal by a
Fund of securities owned by it is not reasonably practicable or (b) it is not
reasonably practicable for a Fund fairly to determine the value of its net
assets, or a period during which the SEC by order permits deferral of
redemptions for the protection of security holders of 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.
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."
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.
39 PROSPECTUS
<PAGE> 414
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 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,
PROSPECTUS 40
<PAGE> 415
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 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
41 PROSPECTUS
<PAGE> 416
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. However, you should not
participate in the Systematic Withdrawal Plan if you also are purchasing shares
of a Fund that is subject to a front-end sales charge.
It may take up to ten (10) days after receipt of your request to establish
your participation in the Systematic Withdrawal Plan. You may change your
withdrawal amount, suspend withdrawals or terminate your election at any time by
notifying the transfer agent at least five (5) Business Days prior to any
scheduled transaction. Your participation in the Systematic Withdrawal Plan is
terminated automatically if your Fund account is closed, or, in some cases, if
your Approved Bank Account is closed.
REDEMPTIONS THROUGH SELLING AGENTS
If your redemption order is received by a Selling Agent before the close of
the NYSE and received by the transfer agent before the close of business on the
same day, the 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 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.
PROSPECTUS 42
<PAGE> 417
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 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
43 PROSPECTUS
<PAGE> 418
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 A or Class B shares may be invested in Class A
or Class B shares, respectively, of another fund, in Retail shares of a
fund offered by another investment company in the Stagecoach Family of
Funds, in Class A shares of the Government Money Market Mutual, Money
Market Mutual, Prime Money Market Mutual or Treasury Money Market Mutual
Funds or in shares of the California Tax-Free Money Market Mutual or
National Tax-Free Money Market Mutual Funds (collectively, the "Money
Market Mutual Funds"). Distributions paid on Class A shares may also be
invested in shares of a non-money market fund with a single class of shares
(a "single class fund"). Distributions paid on Class B shares may not be
invested in shares of a single class fund.
C. The AUTOMATIC CLEARING HOUSE OPTION permits you to have dividend and
capital gain distributions deposited in your Approved Bank Account. In the
event your Approved Bank Account is closed, and such distribution is
returned to the 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 lets you 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.
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 44
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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 A shares and a Money Market Mutual Fund........... X
Class A shares and Class A shares....................... X
Class B shares and a Money Market Mutual Fund........... X
Class B shares and Class B shares....................... X
Class A shares of a non-Money Market Mutual Fund and
Class B shares........................................ X
</TABLE>
Important factors that you should consider:
- You will need to read the prospectus of the fund into which you want to
exchange.
- Every exchange is a redemption of shares of one fund and a purchase of
shares of another fund. 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.
- If you exchange Class A shares, you will need to pay any difference between
a load that you have already paid and the load that you are subject to in
the new fund (less the difference between any load already paid under the
maximum 3% load schedule and the maximum 4.50% schedule).
- You will not pay a contingent deferred sales charge on any exchange from
Class B shares into other Class B shares or a Money Market Mutual Fund. The
new shares will continue to age while they are in the new fund and will be
charged the contingent deferred sales charge applicable to the original
shares upon redemption.
- If you exchange Class A or Class B shares for shares of a Money Market
Mutual Fund, you may not re-exchange shares of the Money Market Mutual Fund
for shares other than the original exchanged class.
- 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.
45 PROSPECTUS
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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.
CONVERSION
Class B shares that have been outstanding for six years after the end of the
month in which the shares were initially purchased automatically convert to
Class A shares of the same Fund and, consequently, will no longer be subject to
the higher Rule 12b-1 fees applicable to Class B shares of such Fund. Such
conversion is effected on the basis of the relative NAV of the two classes,
without the imposition of any sales charge or other charge except that the lower
Rule 12b-1 fees applicable to Class A shares shall thereafter be applied to such
converted shares. Because the NAV of the Class A shares may be higher than that
of the Class B shares at the time of conversion, a shareholder may receive fewer
Class A shares than the number of Class B shares converted, although the dollar
value will be the same. A conversion should not result in a gain or loss for
federal income tax purposes. Reinvestments of dividends and distributions in
Class B shares are considered new purchases for purposes of the conversion
feature. A conversion should not produce a gain or loss for federal income tax
purposes.
If a shareholder effects one or more exchanges among Class B shares of any
fund or shares of a Money Market Mutual Fund during the six-year period and
exchanges back into Class B shares, the holding period for the shares so
exchanged is counted toward the six-year period, and any Class B shares held at
the end of six years are converted into Class A shares.
MANAGEMENT, DISTRIBUTION AND
SERVICING FEES
INVESTMENT ADVISER
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank, as the 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.
PROSPECTUS 46
<PAGE> 421
Advisory Fees Paid
For the nine-month period ended September 30, 1996, the California Tax-Free
Bond and California Tax-Free Income Funds paid advisory fees to Wells Fargo Bank
at the annual rates of 0.50% and 0.47%, respectively, of their average daily net
assets. For the year ended September 30, 1996, the Arizona Tax-Free, National
Tax-Free and Oregon Tax-Free Funds paid advisory fees at annual rates equal to
0.09%, 0.08% and 0.49%, respectively, of their 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 portfolios.
For the year ended December 31, 1995, the California Tax-Free Bond and
California Tax-Free Income Funds paid advisory fees to Wells Fargo Bank at
annual rates equal to 0.50% and 0.43%, respectively, of their 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.
SHAREHOLDER SERVICING AGENT
The Funds have entered into shareholder servicing agreements with Wells Fargo
Bank, on behalf of each class of Fund shares, and may enter into similar
agreements with other entities ("Shareholder Servicing Agents"). 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 fees,
at the annual rate of up to 0.30% of the average daily net assets attributable
to Class A or Class B shares of the California Funds, as the case may be, for
which payment is being made, owned during the period by investors with whom the
Shareholder Servicing Agent maintains a servicing relationship, or an amount
which equals the maximum amount payable to the Shareholder Servicing Agent under
applicable laws, regulations or rules, including the Conduct Rules of the NASD
("NASD Rules"). A Shareholder Servicing Agent is entitled to receive fees from
the Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds at annual rate
of up to 0.25% of the average daily net assets attributable to Class A or Class
B shares of the Funds or an
47 PROSPECTUS
<PAGE> 422
amount which equals the maximum amount payable to the Shareholder Servicing
Agent under applicable laws, regulations or rules, including the NASD Rules.
In no event will the shareholder servicing fees for the California Tax-Free
Income Fund, as calculated on an annualized basis for the Fund's then current
fiscal year, exceed the lesser of (1) 0.30% of the average daily net assets of
the Fund represented by shares owned during the period for which payment is
being made by investors with whom the Shareholder Servicing Agent maintains a
servicing relationship, or (2) an amount which equals the maximum amount payable
to the Shareholder Servicing Agent under applicable laws, regulations or rules,
including the NASD Rules. In no event will the portion of such fees that
constitutes a "service fee," as that term is used by the NASD, exceed 0.25% of
each such Fund's average NAV.
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 and California Tax-Free Income Funds paid
administrative fees to Stephens at the annual rates of 0.03% and 0.03%,
respectively, of each Fund's average daily net assets. For the year ended
September 30, 1996, the Arizona Tax-Free, National Tax-Free and Oregon Tax-Free
Funds paid administrative fees at the annual rates of 0.10%, 0.10% and 0.11%,
respectively, of each Fund's average daily net assets. For the period prior to
PROSPECTUS 48
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September 6, 1996, this includes amounts paid to Furman Selz LLC by the
predecessor portfolios to the Arizona Tax-Free, National Tax-Free and Oregon
Tax-Free Funds.
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 Fund's Class A and B shares under
the SEC's Rule 12b-1 ("Plans"). Under the Class A Plan, a Fund may defray all or
part of the cost of preparing and printing prospectuses and other promotional
materials and of delivering prospectuses and those materials to prospective
shareholders and may pay compensation to the Distributor and Selling Agents for
sales support service. The Class A Plan provides for payments at an annual rate
of up to 0.05% of the average daily net assets attributable to the Class A
shares. The Class B Plan is similar but provides for payment, at an annual rate
of up to 0.70% of the average daily net assets attributable to the Class B
shares of the California Tax-Free Bond Fund and 0.75% of the average daily net
assets attributable to the Class B shares of the Arizona Tax-Free, National
Tax-Free and Oregon Tax-Free Funds. Other 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 attributable, in part, to the distribution-related
activities of another fund of the Company. Generally, the expenses attributable
to joint distribution activities are
49 PROSPECTUS
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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 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
PROSPECTUS 50
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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.
STATE TAXES
ARIZONA STATE INCOME TAXES
Individuals, trusts and estates who are subject to Arizona income tax will not
be subject to such tax on dividends paid by the Arizona Tax-Free Fund, to the
extent that such dividends qualify as exempt-interest dividends of a regulated
investment company under Section 852(b)(5) of the Code and are attributable to
either (i) obligations of the State of Arizona or its political subdivisions
thereof or (ii) obligations issued by the governments of Guam, Puerto Rico, or
the Virgin Islands. In addition, dividends paid by the Arizona Tax-Free Fund
that are attributable to interest payments on direct obligations of the U.S.
government will not be subject to Arizona income tax to the extent the Arizona
Tax-Free Fund qualifies as a regulated investment company under Subchapter M of
the Code. Other distributions from the Arizona Tax-Free Fund, however, such as
distributions of short-term or long-term capital gains, will generally not be
exempt from Arizona income tax.
There are no municipal income taxes in Arizona. Moreover, because shares of
the Arizona Tax-Free Fund are intangibles, they are not subject to Arizona
property tax. Shareholders of the Arizona Tax-Free Fund should consult their tax
advisors about other state and local tax consequences of their investment in the
Arizona Tax-Free 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
and California Tax-Free Income Funds 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 and California Tax-Free Income Funds,
including distributions of interest on municipal obligations issued by other
issuers and all capital gains.
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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 and California Tax-Free Income
Funds 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 and California Tax-Free Income
Funds, 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 and California Tax-Free Income Funds, 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, California
Tax-Free Income, or other Funds, and such investors should consult with their
own tax advisors.
OREGON STATE INCOME TAXES
So long as the Oregon Tax-Free Fund qualifies to be taxed as a separate
"regulated investment company" under the Code, individuals, trusts and estates
will not be subject to Oregon personal income tax on distributions from the
Oregon Tax-Free Fund that represent "exempt-interest dividends" of a regulated
investment company under the Code paid on municipal obligations of the State of
Oregon and its political subdivisions, the U.S. Virgin Islands, Puerto Rico and
Guam. Individuals, trusts and estates will be subject to Oregon personal income
tax on other types of distributions received from the Oregon Tax-Free Fund,
including distributions of interest on obligations issued by other issuers and
all long-term and short-term capital gains.
Corporations subject to the Oregon corporation excise tax will generally be
subject to tax on all distributions from the Oregon Tax-Free Fund, including
distributions of income that is exempt for U.S. federal income tax purposes.
Oregon imposes a corporation income tax on corporations not subject to the
Oregon corporation excise tax. Corporations subject to the Oregon corporation
income tax should consult their tax advisors regarding distributions from the
Oregon Tax-Free Fund. Shares of the Oregon Tax-Free Fund will not be subject to
the Oregon property tax.
Shareholders of the Oregon Tax-Free Fund should consult their tax advisors
about other state and local tax consequences of their investments in the Oregon
Tax-Free Fund, which may differ from the consequences under U.S. federal income
tax law.
PROSPECTUS 52
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NATIONAL TAX-EXEMPT 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 SAIs for the Funds.
53 PROSPECTUS
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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 a California 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.
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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 Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds 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 Arizona Tax-Free, National
Tax-Free and Oregon Tax-Free Funds 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.
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For a further discussion of factors affecting purchases of municipal
obligations by the State Tax-Free Funds, see "Special Considerations Affecting
Arizona Municipal Securities," "Special Considerations Affecting California
Municipal Securities" and "Special Considerations Affecting Oregon Municipal
Securities" in the SAI.
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 State Tax-Free Funds, from a respective
state'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.
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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, 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 Arizona Tax-Free, Oregon Tax-Free and National Tax-Free Funds 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 a Fund's option specified municipal obligations at a price equal to
their amortized cost value plus accrued interest. The Funds 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.
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In no event may any Fund, together with any company or companies controlled by
it, own more than 3% of the total outstanding voting stock of any such company,
nor may any Fund, together with any such company or companies, invest more than
5% of its assets in any one such company or invest more than 10% of its assets
in securities of all such companies combined. Notwithstanding any other
investment policy or limitation (whether or not fundamental), as a matter of
fundamental policy, each Fund (except the California Tax-Free Bond 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.
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 to the Funds, will monitor on an
ongoing basis the ability of an issuer of a demand instrument to pay principal
and interest on demand. Events affecting the ability of the issuer of a demand
instrument to make payment when due may occur between the time a Fund elects to
demand payment and the time payment is due, thereby affecting such Fund's
ability to obtain payment at par. Demand instruments whose demand feature is not
exercisable within seven days, may be treated as liquid provided that an active
secondary market exists. See "Additional Permitted Investment Activities" in the
SAI for additional information.
Illiquid Securities
The Arizona Tax-Free, California Tax-Free Income Fund, National Tax-Free and
Oregon Tax-Free Funds 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
A- 5 PROSPECTUS
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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 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 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 California 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 California 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.
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.
PROSPECTUS A- 6
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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 Arizona Tax-Free, National Tax-Free or Oregon Tax-Free Funds may not
purchase securities (except U.S. Government securities and repurchase agreements
collateralized by such securities) if more than 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 a Fund's total assets may be invested without regard to this 5%
limitation.
2. The Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds 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 Funds 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 a 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. No Fund may borrow money except in amounts up to 10% of the value of its
total assets at the time of borrowing (for the California Funds, 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 each of their net
assets (but investments may not be purchased by a Fund while any such
outstanding borrowings exceed 5% of its net assets)).
4. The Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds will not
at any time knowingly have more than 15% of their respective 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.
A- 7 PROSPECTUS
<PAGE> 435
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. Neither the California Tax-Free Bond Fund nor the California Tax-Free
Income Fund may invest more than 10% or 15%, respectively, of the current value
of the Fund's 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
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 a Fund's limitation see "Illiquid Securities" in this
Appendix.
2. The Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds may
invest up to 15% of the current value of each Fund's net assets in illiquid
securities.
For purposes of complying with the Code, each California Fund will diversify
its holdings so that, at the end of each quarter of the taxable year: (i) at
least 50% of the market value of each Fund's assets is represented by cash, U.S.
Government obligations and other securities limited in respect of any one issuer
to an amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer; and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government obligations and the securities of other regulated investment
companies), or of two or more issuers which the taxpayer controls and which are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses. With respect to paragraph (i), it may be possible that the
Company would own more than 10% of the outstanding voting securities of an
issuer.
PROSPECTUS A- 8
<PAGE> 436
Advised by WELLS FARGO BANK, N.A.
Sponsored/Distributed by
Stephens Inc., Member NYSE/SIPC
LOGO
NOT FDIC INSURED
<PAGE> 437
STAGECOACH FUNDS:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- are NOT FDIC insured
- are NOT guaranteed by Wells Fargo Bank
- are NOT deposits or obligations of the Bank LOGO
- involve investment risk, including possible loss of
principal
</TABLE>
LOGO
Printed on Recycled Paper SC0222 (2/97)
<PAGE> 438
LOGO
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH FUNDS:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- are NOT FDIC insured
- are NOT guaranteed by Wells Fargo Bank
- are NOT deposits or obligations of the Bank LOGO
- involve investment risk, including possible loss of
principal
</TABLE>
LOGO
Printed on Recycled Paper SC0206 (2/97)
<PAGE> 439
LOGO
------------------------------
PROSPECTUS
------------------------------
MONEY MARKET MUTUAL FUND
INSTITUTIONAL CLASS
FEBRUARY 1, 1997
<PAGE> 440
STAGECOACH FUNDS(R)
MONEY MARKET MUTUAL FUND
INSTITUTIONAL CLASS
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about one class of shares offered
in one fund of the Stagecoach Family of Funds -- the Institutional Class shares
of the MONEY MARKET MUTUAL FUND -- (the "Fund").
The MONEY MARKET MUTUAL FUND seeks to provide investors with a high level of
income, while preserving capital and liquidity, by investing in high-quality,
short-term instruments.
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 February 1, 1997, containing additional information
about the Fund has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this Prospectus. The Fund's 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 THE FUND INVOLVES CERTAIN
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
PROSPECTUS DATED FEBRUARY 1, 1997
PROSPECTUS
<PAGE> 441
The Fund is advised by Wells Fargo Bank, which also serves as the Fund's
administrator, transfer and dividend disbursing agent and custodian. In
addition, Wells Fargo Bank is a shareholder servicing agent and a selling agent
(each as defined below). Stephens Inc. ("Stephens") is the Fund's sponsor and
co-administrator and serves as distributor of the Fund's shares.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND ADMINISTRATOR, AND IS COMPENSATED
FOR PROVIDING THE FUND WITH CERTAIN OTHER SERVICES. STEPHENS, WHICH IS NOT
AFFILIATED WITH WELLS FARGO BANK, IS THE FUND'S SPONSOR, CO-ADMINISTRATOR AND
DISTRIBUTOR.
PROSPECTUS
<PAGE> 442
TABLE OF CONTENTS
-------
PROSPECTUS SUMMARY 1
SUMMARY OF FUND EXPENSES 3
FINANCIAL HIGHLIGHTS 5
HOW THE FUND WORKS 6
THE FUND AND MANAGEMENT 8
INVESTING IN THE FUND 9
EXCHANGES 14
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS 15
MANAGEMENT AND SERVICING FEES 15
TAXES 18
PROSPECTUS APPENDIX - ADDITIONAL INVESTMENT POLICIES A-1
PROSPECTUS
<PAGE> 443
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 MONEY MARKET MUTUAL FUND seeks to provide investors with a high level of
income, while preserving capital and liquidity, by investing in
high-quality, short-term instruments. In pursuing this objective, the Fund
invests in securities with remaining maturities not exceeding 397 days, as
determined in accordance with Rule 2a-7 under the Investment Company Act of
1940, as amended (the "1940 Act"). These securities include obligations of
the U.S. Government, its agencies and instrumentalities, high-quality debt
obligations such as corporate debt, certain obligations of U.S. banks and
certain repurchase agreements. 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. 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 can be 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
investments 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" in this Prospectus and "Additional 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 administrative, 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 for the
Fund. See "The Fund and Management" and "Management and Servicing Fees."
1 PROSPECTUS
<PAGE> 444
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. 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 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 at NAV. Shareholders may
also 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> 445
SUMMARY OF FUND EXPENSES
INSTITUTIONAL CLASS SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
MONEY MARKET
MUTUAL FUND
------------
<S> <C>
Maximum Sales Charge
on Purchases (as a percentage of offering price)... None
Maximum Sales Charge on Reinvested Distributions....... None
Maximum Sales Charge on Redemptions.................... None
Exchange Fees.......................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
MONEY MARKET
MUTUAL FUND
------------
<S> <C>
Management Fee........................................ 0.40%
Rule 12b-1 Fee........................................ None
Other Expenses (after waivers or reimbursements)(1)... 0.33%
-----
TOTAL FUND OPERATING EXPENSES (after waivers or
reimbursements)(2).................................. 0.73%
</TABLE>
- -------------------------------
<TABLE>
<C> <S>
1 Other Expenses (before waivers or reimbursements) would be 0.46%.
2 Total Fund Operating Expenses (before waivers or reimbursements)
would be 0.86%.
Note: The tables do not reflect any charges that may be imposed by
Wells Fargo Bank or another Institution directly on its
customer accounts in connection with an investment in the Fund.
</TABLE>
3 PROSPECTUS
<PAGE> 446
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor 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:
Money Market Mutual Fund....... $7 $23 $41 $ 91
</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 the Fund will pay directly or
indirectly.
SHAREHOLDER TRANSACTION EXPENSES are charges incurred when a shareholder buys
or sells Fund shares. Institutional Class shares are sold with no shareholder
transaction expenses imposed by the Fund. The Company reserves the right to
impose a charge for wiring redemption proceeds.
ANNUAL FUND OPERATING EXPENSES are based on applicable contract amounts for
"Management Fee" and "Rule 12b-1 Fee" and estimated amounts for "Other Expenses"
for the current year. Wells Fargo Bank and Stephens have each agreed to waive or
reimburse all or a portion of their respective fees charged to, or expenses paid
by, the Fund to ensure that the "Total Fund Operating Expenses" do not exceed,
on an annual basis, 0.73% of the Money Market Mutual Fund's average daily net
assets through August 31, 1997. Any waivers or reimbursements would reduce the
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 expense 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%. This 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.
PROSPECTUS 4
<PAGE> 447
FINANCIAL HIGHLIGHTS
The following information relating to the Institutional Class shares of the
Money Market Mutual Fund has been derived from the Financial Highlights in the
Fund's financial statements for the period ended September 30, 1996. The
financial statements have been audited by KPMG Peat Marwick LLP. The financial
statements and the report thereon for the period ended September 30, 1996 are
incorporated by reference into the SAI. This information should be read in
conjunction with the related financial statements and notes thereto. The SAI for
the Fund has been incorporated by reference into this Prospectus.
MONEY MARKET MUTUAL FUND
FOR AN INSTITUTIONAL CLASS SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD ENDED
SEPT. 30,
1996(1)
--------------
<S> <C>
Net Asset Value, Beginning of Period......................... $ 1.00
Income from Investment Operations:
Net Investment Income.................................... 0.00
Net Realized and Unrealized Gain on Investments.......... 0.00
-------
Total from Investment Operations............................. 0.00
Less Distributions:
Dividends from Net Investment Income..................... (0.00)
Distributions from Net Realized Gain..................... 0.00
-------
Total From Distributions..................................... (0.00)
-------
Net Asset Value, End of Period............................... $ 1.00
-------
Total Return (not annualized)................................ 0.29%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)........................ $ 18,592
Ratios to Average Net Assets (annualized):
Ratio of Expenses to Average Net Assets.................. 0.74%
Ratio of Net Investment Income to Average Net Assets..... 5.03%
Ratio of Expenses to Average Net Assets Prior To Waived
Fees and Reimbursed Expenses........................... 0.77%
Ratio of Net Investment Income to Average Net Assets
Prior To Waived Fees and Reimbursed Expenses........... 5.00%
</TABLE>
- -------------------
(1) The Institutional Class shares commenced operations on September 6, 1996.
5 PROSPECTUS
<PAGE> 448
HOW THE FUND WORKS
INVESTMENT OBJECTIVE AND POLICIES
The MONEY MARKET MUTUAL FUND seeks to provide investors with a high level of
income, while preserving capital and liquidity, by investing in high-quality,
short-term instruments. The Fund invests its assets in U.S. dollar-denominated,
high-quality money market instruments and may engage in certain other investment
activities as described in this Prospectus. Permitted investments include
short-term U.S. Government obligations, obligations of domestic and foreign
banks, commercial paper, and repurchase agreements. In pursuing its objective,
the Fund invests in instruments with remaining maturities not exceeding 397
days, as determined in accordance with Rule 2a-7 under the 1940 Act. A more
complete description of the Fund's investments and investment objectives is
contained in "Prospectus Appendix -- Additional Investment Policies" and in the
SAI.
RISK FACTORS
Investments in Fund shares 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. Although the Fund seeks to maintain a stable NAV 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 investments to the high credit quality instruments in which the Fund
invests. As with all mutual funds, there can be no assurance that the Fund,
which is a diversified portfolio, will achieve its investment objective.
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 NAV of $1.00 per share. The dollar-weighted average portfolio maturity of
the Fund must not exceed 90 days. Any security that the Fund purchases must have
a remaining maturity of not more than 397 days (13 months). In addition, any
security that the Fund purchases must present minimal credit risks and be of
high quality (i.e., be rated in the top two rating categories by the required
number of nationally recognized statistical rating organizations ("NRSROs") or,
if unrated, determined to be of comparable quality to such rated securities by
Wells Fargo Bank, as the Fund's investment adviser, under guidelines adopted by
the 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, since its inception, has emphasized safety of
principal and high credit quality. In particular, the internal investment
policies of Wells Fargo Bank, the investment adviser to the Fund, prohibit the
purchase of many types of floating-rate
PROSPECTUS 6
<PAGE> 449
derivative securities that are considered potentially volatile. The following
types of derivative instruments ARE NOT permitted investments for the Fund:
- capped floaters (on which interest is not paid when market rates move above
a certain level);
- leveraged floaters (whose interest-rate reset provisions are based on a
formula that magnifies changes in interest rates);
- range floaters (which do not pay any interest if market interest rates move
outside of a specified range);
- dual index floaters (whose interest-rate reset provisions are tied to more
than one index so that a change in the relationship between these indices
may result in the value of the instrument falling below face value); and
- inverse floaters (which reset in the opposite direction of their index).
Additionally, the Fund may not invest in 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 variable- or
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.
PERFORMANCE
The performance of each class of shares of the Fund may be advertised from
time to time in terms of current yield and effective 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 the 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 the Fund. Because of the effects of compounding, effective yields are
slightly higher than yields.
Average annual total return of a class of shares is based on the overall
dollar or percentage change of an investment in the Fund's class and assumes the
investment is at NAV and all dividends and distributions attributable to a class
are also reinvested at NAV in shares of the class.
In addition to presenting these standardized performance calculations, at
times, the Fund may also present non-standard performance figures, such as
yields and effective
7 PROSPECTUS
<PAGE> 450
yields for a 30-day period or, in sales literature, distribution rates. Because
of the differences in the fees and/or expenses borne by shares of each class of
the Fund, the performance figures on such shares can be expected, at any given
time, to vary from the performance figures for other classes of the Fund.
Additional performance information is contained in the SAI under "Performance
Calculations" and in the Annual Report, which are available upon request without
charge by calling the Company at 1-800-260-5969 or by writing the Company at the
address shown on the front cover of the Prospectus.
THE FUND AND MANAGEMENT
The Fund is one fund of the Stagecoach Family of Funds. The Company was
organized as a Maryland corporation on September 9, 1991, and offers shares of
twenty-four 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 at NAV. The Fund is authorized to issue two other
classes of shares, one class that is offered to retail investors and another
class that is offered to qualified business investors who purchase such shares
through certain non-interest bearing transaction accounts offered by Wells Fargo
Bank. 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 that are allocated to a particular class. For
information on another fund or class of shares, please call Stagecoach
Shareholder Services at 1-800-260-5969 or write the Company at the address shown
on the inside front cover of the Prospectus.
The Company's Board of Directors supervises the Fund's activities and monitors
its contractual arrangements with various service providers. Although the
Company is not required to hold annual shareholder meetings, special meetings
may be required for purposes such as electing or removing Directors, approving
advisory contracts and distribution plans, and changing a fund's investment
objective or fundamental investment policies. All shares of the Company have
equal voting rights and will be voted in the aggregate, rather than by fund or
class, unless otherwise required by law (such as when the voting matter affects
only one fund or class). As a Fund shareholder, you are entitled to one vote for
each share owned and fractional votes for fractional shares owned. See
"Management" in the SAI for more information on the Company's Directors and
Officers. A more detailed description of the voting rights and attributes of the
shares is contained under "Capital Stock" in the SAI.
PROSPECTUS 8
<PAGE> 451
MANAGEMENT
Wells Fargo Bank is the Fund's investment adviser, custodian, administrator,
transfer agent and dividend disbursing agent (the "Transfer Agent"). In
addition, Wells Fargo Bank serves as a shareholder servicing agent and 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 December 31, 1996, Wells Fargo Bank and its affiliates provided investment
advisory services for over $54 billion of assets for individuals, trusts,
estates and institutions. Wells Fargo Bank also serves as the investment adviser
to other separately managed funds of the Company and as investment adviser or
sub-adviser to other 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.
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 Investment
Advisory Contract and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
INVESTING IN THE FUND
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 12:00 Noon.
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.
9 PROSPECTUS
<PAGE> 452
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 12:00 noon 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.
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
Funds is governed by the Customers' account agreements with an Institution.
Investors wishing to purchase Institutional Class shares of the Funds 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 before 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.
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
PROSPECTUS 10
<PAGE> 453
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 an 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 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)
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.
11 PROSPECTUS
<PAGE> 454
STATEMENTS AND REPORTS
Institutions (or their nominees) typically send investors a confirmation or
statement of the account after every transaction that affects the share balance
or the 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, shareholders will 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. It is the responsibility of an Institution to
transmit redemption requests to the Company and to credit its Customers'
accounts with the redemption proceeds on a timely basis. The redemption proceeds
for Institutional Class shares of the Fund 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 fairly to determine the value of its net assets, or a
period during which the SEC by order permits deferral of redemptions for the
protection of security holders of the Fund.
With respect to shareholders who do not have a relationship with an
Institution, Fund shares may be redeemed by writing or calling the Fund directly
at the address and phone number shown on the first page of the Prospectus. When
Institutional Class shares are redeemed directly from the Fund, the Company
ordinarily will 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 Fund may suspend redemptions or postpone payment dates.
To be accepted by the Fund, a letter requesting redemption must include: (i)
the Fund 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
PROSPECTUS 12
<PAGE> 455
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, he or she 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> 456
EXCHANGES
The Fund offers a convenient way to exchange Institutional Class shares in the
Fund for Institutional Class shares in another fund of the Company. Before
engaging in an exchange transaction, a shareholder should read carefully the
Prospectus describing the fund into which the exchange will occur, which is
available without charge and can be obtained by writing or by calling the
Company at the address or phone number listed on the first page of the
Prospectus. A shareholder may not exchange Institutional Class shares of one
fund for Institutional Class shares of another fund if Institutional Class
shares of both funds are not qualified for sale in the state of the
shareholder's residence. The Company may terminate or amend the terms of the
exchange privilege at any time.
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 a Fund to the
Institution involved. Institutions (or their nominees), acting on behalf of
their Customers, normally are the holders of record of Institutional Class
shares. Institutions are responsible for transmitting orders for exchanges to
the Company on a timely basis. Shareholders should receive written confirmation
of the exchange from the Institution within a few days of the completion of the
transaction. In addition, customers' exchange transactions are generally
reflected in the account statements provided by Institutions to their Customers.
Investors wishing to exchange Institutional Class shares of a Fund for
Institutional Class shares of another fund should contact their account
representatives. Investors with questions may call the Company at
1-800-260-5969.
A new account opened by exchange must be established with the same name(s),
address and social security number as the existing account. All exchanges are
made at the NAV of the respective funds next determined following receipt of the
request by the Company in good order
To exchange Institutional Class shares, or if you have any questions, simply
call the Company at 1-800-260-5969. A shareholder of record should be prepared
to give the telephone representative the following information: (i) the account
number, social security or taxpayer identification number and account
registration; (ii) the name of the fund from and the fund into which the
transfer is to occur; and (iii) the dollar or share amount of the exchange. The
conversation may be recorded to protect shareholders and the Company. Telephone
exchanges are available unless the shareholder of record has declined the
privilege on the Purchase Application.
In addition, Institutional Class shares of the Fund may be exchanged for the
Fund's 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 Wells Fargo Bank or
PROSPECTUS 14
<PAGE> 457
another bank, trust company or thrift institution, or in 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.
These exchanges are made at the NAV of the respective share classes next
determined after the exchange request is received by the Company.
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
The Fund intends to distribute dividends on a daily basis payable to
Institutional Class shareholders of record as of 12:00 Noon (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 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 dividend and/or
capital-gain distributions of a class of shares.
Dividends declared in a month generally are distributed on the last Business
Day of each month. Dividends and any capital-gain distributions are
automatically invested in additional whole and fractional shares unless the
shareholder has elected to receive distributions in cash.
MANAGEMENT AND SERVICING FEES
INVESTMENT ADVISER
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank, as the Fund's investment adviser, provides investment guidance and
policy direction in connection with the management of the Fund's assets. Wells
Fargo Bank also furnishes the Board of Directors with periodic reports on the
Fund's investment strategies and performance. For these services, Wells Fargo
Bank is entitled to receive a monthly investment advisory fee at the annual rate
of 0.40% of the average daily net assets of the Fund. From time to time, the
Fund, consistent with its investment objective, policies and restrictions, may
invest in securities of entities with which Wells Fargo Bank has a lending
relationship. For the year ended December 31, 1995 and the nine-month period
ended September 30, 1996, Wells Fargo Bank was paid at an annual rate equal to
0.40% of the Fund's average daily net assets for its services as investment
adviser.
15 PROSPECTUS
<PAGE> 458
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%, 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 Fund. For the period ended September 30, 1996, the Fund
paid administrative fees to Stephens at the annual rate of 0.03% of its average
daily net assets.
SPONSOR AND DISTRIBUTOR
Stephens is the Company's sponsor and co-administrator and distributes the
Fund's shares. Stephens is a full service broker/dealer and investment advisory
firm located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its
predecessor have been providing securities and investment services for more than
60 years. Additionally, they have been providing discretionary portfolio
management services since 1983. Stephens currently manages investment portfolios
for pension and profit-sharing plans, individual investors, foundations,
insurance companies and university endowments.
Stephens, as the principal underwriter of the Fund within the meaning of the
1940 Act, has entered into a Distribution Agreement with the Company under which
Stephens acts as agent for the Fund for the sale of its shares and may enter
into selling agreements with other agents ("Selling Agents") that wish to make
available shares of the Fund to their respective customers.
Stephens has established a non-cash compensation program, pursuant to which
broker/dealers or financial institutions that sell shares of the Company's funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise.
Financial institutions acting as shareholder servicing agents or selling
agents, or in certain other capacities, may be required to register as dealers
pursuant to applicable
PROSPECTUS 16
<PAGE> 459
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 Fund's custodian and transfer and dividend
disbursing agent. Under its Custody Agreement with Wells Fargo Bank, the Fund
may, at times, borrow money from Wells Fargo Bank as needed to satisfy temporary
liquidity needs. Wells Fargo Bank charges interest on such overdrafts at a rate
determined pursuant to the Fund's Custody Agreement. 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 Company has entered into a Shareholder Servicing Agreement with Wells
Fargo Bank on behalf of the Institutional Class shares of the Fund 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 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 0.25% 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.
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
17 PROSPECTUS
<PAGE> 460
and Stephens, the Fund bears all costs of its operations, including advisory,
transfer agency, custody and administration fees, interest, fees and expenses of
independent auditors and legal counsel, and any extraordinary expenses. Expenses
attributable to a 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 the Fund's net investment income and net short-term capital
gains, if any, are designated as dividend distributions and taxable to the
Fund's shareholders as ordinary income. Distributions from the Fund's net
long-term capital gains, 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
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 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 your SAI.
PROSPECTUS 18
<PAGE> 461
PROSPECTUS APPENDIX --
ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
The Fund may invest in the following:
(i) obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, including government-sponsored enterprises ("U.S.
Government obligations") (discussed below);
(ii) negotiable certificates of deposit, fixed time deposits, bankers'
acceptances or other short-term obligations of U.S. banks (including
foreign branches) that have more than $1 billion in total assets at the
time of investment and are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are
insured by the FDIC ("bank instruments");
(iii) commercial paper rated at the date of purchase P-1 by Moody's Investors
Service, Inc. ("Moody's") or "A-1+" or "A-1" by Standard & Poor's Rating
Group ("S&P") ("rated commercial paper");
(iv) commercial paper unrated at the date of purchase but secured by a letter
of credit from a U.S. bank that meets the above criteria for investment;
(v) certain floating- and variable-rate instruments ("variable-rate
instruments") (discussed below);
(vi) certain repurchase agreements ("repurchase agreements") (discussed
below);
(vii) short-term, U.S. dollar-denominated obligations of U.S. branches of
foreign banks that at the time of investment have more than $10 billion,
or the equivalent in other currencies, in total assets ("foreign bank
obligations") (discussed below); and
(viii) certain securities issued by other investment companies (discussed
below).
U.S. Government Obligations
The Fund may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. 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
A-1 PROSPECTUS
<PAGE> 462
investors must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government will provide financial support to its agencies or instrumentalities
where it is not obligated to do so. In addition, U.S. Government Obligations are
subject to fluctuations in market value due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government Obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
Obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
Other Investment Companies
The Fund may invest in shares of other open-end, management investment
companies 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.
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.
PROSPECTUS A-2
<PAGE> 463
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.
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 (397
days or less) debt obligations of foreign branches of U.S. banks or U.S.
branches of foreign banks that are denominated in and pay interest in U.S.
dollars. Investments in foreign obligations involve certain considerations that
are not typically associated with investing in domestic obligations. There may
be less publicly available information about a foreign issuer than about a
domestic issuer. Foreign issuers also are not subject to the same uniform
accounting, auditing and financial reporting standards or governmental
supervision as domestic issuers. In addition, with respect to certain foreign
countries, taxes may be withheld at the source under foreign tax laws and there
is a possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments that could affect adversely investments
in, the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries.
INVESTMENT POLICIES
The Fund's investment objective, as set forth in the "How the Fund Works --
Investment Objective and Policies" section, 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 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
A-3 PROSPECTUS
<PAGE> 464
shareholder approval and will disclose any such material changes in the
then-current prospectus.
Fundamental Investment Policies
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 may not be purchased
by the Fund while any such outstanding borrowing in excess of 5% of its net
assets exists); (ii) not make loans of portfolio securities or other assets,
except that loans for purposes of this restriction will not include the purchase
of fixed time deposits, repurchase agreements, commercial paper and other
short-term obligations, and other types of debt instruments commonly sold in a
public or private offering; and (iii) not invest more than 25% of its assets
(i.e., concentrate) in any particular industry, excluding, (a) U.S. Government
obligations, and (b) obligations of domestic banks (for purposes of this
restriction, domestic bank obligations do not include obligations of foreign
branches of U.S. banks and obligations of U.S. branches of foreign banks).
Non-Fundamental Investment Policies
As matters of nonfundamental policy: (i) the Fund may not purchase securities
of any issuer (except for U.S. Government obligations, for certain temporary
purposes and for certain guarantees and unconditional puts) if as a result more
than 5% of the value of the Fund's total assets would be invested in the
securities of such issuer or the Fund would own more than 10% of the outstanding
voting securities of such issuer; and (ii) the Fund may not invest more than 10%
of the current value of its net assets in securities that are illiquid by virtue
of the absence of a readily available market or legal or contractual
restrictions on resale and fixed time deposits that are subject to withdrawal
penalties and that have maturities of more than seven days. The following
securities are excluded from the 10% limitation: (a) 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 Fund's Board of Directors, and (b)
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 Fund'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 Fund's Board of Directors
has determined that the commercial paper is of equivalent quality and is liquid.
PROSPECTUS A-4
<PAGE> 465
Advised by WELLS FARGO BANK, N.A.
Sponsored/Distributed by
Stephens Inc., Member NYSE/SIPC
LOGO
NOT FDIC INSURED
<PAGE> 466
<TABLE>
<S> <C>
LOGO
P.O. Box 7066
San Francisco, CA 94120-7066
</TABLE>
STAGECOACH MONEY MARKET MUTUAL FUNDS:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- are NOT insured by the FDIC or U.S. Government
- are NOT obligations or deposits of Wells Fargo Bank
nor guaranteed by the Bank
- involve investment risk, including possible loss of
principal LOGO
- seek to maintain a stable net asset value of $1.00 per
share; however, there can be no assurance that the Fund
will meet this goal.
</TABLE>
LOGO
Printed on Recycled Paper SC 0214 (2/97)
<PAGE> 467
STAGECOACH FUNDS(R)
MONEY MARKET MUTUAL FUND -- CLASS S SHARES
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about one class of shares of a
fund in the Stagecoach Family of Funds -- Class S shares of the MONEY MARKET
MUTUAL FUND (the "Fund"). THE MONEY MARKET MUTUAL FUND seeks to provide
investors with a high level of income, while preserving capital and liquidity,
by investing in high-quality, short-term instruments.
Currently, Class S shares are available only to qualified business
investors who purchase such shares through a Managed Sweep Account (sometimes,
an "Account") offered by Wells Fargo Bank, N.A. ("Wells Fargo Bank"). A Managed
Sweep Account combines a non-interest bearing Wells Fargo Bank deposit account
with a daily sweep of balances to or from the Fund's Class S shares. Persons
investing in Class S shares through a Managed Sweep Account also receive a
Business Account Disclosure (the "Disclosure Statement") describing the various
features and operations of the Account. The Disclosure Statement should be
reviewed in conjunction with this Prospectus.
AN INVESTMENT IN THE FUND, THROUGH A MANAGED SWEEP ACCOUNT OR OTHERWISE, IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY. THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A CONSTANT
$1.00 NET ASSET VALUE PER SHARE.
Please read this Prospectus 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 Class S shares' goals meet your own. A Statement of
Additional Information (the "SAI"), dated February 1, 1997, for the Money Market
Mutual Fund has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated by reference into this Prospectus. The SAI for the
Fund 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 the Company at 1-800-222-8222.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THESE AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED, ENDORSED OR
GUARANTEED BY, WELLS FARGO BANK OR ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT
INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION ("FDIC"), THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY. AN INVESTMENT IN THE FUND INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
PROSPECTUS DATED FEBRUARY 1, 1997
PROSPECTUS
<PAGE> 468
This Prospectus describes Class S shares of the Fund. The Fund also offers
Class A and Institutional Class shares. Investors who are not eligible to invest
in Class S shares may be eligible to invest in Class A or Institutional Class
shares. Investments in other classes of shares may be made through the Fund's
distributor or through selling agents authorized to sell such shares on behalf
of the distributor, or directly from the Fund. Information regarding investments
in Class A or Institutional Class shares of the Fund, including a separate
prospectus describing such shares, may be obtained by calling 1-800-222-8222.
WELLS FARGO BANK IS THE INVESTMENT ADVISER AND ADMINISTRATOR, AND PROVIDES
CERTAIN OTHER SERVICES TO THE FUND FOR WHICH IT IS COMPENSATED. STEPHENS INC.,
WHICH IS NOT AFFILIATED WITH WELLS FARGO BANK, IS THE SPONSOR, CO-ADMINISTRATOR
AND DISTRIBUTOR FOR THE FUND.
PROSPECTUS
<PAGE> 469
TABLE OF CONTENTS
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PROSPECTUS SUMMARY 1
SUMMARY OF FUND EXPENSES 3
ACCOUNT FEES AND CHARGES 4
EXPLANATION OF TABLES 5
FINANCIAL HIGHLIGHTS 6
HOW THE FUND WORKS 7
RISK FACTORS 7
THE FUND AND MANAGEMENT 9
INVESTING IN THE FUND 10
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS 11
HOW TO REDEEM SHARES 11
MANAGEMENT, DISTRIBUTION AND SERVICING FEES 12
TAXES 15
PROSPECTUS APPENDIX -- ADDITIONAL INVESTMENT POLICIES A-1
PROSPECTUS
<PAGE> 470
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 you with summary information about the Fund. For more information,
please refer specifically to the identified Prospectus sections and generally to
the Prospectus and SAI for the Fund.
Q. WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
A. The MONEY MARKET MUTUAL FUND seeks to provide investors with a high level of
income, while preserving capital and liquidity, by investing in
high-quality, short-term instruments. In pursuing this objective, the Fund
invests in securities with remaining maturities not exceeding 397 days, as
determined in accordance with Rule 2a-7 under the Investment Company Act of
1940, as amended (the "1940 Act"). These securities include obligations of
the U.S. Government, its agencies and instrumentalities, high-quality debt
obligations such as corporate debt, certain obligations of U.S. banks and
certain repurchase agreements. See "How the Fund Works -- Investment
Objectives and Policies" and "Prospectus Appendix -- Additional Investment
Policies."
Q. WHAT ARE SOME OF THE POTENTIAL RISKS ASSOCIATED WITH THIS TYPE OF
INVESTMENT?
A. Investments in the Fund are not bank deposits or obligations of Wells Fargo
Bank and are not insured by the FDIC nor are they insured against loss of
principal. Although the Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Deposits to the Accounts are eligible for federal deposit insurance only
for the brief period they are in the Transaction Account prior to being
swept into the Fund. You should be prepared to accept some risk with the
money you invest in the Fund. As with all mutual funds, there can be no
assurance that the Fund will achieve its investment objective. See "How The
Fund Works -- Risk Factors" and "Prospectus Appendix -- Additional
Investment Policies."
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the Fund's investment adviser, manages your
investments. Wells Fargo Bank also provides the Fund with administrative,
transfer agency, dividend disbursing agency and custodial services. In
addition, Wells Fargo Bank is a shareholder servicing agent and a selling
agent (each as defined below) of the Fund. See "The Fund and Management"
and "Management, Distribution and Servicing Fees."
Q. HOW DO I INVEST?
A. This Prospectus is designed only for businesses that invest in Class S
shares of the Fund through a Managed Sweep Account with Wells Fargo Bank. A
Managed Sweep Account combines a non-interest bearing Wells Fargo Bank
deposit account (the "Transaction Account") with a daily sweep of
Transaction Account balances to or from the Fund. Wells Fargo Bank computes
the net
1 PROSPECTUS
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amount of deposits to and withdrawals from your Transaction Account (the
"Net Sweep Amount") each day Wells Fargo Bank is open for business. If
deposits exceed withdrawals from your Transaction Account, Wells Fargo Bank
transmits a purchase order on your behalf to the Fund in an amount equal to
the dollar value of the Net Sweep Amount. The information in this
Prospectus should be read in conjunction with the Disclosure Statement
related to your Account. See "Investing in the Fund."
Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends of the Fund are declared daily and distributed monthly to your
Account through automatic reinvestment in Class S shares of the Fund. Any
capital gains will be distributed at least annually. Various dividend and
distribution options, such as the option to direct the payment of proceeds
from dividends and distributions to another account, which may be available
to holders of the Fund's Class A shares, are not available to persons
investing in Class S shares through a Managed Sweep Account. See "Dividend
and Capital Gain Distributions" and "Additional Shareholder Services."
Q. HOW MAY I REDEEM SHARES?
A. If, on any day Wells Fargo Bank is open for business, withdrawals from your
Managed Sweep Account exceed deposits, Wells Fargo Bank transmits a
redemption order on your behalf to the Fund in the dollar amount of that
day's Net Sweep Amount. If your Managed Sweep Account with Wells Fargo Bank
is closed as described in the applicable Disclosure Statement, Wells Fargo
Bank will transmit a redemption request on your behalf to the Fund for the
balance of your Fund shares held through such Account. See "How To Redeem
Shares."
PROSPECTUS 2
<PAGE> 472
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
MONEY MARKET
MUTUAL FUND
(CLASS S SHARES)
<S> <C>
Maximum Sales Charge on Purchases (as a percentage of offering price).......................... None
Maximum Sales Charge on Reinvested Distributions............................................... None
Maximum Sales Charge on Redemptions............................................................ None
Exchange Fees.................................................................................. None
</TABLE>
ANNUAL FUND OPERATING EXPENSES(1)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
MONEY MARKET
MUTUAL FUND
(CLASS S SHARES)
<S> <C>
Management Fee................................................................................. 0.40%
Rule 12b-1 Fee................................................................................. 0.75%
Other Expenses (after waivers or reimbursements)(2)............................................ 0.27%
----
TOTAL FUND OPERATING EXPENSES (after waivers or reimbursements)(2)............................. 1.42%
====
</TABLE>
- -------------------------------
<TABLE>
<C> <S>
1 Additional fees charged by Wells Fargo Bank related to an Account are not included in this
table. See Account Fees and Charges.
2 Absent waivers and reimbursements, the percentages shown above under "Other Expenses" and
"Total Fund Operating Expenses" would be 0.40% and 1.55%, respectively.
</TABLE>
Note: The tables do not reflect any charges that may be imposed by Wells Fargo
Bank directly on its customer accounts in connection with an investment in Class
S shares of the Fund.
3 PROSPECTUS
<PAGE> 473
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment in
Class S shares of the Fund, assuming (A) a 5% annual return and
(B) redemption at the end of each time period indicated:
Money Market Mutual Fund (Class S).......................... $ 14 $ 45 $78 $170
</TABLE>
ACCOUNT FEES AND CHARGES
Set forth below is a summary of fees which may be charged by Wells Fargo
Bank for various banking services available through a Managed Sweep Account. For
additional information on Account fees and charges please refer to the
Disclosure Statement accompanying this Prospectus.
<TABLE>
<CAPTION>
MANAGED
SWEEP
ACCOUNT(1)
----------
<S> <C>
Monthly Account Fees
Managed Sweep Account Fee......................................................... $ 25.00
Checking Maintenance Fee.......................................................... $ 15.00
Transaction Fees(2)
Per Check Written................................................................. $ 0.14
Per Deposit Slip Processed........................................................ $ 1.40
Per Check Deposited............................................................... $ 0.095
Per $1,000 Cash Deposited......................................................... $ 1.20
Miscellaneous Fees.................................................................... Variable (3)
Minimum Opening Balance............................................................... $ 10,000
</TABLE>
- -------------------------------
<TABLE>
<C> <S>
(1) Currently, Class S shares of the Fund may be purchased only through a Managed Sweep Account.
Class A or Institutional Class shares of the Fund may be purchased without opening an Account
and without incurring the fees for, or deriving the benefits of, the Account Services
described above. Information regarding Class A and Institutional Class shares may be obtained
by calling 1-800-222-8222.
(2) A Transaction Fee is charged whenever one of the listed transactions occurs.
(3) Various miscellaneous fees may be charged on a per transaction, per statement or other basis
as described in "Miscellaneous Fees and Charges" and elsewhere in the Disclosure Statement.
</TABLE>
PROSPECTUS 4
<PAGE> 474
EXPLANATION OF TABLES
The purpose of the foregoing tables is to help you understand the various
costs and expenses that an investor in the Fund will pay directly or indirectly.
SHAREHOLDER TRANSACTION EXPENSES are charges incurred when you buy or sell
Fund shares. There are no Shareholder Transaction Expenses for the Fund, except
that the Company reserves the right to impose a charge for wiring redemption
proceeds.
ANNUAL FUND OPERATING EXPENSES are based on applicable contract amounts and
amounts incurred during the most recent fiscal. These amounts have been restated
to reflect voluntary fee waivers and expense reimbursements expected to continue
to reduce expenses during the current fiscal year. Wells Fargo Bank and
Stephens, at their sole discretion, may waive or reimburse all or a portion of
their respective fees charged to, or expenses paid by, the Fund. Any waivers or
reimbursements would reduce the Fund's total expenses. There can be no assurance
that waivers or reimbursements will continue. The percentages shown above under
"Other Expenses" and "Total Fund Operating Expenses" reflect voluntary fee
waivers and expense reimbursements that are expected to reduce expenses during
the current fiscal year. Long-term shareholders in the Fund could pay more in
sales charges than the economic equivalent of the maximum front-end sales
charges applicable to mutual funds sold by members of the National Association
of Securities Dealers ("NASD"). For more complete descriptions of the various
costs and expenses you can expect to incur as an investor in Class S shares of
the Fund, please see the Prospectus section captioned "Management, Distribution
and Servicing Fees."
EXAMPLE OF EXPENSES is a hypothetical illustration of the expenses
associated with a $1,000 investment over stated periods, based on the expenses
in the table above and an assumed annual rate of return of 5%. This rate of
return should not be considered an indication of actual or expected performance
of the Fund. In addition, the example should not be considered a representation
of past or future expenses; actual expenses and returns may be greater or lesser
than those shown.
ACCOUNT FEES AND CHARGES are charges you pay to Wells Fargo Bank for
banking services offered to you as a Managed Sweep Account holder. Wells Fargo
Bank currently charges monthly account fees for the Managed Sweep Account. In
addition, your Account is subject to various other fees and charges which may be
assessed on a monthly or other periodic basis, or on a per transaction, per
statement or other basis. For additional information with respect to Account
fees and charges, including a description of the services available to Account
holders, you should refer to the Disclosure Statement.
5 PROSPECTUS
<PAGE> 475
FINANCIAL HIGHLIGHTS
The following information has been derived from the Financial Highlights in
the Fund's financial statements for the period ended September 30, 1996. The
financial statements have been audited by KPMG Peat Marwick LLP. The financial
statements and the report thereon for the period ended September 30, 1996 are
incorporated by reference into the SAI. This information should be read in
conjunction with the related financial statements and notes thereto. The SAI for
the Fund has been incorporated by reference into this Prospectus.
MONEY MARKET MUTUAL FUND
FOR A CLASS S SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD PERIOD
ENDED ENDED
SEPT. 30, DEC. 31,
1996(1) 1995(2)
--------------- --------------
<S> <C> <C>
Net Asset Value Beginning of Period................................... $ 1.00 $ 1.00
Income from Investment Operations:
Net Investment Income............................................. 0.03 0.03
Net Realized & Unrealized Gain on Investments..................... 0.00 0.00
-------- --------
Total from Investment Operations...................................... 0.03 0.03
Less Distributions:
Dividends from Net Investment Income.............................. (0.03) (0.03)
Distributions from Net Realized Gain.............................. 0.00 0.00
-------- --------
Total From Distributions.............................................. (0.03) (0.03)
-------- --------
Net Asset Value End of Period......................................... $ 1.00 $ 1.00
-------- --------
Total Return (not annualized)......................................... 3.03% 2.73%
Ratios/Supplemental Data:
Net Assets, End of Period (000's)................................. $ 699,231 $618,899
Ratios to Average Net Assets (annualized):
Ratio of Expenses to Average Net Assets........................... 1.42% 1.43%
Ratio of Net Investment Income to Average Net Assets.............. 3.98% 4.40%
Ratio of Expenses to Average Net Assets Prior To Waived Fees and
Reimbursed Expenses............................................. 1.55% 1.53%
Ratio of Net Investment Income to Average Net Assets Prior To
Waived Fees and Reimbursed Expenses............................. 3.85% 4.30%
</TABLE>
- -------------------
(1) The Fund changed its fiscal year-end from December 31 to September 30.
(2) The Class S shares commenced operations on May 25, 1995.
PROSPECTUS 6
<PAGE> 476
HOW THE FUND WORKS
INVESTMENT OBJECTIVES AND POLICIES
The MONEY MARKET MUTUAL FUND seeks to provide investors with a high level
of income, while preserving capital and liquidity, by investing in high-quality,
short-term instruments. The Fund invests its assets only in U.S.
dollar-denominated, high-quality money market instruments, and may engage in
certain other investment activities as described in this Prospectus. Permitted
investments include short-term U.S. Government obligations, obligations of
domestic and foreign banks, commercial paper, and repurchase agreements. In
pursuing its objective, the Fund invests in instruments with remaining
maturities not exceeding 397 days, as determined in accordance with Rule 2a-7
under the 1940 Act. A more complete description of the Fund's investments and
investment objectives is contained in "Prospectus Appendix -- Additional
Investment Policies" and the SAI.
RISK FACTORS
Investments in Fund shares 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. Although the Fund seeks to maintain a stable NAV 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 investments to the high credit quality instruments in which the
Fund invests. As with all mutual funds, there can be no assurance that the Fund,
which is a diversified portfolio, will achieve its investment objective.
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 NAV of $1.00 per share. The dollar-weighted average portfolio maturity of
the Fund must not exceed 90 days. Any security that the Fund purchases must have
a remaining maturity of not more than 397 days (13 months). In addition, any
security that the Fund purchases must present minimal credit risks and be of
high quality (i.e., be rated in the top two rating categories by the required
number of nationally recognized statistical rating organizations ("NRSROs") or,
if unrated, determined to be of comparable quality to such rated securities by
Wells Fargo Bank, as the Fund's investment adviser, under guidelines adopted by
the Board of Directors).
The portfolio debt instruments of the Fund are subject to credit and
interest-rate risk. Credit risk is the risk that issuers of the debt instruments
in which the Fund invests may default on the payment of principal and/or
interest. Interest-rate risk is the risk that increases in market interest rates
may adversely affect the value of the debt instruments in which the Fund invests
and hence the value of your investment in the Fund.
The Fund seeks to reduce risk by investing its assets in securities of
various issuers. As such, the Fund is considered to be diversified for purposes
of the 1940 Act. In addition, the Fund, since its
7 PROSPECTUS
<PAGE> 477
inception, has emphasized safety of principal and high credit quality. In
particular, the internal investment policies of the Fund's investment adviser,
Wells Fargo Bank, prohibit the purchase for the Fund of many types of
floating-rate instruments commonly referred to as "derivatives" that are
considered potentially volatile. The following types of derivative instruments
ARE NOT permitted investments for the Fund:
- capped floaters (on which interest is not paid when market rates move
above a certain level);
- leveraged floaters (whose interest-rate reset provisions are based on a
formula that magnifies changes in interest rates);
- range floaters (which do not pay any interest if market interest rates
move outside of a specified range);
- dual index floaters (whose interest-rate reset provisions are tied to
more than one index so that a change in the relationship between these
indices may result in the value of the instrument falling below face
value); and
- inverse floaters (which reset in the opposite direction of their index).
Additionally, the Fund may not invest in 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 which resets based on changes in standard money market rate
indices such as U.S. Treasury bills, London Interbank Offered Rate, the prime
rate, published commercial paper rates, federal funds rates, Public Securities
Associates floaters or J.J. Kenney index floaters.
PERFORMANCE
The performance of the Class S shares may be advertised from time to time
in terms of current yield or effective yield. Performance figures are based on
historical results calculated under uniform SEC formulas and are not intended to
indicate future performance. Performance figures are calculated separately for
each class of shares of the Fund.
Yield refers to the income generated by an investment in Class S shares of
the Fund over a specified period (usually seven days), expressed as an annual
percentage rate. Effective yields are calculated similarly, but assume that the
income earned from the Fund is reinvested in the Fund. Because of the effects of
compounding, effective yields are slightly higher than yields.
In addition to presenting these standardized performance calculations, at
times, the Fund also may present non-standard performance figures, such as
yields and effective yields for a 30-day period or, in sales literature,
distribution rates. Because of the differences in the fees and/or expenses borne
by shares of each class of the Fund, the performance figures on such shares can
be expected, at any given time, to vary from the performance figures for other
classes of the Fund.
Additional information about the Fund's performance is contained in the SAI
under "Performance Calculations" and in the Fund's Annual Report, which are
available upon request by calling the
PROSPECTUS 8
<PAGE> 478
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 Money Market Mutual Fund is a fund of the Company. The Company was
organized as a Maryland corporation on September 9, 1991 and currently offers
shares of 24 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 at NAV. 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 the funds' investment objectives or fundamental investment
policies. All shares of the Company have equal voting rights and will be voted
in the aggregate, rather than by series or class, unless otherwise required by
law (such as when the voting matter affects only one series or class). As a
shareholder of the Fund, you are entitled to one vote for each share you own and
fractional votes for fractional shares owned. The Money Market Mutual Fund also
offers Class A and Institutional Class shares which are subject to different
levels of fees and expenses than Class S shares and the performance of such
shares may vary accordingly. A more detailed description of the voting rights
and attributes of the shares is contained in the "Capital Stock" section of the
Fund's SAI.
MANAGEMENT
Wells Fargo Bank is the Fund's investment adviser, administrator,
custodian, transfer agent and dividend disbursing agent. In addition, Wells
Fargo Bank is a shareholder servicing agent and 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 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. Wells Fargo Bank also serves as the investment adviser to the
other separately managed funds of the Company and as adviser or sub-adviser to
funds of other registered, open-end, management investment companies, each of
which consists of several separately managed investment portfolios. Wells Fargo
Bank, a wholly owned subsidiary of Wells Fargo & Company, is located at 420
Montgomery Street, San Francisco, California 94104.
Morrison & Foerster LLP, counsel to the Company and special counsel to
Wells Fargo Bank, has advised the Company and Wells Fargo Bank that Wells Fargo
Bank and its affiliates may perform the services contemplated by the Investment
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 interpreta-
9 PROSPECTUS
<PAGE> 479
tions of, or decisions relating to, present federal or state statutes, including
the Glass-Steagall Act, and regulations relating to the permissible activities
of banks and their subsidiaries or affiliates, as well as future changes in such
statutes, regulations and judicial or administrative decisions or
interpretations, could prevent such entities from continuing to perform, in
whole or in part, such services. If any such entity were prohibited from
performing any such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
INVESTING IN THE FUND
OPENING AN ACCOUNT
Class S shares of the Fund are offered by this Prospectus to businesses
that establish a Managed Sweep Account with Wells Fargo Bank. Each Account
combines a Transaction Account (a non-interest bearing deposit account) with a
periodic sweep of balances to or from the Fund. Investors may open an Account by
completing and signing an Account Application and appropriate Disclosure
Statement. The Disclosure Statement contains important information about the
various features and operations of the Accounts and should be reviewed in
conjunction with this Prospectus. Wells Fargo Bank may, in the future, permit
investors to acquire shares of the Fund through additional accounts not
described in this Prospectus.
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 of the Fund is its net asset value
("NAV"). The NAV of Fund shares is calculated as of 12:00 noon and 1:00 p.m.
(Pacific time) on each day the Fund is open. The Fund is open Monday through
Friday and is closed on weekends and federal bank holidays. The NAV per share of
each class of the Money Market Mutual Fund is the value of total net assets
attributable to each class divided by the total number of outstanding shares of
that class. The value of the net assets per class is determined daily by
adjusting the net assets per class at the beginning of the day by the value of
each class' shareholder activity, net investment income and net realized and
unrealized gains or losses for that day. Net investment income is calculated
each day for each Class by attributing to each Class a pro rata share of daily
income and common expenses, and by assigning class-specific expenses to each
Class as appropriate. As noted above, the Fund seeks to maintain a constant
$1.00 per share NAV, although there is no assurance that it will be able to do
so.
Shares of the Fund may be purchased on any day the Fund is open (a
"Business Day"). 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 may be earlier than 12:00 noon.
PROSPECTUS 10
<PAGE> 480
The Funds' portfolio investments are valued on the basis of the amortized
cost method. This valuation method is based on the receipt of a steady rate of
payment on portfolio instruments from the date of purchase until maturity rather
than actual changes in market value. The Company's Board of Directors believes
that this valuation method accurately reflects fair value.
HOW TO BUY SHARES
Class S shares may be purchased on any day the Fund and Wells Fargo Bank
are open by making a deposit into your Account. On each day Wells Fargo Bank and
the Fund are open Wells Fargo Bank computes the Net Sweep Amount, which is the
net amount of all deposits, withdrawals, charges and credits made to and from a
Transaction Account. If deposits and credits exceed withdrawals and charges, you
authorize Wells Fargo Bank, on your behalf, to transmit a purchase order to the
Fund designated in your Account in the amount of that day's Net Sweep Amount.
For example, if you make a $500 deposit and withdraw $100 on the same day, and
there are no other transactions on that day, the Net Sweep Amount for that day
would be $400. Wells Fargo Bank, on your behalf, would transmit a purchase order
to the designated Fund on the next Business Day in the amount of $400. Your
purchase order will be made effective and full and fractional shares will be
purchased at the next determined NAV, which is expected to remain a constant
$1.00 per share. Deposits and other transactions to your Account are sometimes
not immediately included in the Net Sweep Amount. Cash and items drawn on Wells
Fargo Bank are generally credited to the Net Sweep Amount on the same Business
Day as the day of deposit. Local and non-local checks are usually credited to
your Net Sweep Amount on the first or second Business Day, respectively, after
the day of your deposit. In addition, adjustments may sometimes be made to your
Account to reflect dishonored or returned items. For additional information
refer to the applicable Disclosure Statement and, specifically therein, "Holds
and Funds Availability."
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
The Fund intends to distribute dividends on a daily basis to shareholders
of record as of 12:00 Noon (Pacific time). You begin earning dividends on your
Class S shares of the Fund on the day your purchase order for such shares is
effective and continue to earn dividends through the day prior to the date you
redeem such shares. Dividends for a Saturday, Sunday or Holiday are credited on
the preceding Business Day. If you redeem shares before the dividend payment
date, any dividends credited to you will be paid on the following dividend
payment date. The Fund distributes any capital gains at least annually.
Dividends declared in a month are reinvested in Class S shares of the Fund early
in the following month.
HOW TO REDEEM SHARES
If, on any day Wells Fargo Bank and the Fund are open for business,
withdrawals from your Managed Sweep Account, including check transactions,
exceed deposits and credits, Wells Fargo
11 PROSPECTUS
<PAGE> 481
Bank will transmit a redemption order on your behalf to the Fund in the dollar
amount of that day's Net Sweep Amount. If your Managed Sweep Account with Wells
Fargo Bank is closed as described in the applicable Disclosure Statement, Wells
Fargo Bank transmits a redemption request on your behalf to the Fund for the
balance of the Class S shares of the Fund held through your Account. Your shares
are normally redeemed at the next NAV, expected to be a constant $1.00 per
share, calculated after the Fund has received the redemption order transmitted
on your behalf. The Fund ordinarily will remit your redemption proceeds within
seven days after your redemption order is received from Wells Fargo Bank unless
the SEC permits a longer period under extraordinary circumstances. Such
extraordinary circumstances could include a period during which an emergency
exists as a result of which (a) disposal by the Fund of securities owned by it
is not reasonably practicable or (b) it is not reasonably practicable for the
Fund to determine fairly the value of its net assets, or a period during which
the SEC by order permits deferral of redemptions for the protection of security
holders of the Fund. In addition, Wells Fargo Bank may withhold redemption
proceeds pending check collection or processing or for other reasons all as set
forth more fully in "Holds and Funds Availability" and elsewhere in the
applicable Disclosure Statement.
MANAGEMENT, DISTRIBUTION AND SERVICING FEES
INVESTMENT ADVISER
Subject to the overall supervision of the Company's Board of Directors,
Wells Fargo Bank, as the investment adviser, provides investment guidance and
policy direction in connection with the management of the Fund's assets. Wells
Fargo Bank also furnishes the Board of Directors with periodic reports on the
investment strategies and performance of the Fund. For its services as
investment adviser, Wells Fargo Bank is entitled to receive monthly investment
advisory fee at the annual rate of 0.40% of the average daily net assets of the
Fund. From time to time, the Fund, consistent with its investment objectives,
policies and restrictions, may invest in securities of companies with which
Wells Fargo Bank has a lending relationship. For the year ended December 31,
1995 and the nine-month period ended September 30, 1996, the Fund paid advisory
fees to Wells Fargo Bank at an annual rate equal to 0.40% of its average daily
net assets.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank also serves as the Fund's custodian, transfer agent and
dividend disbursing agent. Under its Custody Agreement with Wells Fargo Bank,
the Fund may, at times, borrow money from Wells Fargo Bank as needed to satisfy
temporary liquidity needs. Wells Fargo Bank charges interest on such overdrafts
at a rate determined pursuant to the Fund's Custody Agreement. The custodial,
transfer and dividend disbursing agency services are performed at 525 Market
Street, San Francisco, California 94105.
PROSPECTUS 12
<PAGE> 482
SHAREHOLDER SERVICING AGENT
The Company has entered into a Shareholder Servicing Agreement with Wells
Fargo Bank on behalf of the Class S shares of the Fund and may enter into
similar agreements with other entities ("Shareholder Servicing Agents"). Under
such agreements, Shareholder Servicing Agents agree, as agent for their
customers, to provide various administrative and liaison services with respect
to Fund shares, such as maintaining shareholder accounts and records; assisting
shareholders with purchases, 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 receives a fee, as calculated on
an annualized basis for the Fund's then-current fiscal year, up to (1) 0.25% of
the average daily net assets attributable to the Class S shares of the Fund, as
represented by shares owned during the period for which payment is being made by
investors with whom the Shareholder Servicing Agent maintains a servicing
relationship, or (2) an amount which equals the maximum amount payable to the
Shareholder Servicing Agent under applicable laws, regulations or rules,
including the Conduct Rules of the National Association of Securities Dealers,
Inc. ("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.
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 its
average daily net assets.
13 PROSPECTUS
<PAGE> 483
SPONSOR AND DISTRIBUTOR
Stephens is the Company's sponsor and co-administrator and distributes the
Fund's shares. Stephens is a full service broker/dealer and investment advisory
firm located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its
predecessor have been providing securities and investment services for more than
60 years. Additionally, they have been providing discretionary portfolio
management services since 1983. Stephens currently manages investment portfolios
for pension and profit-sharing plans, individual investors, foundations,
insurance companies and university endowments.
Stephens also has entered into a Distribution Agreement pursuant to which
it distributes the Fund's shares. The Company has adopted a Distribution Plan on
behalf of the Class S shares of the Fund under the SEC's Rule 12b-1 (the
"Plan"). Under the Plan and pursuant to the Distribution Agreement, the Fund
pays Stephens, as compensation for distribution-related services, a monthly fee
at the annual rate of up to 0.75% of the average daily net assets attributable
to the Class S shares of the Fund or the maximum amount payable under applicable
laws, regulations and rules, whichever is less. The actual fee payable to
Stephens is determined, within the applicable limit, from time to time by mutual
agreement between the Company and Stephens. Stephens may retain any portion of
the total distribution fee payable under the Distribution Agreement to
compensate it for distribution-related services provided by it or to reimburse
it for other distribution-related expenses. Since the fee payable to Stephens
under the Distribution Agreement is not based upon the actual expenditures of
Stephens, the expenses of Stephens (which may include overhead expenses) may be
more or less than the fees received by it under the Distribution Agreement. The
Plan contemplates further that, to the extent any fees payable pursuant to a
Shareholder Servicing Agreement (discussed above) are deemed to be for
distribution-related services, rather than shareholder services, such payments
are approved and payable pursuant to the Plan.
In addition, Stephens has established a non-cash compensation program,
pursuant to which broker/dealers or financial institutions that sell shares of
the Fund may earn additional compensation in the form of trips to sales seminars
or vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise.
Financial institutions acting as Selling Agents, Shareholder Servicing
Agents, or in certain other capacities, may be required to register as dealers
pursuant to applicable state securities laws which may differ from federal law
and any interpretations expressed herein.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective
fees in whole or in part and reimburse expenses payable to others. Any such
waivers or reimbursements will reduce the Fund's expenses and, accordingly, have
a favorable impact on the Fund's performance. Except for the expenses borne by
Wells Fargo Bank and Stephens, the Company bears all costs of its operations,
including advisory, shareholder servicing, transfer agency, custody and
administration
PROSPECTUS 14
<PAGE> 484
fees; payments pursuant to the Plan; interest, fees and expenses of independent
auditors and legal counsel; and any extraordinary expenses. Expenses
attributable to a class are charged against the assets of the class. Certain
expenses attributable only to a class are charged to such shares. General
expenses of the Company are allocated among all of the Company's funds, in a
manner proportionate to the net assets of each fund, on a transactional basis or
on such other basis as the Company's Board of Directors deems equitable.
TAXES
Distributions from the Fund's net investment income and net short-term
capital gains, if any, are designated as dividend distributions and taxable to
the Fund's shareholders as ordinary income. Distributions from the Fund's net
long-term capital gains, 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
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 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 your SAI.
15 PROSPECTUS
<PAGE> 485
PROSPECTUS APPENDIX --
ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
The Money Market Mutual Fund may invest in the following:
<TABLE>
<S> <C>
(i) U.S. Government obligations (discussed below);
(ii) negotiable certificates of deposit, fixed time deposits, bankers' acceptances or
other short-term obligations of U.S. banks (including foreign branches) that have
more than $1 billion in total assets at the time of investment and are members of
the Federal Reserve System or are examined by the Comptroller of the Currency or
whose deposits are insured by the Federal Deposit Insurance Corporation ("FDIC")
("bank instruments");
(iii) commercial paper rated at the date of purchase P-1 by Moody's Investors Service,
Inc. ("Moody's") or "A-1+" or "A-1" by Standard & Poor's Rating Group ("S&P")
("rated commercial paper");
(iv) commercial paper unrated at the date of purchase but secured by a letter of
credit from a U.S. bank that meets the above criteria for investment;
(v) certain floating and variable rate instruments (discussed below);
(vi) certain repurchase agreements (discussed below);
(vii) short-term, U.S. dollar-denominated obligations of U.S. branches of foreign banks
that at the time of investment have more than $10 billion, or the equivalent in
other currencies, in total assets ("foreign bank obligations") (discussed below);
(viii) certain municipal obligations (discussed below); and
(ix) certain securities issued by other investment companies (discussed below).
</TABLE>
Municipal Obligations
Municipal bonds generally have a maturity at the time of issuance of up to
40 years. Medium-term municipal notes are generally issued in anticipation of
the receipt of tax funds, of the proceeds of bond placements, or of other
revenues. The ability of an issuer to make payments on notes is therefore
especially dependent on such tax receipts, proceeds from bond sales or other
revenues, as the case may be. Municipal commercial paper is a debt obligation
with a stated maturity of 270 days or less that is issued to finance seasonal
working capital needs or as short-term financing in anticipation of longer-term
debt.
A- 1 PROSPECTUS
<PAGE> 486
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.
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. See "Additional Permitted
Investment Activities" in the SAI for additional information.
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.
Letters of Credit
Certain of the debt obligations, certificates of participation, commercial
paper and other short-term obligations which the Fund is permitted to purchase
may be backed by an unconditional and irrevocable letter of credit of a bank,
savings and loan association or insurance company that assumes the obligation
for payment of principal and interest in the event of default by the issuer.
PROSPECTUS A- 2
<PAGE> 487
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
(thirteen months or less) debt obligations of foreign branches of U.S. banks or
U.S. branches of foreign banks that are denominated in and pay interest in U.S.
dollars. Investments in foreign obligations involve certain considerations that
are not typically associated with investing in domestic obligations. There may
be less publicly available information about a foreign issuer than about a
domestic issuer. Foreign issuers also are not subject to the same uniform
accounting, auditing and financial reporting standards or governmental
supervision as domestic issuers. In addition, with respect to certain foreign
countries, taxes may be withheld at the source under foreign tax laws, and there
is a possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect investments
in, the liquidity of and the ability to enforce contractual obligations with
respect to securities of issuers located in those countries.
Other Investment Companies
The Fund may invest in shares of other open-end, management investment
companies provided that any such investments will be limited to temporary
investments in shares of unaffiliated investment companies. 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.
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.
INVESTMENT POLICIES
The Fund's investment objective, as set forth in "How the Fund
Works -- Investment Objective and Policies," is fundamental; that is, it may not
be changed without approval by the vote of the holders of a majority of the
Fund's outstanding voting securities, as described under "Capital Stock" in the
Fund's SAI. If the Company's Board of Directors determines, however, that the
investment objective of the Fund can best be achieved by a substantive change in
a nonfundamental investment policy or strategy, the Company's Board may make
such change without shareholder approval and will disclose any such material
changes in the then-current prospectus.
A- 3 PROSPECTUS
<PAGE> 488
Fundamental Investment Policies
As matters of fundamental policy, the Fund may: (i) borrow from banks up to
10% of the current value of its net assets only for temporary purposes in order
to meet redemptions, and these borrowings may be secured by the pledge of up to
10% of the current value of the Fund's net assets (but investments may not be
purchased by the Fund while any such outstanding borrowing in excess of 5% of
its net assets exists); (ii) not make loans of portfolio securities or other
assets, except that loans for purposes of this restriction will not include the
purchase of fixed time deposits, repurchase agreements, commercial paper and
other short-term obligations, and other types of debt instruments commonly sold
in a public or private offering; and (iii) not invest more than 25% of its
assets (i.e., concentrate) in any particular industry, excluding U.S. Government
obligations and obligations of domestic banks (for purposes of this restriction,
domestic bank obligations do not include obligations of foreign branches of U.S.
banks and obligations of U.S. branches of foreign banks).
Non-Fundamental Investment Policies
As a matter of nonfundamental policy: (i) the Fund may not purchase
securities of any issuer (except for U.S. Government obligations, for certain
temporary purposes and for certain guarantees and unconditional puts) if as a
result more than 5% of the value of the Fund's total assets would be invested in
the securities of such issuer or the Fund would own more than 10% of the
outstanding voting securities of such issuer; and (ii) the Fund may not invest
more than 10% of the current value of its net assets in securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale and fixed time deposits that are subject to
withdrawal penalties and that have maturities of more than seven days. With
respect to item (i), it may be possible that the Company would own more than 10%
of the outstanding voting securities of an issuer.
The following securities are excluded from the 10% limitation: (a)
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 Fund's Board
of Directors, and (b) 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 Fund'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 Fund's Board of Directors has determined that the commercial paper is of
equivalent quality and is liquid.
PROSPECTUS A- 4
<PAGE> 489
FOR MORE INFORMATION ABOUT THE FUND SIMPLY CALL 1-800-222-8222, OR WRITE:
STAGECOACH FUNDS
C/O STAGECOACH
SHAREHOLDER SERVICES
WELLS FARGO BANK, N.A.
P.O. BOX 7066
SAN FRANCISCO, CALIFORNIA 94120-7066
<TABLE>
<S> <C>
- --------------------------------------------------------
STAGECOACH MONEY MARKET MUTUAL FUNDS:
------------------------------------------------------
- are NOT insured by the FDIC or U.S.
GOVERNMENT
- are NOT obligations or deposits of Wells
Fargo Bank nor guaranteed by the Bank
- involve investment risk, including possible
loss of principal LOGO
- seek to maintain a stable net asset value of
$1.00 per share, however; there can be no
assurance that the Fund will meet this
objective.
- --------------------------------------------------------
</TABLE>
LOGO
------------------------
PROSPECTUS
------------------------
Money Market Mutual Fund
(Class S Shares)
------------------------
February 1, 1997
------------------------
NOT FDIC INSURED
SC 0202 (2/97)
<PAGE> 490
LOGO
------------------------------
PROSPECTUS
------------------------------
MONEY MARKET TRUST
FEBRUARY 1, 1997
<PAGE> 491
STAGECOACH FUNDS(R)
MONEY MARKET TRUST
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about one fund of the Stagecoach
Family of Funds -- the MONEY MARKET TRUST (the "Fund"). The MONEY MARKET TRUST
seeks to provide investors with current income and stability of principal.
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 February 1, 1997, containing additional information about the
Fund has been filed with the Securities and Exchange Commission ("SEC") and is
incorporated by reference into this Prospectus. The SAI is available without
charge by writing to Stagecoach Funds, Inc., c/o Stagecoach Shareholder
Services, Wells Fargo Bank, N.A., P.O. Box 7066, San Francisco, CA 94120-7066 or
by calling 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 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 FEBRUARY 1, 1997
PROSPECTUS
<PAGE> 492
TABLE OF CONTENTS
-------
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 1
SUMMARY OF FUND EXPENSES 3
FINANCIAL HIGHLIGHTS 5
HOW THE FUND WORKS 6
THE FUND AND MANAGEMENT 9
INVESTING IN THE FUND 10
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS 12
HOW TO REDEEM SHARES 12
MANAGEMENT AND SERVICING FEES 14
TAXES 16
PROSPECTUS APPENDIX -- ADDITIONAL
INVESTMENT POLICIES A-1
</TABLE>
PROSPECTUS
<PAGE> 493
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 Money Market Trust seeks to provide investors with current income and
stability of principal. The Fund pursues its objective by investing its
assets in high quality U.S. dollar-denominated money market instruments with
remaining maturities not exceeding 397 days (13 months). 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. 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 Investment Activities" in the SAI for further information on
investments and related risks.
Q. WHO MANAGES MY INVESTMENTS?
A. Wells Fargo Bank, as the Fund's investment adviser, manages your investments.
Wells Fargo Bank also provides the Fund with administrative, transfer
agency, dividend disbursing agency, and custodial services. In addition,
Wells Fargo Bank is a shareholder servicing agent and a selling agent for
the Fund. See "The Fund and Management" and "Management and Servicing Fees"
for further information.
Q. HOW DO I INVEST?
A. Qualified investors may invest by purchasing Fund shares at the net asset
value per share without a sales charge ("NAV"). Qualified investors include
customers ("Customers") who maintain qualified accounts with the trust
division of Wells Fargo Bank or an affiliate of Wells Fargo Bank (a "Bank").
Customers may include
1 PROSPECTUS
<PAGE> 494
individuals, trusts, partnerships and corporations. Purchases are effected
through the Customer's account with a Bank under the terms of the Customer's
account agreement with the Bank. Investors wishing to purchase Fund shares
should contact their account representatives. See "Investing in the Fund"
for additional information.
Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends are declared daily and distributed monthly, and any capital gains
are distributed at least annually. All distributions are automatically
reinvested in additional shares of the Fund at NAV. Shareholders also may
elect to receive distributions in cash. See "Dividend and Capital Gain
Distributions" for additional information.
Q. HOW MAY I REDEEM SHARES?
A. You may redeem your shares at NAV, without charge by the Company. Fund shares
held by a Bank on behalf of its Customers must be redeemed under the terms
of the Customer's account agreement with the Bank. Banks are responsible for
transmitting redemption requests to the Company and crediting their
Customers' accounts. The Company reserves the right to impose charges for
wiring redemption proceeds. See "Investing in the Fund -- Redemption of
Shares."
PROSPECTUS 2
<PAGE> 495
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge on Purchases (as a percentage of offering
price)............................................................... None
Maximum Sales Charge on Reinvested Distributions....................... None
Maximum Sales Charge on Redemptions.................................... None
Exchange Fees.......................................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fee (after waivers or reimbursements)(1)................... 0.00%
Rule 12b-1 Fee........................................................ 0.00%
Other Expenses (after waivers or reimbursements)(2)................... 0.20%
----
TOTAL FUND OPERATING EXPENSES (after waivers or reimbursements)(3).... 0.20%
====
</TABLE>
- -------------------------------
(1) Management Fee (before waivers or reimbursements) would be payable at a
maximum annual rate of 0.25%.
(2) Other Expenses (before waivers or reimbursements) would be 0.57%.
(3) Total Fund Operating Expenses (before waivers or reimbursements) would be
0.82%.
Note: The table does not reflect any charges that may be imposed by Wells Fargo
Bank or another Bank directly on certain customer accounts in connection
with an investment in the Fund.
3 PROSPECTUS
<PAGE> 496
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment in a Fund, assuming a 5%
annual return and redemption at the end of
each time period indicated:
Money Market Trust.................... $2 $ 6 $11 $ 26
</TABLE>
EXPLANATION OF TABLES
The purpose of the above tables is to help a shareholder understand the
various costs and expenses that an investor in the Fund will pay directly or
indirectly.
SHAREHOLDER TRANSACTION EXPENSES are charges incurred when an investor buys or
sells Fund shares. Fund shares are sold with no shareholder transaction expenses
imposed by the Company. However, the Company reserves the right to impose a
charge for wiring redemption proceeds.
ANNUAL FUND OPERATING EXPENSES for Fund shares, except where indicated, are
based on applicable contract amounts. The amounts have been adjusted to reflect
estimated expenses and voluntary fee waivers and expense reimbursements expected
to be in effect during the current year. The amount shown under "Other Expenses"
reflects projected expenses expected to be in effect during the current year.
Wells Fargo Bank and Stephens each have agreed to waive or reimburse all or a
portion of their respective fees charged to, or expenses paid by, the Fund to
ensure that Total Fund Operating Expenses do not exceed, on an annual basis,
0.20% of the Fund's average daily net assets through August 31, 1997. Any
waivers or reimbursements would reduce the 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 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.
PROSPECTUS 4
<PAGE> 497
FINANCIAL HIGHLIGHTS
The following information has been derived from the Financial Highlights in
the Fund's financial statements for the year ended September 30, 1996. This
information is provided to assist you in evaluating the Fund's historical
performance. Except as set forth below, the Fund's financial statements were
audited by KPMG Peat Marwick LLP. The financial information for all periods
prior to October 1, 1995, was audited by other auditors to the predecessor fund.
On September 6, 1996, shares of a portfolio of Pacifica Funds Trust were
reorganized as shares of the Money Market Trust. The financial statements and
report thereon for the year ended September 30, 1996 are incorporated by
reference into the SAI. This information should be read in conjunction with the
Fund's 1996 financial statements and the notes thereto. The Fund's SAI has been
incorporated by reference into this prospectus.
MONEY MARKET TRUST(1)
FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED FOR THE YEAR ENDED MAY 31, PERIOD ENDED
SEPT. 30, SEPT. 30, ------------------------------------------ MAY 31,
1996 1995(2) 1995 1994 1993 1992 1991
------------ ------------ -------- -------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset
Value -- Beginning of
Period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment
Operations:
Net investment
income.............. 0.05 0.02 0.05 0.03 0.03 0.05 0.05
Total from investment
operations.......... 0.05 0.02 0.05 0.03 0.03 0.05 0.05
Less Distributions:
Dividends from Net
Investment Income... (0.05) (0.02) (0.05) (0.03) (0.03) (0.05) (0.05)
Total from
Distributions....... (0.05) (0.02) (0.05) (0.03) (0.03) (0.05) (0.05)
Net Asset Value -- End
of Period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return.......... 5.43% 5.70%(3) 5.05% 3.21% 2.94% 4.56% 6.48%(3)
Ratios/Supplemental
Data:
Net Assets, End of
Period (000)........ $1,143,767 $286,863 $290,483 $300,894 $74,375 $87,039 $113,141
Ratios to average net
assets (annualized):
Ratio of Expenses to
Average Net
Assets.............. 0.18% 0.19% 0.17% 0.18% 0.46% 0.48% 0.69%
Ratio of Net Investment
Income to Average Net
Assets................ 5.33% 5.70% 5.06% 3.21% 2.94% 4.56% 6.48%
Ratio of Expenses to
Average Net Assets
Prior to Waived Fees
and Reimbursed
Expenses............ 0.55% 1.11% 1.07% 1.02% 1.08% 1.04% 1.08%
Ratio of Net Investment
Income to Average Net
Assets Prior to Waived
Fees and Reimbursed
Expenses.............. 4.96% 4.78% 4.16% 2.38% 2.32% 4.00% 6.09%
</TABLE>
- -------------------
(1) The Fund operated as the Prime Money Market Fund of Westcore Trust and was
advised by First Interstate Bank of Oregon, N.A., from its commencement of
operations on September 17, 1990 until it was reorganized as the Money
Market Trust of Pacifica Funds Trust on October 1, 1995, when First
Interstate Capital Management, Inc. ("FICM") assumed investment advisory
responsibilities. The Fund operated as a series of Pacifica Funds Trust
until it was reorganized as a series of the Company on September 6, 1996. In
connection with the merger of First Interstate Bancorp into Wells Fargo &
Company on April 1, 1996, FICM was renamed Wells Fargo Investment
Management, Inc.
(2) The Money Market Trust changed its fiscal year-end from May 31 to September
30.
(3) Annualized.
5 PROSPECTUS
<PAGE> 498
HOW THE FUND WORKS
INVESTMENT OBJECTIVE AND POLICIES
The Money Market Trust seeks to provide investors with current income and
stability of principal. The Fund pursues its objective by investing in
high-quality U.S. dollar-denominated money market instruments 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").
Permitted investments include U.S. Government short-term obligations,
obligations of domestic and foreign banks, commercial paper, repurchase
agreements and variable- and floating-rate instruments. As with all mutual
funds, there can be no assurance that the Fund, which is a diversified
portfolio, will achieve its investment objective. In seeking to achieve its
investment objective, the Fund invests in "money market" instruments such as
those described below. During normal market conditions, the Fund invests at
least 80% of its assets in money market instruments. A more complete description
of the Fund's investments and investment objectives is contained in "Prospectus
Appendix -- Additional Investment Policies" and in the SAI.
The Fund may invest in bankers' acceptances guaranteed by U.S. commercial
banks having total assets at the time of purchase in excess of $1.5 billion, and
in certificates of deposit of domestic branches of U.S. banks, savings banks and
savings and loan associations that are members of the Federal Reserve System or
the Federal Deposit Insurance Corporation and have total assets at the time of
purchase in excess of $1.5 billion. The Fund may also make interest-bearing
savings deposits in commercial and savings banks in amounts not in excess of 5%
of its total assets.
In addition, the Fund may invest in U.S. dollar-denominated time deposits and
certificates of deposit issued by foreign branches of such U.S. banks and
savings and loan associations. Investments by the Fund in the obligations of
foreign branches of domestic banks will not exceed 25% of the value of the
Fund's total assets at the time of investment. Although time deposits made by
the Fund will normally mature within several days, the Fund may make time
deposits with longer maturities.
The Fund may invest in commercial paper (including variable- and floating-rate
instruments) and corporate bonds with remaining maturities of 397 days or less.
All securities acquired by the Fund will be U.S. Government obligations or other
"First Tier Securities" as defined under Rule 2a-7. First Tier Securities
generally consist of instruments that are either rated at the time of purchase
in the top rating category by one or more unaffiliated nationally recognized
statistical rating organizations ("NRSRO") 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 investment adviser pursuant to guidelines
PROSPECTUS 6
<PAGE> 499
approved by the Company's Board of Directors. 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 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. For additional descriptions of the types of securities and investment
practices used by the Fund, see "Risk Factors" and "Prospectus Appendix --
Additional Investment Policies" in this Prospectus and "Investment Restrictions"
and "Additional Permitted Investment Activities" 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 invests. As with all mutual funds, there can be no
assurance that the Fund will achieve its investment objective.
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 rating category by the required number
of 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 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
7 PROSPECTUS
<PAGE> 500
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 seeks to reduce risk by investing its assets in securities of various
issuers. In addition, the Fund emphasizes safety of principal and high credit
quality. In particular, the internal investment policies of the Fund's
investment adviser, Wells Fargo Bank, prohibit the purchase for the Fund of many
types of floating-rate derivative securities that are considered potentially
volatile. The following types of derivative securities ARE NOT permitted
investments for the Fund:
- capped floaters (on which interest is not paid when market rates move above
a certain level);
- leveraged floaters (whose interest rate reset provisions are based on a
formula that magnifies changes in interest rates);
- range floaters (which do not pay any interest if market interest rates move
outside of a specified range);
- dual index floaters (whose interest rate reset provisions are tied to more
than one index so that a change in the relationship between these indices
may result in the value of the instrument falling below face value); and
- inverse floaters (which reset in the opposite direction of their index).
Additionally, the Fund may not invest in securities whose interest rate reset
provisions are tied to an index that materially lags short-term interest rates,
such as Cost of Funds Index floaters. The Fund may only invest in floating-rate
securities that bear interest at a rate that resets quarterly or more frequently
and that resets based on changes in standard money market rate indices such as
U.S. Treasury bills, London Interbank Offered Rate, the prime rate, published
commercial paper rates or federal funds rates. See "Prospectus
Appendix -- Additional Investment Policies" and the SAI for further information
about the 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.
Yield refers to the income generated by an investment in the 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 Fund. Because of the
effects of compounding, effective yields are slightly higher than yields.
PROSPECTUS 8
<PAGE> 501
Average annual total return is based on the overall dollar or percentage
change of an investment in the Fund's shares and assumes the investment is at
NAV and all dividends and distributions attributable to the shares are
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
30-day yields or, in sales literature, distribution rates.
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 1-800-260-5969 or by writing the Company at the address shown
on the inside front cover of the Prospectus.
THE FUND AND MANAGEMENT
The Fund is one fund in the Stagecoach Family of Funds. The Company was
organized as a Maryland corporation on September 9, 1991 and currently offers
shares of 24 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 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). A shareholder of record of the Fund is
entitled to one vote for each share owned and fractional votes for fractional
shares owned. A more detailed description of the voting rights and attributes of
the shares is contained in the "Capital Stock" section of the SAI.
MANAGEMENT
Wells Fargo Bank serves as the Fund's investment adviser, administrator,
transfer and dividend disbursing agent and custodian. In addition, Wells Fargo
Bank serves as a shareholder servicing agent and as a selling agent for the
Fund. Wells Fargo Bank, one of the largest banks in the United States, was
founded in 1852 and is the oldest bank in the western United States. As of
December 31, 1996, Wells Fargo Bank provided investment advisory services for
approximately $54 billion of assets of individuals, trusts, estates and
institutions. Wells Fargo Bank also serves as the investment adviser or sub-
adviser to the other separately managed series of the Company, and to five other
registered, open-end, management investment companies which consist of several
separately managed investment portfolios. Wells Fargo Bank, a wholly owned
subsidiary
9 PROSPECTUS
<PAGE> 502
of Wells Fargo & Company, is located at 420 Montgomery Street, San Francisco,
California 94104.
From October 1, 1995 until 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. 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 94111. Prior to October 1, 1995, First
Interstate Bank of Oregon, N.A. served as the investment adviser to the Fund.
---------------------
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 Investment
Advisory Contract and this Prospectus without violation of the Glass-Steagall
Act. Such counsel has pointed out, however, that there are no controlling
judicial or administrative interpretations or decisions and that future judicial
or administrative interpretations of, or decisions relating to, present federal
or state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
INVESTING IN THE FUND
SHARE VALUE
The price of a Fund share is its "net asset value" or NAV. The NAV of shares
of the Money Market Trust is computed by adding the value of its portfolio
investments plus cash and other assets, deducting liabilities and then dividing
the result by the number of Fund shares outstanding. As noted above, the Fund
seeks to maintain a constant $1.00 NAV share price, although there is no
assurance that it will be able to do so.
Fund shares may be purchased on any day the Fund is open (a "Business Day").
The Fund is open Monday through Friday and is closed on weekends and federal
bank holidays. 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 12:00 Noon.
PROSPECTUS 10
<PAGE> 503
Wells Fargo Bank calculates the Fund's NAV as of 12:00 Noon (Pacific time)
each Business Day. All transaction orders are processed at the NAV next
determined after the order is received.
The Fund's portfolio investments are valued on the basis of amortized cost.
This valuation method is based on the receipt of a steady rate of payment from
the date of purchase until maturity rather than actual changes in market value.
The Company's Board of Directors believes that this valuation method accurately
reflects fair value.
HOW TO BUY SHARES
Shares of the Fund are sold without a sales load on a continuous basis to
Customers who maintain qualified accounts with the trust division of a Bank.
Customers may include individuals, trusts, partnerships and corporations. All
share purchases are effected through a Customer's account at a Bank through
procedures established in connection with the requirements of the account, and
confirmations of share purchases and redemptions are sent to the Bank involved.
A Bank (or its nominee) is normally the holders of record of Fund shares acting
on behalf of its Customers and reflects its Customers beneficial ownership of
shares in the account statements provided to its Customers. The exercise of
voting rights and the delivery to Customers of shareholder communications from
the Fund is governed by a Customer's account agreement with a Bank. Investors
wishing to purchase shares of the Fund should contact their account
representatives.
Purchase orders for shares in the Fund must be received by the Fund by 12:00
Noon (Pacific time) on a Business Day. Payment for such shares must also be made
in federal funds or other funds immediately available to the Custodian no later
than 12:00 Noon (Pacific time) on the same Business Day that the purchase order
is received. Orders for the purchase of shares are executed at the NAV per share
(the "public offering price") next determined after receipt of both an order and
payment in proper order. The Fund has no minimum initial or subsequent
investment requirement, although a Bank may impose certain minimum Customer
account requirements.
The Bank is responsible for transmitting orders for purchases by the Customers
and delivering required funds on a timely basis. If funds are not received
within the period described above, the order will be canceled, notice thereof
will be given, and the Bank will be responsible for any loss to the Fund or its
shareholders. A Bank may charge certain account fees depending on the type of
account the investor has established. Payment for shares of the Fund may, 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
11 PROSPECTUS
<PAGE> 504
issuance of shares is recorded on the books of the Fund, and share certificates
are not issued.
STATEMENTS AND REPORTS
If a Bank is the recordholder for an investor's account, the Bank sends the
investor a monthly account statement after the end of each month in which there
has been a transaction that affects the share balance or Fund account
registration. Every January, 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, investors receive financial statements from the Fund.
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
Dividends from net investment income are declared daily payable to
shareholders of record as of 12:00 Noon (Pacific time). If your purchase order
is received before 12:00 Noon on any Business Day, you begin earning dividends
on the day your purchase order is effective and continue to earn dividends
through the day prior to the date you redeem such shares. Dividends for a
Saturday, Sunday or Holiday are credited on the preceding Business Day. If you
redeem shares before a dividend payment date, any dividends credited to you are
paid on the following dividend payment date unless you have redeemed all of the
shares in your account, in which case you receive your accrued dividends
together with your redemption proceeds. The Fund distributes any capital gains
at least annually. The Fund does not make distributions from net realized
securities gains unless capital loss carryovers, if any, have been utilized or
have expired.
Dividends declared in a month generally are distributed on the last Business
Day of that month. All distributions are reinvested automatically in additional
shares of the Fund at NAV or, at the option of the investor, paid in cash.
Distributions from net realized securities gains are declared and distributed
once a year, but the Fund may make distributions on a more frequent basis. In
all cases, distributions will be made in a manner that is consistent with the
provisions of the 1940 Act.
HOW TO REDEEM SHARES
Redemption requests are effected at the NAV per share next determined after
receipt of a redemption request in good order by the Company. Shares held by a
Bank on behalf of its Customers must be redeemed in accordance with instructions
and limitations pertaining to the Customer's accounts at the Bank. The Bank is
responsible for
PROSPECTUS 12
<PAGE> 505
transmitting redemption requests to the Company and crediting its Customers'
accounts with the redemption proceeds on a timely basis. The redemption proceeds
for Fund shares normally are wired to the redeeming Bank the following Business
Day after receipt of the request by the Company. The Company reserves the right
to delay the wiring of redemption proceeds for up to seven days after it
receives a redemption order if, in the judgment of the investment adviser, an
earlier payment could adversely affect the Fund or unless the SEC permits a
longer period under extraordinary circumstances. Such extraordinary
circumstances could include a period during which an emergency exists as a
result of which (a) disposal by the Fund of securities owned by it is not
reasonably practicable or (b) it is not reasonably practicable for the Fund to
fairly determine the value of its net assets, or a period during which the SEC
by order permits deferral of redemptions for the protection of security holders
of a Fund.
With respect to shareholders who do not have a relationship with a Bank, Fund
shares may be redeemed by writing or calling the Company directly at the address
or phone number shown on the inside cover page of the Prospectus. When shares
are redeemed directly from the Fund, the Company ordinarily sends the proceeds
by check to the investor 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 Company may suspend redemptions
or postpone payment dates.
To be accepted by the Company, a letter requesting redemption must include:
(i) the Fund's name and account registration from which the shares are being
redeemed; (ii) the account number; (iii) the amount to be redeemed; (iv) the
signatures of all registered owners; and (v) a signature guarantee by any
eligible guarantor institution. An "eligible guarantor institution" includes a
commercial bank that is an FDIC member, a trust company, a member firm of a
domestic stock exchange, a savings association, or a credit union that is
authorized by its charter to provide a signature guarantee. Signature guarantees
by notaries public are not acceptable. Further documentation may be requested
from corporations, administrators, executors, personal representatives, trustees
or custodians.
All redemptions of Fund shares are made in cash, except that the commitment to
redeem shares in cash extends only to redemption requests made by an investor
during any 90-day period of up to the lesser of $250,000 or 1% of the NAV of the
Fund at the beginning of such period. This commitment is irrevocable without the
prior approval of the SEC. In the case of redemption requests by investors in
excess of such amounts, the Board of Directors reserves the right to have the
Fund make payment, in whole or in part, in securities or other assets, in case
of an emergency or any time a cash distribution would impair the liquidity of
the Fund to the detriment of the existing shareholders. In this event, the
securities would be valued in the same manner as the Fund's securities
13 PROSPECTUS
<PAGE> 506
are valued. If the recipient were to sell such securities, the investor might
incur brokerage charges.
MANAGEMENT AND SERVICING FEES
INVESTMENT ADVISER
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank, as the Fund's investment adviser, provides investment guidance and
policy direction in connection with the management of the Fund's assets. Wells
Fargo Bank also furnishes the Board of Directors with periodic reports on the
Fund's investment strategies and performance. For these services, Wells Fargo
Bank is entitled to a monthly investment advisory fee at the annual rate of
0.25% of the average daily net assets of the Money Market Trust. From time to
time, the Fund, consistent with its investment objective, policies and
restrictions, may invest in securities of companies with which Wells Fargo Bank
has a lending relationship. For the fiscal year ended September 30, 1996, the
Fund paid advisory fees at the annual rate of 0.02% 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 to the
Money Market Trust.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
Wells Fargo Bank also serves as the Fund's custodian and transfer and dividend
disbursing agent. Under the Custody Agreement, the Fund may, at times, borrow
money from Wells Fargo Bank as needed to satisfy temporary liquidity needs.
Wells Fargo Bank charges interest on such overdrafts at a rate determined
pursuant to the Fund's Custody Agreement. Wells Fargo Bank performs its
custodial and transfer and dividend disbursing agency services at 525 Market
Street, San Francisco, California 94105.
SHAREHOLDER SERVICING AGENTS
The Fund has entered into a shareholder servicing agreement with Wells Fargo
Bank and may enter into similar agreements with other Banks ("Shareholder
Servicing Agents"). Under such agreements, Shareholder Servicing Agents
(including Wells Fargo Bank) agree, as agents for their customers, to provide
shareholder administrative and liaison servicing with respect to Fund shares,
which include, without limitation, aggregating and transmitting shareholder
orders for purchases, exchanges and redemptions; maintaining shareholder
accounts and records; and providing such other related services as the Company
or a shareholder may reasonably request. For these services, a Shareholder
Servicing Agent is entitled to receive a fee at the annual rate of up to 0.20%
of the average daily net assets attributable to the shares owned of record or
PROSPECTUS 14
<PAGE> 507
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 the Fund, such as requiring a higher minimum
initial investment or payment of a separate fee for additional services. Each
Shareholder Servicing Agent has agreed to disclose any fees it may directly
charge its customers who are shareholders of the Fund and to notify them in
writing at least 30 days before it imposes any transaction fees.
ADMINISTRATOR AND CO-ADMINISTRATOR
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank as administrator and Stephens as co-administrator, provide the Fund
with administrative services, including general supervision of the Fund's
operation, coordination of the other services provided to the Fund, compilation
of information for reports to the SEC and the state securities commissions,
preparation of proxy statements and shareholder reports, and general supervision
of data compilation in connection with preparing periodic reports to the
Company's Directors and officers. Wells Fargo Bank and Stephens also furnish
office space and certain facilities to conduct the Fund's business, and Stephens
compensates the Company's Directors and officers who are affiliated with
Stephens. For these administrative services, Wells Fargo Bank and Stephens are
entitled to receive a monthly fee at the annual rate of 0.04% and 0.02%,
respectively, of the Fund's average daily net assets. Wells Fargo Bank and
Stephens may delegate certain of their respective administrative duties to
sub-administrators.
Stephens previously provided substantially the same services as the Fund's
sole administrator. For the year ended September 30, 1996, the Fund paid
administrative fees at the annual rate of 0.10% of its daily average net assets.
For the period prior to September 6, 1996, this includes amounts paid to Furman
Selz LLC by the predecessor portfolio to the Money Market Trust.
SPONSOR AND DISTRIBUTOR
Stephens is the Company's sponsor and co-administrator and distributes the
Fund's shares. Stephens is a full service broker/dealer and investment advisory
firm located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its
predecessor have been providing securities and investment services for more than
60 years. Additionally, they have been providing discretionary portfolio
management services since 1983. Stephens currently manages investment portfolios
for pension and profit-sharing plans, individual investors, foundations,
insurance companies and university endowments.
15 PROSPECTUS
<PAGE> 508
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 ("Selling Agents") that wish to make
available shares of the Fund to their respective customers.
Stephens has established a non-cash compensation program, pursuant to which
broker/dealers or financial institutions that sell shares of the Company's funds
may earn additional compensation in the form of trips to sales seminars or
vacation destinations, tickets to sporting events, theater or other
entertainment, opportunities to participate in golf or other outings and gift
certificates for meals or merchandise.
Financial institutions acting as Shareholder Servicing Agents or Selling
Agents, or in certain other capacities, may be required to register as dealers
pursuant to applicable state securities laws which may differ from federal law
and any interpretations expressed herein.
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 in a manner
proportionate to the net assets of each fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.
TAXES
Distributions from the Fund's net investment income and net short-term capital
gains, if any, are designated as dividend distributions and taxable to the
Fund's shareholders as ordinary income. Distributions from the Fund's net
long-term capital gains, 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
PROSPECTUS 16
<PAGE> 509
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.
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 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 your SAI.
17 PROSPECTUS
<PAGE> 510
PROSPECTUS APPENDIX --
ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
Money Market Trust
The Money Market Trust may invest in the following:
(i) obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, including government-sponsored enterprises ("U.S.
Government obligations") (discussed below);
(ii) negotiable certificates of deposit, fixed time deposits, bankers'
acceptances or other short-term obligations of U.S. banks (including
foreign branches) that have more than $1 billion in total assets at the
time of investment and are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are
insured by the FDIC ("bank instruments");
(iii) commercial paper rated at the date of purchase P-1 by Moody's Investors
Service, Inc. ("Moody's") or "A-1+" or "A-1" by Standard & Poor's
Corporation ("S&P") ("rated commercial paper");
(iv) commercial paper unrated at the date of purchase but deemed comparable
to rated commercial paper in which the Fund may invest and/or secured by
a letter of credit from a U.S. bank that meets the above criteria for
investment;
(v) certain floating and variable rate instruments ("variable rate
instruments") (discussed below);
(vi) certain repurchase agreements ("repurchase agreements") (discussed
below);
(vii) short-term, U.S. dollar-denominated obligations of U.S. branches of
foreign banks that at the time of investment have more than $10
billion, or the equivalent in other currencies, in total assets
("foreign bank obligations") (discussed below); and
(viii) certain securities issued by other investment companies (discussed
below).
U.S. Government Obligations
The Fund may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. 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
A- 1 PROSPECTUS
<PAGE> 511
or guaranteeing agency or instrumentality itself (as with FNMA notes). In the
latter case investors must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government will provide financial support to its agencies or instrumentalities
where it is not obligated to do so. In addition, U.S. Government Obligations are
subject to fluctuations in market value due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government Obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
Obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
Other Investment Companies
The Fund may invest in shares of other open-end, management investment
companies 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.
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.
PROSPECTUS A- 2
<PAGE> 512
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 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.
Short-Term Trading
The Fund may attempt to increase yields by trading to take advantage of
short-term market variations. This policy could result in high portfolio
turnover but should not adversely affect the Fund since it does not ordinarily
pay brokerage commissions on the purchase of short-term debt obligations.
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objective, as set forth under "How the Fund Works --
Investment Objective and Policies", is fundamental; that is, it may not be
changed without approval by the vote of the holders of a majority of the Fund's
outstanding voting securities, as described under "Capital Stock" in the 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 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.
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
A- 3 PROSPECTUS
<PAGE> 513
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 the
Fund while any such outstanding borrowing in excess of 5% of its net assets
exists); (ii) not make loans of portfolio securities or other assets, except
that loans for purposes of this restriction will not include the purchase of
fixed time deposits, repurchase agreements, commercial paper and other
short-term obligations, and other types of debt instruments commonly sold in a
public or private offering; and (iii) not invest more than 25% of its assets
(i.e., concentrate) in any particular industry, excluding, (a) U.S. Government
obligations, and (b) obligations of domestic banks (for purposes of this
restriction, domestic bank obligations do not include obligations of foreign
branches of U.S. banks and obligations of U.S. branches of foreign banks).
As a matter of nonfundamental policy, the Fund may not: (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 or the 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 and
fixed time deposits that are subject to withdrawal penalties and that have
maturities of more than seven days.
With respect to item (i), it may be possible that the Company would own more
than 10% of the outstanding voting securities of an issuer. For purposes of item
(ii), repurchase agreements and time deposits that do not provide for payment to
the Fund within seven days after notice, and securities that are not registered
under the Securities Act of 1933 (the "1933 Act") but that may be purchased by
institutional buyers under Rule 144A, are subject to this 10% limit, unless such
securities are variable amount master demand notes with maturities of nine
months or less or unless the Board or investment adviser, pursuant to guidelines
adopted by the Board, determines that a liquid trading market exists.
Illiquid securities shall not include securities eligible for resale pursuant
to Rule 144A under 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. The
PROSPECTUS A- 4
<PAGE> 514
Fund may invest in securities not registered under the 1933 Act and other
securities subject to legal or other restrictions on resale. Illiquid securities
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 a Fund.
A- 5 PROSPECTUS
<PAGE> 515
Advised by WELLS FARGO BANK, N.A.
Sponsored/Distributed by
Stephens Inc., Member NYSE/SIPC
LOGO
NOT FDIC INSURED
<PAGE> 516
LOGO
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH MONEY MARKET MUTUAL FUNDS:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- are NOT FDIC insured
- are NOT deposits or obligations of Wells Fargo Bank
- are NOT guaranteed by Wells Fargo Bank
- involves investment risk, including possible loss of
principal
- seek to maintain a stable net asset value of $1.00 per LOGO
share, however, there can be no assurance that the fund
will meet this goal. Yields will vary with market
conditions.
</TABLE>
LOGO
Printed on Recycled Paper SC 0209 (2/97)
<PAGE> 517
LOGO
------------------------------
PROSPECTUS
------------------------------
BALANCED FUND
EQUITY VALUE FUND
GROWTH AND INCOME FUND
SMALL CAP FUND
INSTITUTIONAL CLASS
FEBRUARY 1, 1997
<PAGE> 518
STAGECOACH FUNDS(R)
BALANCED, EQUITY VALUE, GROWTH AND INCOME
AND SMALL CAP FUNDS
INSTITUTIONAL CLASS
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about Institutional Class shares
offered by four funds of the Stagecoach Family of Funds -- the BALANCED, EQUITY
VALUE, GROWTH AND INCOME and SMALL CAP FUNDS (each, a "Fund" and collectively,
the "Funds").
The BALANCED FUND seeks to provide investors with both capital appreciation
and current income resulting in a high total investment return consistent with
prudent investment risk and a balanced investment approach. The EQUITY VALUE
FUND seeks to provide investors with long-term capital appreciation. The GROWTH
AND INCOME FUND seeks to earn current income and achieve long-term capital
appreciation by investing primarily in common stocks, and preferred stocks and
debt securities that are convertible into common stocks.
The 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 this objective by investing all of its assets
in the Small Cap Master Portfolio ( the "Master Portfolio") of Master Investment
Trust ("MIT"), an open-end management investment company, rather than in a
portfolio of securities. References to the investment policies and investment
risks of the Small Cap Fund, unless otherwise indicated, should also be
understood as references to the investment policies and investment risks of the
Small Cap Master Portfolio.
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 February 1, 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.
PROSPECTUS DATED FEBRUARY 1, 1997
PROSPECTUS
<PAGE> 519
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
<PAGE> 520
TABLE OF CONTENTS
-------
PROSPECTUS SUMMARY 1
SUMMARY OF FUND EXPENSES 5
FINANCIAL HIGHLIGHTS 8
HOW THE FUNDS WORK 13
THE FUNDS AND MANAGEMENT 21
INVESTING IN THE FUNDS 25
EXCHANGES 29
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS 30
MANAGEMENT AND SERVICING FEES 30
TAXES 34
PROSPECTUS APPENDIX - ADDITIONAL INVESTMENT POLICIES A-1
PROSPECTUS
<PAGE> 521
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 BALANCED FUND seeks to provide investors with both capital appreciation
and current income resulting in high total investment return consistent with
prudent investment risk and a balanced investment approach. The Fund pursues
this objective by investing in equity securities and debt instruments through
a balanced and diversified program. The Fund normally invests between 30% and
70% of its assets in common stocks that are considered by the investment
adviser to have better than average prospects for growth of capital and
income. The Fund invests primarily in domestic equity securities, but may
invest up to 5% of its assets in equity securities listed or traded
exclusively on a foreign exchange. The Fund's remaining assets are invested in
senior fixed-income securities, including corporate debt securities,
commercial paper and mortgage-backed and asset-backed securities, based on the
relative stability of income and principal of such securities. Debt
instruments in which the Fund invests are rated at least investment grade or
deemed comparable.
The EQUITY VALUE FUND seeks to provide investors with long-term capital
appreciation. The Fund pursues this objective by investing primarily in
common stocks and may invest in debt securities that are convertible into
common stocks of both domestic and foreign companies. The Fund may invest in
large, well-established companies and smaller companies with market
capitalizations exceeding $50 million. The Fund may invest up to 5% of its
assets in foreign equity securities. Income generation is a secondary
consideration in selecting investments. The Fund may purchase dividend
paying stocks of particular issuers when the issuer's dividend record may,
in the investment adviser's opinion, have a favorable influence on the
market value of the securities. The Fund also may purchase convertible
securities with the same characteristics as common stocks. Under normal
market conditions, the Fund invests at least 65% of its total assets in
common stocks and securities convertible into common stocks.
The GROWTH AND INCOME FUND seeks to earn current income and achieve
long-term capital appreciation by investing primarily in common stocks, and
preferred stocks and debt securities that are convertible into common
stocks. Common stocks are
1 PROSPECTUS
<PAGE> 522
selected on the basis of strong earnings growth trend, above-average
prospects for future earnings growth and diversification among industries
and companies. Convertible securities are selected on the basis of strong
earnings and credit record, the ability to provide current income and the
same characteristics described above with respect to common stocks.
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 investment objective by investing all
of its assets in the Master Portfolio. The Master Portfolio has the same
investment objective as the Fund. The Master Portfolio pursues this
investment 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 Master Portfolio intends to sell the common stock of any
company in its investment portfolio after such Company's market
capitalization exceeds $2 billion.
See "How the Funds Work -- 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.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 a Fund. The portfolio equity securities of a Fund are
subject to equity market risk. Equity market risk is the risk that common
stock prices will fluctuate or decline over short or even extended periods. As
of the date of this Prospectus, the stock market, as measured by the S&P 500
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 a Fund are subject to credit and interest-rate
risk. Credit risk is the risk that issuers of the debt instruments in which a
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 a Fund invests and
hence the value of your investment in a Fund. The Small Cap Fund and the
Growth and Income Fund each may invest a significant portion of its 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
PROSPECTUS 2
<PAGE> 523
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.
Q. WHO MANAGES MY INVESTMENTS?
A.Wells Fargo Bank, as each Fund's and the Master Portfolio's investment
adviser, manages your investments. Wells Fargo Bank also provides the Funds
with administrative, transfer and dividend disbursing agency, and custodial
services. In addition, Wells Fargo Bank is a shareholder servicing agent and a
selling agent for the Funds and provides certain of these services to the
Master Portfolio. See "The Funds and Management" and "Management and Servicing
Fees" for further information.
Q. HOW DO I INVEST?
A.Qualified investors may invest by purchasing Institutional 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 Institutional Class shares
should contact their account representatives. The minimum initial purchase
amount on Institutional Class shares is $2 million 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. See "Investing in the Funds" for
additional information.
Q. HOW MAY I REDEEM SHARES?
A.Investors 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 their customers' accounts. The Company reserves
the right to impose
3 PROSPECTUS
<PAGE> 524
charges for wiring redemption proceeds. See "Investing in the Funds --
Redemption of Institutional Class Shares."
Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A.Dividends of the Balanced, Equity Value and Growth and Income Funds are
declared and distributed quarterly. Dividends of the Small Cap Fund are
declared and distributed annually. All distributions are automatically
reinvested in additional Institutional Class shares of the respective Fund at
NAV. Shareholders also may elect to receive distributions in cash. Any capital
gains are distributed at least annually. See "Dividend and Capital Gain
Distributions" for additional information.
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 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 a Fund's investment activities, see "How the Funds Work" and "Prospectus
Appendix -- Additional Investment Policies."
PROSPECTUS 4
<PAGE> 525
SUMMARY OF FUND EXPENSES
INSTITUTIONAL CLASS SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
BALANCED EQUITY GROWTH AND SMALL CAP
FUND VALUE FUND INCOME FUND FUND
<S> <C> <C> <C> <C>
Maximum Sales Charge on
Purchases (as a percentage
of offering price)......... None None None None
Maximum Sales Charge on
Reinvested Distributions... None None None None
Maximum Sales Charge on
Redemptions................ None None None None
Exchange Fees................ None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
BALANCED EQUITY GROWTH AND SMALL CAP
FUND VALUE FUND INCOME FUND FUND
<S> <C> <C> <C> <C>
Management Fee............... 0.60% 0.50% 0.50% 0.60%
Rule 12b-1 Fee............... None None None None
Other Expenses (after waivers
or reimbursements)......... 0.35%(1) 0.45%(1) 0.63% 0.15%(1)
----- ----- ----- -----
TOTAL FUND OPERATING EXPENSES
(after waivers or
reimbursements)(2)......... 0.95% 0.95% 1.13% 0.75%
===== ===== ===== =====
</TABLE>
- ---------------------------------
(1) Other Expenses (before waivers or reimbursements) would be 0.67%, 0.50% and
0.50%, respectively, for the Balanced, Equity Value and Small Cap Funds.
(2) Total Fund Operating Expenses (before waivers or reimbursements) would be
1.27%, 1.00% and 1.10%, respectively, for the Balanced, Equity Value and
Small Cap Funds.
Note: 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 Funds.
5 PROSPECTUS
<PAGE> 526
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment in
a Fund's Institutional Class
shares, assuming a 5% annual return
and redemption at the end of each
time period indicated:
Balanced Fund.................. $ 10 $30 $53 $117
Equity Value Fund.............. $ 10 $30 $53 $117
Growth and Income Fund......... $ 12 $36 $62 $137
Small Cap Fund................. $ 8 $24 $42 $ 93
</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. For the Small Cap Fund, the tables reflect expenses at both the Fund
and Master Portfolio levels.
SHAREHOLDER TRANSACTION EXPENSES are charges incurred when a shareholder buys
or sells Fund shares. Institutional Class shares are sold with no shareholder
transaction charges 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 for
"Management Fee" and "Rule 12b-1 Fee" and estimated amounts for "Other
Expenses." Wells Fargo Bank and Stephens have each agreed to waive or reimburse
all or a portion of their respective fees charged to, or expenses paid by, each
Fund to ensure that the "Total Fund Operating Expenses" do not exceed, on an
annual basis, 0.95%, 0.95% or 1.13% respectively, of the Balanced, Equity Value
or Growth and Income Funds' average daily net assets through August 31, 1997.
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 "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%. 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.
PROSPECTUS 6
<PAGE> 527
With regard to the combined fees and expenses of the Small Cap Fund and the
Master Portfolio, the Company's Board of Directors has considered whether
various costs and benefits of investing all of the Fund's assets in a
corresponding Master Portfolio rather than directly in a portfolio of securities
would be more or less than if the Fund invested in portfolio securities
directly. The Company's Board of Directors believes that the aggregate per share
expenses of the Fund will not be more than the expenses incurred by the Fund if
the Fund invested directly in the type of securities held by the Master
Portfolio. The Company's Board of Directors believes that if other investors
invest their assets in the Master Portfolio, certain economic efficiencies may
be realized with respect to the Master Portfolio. For example, fixed expenses
that otherwise would have been borne solely by the Fund would be spread among a
potentially larger asset base provided by more than one fund investing in the
Master Portfolio. There can be no assurance that these economic efficiencies
will be achieved. In addition, the Master Portfolio may sell its interests to
other mutual funds or accredited investors. The expenses and corresponding
returns of these other classes and funds may differ from the expenses and
returns of the Institutional Class shares described herein. The Funds offer to
retail shareholders certain classes of shares not described herein. Information
regarding these and any other investment options in the Funds or the Small Cap
Master Portfolio 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 and Servicing Fees" and in the SAI under
"Management" and "Servicing Plans."
7 PROSPECTUS
<PAGE> 528
FINANCIAL HIGHLIGHTS
The following information has been derived from the Financial Highlights in
the financial statements for the fiscal period ended September 30, 1996. This
information is provided to assist you in evaluating the historical performance
of each Fund. Except as set forth below, the Funds' financial statements were
audited by KPMG Peat Marwick LLP. For the Balanced Fund and Equity Value Fund,
the financial statements for the periods prior to October 1, 1995, were each
audited by other auditors. On September 6, 1996, the Institutional Class shares
of certain portfolios of Pacifica Funds Trust were reorganized as the
Institutional Class shares of the Balanced and Equity Value Funds. Prior to
October 1, 1995, the Balanced and Equity Value Funds offered a single class of
shares designated the Investor Class shares. The financial information presented
for these Funds for periods prior to October 1, 1995 reflects the performance of
the Investor Class shares. For the Growth and Income Fund, the financial
information for periods prior to January 1, 1992 was audited by other auditors.
The financial statements and the report thereon for the period ended September
30, 1996 are incorporated by reference into the SAI. This information should be
read in conjunction with the Funds' 1996 financial statements and the notes
thereto. The SAI is incorporated by reference into this Prospectus.
PROSPECTUS 8
<PAGE> 529
BALANCED FUND(1)
FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
INSTITUTIONAL INVESTOR SHARES
CLASS SHARES -------------------------------------------------------------
------------ PERIOD
YEAR ENDED YEAR ENDED SEPTEMBER 30, ENDED
SEPT. 30, ------------------------------------------------- SEPT. 30,
1996 1995 1994 1993 1992 1991 1990
------------ ------- -------- -------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of period............... $11.84 $11.67 $12.71 $11.18 $10.80 $9.50 $10.00
Income from investment operations:
Net investment income (loss)....................... 0.40 0.46(2) 0.43 (2) 0.44(2) 0.42(2) 0.52 (0.14)
Net realized and unrealized gain (loss) on
investments...................................... 0.89 0.68(2) (0.13)(2) 1.72(2) 0.53(2) 1.40 (0.64)
Total from investment operations................. 1.29 1.14 0.30 2.16 0.95 1.92 (0.50)
Less Distributions:
Dividends from net investment income .............. (0.40) (0.47) (0.46) (0.43) (0.43) (0.62) --
Distributions from net realized gain .............. (1.28) (0.50) (0.88) (0.20) (0.14) -- --
Total from distributions......................... (1.68) (0.97) (1.34) (0.63) (0.57) (0.62) --
Net asset value -- end of period................... $11.45 $11.84 $11.67 $12.71 $11.18 $10.80 $ 9.50
Total return (not annualized).................... 10.80% 10.62% 2.30% 19.83% 9.03% 20.78% (5.00)%
Ratios/supplemental data:
Net assets, end of period (000).................... $72,327 $89,034 $108,290 $104,434 $65,226 $50,038 $33,185
Ratios to average net assets (annualized)
Ratio of expenses to average net assets............ 0.94% 1.03% 1.09% 1.01% 1.02% 0.96% 0.93%(3)
Ratio of net investment income to average net
assets........................................... 3.29% 4.05% 3.55% 3.62% 3.76% 5.88% 5.87%(3)
Portfolio turnover................................. 131% 90% 35% 60% 49% 30% 12%
Average commission rate paid(3).................... $0.0603 -- -- -- -- -- --
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses.............. 1.11% 1.05% 1.11% 1.06% 1.110% 1.18% 1.60%
Ratio of net investment income to average net
assets prior to waived fees and reimbursed
expenses......................................... 3.12% 4.03% 3.53% 3.57% 3.60% 5.66% 5.20%
</TABLE>
- -------------------
<TABLE>
<S> <C>
(1) The Fund operated as a series of Pacifica Funds Trust from its commencement of operations on July 2, 1990 until it was
reorganized as a series of the Company on September 6, 1996. In connection with the reorganization, existing Investor
Shares were converted into Class A shares of the Fund. Institutional Class shares of the Fund commenced operations on
October 1, 1995. Prior to April 1, 1996, the Fund was advised by First Interstate Capital Management, Inc. ("FICM"). In
connection with the merger of First Interstate Bancorp into Wells Fargo & Company on April 1, 1996, FICM was renamed Wells
Fargo Investment Management, Inc.
(2) Per share data are based upon average monthly shares outstanding.
(3) For fiscal years beginning on or after September 1, 1995, a Fund is required to disclose its average commission rate per
share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund
depending on the mix of trades executed in various markets where trading practices and commission rate structures may
differ.
</TABLE>
9 PROSPECTUS
<PAGE> 530
EQUITY VALUE FUND(1)
FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
INVESTOR SHARES
INSTITUTIONAL --------------------------------------------------------------
CLASS SHARES PERIOD
-------------- YEAR ENDED SEPTEMBER 30, ENDED
YEAR ENDED -------------------------------------------------- SEPT. 30,
SEPT. 30, 1996 1995 1994 1993 1992 1991 1990
-------------- -------- -------- -------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of period............ $ 13.27 $ 12.36 $ 13.17 $ 10.73 $ 10.45 $ 8.48 $ 10.00
Income from investment operations:
Net investment income........................... 0.22 0.24(2) 0.20(2) 0.21(2) 0.20(2) 0.28 0.08
Net realized and unrealized gain (loss) on
investments................................... 1.61 1.63(2) 0.74(2) 2.75(2) 0.49(2) 1.98 (1.60)
-------- -------- -------- -------- ------- ------- -------
Total from investment operations.............. 1.83 1.87 0.94 2.96 0.69 2.26 (1.52)
-------- -------- -------- -------- ------- ------- -------
Less Distributions:
Dividends from net investment income............ (0.23) (0.25) (0.21) (0.23) (0.22) (0.29) --
Distributions from net realized gain............ (2.22) (0.71) (1.54) (0.29) (0.19) -- --
-------- -------- -------- -------- ------- ------- -------
Total from distributions...................... (2.45) (0.96) (1.75) (0.52) (0.41) (0.29) --
-------- -------- -------- -------- ------- ------- -------
Net asset value -- end of period................ $ 12.65 $ 13.27 $ 12.36 $ 13.17 $ 10.73 $ 10.45 $ 8.48
======== ======== ======== ======== ======= ======= =======
Total return (not annualized)................. 14.58% 16.58% 7.49% 28.22% 6.81% 27.05% (15.20)%
Ratios/supplemental data:
Net assets, end of period (000)................. $206,620 $170,406 $168,852 $140,551 $92,915 $68,412 $26,100
Ratios to average net assets (annualized)
Ratio of expenses to average net assets......... 0.87% 0.96% 0.99% 0.98% 1.02% 0.98% 0.91%(3)
Ratio of net investment income to average net
assets........................................ 1.69% 1.97% 1.60% 1.73% 1.86% 2.69% 3.38%(3)
Portfolio turnover.............................. 91% 75% 41% 82% 78% 36% 21%
Average commission rate paid(3)................. $ 0.0558 -- -- -- -- -- --
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses........... 0.92% 0.98% 1.01% 0.99% 1.02% 1.11% 1.86%
Ratio of net investment income (loss) to average
net assets prior to waived fees and reimbursed
expenses...................................... 1.64% 1.95% 1.58% 1.72% 1.86% 2.56% 2.43%
</TABLE>
- -------------------
(1) The Fund operated as a series of Pacifica Funds Trust from its commencement
of operations on July 2, 1990 until it was reorganized as a series of the
Company on September 6, 1996. In connection with the reorganization,
existing Investor Shares were converted into Class A shares of the Fund.
Institutional Class shares of the Fund commenced operations on October 1,
1995. Prior to April 1, 1996, the Fund was advised by First Interstate
Capital Management, Inc. ("FICM"). In connection with the merger of First
Interstate Bancorp into Wells Fargo & Company on April 1, 1996, FICM was
renamed Wells Fargo Investment Management, Inc.
(2) Per share data are based upon average monthly shares outstanding.
(3) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share for security trades on
which commissions are charged. This amount may vary from period to period
and fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
PROSPECTUS 10
<PAGE> 531
GROWTH AND INCOME FUND
FOR AN INSTITUTIONAL CLASS SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD ENDED
SEPT. 30,
1996(1)
------------
<S> <C>
Net asset value, beginning of period........................... $ 20.03
Income from investment operations:
Net investment income........................................ 0.02
Net realized and unrealized gain on investments.............. 0.97
-------
Total from investment operations........................... 0.99
Less distributions:
Dividends from net investment income......................... (0.01)
Distributions from net realized gain......................... 0.00
-------
Total from distributions................................... (0.01)
-------
Net asset value, end of period............................... $ 21.01
=======
Total return (not annualized).............................. 3.41%
Ratios/supplemental data:
Net assets, end of period (000).............................. $ 18,508
Ratios to average net assets (annualized):
Ratio of expenses to average net assets...................... 0.96%
Ratio of net investment income (loss) to average net
assets..................................................... 1.27%
Portfolio turnover........................................... 83%
Average commission rate paid(2).............................. $ 0.0702
Ratio of expenses to average net assets prior to waived fees
and reimbursed expenses.................................... 0.96%
Ratio of net investment income to average net assets prior to
waived fees and reimbursed expenses........................ 1.27%
- -------------------
(1) Institutional Class shares of the Fund commenced operations on September
6, 1996.
(2) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary from period
to period and fund to fund depending on the mix of trades executed in
various markets where trading practices and commission rate structures
may differ.
</TABLE>
11 PROSPECTUS
<PAGE> 532
SMALL CAP FUND
FOR AN INSTITUTIONAL CLASS SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD ENDED
SEPT. 30,
1996(1)
------------
<S> <C>
Net asset value, beginning of period........................... $ 22.01
Income from investment operations:
Net investment income........................................ 0.00
Net realized and unrealized gain on investments.............. 0.44
-------
Total from investment operations........................... 0.44
Less distributions:
Dividends from net investment income......................... 0.00
Distributions from net realized gain......................... 0.00
-------
Total from distributions................................... 0.00
-------
Net asset value, end of period............................... $ 22.45
=======
Total return (not annualized).............................. 2.00%
Ratios/supplemental data:
Net assets, end of period (000).............................. $ 24,553
Ratios to average net assets (annualized):
Ratio of expenses to average net assets(2)................... 1.60%
Ratio of net investment income (loss) to average net
assets(2).................................................. (1.15%)
Portfolio turnover(3)........................................ 10%
Average commission rate paid(3).............................. $ 0.0800
Ratio of expenses to average net assets prior to waived fees
and reimbursed expenses(2)................................. 1.63%
Ratio of net investment income (loss) to average net assets
prior to waived fees and reimbursed expenses(2)............ (1.18%)
- -------------------
(1) The Fund commenced operations on September 16, 1996.
(2) Ratio includes income and expenses allocated from the Small Cap Master
Portfolio.
(3) Reflects activity of the Small Cap Master Portfolio. For fiscal years
beginning on or after September 1, 1995, a fund is required to disclose
its average commission rate per share for security trades on which
commissions are charged. This amount may vary from period to period and
fund to fund depending on the mix of trades executed in various markets
where trading practices and commission rate structures may differ.
</TABLE>
PROSPECTUS 12
<PAGE> 533
HOW THE FUNDS WORK
INVESTMENT OBJECTIVES AND POLICIES
The EQUITY VALUE FUND seeks to provide investors with long-term capital
appreciation. The Fund pursues this objective by investing primarily in equity
securities, including common stocks and may invest in debt instruments that are
convertible into common stocks of both domestic and foreign companies. The Fund
may invest in large, well-established companies and smaller companies with
market capitalization exceeding $50 million. The Fund may invest up to 25% of
its assets in American Depositary Receipts and similar instruments. Income
generation is a secondary consideration. The Fund may purchase dividend paying
stocks of particular issuers when the issuer's dividend record may, in the
investment adviser's opinion, have a favorable influence on the market value of
the securities. The Fund also may purchase convertible securities with the same
characteristics as common stocks. As with all mutual funds, there can be no
assurance that the Fund, which is a diversified portfolio, will achieve its
investment objective.
The BALANCED FUND seeks to provide investors with both capital appreciation
and current income resulting in a high total investment return consistent with
prudent investment risk and a balanced investment approach. The Fund pursues
this objective by investing in equity securities and debt instruments through a
balanced and diversified program. The Fund normally invests between 30% and 70%
of its assets in common stocks that are considered by the investment adviser to
have better than average prospects for growth of capital and income. The Fund
invests primarily in domestic equity securities. The Fund may invest up to 25%
of its assets in American Depositary Receipts or similar instruments. The
remaining balance of the Fund's assets is invested in senior fixed-income
securities, including corporate debt securities, commercial paper and
mortgage-backed and asset-backed securities, based on the relative stability of
income and principal of such securities. Debt instruments in which the Fund may
invest are rated at least investment grade or deemed comparable.
In selecting senior fixed-income securities for the Balanced Fund, the adviser
seeks to select those debt instruments that appear best calculated to achieve
the Fund's investment objective within the credit and risk tolerances
established for the Fund. In accordance with those policies, the Balanced Fund
may purchase commercial paper rated "A-2" or better by S&P or "Prime-2" or
better by Moody's, corporate debt securities rated "BBB" or better by S&P or
"Baa" or better by Moody's (which contain some speculative characteristics) and
mortgage-backed and asset-backed securities rated "AA" or better by S&P or "Aa"
or better by Moody's (or the foregoing types of debt securities given equivalent
ratings by at least two other nationally recognized statistical rating
13 PROSPECTUS
<PAGE> 534
organizations ("NRSROs"), or, if any such securities are not rated, are of
comparable quality in the adviser's opinion).
The Balanced Fund may also 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.
In selecting equity investments (which may include common stocks of both
domestic and foreign companies) for the Equity Value and Balanced Funds, the
adviser selects companies for investment using both quantitative and qualitative
analysis to identify those issuers that, in the adviser's opinion, exhibit
below-average valuation multiples, above-average financial strength, a strong
position in their industry and a history of steady profit growth.
The adviser also may select other equity securities in addition to common
stocks for investment by the Equity Value and Balanced Funds. Such other equity
securities are preferred stocks, high grade securities convertible into common
stocks, and warrants. Neither Fund will invest more than 5% of its net assets in
warrants, no more than 2% of which will be invested in warrants which are not
listed on the New York or American Stock Exchanges. For temporary defensive
purposes, however, both the Equity Value and Balanced Funds may invest in U.S.
Government obligations, certificates of deposit, bankers acceptances, commercial
paper, repurchase agreements (maturing in seven days or less) and debt
obligations of corporations (corporate bonds, debentures, notes and other
similar corporate debt instruments) that are rated investment grade or better by
S&P or Moody's.
The Equity Value and Balanced Funds also may hold short-term U.S. Government
obligations, money market instruments, repurchase agreements, securities issued
by other investment companies within the limits prescribed by the Investment
Company Act of 1940, as amended (the "1940 Act"), and cash, pending investment,
to meet anticipated redemption requests or if, in the opinion of the investment
adviser, suitable investments for a Fund are unavailable. Such investments may
be made in such proportions as, in the opinion of the investment adviser,
existing circumstances may warrant, and may include obligations of foreign banks
and foreign branches of U.S. banks.
A more complete description of the Funds' investments and investment
activities is contained in "Prospectus Appendix -- Additional Investment
Policies" and in the SAI.
GROWTH AND INCOME FUND
The Growth and Income Fund seeks to earn current income and achieve long-term
capital appreciation by investing primarily in common stocks, and preferred
stocks and debt securities that are convertible into common stocks. There can be
no assurance that
PROSPECTUS 14
<PAGE> 535
the Fund, which is a diversified portfolio, will achieve its investment
objective. Under normal market conditions, the Fund will invest at least 65% of
its total assets in common stocks and securities which are convertible into
common stocks and at least 65% of its total assets in income-producing
securities.
The Growth and Income Fund invests in common stocks of issuers that, in the
opinion of Wells Fargo Bank, as the Fund's investment adviser, exhibit a strong
earnings growth trend and that are believed by Wells Fargo Bank to have
above-average prospects for future earnings growth. The Fund maintains a
portfolio of common stocks diversified among industries and companies. The Fund
may invest in common stocks of large companies which Wells Fargo Bank believes
offer the potential for long-term earnings growth or above-average dividend
yield. Emphasis may be placed on common stocks which are trading at low
price-to-earnings ratios, either relative to the overall market or to the
security's historic price-to-earnings relationship, and on common stocks of
issuers that have historically paid above-average dividends. Some investments
also may be made in common stocks of medium- and smaller-size companies which
may have the potential to generate high levels of future revenue and earnings
growth and where the investment opportunity may not be fully reflected in the
price of the securities but which may involve greater risks than investments in
larger companies.
The Growth and Income Fund intends to invest less than 50% of its assets in
the securities of medium- and smaller-size companies and the remainder in
securities of larger-size companies. However, the actual percentages may vary
according to changes in market conditions and the judgment of the adviser of how
best to achieve the Fund's investment objective.
The Growth and Income Fund may invest in equity securities of companies in
"emerging" or less developed markets and may invest up to 25% of its assets in
American Depositary Receipts or similar instruments.
The Growth and Income Fund may temporarily hold assets in cash or make
short-term investments to the extent appropriate to maintain adequate liquidity
for redemption requests or other cash management needs, or for temporary
defensive purposes. The short-term investments that the Fund may purchase for
liquidity purposes include U.S. Treasury bills, shares of other mutual funds and
repurchase agreements (as described below).
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 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 Small Cap
15 PROSPECTUS
<PAGE> 536
Fund seeks to achieve its investment objective by investing all of its assets in
the Small Cap Master Portfolio, which has the same investment objective as the
Fund. The Fund and Master Portfolio seek to provide above-average capital growth
for investors willing to assume above-average risk. See
"Management -- Master/Feeder Structure" in the SAI for additional information
regarding the Fund's investment in the Master Portfolio.
The Master Portfolio seeks to achieve this investment objective through the
active management of a broadly diversified portfolio of growth-oriented common
stocks. The Master Portfolio 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. This range is expected to change frequently. The Master Portfolio will
sell the common stock of any company in its investment portfolio after such
company's market capitalization exceeds $2 billion. The Master Portfolio 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 Master Portfolio 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 Master Portfolio 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
Master Portfolio's assets will be invested in these highly aggressive issues at
one time. The equity securities in the Master Portfolio'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 public offering); relatively short
operating histories; aggressive capitalization structures (including high debt
levels); and involvement in rapidly growing/changing industries and/or new
technologies. The Master Portfolio may invest in equity securities of companies
in "emerging" or less developed markets. The Master Portfolio may invest up to
25% of its assets in American Depositary Receipts and similar instruments.
Under ordinary market conditions, up to 5% of the Master Portfolio's net
assets will be invested in convertible debt securities that are not either rated
in the four highest rating categories by one or more 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
PROSPECTUS 16
<PAGE> 537
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 Master Portfolio's basic investment
strategy inconsistent with the best interests of the Master Portfolio's
investors. At such times, Wells Fargo Bank may use temporary alternative
strategies, primarily designed to reduce fluctuations in the value of the Master
Portfolio's assets. In implementing these temporary "defensive" strategies, the
Master Portfolio may invest in preferred stock or investment-grade debt
securities and in money market securities. It is expected that these temporary
"defensive" investments will not exceed 35% of the Master Portfolio's total
assets.
The Master Portfolio pursues an active trading investment strategy, and the
length of time the Master Portfolio has held a particular security is not
generally a consideration in investment decisions. Accordingly, the Master
Portfolio's portfolio turnover rate may be higher than that of other funds that
do not pursue an active trading investment strategy. Portfolio turnover
generally involves some expense to the Master Portfolio, including brokerage
commissions or dealer mark-ups and other 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" and in the SAI.
The Master Portfolio
The Master Portfolio 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. Immediately prior to the commencement of the Fund's operations, the
assets of the Collective Investment Fund were purchased by the Master Portfolio
and the Collective Investment Fund redeemed all of its outstanding interests and
ceased operating as a trust. The Master Portfolio manages its investments in a
manner identical in all material respects to the operation of the Collective
Investment Fund.
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. If the
Master Portfolio's investment objective or fundamental or non-fundamental
policies are changed, the Fund may elect to change its
17 PROSPECTUS
<PAGE> 538
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.
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.
The portfolio equity securities of a Fund are subject to equity market risk.
Equity market risk is the risk that common stock prices will fluctuate or
decline over short or even extended periods. 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 assurance 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
PROSPECTUS 18
<PAGE> 539
determining whether the Balanced 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.
Investing in the securities of issuers in any foreign country, including
American Depositary Receipts ("ADRs") and European Depositary 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
instability or diplomatic developments that could adversely 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.
19 PROSPECTUS
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In addition, the financial markets of emerging market 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 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 Master Portfolio pursues an active trading investment strategy, and the
length of time the Master Portfolio has held a particular security is not
generally a consideration in investment decisions. Accordingly, the portfolio
turnover rate for such Master Portfolio may be higher than that of other funds
that do not pursue an active trading investment strategy. Portfolio turnover
generally involves some expense to the Master Portfolio, including brokerage
commissions or dealer mark-ups and other transaction costs on the sale of
securities and the reinvestment in other securities. Portfolio turnover also can
generate short-term capital gains tax consequences. These expenses and capital
gain consequences will be passed on to the Small Cap 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
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 of the Institutional Class shares is based on the
overall dollar or percentage change in value of a hypothetical investment in a
Fund's Institutional Class and assumes the investment is at NAV and all
dividends and capital-gain
PROSPECTUS 20
<PAGE> 541
distributions attributable to a class are also reinvested at NAV in shares
of the class. Cumulative total return is calculated similarly except that the
return figure is aggregated over the relevant period instead of annualized.
Yield refers to the income generated by an investment in a class of a Fund's
shares over a specified period (usually 30 days), expressed as an annual
percentage rate. 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.
In addition to presenting these standardized performance figures, at times,
the Funds also may present non-standard performance figures, including
distribution rates. Because of the differences in the fees and/or expenses borne
by shares of each class of a fund the performance figures of 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 free of
charge by calling the Company at 1-800-260-5969 or by writing the Company at the
address shown on the inside front cover of the Prospectus.
THE FUNDS AND MANAGEMENT
THE FUNDS
The Funds are four 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 twenty-one 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 at NAV. 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
that are allocated to a particular class and, accordingly, may affect
performance. Please contact Stagecoach Shareholder Services at 1-800-260-5969 if
you would like additional information about other funds or classes of shares
offered.
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
21 PROSPECTUS
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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). 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 under
"Capital Stock" in the 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 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 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. 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 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 acquisition by Wells Fargo & Company of First Interstate Bancorp
on April 1, 1996, Wells Fargo Investment Management, Inc. ("WFIM") (formerly,
First Interstate Capital Management, Inc.) served as investment adviser to the
predecessor portfolios of the Balanced and Equity Value Funds. 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 94111. Prior to March 18, 1994, such predecessor funds' investment
adviser was San Diego Financial Capital Management, Inc. (predecessor to First
Interstate Capital Management, Inc.) which was acquired by First Interstate
Bancorp through its merger with San Diego Financial Corporation.
PORTFOLIO MANAGERS
Mr. Brian Mulligan is primarily responsible, as co-manager, for the day-to-day
management of the portfolio of the Growth and Income Fund. Mr. Mulligan has been
co-manager since October 1, 1995. Mr. Mulligan joined Wells Fargo Bank in 1986
through its acquisition of Crocker National Bank, where he had been a portfolio
manager. He is a Vice-President and Manager of the San Francisco Investment
Office, where he is primarily responsible for personal accounts including
individuals, charitable foundations and IRAs. He also covers, from a research
standpoint, the telecommunications and electric utility industries. He graduated
from Skidmore College with a B.S. degree in
PROSPECTUS 22
<PAGE> 543
business management. He is a Chartered Financial Analyst and serves as a member
of the staff of graders. In addition, Mr. Mulligan is a former member of the
Board of Governors for the Los Angeles Society of Financial Analysts and a
present member of the San Francisco Security Analysts Society.
Ms. Kelli Hill, as co-manager, has been responsible for the day-to-day
management of the portfolio of the Growth and Income Fund since February 1,
1997. Ms. Hill joined Wells Fargo Bank in 1987 and manages client portfolios.
Prior to joining Wells Fargo Bank, Ms. Hill worked as an institutional equity
trader for E.F. Hutton. Ms. Hill holds a B.A. from the University of Southern
California in international relations and economics and is working toward her
chartered financial analyst designation.
Ms. Tamyra Thomas assumed responsibility as a co-portfolio manager for the
day-to-day management of the bond portion of the Balanced Fund as of the
commencement of operations of the Fund on September 6, 1996. She is a Senior
Vice-President and the Chief Fixed Income Investment Officer of the Wells Fargo
Capital Management Group. She also is Chair of the Investment Management Group
Policy Committee. 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 early 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. Allen Wisniewski, as co-manager, is responsible for the day-to-day
management of the portfolio of the Equity Value Fund. He also is responsible for
managing equity and balanced accounts for high-net-worth individuals and
pensions. Mr. Wisniewski joined Wells Fargo Bank in April 1987 with the
acquisition of Bank of America's consumer trust services, where he was a
portfolio manager. He received his B.A. degree and M.B.A. degree in economics
and finance from the University of California at Los Angeles. He is a member of
the Los Angeles Society of Financial Analysts.
Mr. Rex Wardlaw, as co-manager, has been responsible for the day-to-day
management of the portfolios of the Balanced and Equity Value Funds since
February 1, 1997. Mr. Wardlaw joined Wells Fargo Bank in 1986 and has eight
years of investment experience. He is the Private Client Services investment
manager for the Portland office and is responsible for stock market research in
healthcare, basic industries and transportation sectors. He holds an M.B.A. from
the University of Oregon and a B.A. from Northwest Nazarene College. Mr. Wardlaw
is a chartered financial analyst and a member of the Portland Society of
Financial Analyst. He is also a member of the Association for Investment
Management and Research and the American Association of Individual Investors.
23 PROSPECTUS
<PAGE> 544
Mr. Jon Hickman, as Manager of the Growth Equity Team, has overseen the
management of the Small Cap Master Portfolio since its inception on September
16, 1996. In addition, Mr. Hickman manages equity and balanced portfolios for
individuals and employee benefit plans. He has over ten years of experience in
the investment management field and is a member of Wells Fargo Bank's Equity
Strategy Committee. Mr. Hickman has a B.A. and an M.B.A. in finance from Brigham
Young University and has been with Wells Fargo Bank since its merger with
Crocker National Bank in 1986.
Mr. Steve Enos, as portfolio co-manager of the Small Cap Master Portfolio,
also is primarily responsible for the day-to-day management of the Master
Portfolio. Mr. Enos has been co-manager of the Master Portfolio since its
inception on September 16, 1996. Mr. Enos co-managed the Small Capitalization
Growth Fund since 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 MIT and special counsel to
Wells Fargo Bank, has advised the Company, MIT 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 24
<PAGE> 545
INVESTING IN THE FUNDS
PURCHASE OF INSTITUTIONAL CLASS SHARES
The minimum initial purchase amount on Institutional Class shares is $2
million 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.
Institutional 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.
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 Funds is
governed by the Customers' account agreements with an Institution. Investors
wishing to purchase Institutional Class shares of the Funds should contact their
account representatives.
Institutional Class shares may be purchased on any day the Funds are open. The
Funds are open for business each day the New York Stock Exchange ("NYSE") is
open for trading (a "Business Day"). Institutional 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 for Institutional Class
shares in a Fund must be received by the Company by 1:00 p.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 the next Business Day following the receipt of the
purchase order.
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 Institutional Class shares of a Fund may, in the discretion of the
investment adviser, be made in the form of securities that are
25 PROSPECTUS
<PAGE> 546
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.
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 a Fund on each day the Fund is open as of the close of
regular trading on the NYSE (referred to hereafter as "the close of the NYSE"),
which is currently 1:00 p.m. (Pacific time). The NAV per share 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 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.
Except for debt obligations with remaining maturities of 60 days or less,
which are valued at amortized cost, the other assets of the Funds are valued at
current market prices or, if such prices are not readily available, at fair
value as determined in good faith by the Company's Board of Directors. Prices
used for such valuations may be obtained from independent pricing services.
WIRE INSTRUCTIONS -- 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) (designate Institutional Class)
Account Name(s): Name(s) in which to be registered
Account Number: (if investing into an existing account)
PROSPECTUS 26
<PAGE> 547
3. A completed Account Application should be 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: 1-415-781-4082
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 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 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.
With respect to shareholders who do not have a relationship with an
Institution, shares of the Funds may be redeemed by writing or calling the Funds
directly at the address
27 PROSPECTUS
<PAGE> 548
and phone number shown on the first page of the Prospectus. When Institutional
Class shares are redeemed directly from the Funds, the Funds 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 Funds may take up to seven
days to make payment, although this will not be the customary practice. Also, if
the NYSE 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 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 Funds 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 Fund shares 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 investor 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.
PROSPECTUS 28
<PAGE> 549
EXCHANGES
The Funds offer a convenient way to exchange Institutional Class shares in one
Fund for Institutional Class shares in another fund of the Company. Before
engaging in an exchange transaction, an investor should read carefully the
Prospectus describing the fund into which the exchange will occur, which is
available without charge and can be obtained by writing or by calling the
Company at the address or phone number listed on the first page of the
Prospectus. A shareholder may not exchange Institutional Class shares of one
fund for Institutional Class shares of another fund if Institutional Class
shares of both funds are not qualified for sale in the state of the
shareholder's residence. The Company may terminate or amend the terms of the
exchange privilege at any time.
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 a Fund to the
Institution involved. Institutions (or their nominees), acting on behalf of
their Customers, normally are the holders of record of Institutional Class
shares. Institutions are responsible for transmitting orders for exchanges to
the Company on a timely basis. Investors should receive written confirmation of
the exchange from the Institution within a few days of the completion of the
transaction. In addition, customers' exchange transactions are generally
reflected in the account statements provided by Institutions to their Customers.
Investors wishing to exchange Institutional Class shares of a Fund for
Institutional Class shares of another fund should contact their account
representatives. Investors with questions may call the Company at
1-800-260-5969.
A new account opened by exchange must be established with the same name(s),
address and social security number as the existing account. All exchanges are
made at the NAV of the respective funds next determined following receipt of the
request by the Company in good order.
To exchange Institutional Class shares, or if you have any questions, simply
call the Company at 1-800-260-5969. A shareholder of record should be prepared
to give the telephone representative the following information: (i) the account
number, social security or taxpayer identification number and account
registration; (ii) the name of the fund from and the fund into which the
transfer is to occur; and (iii) the dollar or share amount of the exchange. The
conversation may be recorded to protect shareholders and the Company. Telephone
exchanges are available unless the shareholder of record has declined the
privilege on the Purchase Application.
In addition, Institutional Class shares of the Funds may be exchanged for each
of the Funds' 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
29 PROSPECTUS
<PAGE> 550
Bank or another bank, trust company or thrift institution, or in other cases
where Institutional Class shares are not held in such qualified accounts.
Similarly, Class A shares may be exchanged for the Funds' Institutional Class
shares if the shares are to be held in such a qualified trust, agency or
custodial account. These exchanges are made at the respective NAVs of the
Institutional Class shares next determined after the exchange request is
received by the Company.
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
The Funds (other than the Small Cap Fund) intend to declare and distribute
quarterly dividends of substantially all of their net investment income. The
Small Cap Fund intends to declare and distribute annual dividends of
substantially all of its net investment income. Shareholders begin earning
dividends on the Business Day following the date the purchase order is effective
and continue to earn dividends through the day such shares are redeemed.
Expenses, such as state securities registration fees and transfer agency fees,
that are attributable to a particular class may affect the relative dividend
and/or capital-gain distributions of a class of shares.
Dividend and capital gain distributions have the effect of reducing the NAV
per share by the amount distributed. Although distributions paid on newly issued
shares shortly after a purchase would represent, in substance, a return of
capital, distributions would be attributable to net investment income or
capital-gain and, accordingly, would be taxable to you.
Dividends for a Saturday, Sunday or Holiday are declared payable to
shareholders of record as of the preceding Business Day. If a shareholder
redeems shares before the dividend payment date, any dividends credited to the
shareholder are paid on the following dividend payment date unless the
shareholder has redeemed all of the shares in the account, in which case the
shareholder receives accrued dividends together with redemption proceeds. The
Funds intend to distribute any capital gains at least annually.
MANAGEMENT AND SERVICING FEES
INVESTMENT ADVISER
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank provides investment guidance and policy direction in connection with
the management of the Funds' assets. Wells Fargo Bank furnishes the Company's
Board of
PROSPECTUS 30
<PAGE> 551
Directors and MIT's Board of Trustees with periodic reports on the Funds' and
Master Portfolio's investment strategy and performance.
For its services as investment adviser to the Balanced Fund and the Master
Portfolio, Wells Fargo Bank is entitled to monthly investment advisory fees at
the annual rate of 0.60% of the Fund's and Master Portfolio's respective average
daily net assets. For its services as investment adviser to the Equity Value
Fund, Wells Fargo Bank is entitled to monthly investment advisory fees at the
annual rate of 0.50% of the Fund's average daily net assets. For its services as
investment adviser to the Growth and Income Fund, Wells Fargo Bank is entitled
to monthly investment advisory fees at the annual rate of 0.50% of the first
$250 million of such average daily net assets, 0.40% of the next $250 million,
and 0.30% of the average daily net assets in excess of $500 million. From time
to time, 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.
Advisory Fees Paid
For the nine-month period ended September 30, 1996, the Growth and Income 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 Growth and
Income Fund paid advisory fees to Wells Fargo Bank at the annual rate of 0.50%
of its average daily net assets. For the period from commencement of operations
(September 16, 1996) to September 30, 1996, the Small Cap Master Portfolio paid
advisory fees at the annual rate of 0.60% of the Small Cap Fund's average daily
net assets. For the year ended September 30, 1996 the Balanced and Equity Value
Funds paid advisory fees at the annual rates of 0.60% and 0.59%, respectively,
of their 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 portfolios to the Balanced and Equity Value Funds.
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.
INSTITUTIONS AND SHAREHOLDER SERVICING AGENT
The Funds have entered into shareholder servicing agreements with Wells Fargo
Bank and may enter into similar agreements with other Institutions ("Shareholder
Servicing
31 PROSPECTUS
<PAGE> 552
Agents"). Under such agreements, Shareholder Servicing Agents (including Wells
Fargo Bank) agree, as agents for their customers, to provide shareholder
administrative and liaison services with respect to Fund shares, which include,
without limitation, aggregating and transmitting shareholder orders for
purchases, exchanges and redemptions; maintaining shareholder accounts and
records; and providing such other related services as the Company or a
shareholder may reasonably request. For these services, a Shareholder Servicing
Agent is entitled to receive a fee at the annual rate of up to 0.25% 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 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 each Fund
with administrative services, including general supervision of each Fund's
operation, coordination of the other services provided to a 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 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
each 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 Funds. For the period ended September 30, 1996, the Growth
and Income 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. For the year ended September 30, 1996, the Balanced and Equity Value
Funds paid administrative fees at the annual rate of 0.10% of each Fund's
average daily net assets. For the period prior to
PROSPECTUS 32
<PAGE> 553
September 6, 1996, this includes amounts paid to Furman Selz LLC by the
predecessor portfolios to the Balanced and Equity Value Funds.
SPONSOR AND DISTRIBUTOR
Stephens is the Company's 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 Distribution Agreements with the Company pursuant to
which Stephens acts as agent for the Funds for the sale of their 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 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.
Financial institutions acting as Shareholder Servicing Agents, 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.
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, 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 are charged against
the assets of the Fund. General expenses of the Company are allocated among all
of the funds of the Company in a manner proportionate to the net
33 PROSPECTUS
<PAGE> 554
assets of each fund, on a transactional basis, or on such other basis as the
Company's Board of Directors deems equitable. The Small Cap Fund also bears a
pro rata portion of the costs of the Master Portfolio in which it invests.
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 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> 555
PROSPECTUS APPENDIX --
ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
Set forth below is a description of certain investments and additional
investment policies for each Fund, except as otherwise indicated. The Small Cap
Fund seeks to achieve its investment objective by investing all of its assets in
the Small Cap Master Portfolio. REFERENCES TO THE INVESTMENTS AND INVESTMENT
POLICIES AND RESTRICTIONS OF THE SMALL CAP FUND, UNLESS OTHERWISE INDICATED,
SHOULD BE UNDERSTOOD AS REFERENCES TO THE INVESTMENTS AND INVESTMENT POLICIES
AND RESTRICTIONS OF THE SMALL CAP MASTER PORTFOLIO.
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> 556
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, monitors on an ongoing basis the
ability of an issuer of a demand instrument to pay principal and interest on
demand. Events affecting the ability of the issuer of a demand instrument to
make payment when due may occur between the date a Fund elects to demand payment
and the date payment is due. Such events may affect the ability of the issuer of
the instrument to make payment when due, thereby affecting a Fund's ability to
obtain payment at par, except when such demand instruments permit same-day
settlement. Demand instruments whose demand feature is not exercisable within
seven days may be treated as liquid, provided that an active secondary market
exists.
The Balanced and Equity Value Funds may also hold floating- and variable-rate
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
issuer 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. The market value of these instruments may be more volatile than other
types of debt instruments and may present greater potential for capital-gain or
loss. 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. 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
PROSPECTUS A-2
<PAGE> 557
advised by Wells Fargo Bank. See"Additional Permitted Investment Activities" in
the SAI for additional information.
Loans of Portfolio Securities
The Corporate Stock 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 marked-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 to the
borrower or a placing broker. 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.
Other Investment Companies
The Funds may invest in shares of other open-end, management investment
companies, subject to the limitations of Section 12(d)(1) of the 1940 Act,
provided that any such purchases will be limited to temporary investments in
shares of unaffiliated investment companies and the investment adviser waives
its advisory fees for that
A-3 PROSPECTUS
<PAGE> 558
portion of a Fund's assets so invested, except when such purchase is part of a
plan of merger, consolidation, reorganization or acquisition. Notwithstanding
any other investment policy or limitation (whether or not fundamental), as a
matter of fundamental policy, the Balanced, Equity Value and Small Cap Funds may
each invest all of its assets in the securities of a single open-end, management
investment company with substantially the same fundamental investment objective,
policies and limitations as such Fund. Subject to the limitations of the 1940
Act, the Funds may purchase shares of exchange-listed, closed-end funds
consistent with pursuing their investment objectives.
Foreign 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.
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
in, the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries.
Emerging Markets
The Small Cap and Growth and Income Funds each 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
PROSPECTUS A-4
<PAGE> 559
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 Small Cap Fund 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.
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
A-5 PROSPECTUS
<PAGE> 560
"Prime-1" by Moody's or "A-1" or "A-1+" by S&P, or, if unrated, of comparable
quality as determined by Wells Fargo Bank, as investment adviser; and (iv)
repurchase agreements.
The Small Cap Fund also may invest in short-term U.S. dollar-denominated
obligations of foreign banks (including U.S. branches) that at the time of
investment: (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) are among the 75 largest foreign banks in the
world as determined on the basis of assets; (iii) have branches or agencies in
the United States; and (iv) in the opinion of Wells Fargo Bank, as investment
adviser, are of comparable quality to obligations of U.S. banks which may be
purchased by the Fund.
Options
The Balanced, Equity Value and Small Cap 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 Balanced, Equity Value and
Small Cap Funds may invest in call and put options on a specific security. Each
of the Balanced and Equity Value Funds may purchase put and call options listed
on a national securities exchange and issued by the Options Clearing Corporation
in an amount not exceeding 5% of its net assets.
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 as "illiquid" and therefore
subject to the Fund's policy of not investing more than 15% of its net assets in
illiquid securities.
The Balanced, Equity Value and Small Cap Funds 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
PROSPECTUS A-6
<PAGE> 561
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 25% of the value of the
assets of the Balanced or Equity Value Funds or 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 the Small Cap 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
the Small Cap 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.
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
A-7 PROSPECTUS
<PAGE> 562
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.
Mortgage-Related Securities
The Balanced 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 a 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 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 Balanced Fund may also 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 a Fund's investment objective,
policies and quality standards, consider making investments in such new types of
mortgage-related securities.
PROSPECTUS A-8
<PAGE> 563
Other Asset-Backed Securities
The Balanced, Equity Value, and Growth and Income Funds may purchase asset-
backed securities 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 a Fund experiencing difficulty in valuing or
liquidating such securities.
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
Fund's investment adviser to be "illiquid" are subject to the Fund's policy of
not investing more than 15% of its net assets in illiquid securities.
A-9 PROSPECTUS
<PAGE> 564
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 proposals are replaced by
equivalent or increased offers or proposals which are consummated, a Fund may
sustain a loss.
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; (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 Small Cap Fund is
subject to this restriction only with respect to 75% of its respective assets,
and, with regard to the Fund, 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
PROSPECTUS A-10
<PAGE> 565
(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, the Growth and Income Fund may invest up
to 10% of the current value of its respective net assets in illiquid securities.
The Balanced Fund, Equity Value Fund and Small Cap Fund may each 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 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-11 PROSPECTUS
<PAGE> 566
Advised by WELLS FARGO BANK, N.A.
Sponsored/Distributed by
Stephens Inc., Member NYSE/SIPC
LOGO
NOT FDIC INSURED
<PAGE> 567
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE> 568
LOGO
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH FUNDS:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- 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 LOGO
principal
</TABLE>
LOGO
Printed on Recycled Paper SC 0213 (2/97)
<PAGE> 569
LOGO
------------------------------
PROSPECTUS
------------------------------
ARIZONA TAX-FREE FUND
CALIFORNIA TAX-FREE BOND FUND
CALIFORNIA TAX-FREE INCOME FUND
NATIONAL TAX-FREE FUND
OREGON TAX-FREE FUND
INSTITUTIONAL CLASS
FEBRUARY 1, 1997
<PAGE> 570
STAGECOACH FUNDS(R)
ARIZONA TAX-FREE, CALIFORNIA TAX-FREE BOND,
CALIFORNIA TAX-FREE INCOME, NATIONAL TAX-FREE,
AND OREGON TAX-FREE FUNDS
INSTITUTIONAL CLASS
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about Institutional Class shares
offered by five funds of the Stagecoach Family of Funds -- the CALIFORNIA
TAX-FREE BOND FUND, CALIFORNIA TAX-FREE INCOME FUND (the "California Funds"),
ARIZONA TAX-FREE FUND, OREGON TAX-FREE FUND (collectively, with the California
Funds, the "State Tax-Free Funds") and NATIONAL TAX-FREE FUND (each, a "Fund"
and, collectively, the "Funds").
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 February 1, 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.
Under normal market conditions, substantially all of a State Tax-Free Fund's
assets consist of municipal obligations the interest on which is exempt from
federal income tax and the applicable state's personal income tax.
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.
PROSPECTUS DATED FEBRUARY 1, 1997
PROSPECTUS
<PAGE> 571
The ARIZONA TAX-FREE FUND seeks to provide investors with income exempt from
federal income tax and Arizona personal income tax. The CALIFORNIA TAX-FREE BOND
FUND seeks to provide investors with a high level of income exempt from federal
income taxes and California personal income taxes, while preserving capital, by
investing in medium- to long-term, investment-grade municipal securities. The
CALIFORNIA TAX-FREE INCOME FUND seeks to provide investors with a high level of
income exempt from federal income taxes and California personal income taxes,
while preserving capital. The NATIONAL TAX-FREE FUND seeks to provide investors
with income exempt from federal income tax. The OREGON TAX-FREE FUND seeks to
provide investors with income exempt from federal income tax and Oregon personal
income tax.
THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL NOR THE SOLICITATION OF
AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF SECURITIES THAT ARE NOT
REGISTERED IN A STATE WHERE SUCH OFFER WOULD BE UNLAWFUL UNDER THE SECURITIES
LAWS OF THE STATE.
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
<PAGE> 572
TABLE OF CONTENTS
-------
PROSPECTUS SUMMARY 1
SUMMARY OF FUND EXPENSES 4
FINANCIAL HIGHLIGHTS 7
HOW THE FUNDS WORK 13
THE FUNDS AND MANAGEMENT 19
INVESTING IN THE FUNDS 22
EXCHANGES 26
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS 27
MANAGEMENT AND SERVICING FEES 28
TAXES 31
PROSPECTUS APPENDIX - ADDITIONAL INVESTMENT POLICIES A-1
PROSPECTUS
<PAGE> 573
PROSPECTUS SUMMARY
The Funds provide investors 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 Funds'
Prospectus and SAI.
Q. WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
A. The ARIZONA TAX-FREE FUND seeks to provide investors with income exempt from
federal income tax and Arizona personal income tax.
The CALIFORNIA TAX-FREE BOND FUND seeks to provide investors with a high
level of income exempt from federal income taxes and California personal
income taxes, while preserving capital, by investing in medium- to long-term,
investment-grade municipal securities.
The CALIFORNIA TAX-FREE INCOME FUND seeks to provide investors with a high
level of income exempt from federal income taxes and California personal
income taxes, while preserving capital.
The NATIONAL TAX-FREE FUND seeks to provide investors with income exempt
from federal income tax.
The OREGON TAX-FREE FUND seeks to provide investors with income exempt from
federal income tax and Oregon personal 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 State
Tax-Free Funds, exempt from each respective state's personal income tax; and
except during temporary defensive periods or when acceptable securities are
unavailable for investment by a Fund, at least 65% of each State Tax-Free
Fund's total net assets will be invested in municipal obligations of issuers
exempt from each respective state's personal income tax. Additionally, each
of the Funds 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 period of unusual market conditions.
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
1 PROSPECTUS
<PAGE> 574
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. Since each State Tax-Free Fund invests primarily in
securities issued by Arizona, California or Oregon, and its respective
agencies and municipalities, events and political and economic conditions in
those states are more likely to affect the respective 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 assurance that a Fund will achieve its investment
objective. See "How the Funds Work -- Investment Objectives and
Policies -- Risk Factors" below and "Additional Permitted Investment
Activities" in the SAI for further information about the Funds' investments
and related risks. As with all mutual funds, there can be no assurance that a
Fund will achieve its investment objective.
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 a selling
agent for the Funds. See "The Funds and Management" and "Management and
Servicing Fees" for further information.
Q. HOW DO I INVEST?
A. Qualified investors may invest by purchasing Institutional 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. Fund shares may not be suitable investments for tax-exempt
institutions or tax-exempt retirement plans, since such investors would not
benefit from the exempt status of the Funds' dividends. Investors wishing to
purchase a Fund's Institutional Class shares should contact their account
representatives. The minimum initial purchase amount on Institutional Class
shares is $2 million and the minimum subsequent purchase amount on such
PROSPECTUS 2
<PAGE> 575
shares is $25,000. Investors in various fiduciary accounts and certain other
investors are not subject to minimum initial or subsequent purchase amount
requirements. See "Investing in the Funds" for additional information.
Q. HOW MAY I REDEEM SHARES?
A. Investors 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 their customers' accounts. The Company
reserves the right to impose charges for wiring redemption proceeds. See
"Investing in the Funds -- Redemption of Institutional Class Shares."
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. Any capital gains are distributed at least annually.
Dividend and capital gain distributions are automatically reinvested in
additional Institutional Class shares of such Fund at NAV. Shareholders also
may elect to receive distributions in cash. See "Dividend and Capital Gain
Distributions" for additional information.
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 a Fund's investment activities, see "How the Funds Work" and "Prospectus
Appendix -- Additional Investment Policies."
3 PROSPECTUS
<PAGE> 576
SUMMARY OF FUND EXPENSES
INSTITUTIONAL CLASS SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA CALIFORNIA NATIONAL OREGON
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
FUND BOND FUND INCOME FUND FUND FUND
<S> <C> <C> <C> <C> <C>
Maximum Sales Charge on
Purchases (as a
percentage of
offering price)...... None None None None None
Maximum Sales Charge on
Reinvested
Distributions........ None None None None None
Maximum Sales Charge on
Redemptions.......... None None None None None
Exchange Fees.......... None None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
ARIZONA CALIFORNIA CALIFORNIA NATIONAL OREGON
TAX-FREE TAX-FREE TAX-FREE TAX-FREE TAX-FREE
FUND BOND FUND INCOME FUND FUND FUND
<S> <C> <C> <C> <C> <C>
Management Fee (after
waivers or
reimbursements)...... 0.15%(1) 0.50% 0.50% 0.00%(1) 0.15%(1)
Rule 12b-1 Fee......... None None None None None
Other Expenses (after
waivers or
reimbursements(2).... 0.25% 0.13% 0.10% 0.35% 0.25%
----- ----- ----- ----- -----
TOTAL FUND OPERATING
EXPENSES (after
waivers and
reimbursements)(3)... 0.40% 0.63% 0.60% 0.35% 0.40%
===== ===== ===== ===== =====
</TABLE>
- ---------------------------------
(1) Management Fees (before waivers or reimbursements) would be 0.50%.
(2) Other Expenses (before waivers or reimbursements) would be 0.61%, 0.53%,
0.50%, 0.60%, and 0.58%, respectively.
(3) Total Fund Operating Expenses (before waivers or reimbursements) would be
1.11%, 1.03%, 1.00%, 1.10% and 1.08%, respectively.
NOTE: 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 Funds.
PROSPECTUS 4
<PAGE> 577
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment in a
Fund's Institutional Class shares,
assuming a 5% annual return and redemption
at the end of each time period indicated:
Arizona Tax-Free Fund................. $4 $13 $22 $ 51
California Tax-Free Bond Fund......... $6 $20 $35 $ 79
California Tax-Free Income Fund....... $6 $19 $33 $ 75
National Tax-Free Fund................ $4 $11 $20 $ 44
Oregon Tax-Free Fund.................. $4 $13 $22 $ 51
</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.
SHAREHOLDER TRANSACTION EXPENSES are charges incurred when a shareholder buys
or sells Fund shares. Institutional 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 for
"Management Fee" and "Rule 12b-1 Fee". Where indicated they reflect voluntary
fee waivers and expense reimbursements expected to be in effect during the
current year. The amounts shown under "Other Expenses" reflect
estimated/restated amounts expected to be in effect for the current fiscal year.
Wells Fargo Bank and Stephens have agreed to waive or reimburse all or a portion
of their respective fees charged to, or expenses paid by, each Fund to ensure
that the "Total Fund Operating Expenses" do not exceed, on an annual basis,
0.40%, 0.63%, 0.60%, 0.35% or 0.40% of the average daily net assets of the
Arizona Tax-Free, California Tax-Free Bond, California Tax-Free Income, National
Tax-Free and Oregon Tax-Free Funds, respectively, through August 31, 1997. Any
waivers or reimbursements will reduce a Fund's total expenses. There can be no
assurance that waivers or reimbursements will continue after that date. For more
complete descriptions of the various costs and expenses you can expect to incur
as an investor in the Funds, 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%. This annual rate of return
should not be
5 PROSPECTUS
<PAGE> 578
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.
The Funds offer 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 and Management" and "Management and Servicing Fees" and in the
SAI under "Management," and "Servicing Plans."
PROSPECTUS 6
<PAGE> 579
FINANCIAL HIGHLIGHTS
For the California Funds, the following information has been derived from the
Financial Highlights in the Funds' financial statements for the fiscal period
ended September 30, 1996. This information is provided to assist you in
evaluating each Fund's historical performance. The financial statements were
audited by KPMG Peat Marwick LLP. The financial statements and report thereon
for the period ended September 30, 1996 are incorporated by reference into the
SAI. This information should be read in conjunction with the California Funds'
1996 financial statements and notes thereto.
For the Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds, the
following information has been derived from the Financial Highlights in the
Fund's financial statements for the fiscal period ended September 30, 1996. This
information is provided to assist you in evaluating the historical performance
of the Funds. Except for periods ending prior to October 1, 1995, which were
audited by other auditors, the financial information has been audited by KPMG
Peat Marwick LLP. The financial information and the report thereon for the
fiscal period ended September 30, 1996 are incorporated by reference into the
SAI. This information should be read in conjunction with the predecessor
portfolios' related financial statements and notes thereto. On September 6,
1996, the Institutional Class shares of certain portfolios of Pacifica Funds
Trust were reorganized as Institutional Class shares of the Arizona, National
and Oregon Tax-Free Funds. Prior to October 1, 1995, the Arizona, National and
Oregon Tax-Free Funds offered a single class of shares designated the Investor
Class shares. The information presented for these Funds for periods prior to
October 1, 1995 reflects the performance of the Investor Class shares. The SAI
for each Fund is incorporated by reference into this Prospectus.
7 PROSPECTUS
<PAGE> 580
ARIZONA TAX-FREE FUND(1)
FOR AN INSTITUTIONAL CLASS SHARE OUTSTANDING
<TABLE>
<CAPTION>
INVESTOR SHARES
-----------------------------------------------------
INSTITUTIONAL FOUR-
CLASS SHARES MONTH
------------ PERIOD PERIOD
YEAR ENDED ENDED YEAR ENDED MAY 31, ENDED
SEPT. 30, SEPT. 30, ----------------------------- MAY 31,
1996 1995(2) 1995 1994 1993 1992
------------ --------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of
period......................... $10.71 $10.68 $10.48 $10.64 $10.09 $10.00
Income from investment
operations:
Net investment income (loss)... 0.49 0.17 0.51 0.50 0.49 0.09
Net realized and unrealized
gain (loss) on investments... (0.10) 0.06 0.23 (0.15) 0.55 0.08
Total from investment
operations................. 0.39 0.23 0.74 0.35 1.04 0.17
Less Distributions:
Dividends from net investment
income....................... (0.49) (0.20) (0.53) (0.50) (0.49) (0.08)
Distributions from net realized
gain......................... (0.17) 0.00 (0.01) (0.01) 0.00 (0.00)
Total from distributions..... (0.66) (0.20) (0.54) (0.51) (0.49) (0.08)
Net asset value -- end of
period....................... $10.44 $10.71 $10.68 $10.48 $10.64 $10.09
Total return not annualized..... 3.74% 6.55%(3) 7.35% 3.28% 10.50% 7.02% (3)
Ratios/Supplemental Data:
Net assets, end of period
(000)........................ $15,577 $24,622 $24,581 $25,153 $22,430 $4,690
Ratios to average net asset
(annualized):
Ratio of expenses to average
net assets................... 0.48% 0.45% 0.40% 0.31% 0.20% 0.68%
Ratio of net investment income
to average net assets........ 4.63% 4.73% 4.89% 4.72% 4.98% 4.32%
Portfolio turnover............. 42% 62% 14% 28% 4% 0.00%
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses..................... 1.20% 1.35% 1.13% 1.00% 1.18% 2.08%
Ratio of net investment income
to average net assets prior
to waived fees and reimbursed
expenses..................... 3.91% 3.83% 4.16% 4.03% 4.00% 2.92%
</TABLE>
- -------------------
(1) The Fund operated as the Arizona Intermediate Tax-Free Fund of Westcore
Trust and was advised by First Interstate Bank of Oregon, N.A. from its
commencement of operations on March 2, 1992 until its reorganization as a
portfolio of Pacifica Funds Trust on October 1, 1995 when First Interstate
Capital Management, Inc. ("FICM") assumed investment advisory
responsibilities. The Fund operated as a series of the Trust until it was
reorganized as a series of the Company on September 6, 1996. In connection
with the merger of First Interstate Bancorp into Wells Fargo & Company on
April 1, 1996, FICM was renamed Wells Fargo Investment Management, Inc. The
Institutional Class shares of the Fund commenced operations on October 1,
1995.
(2) The Fund changed its fiscal year-end from May 31 to September 30.
(3) Annualized.
PROSPECTUS 8
<PAGE> 581
CALIFORNIA TAX-FREE BOND FUND
FOR AN INSTITUTIONAL CLASS SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD ENDED
SEPT. 30,
1996(1)
------------
<S> <C>
Net asset value, beginning of period.............................. $ 10.69
Income from investment operations:
Net investment income (loss).................................... 0.04
Net realized and unrealized gain (loss) on investments.......... 0.11
------
Total from investment operations.............................. 0.15
Less distributions:
Dividends from net investment income............................ (0.04)
Distributions from net realized gain............................ 0.00
------
Total from distributions...................................... (0.04)
------
Net asset value, end of period.................................. $ 10.80
======
Total return (not annualized)................................. 1.24%
Ratios/supplemental data:
Net assets, end of period (000)................................. $106,896
Ratios to average net assets (annualized):
Ratio of expenses to average net assets......................... 0.67%
Ratio of net investment income to average net assets............ 5.20%
Portfolio turnover.............................................. 22%
Ratio of expenses to average net assets prior to waived fees and
reimbursed expenses........................................... 1.20%
Ratio of net investment income to average net assets prior to
waived fees and reimbursed expenses........................... 4.67%
- -------------------
(1) The Institutional Class shares of the Fund commenced operations on September
6, 1996
</TABLE>
9 PROSPECTUS
<PAGE> 582
CALIFORNIA TAX-FREE INCOME FUND
FOR AN INSTITUTIONAL CLASS SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD ENDED
SEPT. 30,
1996(1)
------------
<S> <C>
Net asset value, beginning of period.............................. $ 10.06
Income from investment operations:
Net investment income (loss).................................... 0.02
Net realized and unrealized gain (loss) on investments.......... 0.04
------
Total from investment operations.............................. 0.06
Less distributions:
Dividends from net investment income............................ (0.02)
Distributions from net realized gain............................ 0.00
------
Total from distributions...................................... (0.02)
------
Net asset value, end of period.................................. $ 10.10
======
Total return (not annualized)................................. 0.60%
Ratios/supplemental data:
Net assets, end of period (000)................................. $ 10,066
Ratios to average net assets (annualized):
Ratio of expenses to average net assets......................... 0.55%
Ratio of net investment income to average net assets............ 3.06%
Portfolio turnover.............................................. 48%
Ratio of expenses to average net assets prior to waived fees and
reimbursed expenses........................................... 0.92%
Ratio of net investment income to average net assets prior to
waived fees and reimbursed expenses........................... 2.69%
- -------------------
(1) The Institutional Class shares of the Fund commenced operations on September
6, 1996.
</TABLE>
PROSPECTUS 10
<PAGE> 583
NATIONAL TAX-FREE FUND(1)
FOR AN INSTITUTIONAL CLASS SHARE OUTSTANDING
<TABLE>
<CAPTION>
INSTITUTIONAL INVESTOR SHARES
CLASS SHARES -----------------------------------------------
------------- FOUR-MONTH YEAR ENDED MAY
YEAR ENDED PERIOD ENDED 31, PERIOD ENDED
SEPT. 30, SEPT. 30, ----------------- MAY 31,
1996 1995(2) 1995 1994 1993
------------- ------------ ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value -- beginning of
period....................... $15.34 $15.28 $14.98 $15.17 $15.00
Income from investment
operations:
Net investment income
(loss)..................... 0.71 0.24 0.68 0.64 0.17
Net realized and unrealized
gain (loss) on
investments................ (0.10) 0.08 0.32 (0.17) 0.15
------ ------ ------ ------ ------
Total from investment
operations............... 0.61 0.32 1.00 0.47 0.32
Less Distributions:
Dividends from net investment
income..................... (0.71) (0.26) (0.70) (0.64) (0.15)
Distributions from net
realized gain.............. 0.00 0.00 0.00 (0.02) 0.00
------ ------ ------ ------ ------
Total from distributions... (0.71) (0.26) (0.70) (0.66) (0.15)
Net asset value -- end of
period....................... $15.24 $15.34 $15.28 $14.98 $15.17
====== ====== ====== ====== ======
Total return not
annualized............... 4.04% 6.53%(3) 6.97% 3.07% 5.65%(3)
Ratios/Supplemental Data:
Net assets, end of period
(000)...................... $7,132 $14,305 $14,458 $13,600 $7,457
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets................. 0.36% 0.35% 0.35% 0.27% 0.25%
Ratio of net investment
income to average net
assets..................... 4.66% 4.65% 4.59% 4.29% 3.88%
Portfolio turnover........... 73% 86% 23% 19% 18%
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses................... 1.45% 1.85% 1.51% 1.58% 1.99%
Ratio of net investment
income to average net
assets prior to waived fees
and reimbursed expenses.... 3.57% 3.15% 3.43% 2.99% 2.14%
</TABLE>
- -------------------
(1) The Fund operated as the Quality Tax-Exempt Income Fund of Westcore Trust
and was advised by First Interstate Bank of Oregon, N.A. from its
commencement of operations on January 15, 1993 until its reorganization as a
portfolio of Pacifica Funds Trust on October 1, 1995 when First Interstate
Capital Management, Inc. ("FICM") assumed investment advisory
responsibilities. The Fund operated as a series of Pacifica Funds Trust
until it was reorganized as a series of the Company on September 6, 1996. In
connection with the merger of First Interstate Bancorp into Wells Fargo &
Company on April 1, 1996, FICM was renamed Wells Fargo Investment
Management, Inc. The Institutional Class shares of the Fund commenced
operations on October 1, 1995.
(2) The Fund changed its fiscal year-end from May 31 to September 30.
(3) Annualized.
11 PROSPECTUS
<PAGE> 584
OREGON TAX-FREE FUND(1)
FOR AN INSTITUTIONAL CLASS SHARE OUTSTANDING
<TABLE>
<CAPTION>
INSTITUTIONAL INVESTOR SHARES
CLASS SHARES ----------------------------------------------------------------------------------
------------ FOUR-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED MAY 31,
SEPT. 30, SEPT. 30, ------------------------------------------------------------------
1996 1995(2) 1995 1994 1993 1992 1991 1990 1989
------------ ------------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of
period....................... $16.38 $16.47 $16.17 $16.79 $16.07 $15.74 $15.27 $15.35 $15.00
Income from investment
operations:
Net investment income
(loss)..................... 0.72 0.28 0.82 0.84 0.86 0.91 0.94 0.93 0.93
Net realized and unrealized
gain (loss) on
investments................ 0.04 (0.08) 0.39 (0.43) 0.76 0.38 0.47 (0.06) 0.31
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations............... 0.76 0.20 1.21 0.41 1.62 1.29 1.41 0.87 1.24
------- ------- ------- ------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment
income..................... (0.72) (0.29) (0.87) (0.82) (0.86) (0.92) (0.94) (0.93) (0.89)
Distributions from net
realized gain.............. 0.00 0.00 (0.04) (0.21) (0.04) (0.04) 0.00 (0.02) (0.00)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from distributions... (0.72) (0.29) (0.91) (1.03) (0.90) (0.96) (0.94) (0.95) (0.89)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value -- end of
period....................... $16.42 $16.38 $16.47 $16.17 $16.79 $16.07 $15.74 $15.27 $15.35
======= ======= ======= ======= ======= ======= ======= ======= =======
Total return (not
annualized).............. 5.13% 3.67%(3) 7.92% 2.33% 10.36% 8.45% 9.58% 5.80% 8.55%
Ratios/supplemental data:
Net assets, end of period
(000)...................... $8,512 $50,077 $52,245 $53,846 $45,435 $25,002 $14,607 $7,550 $3,175
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets................. 0.63% 0.70% 0.70% 0.62% 0.60% 0.60% 0.55% 0.50% 0.50%
Ratio of net investment
income to average net
assets..................... 4.41% 5.01% 5.19% 4.90% 5.34% 5.81% 6.27% 6.26% 6.64%
Portfolio turnover........... 27% 57% 15% 22% 6% 17% 23% 94% 9%
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses................... 0.93% 1.01% 0.90% 0.84% 0.91% 0.98% 1.03% 1.35% 3.29%
Ratio of net investment
income to average net
assets prior to waived fees
and reimbursed expenses.... 4.11% 4.70% 4.99% 4.69% 5.03% 5.43% 5.79% 5.41% 3.85%
</TABLE>
- ---------------
(1) The Fund operated as the Oregon Tax-Exempt Fund of Westcore Trust and was
advised by First Interstate Bank of Oregon, N.A. from its commencement of
operations on June 1, 1988 until its reorganization as a portfolio of
Pacifica Funds Trust on October 1, 1995 when First Interstate Capital
Management, Inc. ("FICM") assumed investment advisory responsibilities. The
Fund operated as a series of Pacifica Funds Trust until it was reorganized
as a series of the Company on September 6, 1996. In connection with the
merger of First Interstate Bancorp into Wells Fargo & Company on April 1,
1996, FICM was renamed Wells Fargo Investment Management, Inc. The
Institutional Class shares of the Fund commenced operations on October 1,
1995.
(2) The Fund changed its fiscal year-end from May 31 to September 30.
(3) Annualized.
PROSPECTUS 12
<PAGE> 585
HOW THE FUNDS WORK
INVESTMENT OBJECTIVES AND POLICIES
As stated above, the investment objective of the ARIZONA TAX-FREE, NATIONAL
TAX-FREE, AND OREGON TAX-FREE FUNDS is to seek to provide investors with income
exempt from federal income tax and, for the Arizona Tax-Free and Oregon Tax-Free
Funds, exempt from Arizona or Oregon personal income tax, respectively. The
Arizona Tax-Free, National Tax-Free, and Oregon Tax-Free Funds have no
restrictions as to the minimum or maximum maturity of any individual security
held by it. Each 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.
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.
The CALIFORNIA TAX-FREE INCOME FUND seeks to provide investors with a high level
of income exempt from federal income taxes and California personal income taxes,
while preserving capital. It pursues this objective by investing primarily in
short- and intermediate-term, investment-grade municipal securities. Short-term
securities are securities with remaining maturities of less than 2 years.
Intermediate-term securities are securities with remaining maturities of 2 to 10
years.
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"). Each of the State Tax-Free
Funds expects that, except during temporary defensive periods or when acceptable
securities are unavailable for investment by the Fund, at least 65% of such
Fund's total assets will be invested in municipal obligations of issuers located
in a particular state ("Arizona Obligations," "California Obligations," or
"Oregon Obligations," respectively), and issuers of the Virgin Islands, Guam and
Puerto Rico, which are exempt from Arizona, California and Oregon personal
income tax. The amount of each Fund's assets invested in such obligations may
vary from time to time.
As a matter of general operating policy, however, each California 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, and at least 65% of the California Tax-Free
Income Fund's total assets are invested
13 PROSPECTUS
<PAGE> 586
in short- and intermediate-term municipal obligations. As a matter of general
operating policy, the California Tax-Free Income Fund intends that, under normal
market conditions, the average expected duration of its portfolio securities
will be from one to five years.
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.
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.
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
State Tax-Free Funds may purchase investment-grade obligations within the fourth
highest category when acceptable obligations with higher ratings are unavailable
for investment by such Funds. 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. No more than 10% of the
Arizona Tax-Free Fund's total assets will be invested in municipal obligations
that are rated at the time of purchase below one of the three highest
categories.
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
PROSPECTUS 14
<PAGE> 587
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.
Each Fund 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. Each Fund 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, each Fund 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 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"). Each Fund 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
Funds, certain repurchase agreements. The California Funds may make loans of
portfolio securities. Such temporary investments would most likely be made when
there is an unexpected or abnormal level of investor purchases or redemptions of
shares of a Fund or because of unusual market conditions. The income from these
temporary investments and investment activities may be subject to federal income
tax and Arizona, California or Oregon 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 description of tax-free
municipal obligations, taxable money market instruments, and other investment
activities is contained in the "Prospectus Appendix -- Additional Investment
Policies" and in the SAI.
The investment objectives for the Arizona Tax-Free, National Tax-Free and
Oregon Tax-Free Funds are not fundamental and may be changed without shareholder
approval.
15 PROSPECTUS
<PAGE> 588
The investment objectives for the California Funds are 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. 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"). For
additional descriptions of tax-free municipal obligations, taxable money market
instruments, and other investment activities, see the "Prospectus
Appendix -- Additional Investment Policies."
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
As noted above and discussed further in the SAI, some of the securities
purchased by the State Tax-Free Funds 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 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.
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
PROSPECTUS 16
<PAGE> 589
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 Arizona
Tax-Free, National Tax-Free and Oregon Tax-Free Funds 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 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 State Tax-Free Funds in municipal obligations of
particular states 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.
The State Tax-Free Funds have constitutional and/or statutory restrictions
that affect government revenues. Because of the nature of the various
restrictions, certain possible ambiguities and inconsistencies in their terms
and the scope of various exemptions and exceptions, as well as the impossibility
of predicting the level of future appropriations for state and local
governmental entities, it is not presently possible to determine the impact of
these restrictions and related measures on the ability of governmental issuers
in Oregon and Arizona to pay interest or repay principal on their obligations.
There have, however, been certain adverse developments with respect to municipal
obligations of governmental issuers in these states over the past several years.
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
17 PROSPECTUS
<PAGE> 590
times. Similarly, there is a relatively small active market for Arizona
Obligations, California Obligations and Oregon Obligations and the market price
of such bonds may therefore be volatile. If any of the State Tax-Free Funds were
forced to sell a large volume of Arizona Obligations, California Obligations or
Oregon 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 such 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 shortfalls. The
Funds' investment adviser continues to monitor and evaluate each 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.
A more detailed description of special factors affecting investment in Arizona
Obligations, California Obligations or Oregon Obligations is set forth in
"Special Considerations Affecting Arizona Municipal Securities," "Special
Considerations Affecting California Municipal Securities" and "Special
Considerations Affecting Oregon Municipal Securities" 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
PROSPECTUS 18
<PAGE> 591
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 yield,
tax-equivalent yield and 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.
Average annual total return of the Institutional Class shares is based on the
overall dollar or percentage change in value of a hypothetical investment in a
Fund's Institutional Class and assumes the investment is at NAV and all
dividends and capital-gain distributions attributable to a class are also
reinvested at NAV in shares of the class. Cumulative total return is calculated
similarly except that the return figure is aggregated over the relevant period
instead of annualized.
Yield refers to the income generated by an investment in a class of a Fund's
shares over a specified period (usually 30 days), expressed as an annual
percentage rate. 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. The
tax-equivalent yield of a class of shares is similarly calculated but assumes
that a stated income tax rate has been applied to determine the tax-equivalent
figure.
In addition to presenting these standardized performance calculations, at
times, the Funds also may present non-standard performance figures, such as
effective tax-equivalent yields 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 inside front cover of the Prospectus.
THE FUNDS AND MANAGEMENT
THE FUNDS
The Funds are five funds of the Stagecoach Family of Funds. The Company was
organized as a Maryland corporation on September 9, 1991 and currently offers
shares of 20 other funds. Most of the Company's funds are authorized to issue
multiple classes of
19 PROSPECTUS
<PAGE> 592
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 may be authorized to
issue other classes of shares, which are sold primarily to institutional
investors at NAV. 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 that are allocated to a
particular class and, accordingly, may affect performance. Please contact
Stagecoach Shareholder Services at 1-800-260-5969 if you would like additional
information about other funds or classes of shares offered.
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. A more
detailed description of the voting rights and attributes of the shares is
contained under "Capital Stock" in the SAI.
In addition to Institutional Class shares, the Funds offer two other classes
of shares to retail investors -- the Class A and Class B Shares. The expenses
and, correspondingly, the investment returns of Class A and Class B shares may
differ from those of the Institutional Class shares of the Funds. Additional
information regarding the Funds expenses is included under the heading "Summary
of Fund Expenses."
MANAGEMENT
Wells Fargo Bank is the Funds' investment adviser, administrator, transfer and
dividend disbursing agent and custodian. In addition, Wells Fargo Bank is a
shareholder servicing agent and 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 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. Wells
Fargo Bank also serves as the investment adviser to 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.
PROSPECTUS 20
<PAGE> 593
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 portfolios of
the Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds. 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 94111. Prior to October 1, 1995, affiliates of First
Interstate Capital Management, Inc. served as investment advisers to the
predecessor portfolios of the Arizona Tax-Free, National Tax-Free and Oregon
Tax-Free Funds as follows: First Interstate Bank of Oregon, N.A, served as
investment adviser to the Oregon Tax-Exempt Fund; First Interstate Bank of
Arizona, N.A. served as investment adviser to the Arizona Tax-Exempt Fund; and
First Interstate Bank of Washington, N.A. served as co-investment advisers to
the National Tax-Exempt Fund.
PORTFOLIO MANAGERS
Ms. Laura Milner assumed responsibility for the day-to-day management of the
portfolios of the Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds
as of September 1996 and assumed sole responsibility for the day-to-day
management of the California Tax-Free Income Fund on June 1, 1995. Ms. Milner
had been a co-manager of the California Tax-Free Income Fund since November
1992. 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.
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.
Mary Gail Walton is also responsible for the day-to-day portfolio management
of the Arizona Tax-Free, California Tax-Free Income, National Tax-Free and
Oregon Tax-Free Funds. Ms. Walton joined Wells Fargo Bank in 1996 from First
Interstate Capital Management and has been co-portfolio manager of the Funds
since February 1, 1997. She worked at First Interstate Bank since 1991
specializing in tax-exempt portfolio
21 PROSPECTUS
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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
PURCHASE OF INSTITUTIONAL CLASS SHARES
The minimum initial purchase amount on Institutional Class shares is $2
million 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.
Institutional 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.
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 Funds is
governed by the Customers' account agreements with an Institution. Investors
wishing to purchase Institutional Class shares of the Funds should contact their
account representatives.
PROSPECTUS 22
<PAGE> 595
Institutional Class shares may be purchased on any day the Funds are open. The
Funds are open for business each day the New York Stock Exchange ("NYSE") is
open for trading (a "Business Day"). Institutional 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 for Institutional Class
shares in a Fund must be received by the Company by 1:00 p.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 the next Business Day following the receipt of the
purchase order.
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 Institutional 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 Institutional Class shares is recorded on
the Company's books, and share certificates are not issued.
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.
Shares of the Funds may not be suitable investments for tax-exempt
institutions or individual shareholders of tax-deferred retirement plans, since
such investors would not benefit from the exempt status of the Funds' dividends.
See "Federal Income Taxes -- Special Tax Considerations" in the SAI.
SHARE VALUE
The value of a share of each class is its NAV. Wells Fargo Bank calculates the
NAV of each class of a Fund as of the close of regular trading on the NYSE
(referred to hereafter as "the close of the NYSE"), which is currently 1:00 p.m.
(Pacific time). The NAV per share 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
23 PROSPECTUS
<PAGE> 596
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.
Except for debt obligations with remaining maturities of 60 days or less,
which are valued at amortized cost, the other assets of the Funds are valued at
current market prices or, if such prices are not readily available, at fair
value as determined in good faith by the Company's Board of Directors. Prices
used for such valuations may be obtained from independent pricing services.
WIRE INSTRUCTIONS -- 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) (designate Institutional 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
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 with tax information for the previous year to assist you with tax
return preparation. At least twice a year, shareholders receive financial
statements.
PROSPECTUS 24
<PAGE> 597
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 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.
With respect to shareholders who do not have a relationship with an
Institution, shares of the Funds may be redeemed by writing or calling the Funds
directly at the address and phone number shown on the first page of the
Prospectus. When Institutional Class shares are redeemed directly from the
Funds, the Funds 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 Funds may take up to seven days to make payment, although this will not be
the customary practice. Also, if the NYSE 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 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 Funds are made in cash,
except that the commitment to redeem Institutional Class shares in cash extends
only to
25 PROSPECTUS
<PAGE> 598
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 investor 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
The Funds offer a convenient way to exchange Institutional Class shares in one
Fund for Institutional Class shares in another fund of the Company. Before
engaging in an exchange transaction, an investor should read carefully the
Prospectus describing the fund into which the exchange will occur, which is
available without charge and can be obtained by writing or by calling the
Company at the address or phone number listed on the first page of the
Prospectus. A shareholder may not exchange Institutional Class shares of one
fund for Institutional Class shares of another fund if Institutional Class
shares of both funds are not qualified for sale in the state of the
shareholder's residence. The Company may terminate or amend the terms of the
exchange privilege at any time.
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 a Fund to the
Institution involved. Institutions (or their nominees), acting on behalf of
their Customers, normally are the holders of record of Institutional Class
shares. Institutions are responsible for transmitting orders for exchanges to
the Company on a timely basis. Customers' exchange transactions are generally
reflected in the account statements provided by
PROSPECTUS 26
<PAGE> 599
Institutions to their Customers. Investors wishing to exchange Institutional
Class shares of a Fund for Institutional Class shares of another fund should
contact their account representatives. Investors with questions may call the
Company at 1-800-260-5969.
A new account opened by exchange must be established with the same name(s),
address and social security number as the existing account. All exchanges are
made at the NAV of the respective funds next determined following receipt of the
request by the Company in good order.
Investors should receive written confirmation of the exchange from the
Institution within a few days of the completion of the transaction.
To exchange Institutional Class shares, or if you have questions, simply call
the Company at 1-800-260-5969. A shareholder of record should be prepared to
give the telephone representative the following information: (i) the account
number, social security or taxpayer identification number and account
registration; (ii) the name of the fund from and the fund into which the
transfer is to occur; and (iii) the dollar or share amount of the exchange. The
conversation may be recorded to protect shareholders and the Company. Telephone
exchanges may be available unless the shareholder of record has declined the
privilege on the Purchase Application.
In addition, Institutional Class shares of the Funds may be exchanged for each
of the Funds' 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 other cases where Institutional Class shares are not held in
such qualified accounts. Similarly, Class A shares may be exchanged for the
Funds' Institutional Class shares if the shares are to be held in such a
qualified trust, agency or custodial account. These exchanges are made at the
respective NAVs of the Institutional Class shares next determined after the
exchange request is received by the Company.
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. Shareholders begin earning
dividends on the Business Day following the date the purchase order is effective
and continue to earn dividends through the day such shares are redeemed. The
Funds intend to distribute any capital gains at least annually. Expenses, such
as state securities registration and transfer agency fees that are attributable
to a particular class may affect the relative dividends and/or
27 PROSPECTUS
<PAGE> 600
capital-gain distributions of a class of shares. Dividends and any capital-gain
distributions are automatically invested in additional whole and fractional
shares of the same class unless the shareholder has elected to receive payment
in cash.
Dividends for a Saturday, Sunday or Holiday are declared payable to
shareholders of record as of the preceding Business Day. If a shareholder
redeems shares before the dividend payment date, any dividends credited to the
shareholder are paid on the following dividend payment date unless the
shareholder has redeemed all of the shares in the account, in which case the
shareholder receives accrued dividends together with redemption proceeds.
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 strategy and performance.
For its services as investment adviser, Wells Fargo Bank is entitled to
monthly investment advisory fees at the annual rate of 0.50% of the average
daily net assets of each Fund. From time to time, each of the Funds, consistent
with its investment objective, policies and restrictions, may invest in
securities of entities 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 and California Tax-Free Income Funds paid advisory fees to Wells Fargo Bank
at the annual rates of 0.50% and 0.47%, respectively, of their average daily net
assets. For the year ended September 30, 1996, the Arizona Tax-Free, National
Tax-Free and Oregon Tax-Free Funds paid advisory fees at the annual rates of
0.09%, 0.08% and 0.49%, respectively, of their 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 portfolios to the Funds.
For the year ended December 31, 1995, the California Tax-Free Bond and
California Tax-Free Income Funds paid advisory fees to Wells Fargo Bank at the
annual rates of 0.50% and 0.43%, respectively, of their average daily net
assets.
PROSPECTUS 28
<PAGE> 601
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.
INSTITUTIONS AND SHAREHOLDER SERVICING AGENT
The Funds have entered into shareholder servicing agreements 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 transmitting shareholder
orders for purchases, exchanges and redemptions; maintaining shareholder
accounts and records; and providing such other related services as the Company
or a shareholder may reasonably request. For these services, a Shareholder
Servicing Agent is entitled to receive a fee at the annual rate of up to 0.25%
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.
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 Funds, 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 provided to a 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 Directors and officers who are affiliated with
29 PROSPECTUS
<PAGE> 602
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 services 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 and California Tax-Free Income Funds paid
administrative fees to Stephens at the annual rate of 0.03% of each Fund s
average daily net assets. For the year ended September 30, 1996, the Arizona
Tax-Free, National Tax-Free and Oregon Tax-Free Funds paid administrative fees
at the annual rates of 0.10%, 0.10% and 0.11%, respectively, of each Fund's
average daily net assets. For the period prior to September 6, 1996, this
includes amounts paid to Furman Selz LLC by the predecessor portfolios to the
Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds.
SPONSOR AND DISTRIBUTOR
Stephens is the Company's 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 Distribution Agreements with the Company pursuant to
which Stephens acts as agent for the Funds for the sale of their 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 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.
Financial institutions acting as Shareholder Servicing Agents, 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.
PROSPECTUS 30
<PAGE> 603
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 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.
STATE TAXES
ARIZONA STATE INCOME TAXES
Individuals, trusts and estates who are subject to Arizona income tax will not
be subject to such tax on dividends paid by the Arizona Tax-Free Fund, to the
extent that such dividends qualify as exempt-interest dividends of a regulated
investment company under
31 PROSPECTUS
<PAGE> 604
Section 852(b)(5) of the Code and are attributable to either (i) obligations of
the State of Arizona or its political subdivisions thereof or (ii) obligations
issued by the governments of Guam, Puerto Rico, or the Virgin Islands. In
addition, dividends paid by the Arizona Tax-Free Fund that are attributable to
interest payments on direct obligations of the U.S. government will not be
subject to Arizona income tax to the extent the Arizona Tax-Free Fund qualifies
as a regulated investment company under Subchapter M of the Code. Other
distributions from the Arizona Tax-Free Fund, however, such as distributions of
short-term or long-term capital gains, will generally not be exempt from Arizona
income tax.
There are no municipal income taxes in Arizona. Moreover, because shares of
the Arizona Tax-Free Fund are intangibles, they are not subject to Arizona
property tax. Shareholders of the Arizona Tax-Free Fund should consult their tax
advisors about other state and local tax consequences of their investment in the
Arizona Tax-Free 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 and California Tax-Free Income 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 and California Tax-Free Income
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 and California Tax-Free
Income 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 and California Tax-Free
Income 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 and California Tax-Free Income 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,
California Tax-Free Income, or other Funds, and such investors should consult
with their own tax advisors.
PROSPECTUS 32
<PAGE> 605
OREGON STATE INCOME TAXES
So long as the Oregon Tax-Free Fund qualifies to be taxed as a separate
"regulated investment company" under the Code, individuals, trusts and estates
will not be subject to Oregon personal income tax on distributions from the
Oregon Tax-Free Fund that represent "exempt-interest dividends" of a regulated
investment company under the Code paid on municipal obligations of the State of
Oregon and its political subdivisions, the U.S. Virgin Islands, Puerto Rico and
Guam. Individuals, trusts and estates will be subject to Oregon personal income
tax on other types of distributions received from the Oregon Tax-Free Fund,
including distributions of interest on obligations issued by other issuers and
all long-term and short-term capital gains.
Corporations subject to the Oregon corporation excise tax will generally be
subject to tax on all distributions from the Oregon Tax-Free Fund, including
distributions of income that is exempt for U.S. federal income tax purposes.
Oregon imposes a corporation income tax on corporations not subject to the
Oregon corporation excise tax. Corporations subject to the Oregon corporation
income tax should consult their tax advisors regarding distributions from the
Oregon-Tax-Free Fund. Shares of the Oregon Tax-Free Fund will not be subject to
the Oregon property tax.
Shareholders of the Oregon Tax-Free Fund should consult their tax advisors
about other state and local tax consequences of their investments in the Oregon
Tax-Free Fund, which may differ from the consequences under U.S. federal income
tax law.
NATIONAL TAX-EXEMPT 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 SAIs for the Funds.
33 PROSPECTUS
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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 a California 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.
A-1 PROSPECTUS
<PAGE> 608
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 Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds 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 Arizona Tax-Free, National
Tax-Free and Oregon Tax-Free Funds 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.
PROSPECTUS A-2
<PAGE> 609
For a further discussion of factors affecting purchases of municipal
obligations by the State Tax-Free Funds, see "Special Considerations Affecting
Arizona Municipal Securities," "Special Considerations Affecting California
Municipal Securities" and "Special Considerations Affecting Oregon Municipal
Securities" in the SAI.
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 State Tax-Free Funds, from a respective
state'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.
A-3 PROSPECTUS
<PAGE> 610
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, 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 Arizona Tax-Free, Oregon Tax-Free and National Tax-Free Funds 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 a Fund's option specified municipal obligations at a price equal to
their amortized-cost value plus accrued interest. The Funds 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.
PROSPECTUS A-4
<PAGE> 611
Notwithstanding any other investment policy or limitation (whether or not
fundamental), as a matter of fundamental policy, each Fund (except the
California Tax-Free Bond 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.
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 to the Funds, monitors on an ongoing
basis the ability of an issuer of a demand instrument to pay principal and
interest on demand. Events affecting the ability of the issuer of a demand
instrument to make payment when due may occur between the time a Fund elects to
demand payment and the time payment is due, thereby affecting such Fund's
ability to obtain payment at par. Demand instruments whose demand feature is not
exercisable within 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 Arizona Tax-Free, California Tax-Free Income Fund, National Tax-Free and
Oregon Tax-Free Funds 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 agency
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.
A-5 PROSPECTUS
<PAGE> 612
Repurchase Agreements
The California Funds may enter into repurchase transactions in which the
seller of a security to a Fund agrees to repurchase that security from such Fund
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 California 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.
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
PROSPECTUS A-6
<PAGE> 613
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 Arizona Tax-Free, National Tax-Free or Oregon Tax-Free Funds may not
purchase securities (except U.S. Government securities and repurchase agreements
collateralized by such securities) if more than 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 a Fund's total assets may be invested without regard to this 5%
limitation.
2. The Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds 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 Funds 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 a 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. No Fund may borrow money except in amounts up to 10% of the value of its
total assets at the time of borrowing (for the California Funds, 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 each of their net
assets (but investments may not be purchased by a Fund while any such
outstanding borrowings exceed 5% of its net assets)).
4. The Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds will not
at any time knowingly have more than 15% of their respective 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.
A-7 PROSPECTUS
<PAGE> 614
As matters of nonfundamental policy:
1. Neither the California Tax-Free Bond Fund nor the California Tax-Free
Income Fund may invest more than 10% or 15%, respectively, of the current value
of the Fund's 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
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 a Fund's limitation see "Illiquid Securities" in this
Appendix.
2. The Arizona Tax-Free, National Tax-Free and Oregon Tax-Free Funds will not
at any time knowingly have more than 15% of their respective net assets in
illiquid securities.
For purposes of complying with the Code, each California Fund will diversify
its holdings so that, at the end of each quarter of the taxable year: (i) at
least 50% of the market value of each Fund's assets is represented by cash, U.S.
Government obligations and other securities limited in respect of any one issuer
to an amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer; and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government obligations and the securities of other regulated investment
companies), or of two or more issuers which the taxpayer controls and which are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses. With respect to paragraph (i), it may be possible that the
Company would own more than 10% of the outstanding voting securities of an
issuer.
PROSPECTUS A-8
<PAGE> 615
Advised by WELLS FARGO BANK, N.A.
Sponsored/Distributed by
Stephens Inc., Member NYSE/SIPC
LOGO
NOT FDIC INSURED
<PAGE> 616
LOGO
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH FUNDS:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- 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 LOGO
principal
</TABLE>
LOGO
Printed on Recycled Paper SC 0212 (2/97)
<PAGE> 617
LOGO
------------------------------
PROSPECTUS
------------------------------
GINNIE MAE FUND
INTERMEDIATE BOND FUND
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
INSTITUTIONAL CLASS
FEBRUARY 1, 1997
<PAGE> 618
STAGECOACH FUNDS(R)
GINNIE MAE, INTERMEDIATE BOND, AND SHORT-INTERMEDIATE
U.S. GOVERNMENT INCOME FUNDS
INSTITUTIONAL CLASS
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about Institutional Class shares
offered by three funds of the Stagecoach Family of Funds -- the GINNIE MAE,
INTERMEDIATE BOND, and SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUNDS (each, a
"Fund" and, collectively, the "Funds").
The GINNIE MAE FUND seeks to provide investors with a long-term total rate of
return through preserving capital and earning high interest income by investing
principally in a portfolio of U.S. Government mortgage pass-through securities,
consisting primarily of securities issued by the Government National Mortgage
Association (popularly called "Ginnie Maes"), Federal National Mortgage
Association and Federal Home Loan Mortgage Corporation. The INTERMEDIATE BOND
FUND seeks to provide investors with a high level of current income consistent
with the preservation of capital and maintenance of liquidity. The
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND seeks to provide investors with
current income, while preserving capital, by investing primarily in a portfolio
consisting of short- to intermediate-term securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities.
Please read this Prospectus 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 February 1, 1997, containing additional information
about each 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 1-800-260-5969.
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.
PROSPECTUS DATED FEBRUARY 1, 1997
PROSPECTUS
<PAGE> 619
ALTHOUGH CERTAIN PORTFOLIO INSTRUMENTS HELD BY THE GINNIE MAE AND SHORT-
INTERMEDIATE U.S. GOVERNMENT INCOME FUNDS MAY BE INSURED OR GUARANTEED BY THE
UNITED STATES OR A FEDERAL AGENCY OR INSTRUMENTALITY, SHARES OF THE FUNDS ARE
NOT.
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
<PAGE> 620
TABLE OF CONTENTS
-------
PROSPECTUS SUMMARY 1
SUMMARY OF FUND EXPENSES 5
FINANCIAL HIGHLIGHTS 8
HOW THE FUNDS WORK 12
THE FUNDS AND MANAGEMENT 19
INVESTING IN THE FUNDS 22
EXCHANGES 26
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS 27
MANAGEMENT AND SERVICING FEES 28
TAXES 31
PROSPECTUS APPENDIX - ADDITIONAL INVESTMENT POLICIES A-1
PROSPECTUS
<PAGE> 621
PROSPECTUS SUMMARY
The Funds provide investors 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 GINNIE MAE FUND seeks to provide investors with a long-term total rate of
return through preserving capital and earning high interest income by
investing principally in a portfolio of U.S. Government mortgage
pass-through securities, consisting primarily of securities issued by the
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC").
Under normal market conditions, the Fund will invest at least 65% of its
assets in securities issued by GNMA.
The INTERMEDIATE BOND FUND seeks to provide investors with a high level of
current income consistent with the preservation of capital and maintenance
of liquidity. In pursuing its investment objective, the Fund may invest in a
broad range of corporate debt obligations, such as fixed- and variable-rate
bonds, zero coupon bonds, debentures, obligations convertible into common
stock, and various types of demand instruments, obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
U.S. dollar-denominated debt obligations of foreign issuers, including
foreign corporations and foreign governments, and money market instruments.
The Fund also may acquire obligations issued by state and local governments
("municipal obligations"), mortgage-backed and certain other asset-backed
securities. Under normal market conditions, the Fund expects to maintain a
dollar-weighted average portfolio maturity between three and ten years and
the policy of the Fund is to invest at least 65% of the total value of its
assets in corporate and government bonds.
The SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND seeks to provide
investors with current income, while preserving capital, by investing
primarily in a portfolio consisting of short- to intermediate-term
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. The Fund invests primarily in U.S. Treasury securities,
notes and bonds and obligations issued or guaranteed by federal agencies or
instrumentalities, including government-sponsored enterprises such as GNMA
and FNMA. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in U.S. Government obligations and the
dollar-weighted effective average maturity of the portfolio is expected to
be between two and five years. The Fund may also invest in investment-grade
1 PROSPECTUS
<PAGE> 622
corporate debt obligations. The Fund is designed for investors with
investment horizons of two to five years.
See "How the Funds Work -- 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. 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 the
Fund's shares. Therefore, you should be prepared to accept some risk with
the money you invest in a 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 are reflected in a Fund's net asset value.
For example, the mortgage-backed securities in which the Funds invest are
subject to extension 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 Funds' shares. Each 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
Funds 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 Intermediate Bond and Short-Intermediate U.S.
Government Income Funds may invest in certain dollar-denominated debt
instruments of foreign issuers. Investing in the securities of issuers in
any foreign country involves special risks and considerations not typically
associated with investing in U.S. companies.
The Ginnie Mae and Short-Intermediate U.S. Government Income Funds each
invests primarily in U.S. Government obligations, including securities
issued or
PROSPECTUS 2
<PAGE> 623
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 a Fund will achieve
its investment objective. See "How the Funds Work -- Investment Objectives
and Policies -- Risk Factors" below 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 each Fund's investment adviser, manages your
investments. Wells Fargo Bank also provides administrative, transfer agency,
dividend disbursing agency and custodial services to the Funds. In addition,
Wells Fargo Bank is a shareholder servicing agent and a selling agent for
the Funds. See "The Funds and Management" and "Management and Servicing
Fees" for further information.
Q. HOW DO I INVEST?
A. Qualified investors may invest by purchasing Institutional 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 Institutional Class
shares should contact their account representatives. The minimum initial
purchase amount on Institutional Class shares is $2 million 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
3 PROSPECTUS
<PAGE> 624
initial or subsequent purchase amount requirements. See "Investing in the
Funds" for additional information.
Q. HOW MAY I REDEEM SHARES?
A. Investors 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 Funds -- Redemption of Institutional Class Shares."
Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends of the Ginnie Mae, Intermediate Bond and Short-Intermediate U.S.
Government Income Funds are declared daily and distributed monthly. Any
capital gains are distributed at least annually. Dividend and capital gain
distributions are automatically reinvested in additional Institutional Class
shares of the respective Fund at NAV. Shareholders also may elect to receive
distributions in cash. See "Dividends" for additional information.
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 floating- and 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 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 a Fund's investment activities, see "How the Funds
Work" and "Prospectus Appendix -- Additional Investment Policies."
PROSPECTUS 4
<PAGE> 625
SUMMARY OF FUND EXPENSES
INSTITUTIONAL CLASS SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE
GINNIE MAE INTERMEDIATE U.S. GOVERNMENT
FUND BOND FUND INCOME FUND
<S> <C> <C> <C>
Maximum Sales Charge on Purchases
(as a percentage of offering
price)............................ None None None
Maximum Sales Charge on Reinvested
Distributions..................... None None None
Maximum Sales Charge on
Redemptions....................... None None None
Exchange Fees....................... None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE
GINNIE MAE INTERMEDIATE U.S. GOVERNMENT
FUND BOND FUND INCOME FUND
<S> <C> <C> <C>
Management Fee (after waivers or
reimbursements)............... 0.50% 0.40%(1) 0.50%
Rule 12b-1 Fee.................. None None None
Other Expenses (after waivers or
reimbursements)(2)............ 0.27% 0.35% 0.15%
----- ----- -----
TOTAL FUND OPERATING EXPENSES
(after waivers or
reimbursements)(3)............ 0.77% 0.75% 0.65%
============ ============= ====================
</TABLE>
- -------------------------------
(1) Management Fee (before waivers or reimbursements) would be 0.50%.
(2) Other Expenses (before waivers or reimbursements) would be 0.60%, 0.59% and
0.50%, respectively.
(3) Total Fund Operating Expenses (before waivers or reimbursements) would be
1.10%, 1.09% and 1.00%, respectively.
Note: 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 Funds.
5 PROSPECTUS
<PAGE> 626
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment in a
Fund's Institutional Class shares,
assuming a 5% annual return and redemption
at the end of each time period indicated:
Ginnie Mae Fund....................... $8 $25 $43 $ 95
Intermediate Bond Fund................ $8 $24 $42 $ 93
Short-Intermediate U.S. Government
Income Fund........................... $7 $21 $36 $ 81
</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.
SHAREHOLDER TRANSACTION EXPENSES are charges incurred when a shareholder buys
or sells Fund shares. Institutional Class shares are sold with no shareholder
transaction charges 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 for
"Management Fees" and "Rule 12b-1 Fees." Where indicated they reflect voluntary
fee waivers and expense reimbursements expected to be in effect during the
current year. The amounts shown under "Other Expenses" are based on
estimated/restated amounts expected to be in effect for the current fiscal year.
Wells Fargo Bank and Stephens each have agreed to waive or reimburse all or a
portion of their respective fees charged to, or expenses paid by, each Fund to
ensure that the Total Fund Operating Expenses do not exceed, on an annual basis,
0.77%, 0.75%, or 0.65%, respectively, of the Ginnie Mae, Intermediate Bond or
Short-Intermediate U.S. Government Income Funds' average daily net assets
through August 31, 1997. Any waivers or reimbursements will reduce a Fund's
total expenses. There can be no assurance that waivers or reimbursements will
continue after that date. For more complete descriptions of the various costs
and expenses you can expect to incur as an investor in the Funds, please see
"Management and Servicing Fees."
PROSPECTUS 6
<PAGE> 627
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.
The Funds offer certain other 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 and Management" and "Management and Servicing Fees"
and in the SAI under "Management," and "Servicing Plans."
7 PROSPECTUS
<PAGE> 628
FINANCIAL HIGHLIGHTS
For the Ginnie Mae and Short-Intermediate U.S. Government Income Funds, the
following information has been derived from the Financial Highlights in the
Funds' financial statements for the fiscal period ended September 30, 1996. The
information is provided to assist you in evaluating the historical performance
of each Fund. Except for periods ending prior to January 1, 1992, which were
audited by other auditors, the financial information has been audited by KPMG
Peat Marwick LLP. The financial statements and report thereon for the period
ended September 30, 1996 are incorporated by reference into the SAIs. This
information should be read in conjunction with the Funds' 1996 financial
statements and the notes thereto.
For the Intermediate Bond Fund, the following information has been derived
from the Financial Highlights in the Fund's financial statements for the year
ended September 30, 1996. This information is provided to assist you in
evaluating the Fund's historical performance. Except as set forth below, the
Fund's financial statements, were audited by KPMG Peat Marwick LLP. The
financial statements and report thereon for the year ended September 30, 1996
are incorporated by reference into the SAI. The financial information for the
periods prior to October 1, 1995 has been audited by other auditors. This
information should be read in conjunction with the Fund's 1996 financial
statements and the notes thereto. On September 6, 1996, the Institutional Class
shares of a portfolio of Pacifica Funds Trust were reorganized as the
Institutional Class shares of the Fund. The information for periods prior to
September 6, 1996 reflects the performance of the predecessor portfolio's
Institutional Class. The SAI for each Fund has been incorporated by reference
into this Prospectus.
PROSPECTUS 8
<PAGE> 629
INTERMEDIATE BOND FUND(1)
FOR AN INSTITUTIONAL CLASS SHARE OUTSTANDING
<TABLE>
<CAPTION>
FOUR-MONTH
YEAR PERIOD
ENDED ENDED YEAR ENDED MAY 31,
SEPT. 30, SEPT. 30, -------------------------------------------------------------------
1996 1995(2) 1995 1994 1993 1992 1991 1990 1989
--------- ---------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of
period........................... $14.76 $14.77 $14.36 $15.72 $15.69 $15.52 $15.08 $15.13 $15.00
Income from investment operations
Net investment income (loss)..... 0.85 0.30 0.91 0.99 1.17 1.14 1.25 1.26 1.22
Net realized and unrealized gain
(loss) on investments.......... (0.23) (0.01) 0.47 (0.90) 0.40 0.65 0.54 (0.05) 0.08
Total from investment
operations..................... 0.62 0.29 1.38 0.09 1.57 1.79 1.79 1.21 1.30
Less distributions:
Dividends from net investment
income......................... (0.85) (0.30) (0.97) (0.85) (1.04) (1.41) (1.25) (1.26) (1.17)
Distributions from net realized
gain........................... (0.01)(3) 0.00 0.00 (0.60) (0.50) (0.21) (0.10) -- --
Total from distributions....... (0.86) (0.30) (0.97) (1.45) (1.54) (1.62) (1.35) (1.26) (1.17)
Net asset value -- end of
period......................... $14.52 $14.76 $14.77 $14.36 $15.72 $15.69 $15.52 $15.08 $15.13
Total return (not
annualized).................. 4.19% 6.14%(4) 10.13% 0.35% 10.42% 11.96% 12.36% 8.25% 9.07%
Ratios/Supplemental Data
Net assets, end of period
(000).......................... $44,348 $55,628 $56,087 $58,199 $61,207 $54,203 $54,074 $79,471 $74,002
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets......................... 0.73% 0.89% 0.81% 0.79% 0.76% 0.68% 0.66% 0.68% 0.69%
Ratio of net investment income to
average net assets............. 5.82% 5.94% 6.35% 5.33% 6.01% 7.14% 8.00% 8.25% 8.25%
Portfolio turnover............... 96% 54% 76% 163% 146% 102% 78% 32% 36%
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses............ 0.89% 0.94% 0.85% 0.83% 0.79% 0.73% 0.71% 0.73% 0.74%
Ratio of net investment income to
average net assets prior to
waived fees and reimbursed
expenses....................... 5.66% 5.89% 6.31% 5.30% 5.98% 7.09% 7.95% 8.20% 8.20%
</TABLE>
- -------------------
(1) The Fund operated as the Bonds Plus Fund of Westcore Trust and was advised
by First Interstate Bank of Oregon, N.A. from its commencement of operations
on June 1, 1988, until its reorganization as a portfolio of Pacifica Funds
Trust on October 1, 1995, when First Interstate Capital Management, Inc.
("FICM") assumed investment advisory responsibility. In connection with the
reorganization, existing Institutional shares were converted into Investor
shares of the Pacifica Fund. The Fund operated as a series of Pacifica Funds
Trust until it was reorganized as a series of the Company on September 6,
1996. In connection with the second reorganization, existing Investor shares
were converted into Class A shares of the Fund. In connection with the
merger of First Interstate Bancorp into Wells Fargo & Company on April 1,
1996, FICM was renamed Wells Fargo Investment Management, Inc.
(2) The Fund changed its fiscal year end from May 31 to September 30.
(3) Represents tax return of capital.
(4) Annualized.
9 PROSPECTUS
<PAGE> 630
GINNIE MAE FUND
FOR AN INSTITUTIONAL CLASS SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD ENDED
SEPT. 30,
1996(1)
------------
<S> <C>
Net asset value, beginning of period.............................. $15.19
Income from investment operations:
Net investment income (loss).................................... 0.08
Net realized and unrealized gain (loss) on investments.......... 0.15
------
Total from investment operations.............................. 0.23
Less distributions:
Dividends from net investment income............................ (0.08)
Distributions from net realized gain............................ 0.00
------
Total from distributions...................................... (0.08)
------
Net asset value, end of period.................................. $15.34
======
Total return (not annualized)................................. 1.30%
Ratios/supplemental data:
Net assets, end of period (000)................................. $7,381
Ratios to average net assets (annualized):
Ratio of expenses to average net assets......................... 0.78%
Ratio of net investment income to average net assets............ 7.48%
Portfolio turnover.............................................. 183%
Ratio of expenses to average net assets prior to waived fees and
reimbursed expenses........................................... 1.31%
Ratio of net investment income to average net assets prior to
waived fees and reimbursed expenses........................... 6.95%
</TABLE>
- -------------------
(1) The Institutional Class shares of the Fund commenced operations on September
6, 1996.
PROSPECTUS 10
<PAGE> 631
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
FOR AN INSTITUTIONAL CLASS SHARE OUTSTANDING
<TABLE>
<CAPTION>
PERIOD ENDED
SEPT. 30,
1996(1)
------------
<S> <C>
Net asset value, beginning of period.............................. $ 9.46
Income from investment operations:
Net investment income (loss).................................... 0.03
Net realized and unrealized gain (loss) on investments.......... 0.08
Total from investment operations.............................. 0.11
Less distributions:
Dividends from net investment income............................ (0.03)
Distributions from net realized gain............................ 0.00
Total from distributions...................................... (0.03)
Net asset value, end of period.................................. $ 9.54
Total return (not annualized)................................. 1.08%
Ratios/supplemental data:
Net assets, end of period (000)................................. $73,637
Ratios to average net assets (annualized):
Ratio of expenses to average net assets......................... 0.59%
Ratio of net investment income to average net assets............ 5.14%
Portfolio turnover.............................................. 389%
Ratio of expenses to average net assets prior to waived fees and
reimbursed expenses........................................... 0.84%
Ratio of net investment income to average net assets prior to
waived fees and reimbursed expenses........................... 4.89%
- -------------------
(1) The Institutional Class shares of the Fund commenced
operations on September 6, 1996.
</TABLE>
11 PROSPECTUS
<PAGE> 632
HOW THE FUNDS WORK
INVESTMENT OBJECTIVES AND POLICIES
GINNIE MAE FUND
The Ginnie Mae Fund seeks to provide investors with a long-term total rate of
return through preserving capital and earning high interest income by investing
principally in a portfolio of U.S. Government mortgage pass-through securities,
consisting primarily of securities issued by GNMA, FNMA and FHLMC. This
investment objective is fundamental and cannot be changed without shareholder
approval. Under normal market conditions, the Fund will invest at least 65% of
its total assets in GNMA securities. These securities may bear interest at rates
that are not fixed ("floating- and variable-rate instruments") or may be
purchased on a "when-issued" or "firm commitment basis."
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 and 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 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 "Prospectus Appendix -- Additional
Investment Policies" and in the SAI.
PROSPECTUS 12
<PAGE> 633
INTERMEDIATE BOND FUND
The Intermediate Bond Fund seeks to provide investors with a high level of
current income consistent with the preservation of capital and maintenance of
liquidity. This investment objective is fundamental and cannot be changed
without shareholder approval. In pursuing its investment objective, the Fund may
invest in a broad range of corporate debt obligations such as fixed and
variable-rate bonds, zero coupon bonds, debentures, obligations convertible into
common stock and various types of demand instruments, obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments, and money market instruments. The Fund
also is permitted to acquire obligations issued by state and local governments
("municipal obligations"). The purchase of municipal obligations may be
advantageous when, as a result of prevailing economic, regulatory or other
circumstances, the yield of such securities, on a pre-tax basis, is comparable
to that of corporate or U.S. Government obligations. The Fund also may purchase
mortgage-backed and certain other asset-backed securities. During normal market
conditions, the Fund will maintain a dollar-weighted average portfolio maturity
between three and ten years.
In acquiring particular portfolio securities, Wells Fargo Bank considers,
among other things, historical yield relationships between corporate and
government bonds, intermarket yield relationships among various industry
sectors, current economic cycles and the attractiveness and creditworthiness of
particular issuers. Depending upon its analysis of these and other factors, the
Fund's holdings in issuers in particular industry sectors may be overweighted
when compared to the relative industry weightings in the Lehman Brothers
Intermediate Government-Corporate Index or other recognized indices.
The policy of the Fund is to invest at least 65% of the total value of its
assets in corporate and government bonds during normal market conditions. Debt
obligations acquired by the Fund will be investment grade at the time of
purchase -- that is, obligations rated "AAA," "AA," "A" or "BBB" by Standard &
Poor's Ratings Group ("S&P") or "Aaa," "Aa," "A" or "Baa" by Moody's Investors
Service, Inc. ("Moody's"). Debt obligations may also be unrated but deemed by
Wells Fargo Bank to be comparable in quality to instruments that are so rated.
The Fund's dollar weighted average portfolio quality of the corporate bond
portion of the Fund's portfolio is expected to be "A" or better. Obligations
rated in the lowest of the top four rating categories ("Baa" by Moody's or "BBB"
by S&P) are considered to have speculative characteristics. See the Appendix in
the SAI for a description of applicable S&P and Moody's debt ratings.
The Fund also may invest in obligations convertible into common stocks, and
may purchase common stocks, warrants or other rights to buy shares if they are
attached to a fixed income obligation. As a general matter, however, the Fund
will not invest in
13 PROSPECTUS
<PAGE> 634
common stocks. Common stock received through the conversion of convertible debt
obligations will normally be sold in an orderly manner as soon as possible. Up
to 20% of the total assets of the Fund may be invested directly in
dollar-denominated debt obligations of foreign issuers. These obligations may
include obligations of foreign corporations as well as investments in
obligations of foreign governments and their political subdivisions (which will
be limited to direct government obligations and government-guaranteed
securities). The Fund may invest no more than 5% of its net assets at the time
of purchase in warrants (other than those that have been acquired in units or
attached to other securities) and not more than 2% of its net assets in warrants
which are not listed on the New York or American Stock Exchange.
The Fund also may hold short-term U.S. Government obligations, money market
instruments, repurchase agreements, securities issued by other investment
companies within the limits prescribed by the 1940 Act, and cash, pending
investment, to meet anticipated redemption requests or if, in the opinion of the
Advisor, suitable investments for a Fund are unavailable. Such investments may
be made in such proportions as, in the opinion of the Advisor, existing
circumstances may warrant, and may include obligations of foreign banks and
foreign branches of U.S. banks.
In addition, the Fund may purchase zero-coupon bonds (i.e., discount debt
obligations that do not make periodic interest payments) which are subject to
greater market fluctuations from changing interest rates than debt obligations
of comparable maturities which make current distributions of interest. A more
complete description of the Fund's investments and investment activities is
contained in "Prospectus Appendix -- Additional Investment Policies" and in the
SAI.
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
The Short-Intermediate U.S. Government Income Fund (sometimes, the "Income
Fund") seeks to provide investors with current income, while preserving capital,
by investing primarily in a portfolio consisting of short- to intermediate-term
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. This investment objective is fundamental and cannot be
changed without shareholder approval.
The Income Fund may invest in obligations of any maturity. Under ordinary
circumstances, the dollar-weighted effective average maturity of the Fund's
portfolio is generally expected to be between two and five years, and at least
65% of the value of its total assets will be invested in U.S. Government
obligations. The Fund seeks to enhance its total return by shortening the
average maturity of portfolio securities when interest rates are anticipated to
increase and lengthening the maturity of such portfolio securities to take
advantage of anticipated interest rate declines. Portfolio turnover generally
involves some expense to the Fund, including dealer mark-ups.
PROSPECTUS 14
<PAGE> 635
The Income Fund's assets may be invested in U.S. Government obligations and in
investment-grade corporate debt obligations rated at the date of purchase in the
top four rating groups by S&P or Moody's, i.e., "AAA"/"Aaa," "AA"/"Aa," "A/A,"
and "BBB"/"Baa" by S&P and Moody's, respectively. Securities rated "BBB"/"Baa"
have speculative characteristics. In addition, it is possible that securities in
which the Fund may invest could be downgraded by a ratings group subsequent to
purchase by the Fund. The Fund will not hold more than 5% of its assets in
securities that have been downgraded below investment grade subsequent to
purchase.
The Income Fund also may purchase "stripped securities" which represent the
interest portion or the principal portion (sometimes referred to as "STRIPs") of
securities in which the Fund may otherwise invest. STRIPs have significantly
different investment characteristics than the instruments from which they
derive. S&P and Moody's assign ratings based upon their judgment of the risk of
default of the securities underlying STRIPs. STRIPs are issued at a discount to
their "face value" and may exhibit greater price volatility than ordinary debt
obligations because of the manner in which their principal and interest are paid
to investors. Investors should understand that most of the risk of these
securities comes from interest-rate risk and not from the risk of default.
STRIPs may have significantly greater interest-rate risk than traditional
government securities with identical ratings.
The Income Fund may invest in adjustable-rate mortgage securities ("ARMS")
with interest rates that periodically reset when market rates change. ARMS are
pass-through certificates representing ownership interests in a pool of
adjustable-rate mortgages and the resulting cash flow from those mortgages. The
ARMS in which the Fund may invest are issued or guaranteed by GNMA, FNMA or
FHLMC. Unlike conventional debt securities, which provide for periodic (usually
semi-annual) payments of interest and payments of principal at maturity or on
specified call dates, ARMS provide for monthly payments based on a pro rata
share of both periodic interest and principal payments and prepayments of
principal on the underlying mortgage pool (less GNMA's, FNMA's or FHLMC's fees
and any applicable loan servicing fees.)
The Income Fund also may invest in the adjustable-rate portions of
collateralized mortgage obligations ("CMOs") issued by government agencies,
instrumentalities or government-sponsored enterprises including, primarily, FNMA
and FHLMC, and collateralized by pools of mortgage loans. Payments of principal
and interest on the collateral mortgages are used to pay debt service on the
CMOs. All CMOs purchased by the Fund are rated, at the time of purchase, "AAA"
by S&P or "Aaa" by Moody's.
On a temporary basis, the Income Fund may invest cash balances in shares of
unaffiliated, registered, open-end investment companies, subject to the
limitations of the 1940 Act. The Fund also may invest in U.S. Treasury bills,
engage in repurchase agreements and lend its portfolio securities, provided the
value of such loans of portfolio securities does not exceed one-third of the
current value of its total assets. Such
15 PROSPECTUS
<PAGE> 636
temporary investments would most likely be made when there is an unexpected or
abnormal level of investor purchases or redemptions of Fund shares or because of
unusual market conditions.
A more complete description of the Fund's investments and investment
activities is contained in "Prospectus Appendix -- Additional Investment
Policies" and in the SAI.
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.
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.
The Funds may invest in illiquid securities, which 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 a 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 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 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.
See "Prospectus Appendix -- Additional Investment Policies" and the SAI for
further information about investment policies and risks.
INTERMEDIATE BOND FUND
The market value of the Intermediate Bond 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
PROSPECTUS 16
<PAGE> 637
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 will not affect cash
income from such securities, but will be reflected in the Fund's net asset
value.
The Intermediate Bond Fund may invest up to 25% of its assets in "Yankee
Bonds." Yankee Bonds are U.S. dollar-denominated debt obligations issued in the
U.S. by foreign banks and corporations. Such investments may involve 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 instability which 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.
The Fund's investments 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. See the SAI for further information about foreign
securities.
GINNIE MAE AND SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUNDS
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 Funds' daily net asset value is based, will fluctuate. The Funds are 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 Funds invest, and
hence the value of your investment in the Funds. The value of the securities in
which a Fund invests generally changes inversely to changes in interest rates.
However, the adjustable-rate feature of the mortgages underlying the ARMS and
the CMOs in which the Income Fund may invest should reduce, but will not
eliminate, price fluctuations in such securities, particularly during periods of
extreme fluctuations in market 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
17 PROSPECTUS
<PAGE> 638
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 Funds,
which are diversified funds, will meet their respective investment objectives.
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 Funds may
invest may be prepaid in advance of maturity. Such prepayments tend to increase
when interest rates decline and may present a 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 U.S. Government Income
Fund invests may be prepaid in advance of maturity; these prepayments tend to
increase when interest rates decline, presenting the Fund with more principal to
invest at lower rates. The converse also tends to be the case when interest
rates rise.
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., the risk that market interest rates may adversely
affect the value of the securities in which a 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.
U.S. Government obligations have been selected by Wells Fargo Bank as the
Income Fund's principal investments because of their relatively low purchase and
sale transaction costs and because of the low default risk associated with them
(i.e., they are issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities).
PROSPECTUS 18
<PAGE> 639
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 of the Institutional Class shares is based on the
overall dollar or percentage change in value of a hypothetical investment in a
Fund's Institutional Class 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. Cumulative total return is calculated
similarly except that the return figure is aggregated over the relevant period
instead of annualized.
Yield refers to the income generated by an investment in a class of a Fund's
shares over a specified period (usually 30 days), expressed as an annual
percentage rate. 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.
In addition to presenting these standardized performance calculations, at
times, the Funds also may present non-standard performance figures, such as
three-month total returns or, in sales literature, distribution rates. Because
of the differences in the fees and/or expenses borne by shares of each class of
a Fund, 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 free of
charge by calling the Company at 1-800-260-5969 or by writing the Company at the
address shown on the inside front cover of the Prospectus.
THE FUNDS AND MANAGEMENT
THE FUNDS
The Funds are three of the funds of the Stagecoach Family of Funds. The
Company was organized as a Maryland corporation on September 9, 1991 and
currently offers shares of twenty-two 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 at NAV. Each class of shares
in a
19 PROSPECTUS
<PAGE> 640
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 that are
allocated to a particular class and, accordingly, may affect performance. Please
contact Stagecoach Shareholder Services at 1-800-260-5969 if you would like
additional information about other funds or classes of shares offered.
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). 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 under "Capital Stock" in the SAI.
MANAGEMENT
Wells Fargo Bank serves as the Funds' 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 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 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. Wells Fargo Bank also serves as the investment adviser to 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 Intermediate Bond 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 94111. Prior to October 1, 1995,
First Interstate Bank of Oregon, N.A, a subsidiary of First Interstate Bancorp
and an affiliate of First Interstate Capital Management, Inc., served as
investment adviser to the predecessor portfolio.
PROSPECTUS 20
<PAGE> 641
PORTFOLIO MANAGERS
Ms. Tamyra Thomas assumed responsibility as a co-portfolio manager for the
day-to-day management of the Ginnie Mae Fund and the Intermediate Bond Fund as
of July 16, 1996 and September 6, 1996, respectively. 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
portfolio of the Ginnie Mae Fund on May 1, 1995. Mr. Single has managed taxable
bond portfolios for over a decade, and has specific expertise in mortgage-backed
securities. Prior to joining Wells Fargo Bank, in early 1988, he was a senior
portfolio manager for Benham Capital Management Group. Mr. Single received his
B.S. from Springfield College.
Mr. Jeff Weaver assumed responsibility as a co-portfolio manager for the
day-to-day management of the portfolio of the Short-Intermediate U.S. Government
Income Fund as of July 16, 1996. Mr. Weaver joined Wells Fargo Bank in February
of 1994, after three years as a short-term fixed income trader and portfolio
manager in the investment management group of Bankers Trust Company in New York.
He holds a B.A. in economics from the University of Colorado and is a chartered
financial analyst candidate.
Ms. Madeline Gish also assumed responsibility as a co-portfolio manager for
the day-to-day management of the portfolio of the Short-Intermediate U.S.
Government Income Fund as of July 16, 1996. Ms. Gish joined Wells Fargo Bank in
1989 as the portfolio coordinator for the Mutual Funds Division and played an
integral part in the rapid growth of the Overland Express Funds. Since joining
the fixed-income group in 1992, Ms. Gish has assisted in the research and
trading for various portfolios and is currently managing taxable liquidity
portfolios. She holds a bachelor of science degree in business administration
from the University of Kansas and is a chartered financial analyst candidate.
Mr. Scott Smith assumed responsibility as a co-portfolio manager for the
day-to-day management of the Intermediate Bond Fund as of the commencement of
operations of the Fund. Mr. Smith has also been responsible for the day-to-day
management of the portfolio of the Short-Intermediate U.S. Government Income
Fund since 1993 and has been responsible for the management of the portfolio of
the Ginnie Mae Fund since
21 PROSPECTUS
<PAGE> 642
May 1, 1995. He joined Wells Fargo Bank in 1988 as a taxable money market
portfolio specialist. Currently, Mr. Smith holds the position of liquidity
management specialist/portfolio manager with Wells Fargo Bank. His experience
includes a position with a private money management firm with mutual fund
investment operations. Mr. Smith holds a B.A. degree from the University of San
Diego and is a Chartered Financial Analyst.
---------------------
Morrison & Foerster LLP, counsel to the Company and special counsel to Wells
Fargo Bank has advised the Company and Wells Fargo Bank that Wells Fargo Bank
and its affiliates may perform the services contemplated by the Advisory
Contracts and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
INVESTING IN THE FUNDS
PURCHASE OF INSTITUTIONAL CLASS SHARES
The minimum initial purchase amount on Institutional Class shares is $2
million 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.
Institutional 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.
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
PROSPECTUS 22
<PAGE> 643
delivery to Customers of shareholder communications from the Funds is governed
by the Customers' account agreements with an Institution. Investors wishing to
purchase Institutional Class shares of the Funds should contact their account
representatives.
Institutional Class shares may be purchased on any day the Funds are open. The
Funds are open for business each day the New York Stock Exchange ("NYSE") is
open for trading (a "Business Day"). Institutional 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 for Institutional Class
shares in a Fund must be received by the Company by 1:00 p.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 the next Business Day following the receipt of the
purchase order.
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 Funds 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 Institutional 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 Institutional Class shares is recorded on
the Company's books, and share certificates are not issued.
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 a Fund as of the close of regular trading on the NYSE
(referred to hereafter as "the close of the NYSE"), which is currently 1:00 p.m.
(Pacific time). The NAV per share for each class 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
23 PROSPECTUS
<PAGE> 644
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.
Except for debt obligations with remaining maturities of 60 days or less,
which are valued at amortized cost, the other assets of the Funds are valued at
current market prices or, if such prices are not readily available, at fair
value as determined in good faith by the Company's Board of Directors. Prices
used for such valuations may be obtained from independent pricing services.
WIRE INSTRUCTIONS -- 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) (designate Institutional 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
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 with tax information for the previous year to assist you in tax return
preparation. At least twice a year, shareholders receive financial statements.
PROSPECTUS 24
<PAGE> 645
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 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.
With respect to shareholders who do not have a relationship with an
Institution, shares of the Funds may be redeemed by writing or calling the Funds
directly at the address and phone number shown on the first page of the
Prospectus. When Institutional Class shares are redeemed directly from the
Funds, the Funds 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 Funds may take up to seven days to make payment, although this will not be
the customary practice. Also, if the NYSE 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 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 Funds are made in cash,
except that the commitment to redeem Institutional Class shares in cash extends
only to
25 PROSPECTUS
<PAGE> 646
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 investor 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
The Funds offer a convenient way to exchange Institutional Class shares in one
Fund for Institutional Class shares in another fund of the Company. Before
engaging in an exchange transaction, an investor should read carefully the
Prospectus describing the fund into which the exchange will occur, which is
available without charge and can be obtained by writing or by calling the
Company at the address or phone number listed on the first page of the
Prospectus. A shareholder may not exchange Institutional Class shares of one
fund for Institutional Class shares of another fund if Institutional Class
shares of both funds are not qualified for sale in the state of the
shareholder's residence. The Company may terminate or amend the terms of the
exchange privilege at any time.
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 a Fund to the
Institution involved. Institutions (or their nominees), acting on behalf of
their Customers, normally are the holders of record of Institutional Class
shares. Institutions are responsible for transmitting orders for exchanges to
the Company on a timely basis. Customers' exchange transactions are generally
reflected in the account statements provided by
PROSPECTUS 26
<PAGE> 647
Institutions to their Customers. Investors wishing to exchange Institutional
Class shares of a Fund for Institutional Class shares of another fund should
contact their account representatives. Investors with questions may call the
Company at 1-800-260-5969.
A new account opened by exchange must be established with the same name(s),
address and social security number as the existing account. All exchanges are
made at the NAV of the respective funds next determined following receipt of the
request by the Company in good order.
Investors should receive written confirmation of the exchange from the
Institution within a few days of the completion of the transaction.
To exchange Institutional Class shares, or if you have any questions, simply
call the Company at 1-800-260-5969. A shareholder of record should be prepared
to give the telephone representative the following information: (i) the account
number, social security or taxpayer identification number and account
registration; (ii) the name of the fund from and the fund into which the
transfer is to occur; and (iii) the dollar or share amount of the exchange. The
conversation may be recorded to protect shareholders and the Company. Telephone
exchanges may be available unless the shareholder of record has declined the
privilege on the Purchase Application.
In addition, Institutional Class shares of the Funds may be exchanged for each
of the Funds' 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 other cases where Institutional Class shares are not held in
such qualified accounts. Similarly, Class A shares may be exchanged for the
Funds' Institutional Class shares if the shares are to be held in such a
qualified trust, agency or custodial account. These exchanges are made at the
respective NAVs of the Institutional Class shares next determined after the
exchange request is received by the Company.
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 on 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. The Funds distribute any
capital gains at least annually. Dividend and capital-gain distributions are
automatically invested in additional whole and fractional shares of the same
class unless the shareholder has elected to receive payment in cash. Expenses,
such as state securities registration fees and transfer agency
27 PROSPECTUS
<PAGE> 648
fees that are attributable to a particular class may affect the relative
dividend and/or capital-gain distributions of a class of shares.
Dividend and capital-gain distributions have the effect of reducing the NAV
per share by the amount distributed. Although distributions paid on newly issued
shares shortly after a purchase would represent, in substance, a return of
capital, the distributions would ordinarily be taxable to the shareholder.
Dividends for a Saturday, Sunday or Holiday are declared payable to
shareholders of record as of the preceding Business Day. If a shareholder
redeems shares before the dividend payment date, any dividends credited to the
shareholder are paid on the following dividend payment date unless the
shareholder has redeemed all of the shares in the account, in which case the
shareholder receives accrued dividends together with redemption proceeds.
MANAGEMENT AND SERVICING FEES
INVESTMENT ADVISER
Subject to the overall supervision of the Company's Board of Directors, Wells
Fargo Bank, as the Funds' adviser, provides investment guidance and policy
direction in connection with the management of the Funds' assets. Wells Fargo
Bank also furnishes the Board of Directors with periodic reports on the Funds'
investment strategy and performance.
For its services as investment adviser to the Intermediate Bond and
Short-Intermediate U.S. Government Income Funds, Wells Fargo Bank is entitled to
monthly investment advisory fees at the annual rate of 0.50% of the Funds'
average daily net assets. For its services as investment adviser to the Ginnie
Mae 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 million, and 0.30% in excess of $500
million. 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.
Advisory Fees Paid
For the nine-month period ended September 30, 1996, the Ginnie Mae and Short-
Intermediate U.S. Government Income Funds paid advisory fees to Wells Fargo Bank
at the annual rates of 0.50% and 0.50%, respectively, of their average daily net
assets. For the year ended September 30, 1996, the Intermediate Bond Fund paid
advisory fees at the annual rate of 0.50% of its average daily net assets. For
the period prior to
PROSPECTUS 28
<PAGE> 649
September 6, 1996, this includes amounts paid to Wells Fargo Investment
Management, Inc. by the predecessor portfolio.
For the year ended December 31, 1995, the Ginnie Mae and Short-Intermediate
U.S. Government Income Funds paid advisory fees to Wells Fargo Bank at the
annual rates of 0.50% and 0.27%, respectively, of their 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, each Fund may, at times, borrow
money from Wells Fargo Bank as needed to satisfy temporary liquidity needs.
Wells Fargo Bank charges interest on such overdrafts at a rate determined
pursuant to each Fund's Custody Agreement. Wells Fargo Bank performs its
custodial and transfer and dividend disbursing agency services at 525 Market
Street, San Francisco, California 94105.
INSTITUTIONS AND SHAREHOLDER SERVICING AGENT
The Funds have entered into shareholder servicing agreements 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 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 a fee, at the annual rate of up to 0.25%
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 also may impose certain conditions on its
customers, subject to the terms of this Prospectus, in addition to or different
from those imposed by the Funds, such as requiring a higher minimum initial
investment or payment of a separate fee for additional services. Each
Shareholder Servicing Agent has agreed to disclose any fees it may directly
charge its customers who are shareholders of the Funds 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 each Fund
with
29 PROSPECTUS
<PAGE> 650
administrative services, including general supervision of each Fund's operation,
coordination of other services provided to a 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 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 each
Fund's average daily net assets.
Stephens previously provided substantially the same services as sole
administrator to the Funds. For the nine-month period ended September 30, 1996,
the Ginnie Mae and Short-Intermediate U.S. Government Income Funds paid
administrative fees to Stephens at the annual rate of 0.03% of each Fund's
average daily net assets. For the year ended September 30, 1996, the
Intermediate Bond 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 to the
Intermediate Bond Fund.
SPONSOR AND DISTRIBUTOR
Stephens is the Company's 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 acts as agent for a 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 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.
PROSPECTUS 30
<PAGE> 651
Financial institutions acting as Shareholder Servicing Agents, 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.
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, the Funds bear all costs of their 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
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 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
31 PROSPECTUS
<PAGE> 652
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 32
<PAGE> 653
PROSPECTUS APPENDIX --
ADDITIONAL INVESTMENT POLICIES
FUND INVESTMENTS
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.
Mortgage-Related Securities
The Funds 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
A-1 PROSPECTUS
<PAGE> 654
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 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 may also 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.
Other Asset-Backed Securities
The Funds 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
PROSPECTUS A-2
<PAGE> 655
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 a Fund experiencing difficulty in valuing or
liquidating such securities.
Derivative Securities
The Intermediate Bond and Short-Intermediate Government Income 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 reference to changes in the value of other interest rates,
indices or financial indicators ("References") or the relative change in two or
more References. These 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 issuer 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 embedded 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. As new types of derivative securities
are developed and offered to investors, the adviser will, consistent with the
Funds' investment objectives, policies and quality standards, consider making
investments in such new types of derivative securities.
Stripped Obligations
The Ginnie Mae, Intermediate Bond and Short-Intermediate U.S. Government
Income Funds may purchase Treasury receipts and other "stripped" securities that
evidence ownership in either the future interest payments or the future
principal 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
A-3 PROSPECTUS
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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 is returned to investors.
Custodial Receipts for Treasury Securities
The Intermediate Bond Fund 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 the Fund in
such participations will not exceed 5% of the value of the Fund's total assets.
Forward Commitments, When-Issued Purchases and Delay-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, 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.
During the period between commitment and settlement, no payment is made by a
Fund and no interest accrues to the Fund. In some instances, a 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, a 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 a 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 a Fund's total assets. There is a risk that a party with
whom a 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
PROSPECTUS A-4
<PAGE> 657
the risk of default, a 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, a 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.
Commercial Paper
The Funds may invest in commercial paper (including variable amount master
demand notes) which refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations which permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes.
Investments by the Intermediate Bond Fund in commercial paper (including
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 instruments issued by government agencies and
instrumentalities) will consist of issues that are rated in one of the two
highest rating categories by a NRSRO.
Floating- and Variable-Rate Instruments
Certain of the debt instruments that the Funds may purchase bear interest at
rates that are not fixed, but vary, for example, with changes in specified
market rates or indices or specified intervals. Certain of these instruments may
carry a demand feature that would permit the holder to tender them back to the
issuer at par value prior to maturity. The Funds may, in accordance with SEC
rules, account for these instruments as maturing at the next interest rate
readjustment date or the date which the Fund may tender the instrument back to
the issuer, whichever is later. The floating and variable-rate instruments that
the Fund may purchase include certificates of participation in such obligations.
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 the Fund elects to demand
payment and the time payment is due, thereby affecting the Fund's ability to
obtain payment at par, except when such demand instruments permit same-day
settlement. Demand instruments whose demand feature is not exercisable within
seven days may be treated as liquid, provided that an active secondary market
exists.
A-5 PROSPECTUS
<PAGE> 658
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 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.
Foreign Obligations
Each 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.
Illiquid Securities
The Funds 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.
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
PROSPECTUS A-6
<PAGE> 659
shares of exchange-listed, closed-end funds. Notwithstanding any other
investment policy or limitation (whether or not fundamental), as a matter of
fundamental policy, the Short-Intermediate U.S. Government Income Fund may
invest all of its assets in the securities of a single open-end, management
investment company with substantially the same fundamental investment objective,
policies and limitations as the Fund.
Additional Investments -- Ginnie Mae Fund
FHLMC issues two types of mortgage pass-through securities: mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA certificates in that each PC represents a pro rata
share of all interest and principal payments made and owed on the underlying
pool of mortgages. GMCs also represent a pro rata interest in a pool of
mortgages. These instruments, however, pay interest semiannually and return
principal once a year in guaranteed minimum payments.
These mortgage-backed securities differ from bonds in that principal is paid
back by the borrower over the length of the loan rather than returned in a lump
sum at maturity. They are called "pass-through" securities because both interest
and principal payments, including prepayments, are passed through to the holder
of the security. The GNMA securities in which the Ginnie Mae Fund will invest
are of the "modified" type, which entitles the holder of such certificates to
receive its share of all interest and principal payments owed on the underlying
pool of mortgage loans, regardless of whether or not the mortgagors actually
make the payments.
The payment of principal on the underlying mortgages may exceed the minimum
required by the schedule of payments for the mortgages. Such prepayments are
made at the option of the mortgagors for a wide variety of reasons reflecting
their individual circumstances. For example, mortgagors may speed up the rate at
which they prepay their mortgages when interest rates decline sufficiently to
encourage refinancing. The Ginnie Mae Fund, when such prepayments are passed
through to it, may be able to reinvest them only at a lower rate of interest. As
a result, if the Fund purchases such securities at a premium, a prepayment rate
that is faster than expected will reduce yield to maturity, while a prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity. Conversely, if the Fund purchased such securities at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce, yield to maturity. Accelerated prepayments on
securities purchased by the Fund at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is repaid in full. In choosing specific issues, Wells Fargo Bank, as
investment adviser, will have made assumptions about the likely speed of
prepayment. Actual experience may vary from this assumption resulting in a
higher or lower investment return than anticipated.
A-7 PROSPECTUS
<PAGE> 660
Additional Investments -- Short-Intermediate U.S. Government Income Fund
The mortgages underlying ARMS guaranteed by GNMA are fully insured or
guaranteed by the Federal Housing Administration, the Veterans Administration or
the Farmers Home Administration, while those underlying ARMS issued by FNMA or
FHLMC are typically conventional residential mortgages which are not so insured
or guaranteed, but which conform to specific underwriting, size and maturity
standards.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specified
coupon rate and has a stated maturity or final distribution date. The principal
and interest payment on the underlying mortgages may be allocated among the
classes of CMOs in several ways. Typically, payments of principal, including any
prepayments, on the underlying mortgages are applied to the classes in the order
of their respective stated maturities or final distribution dates, so that no
payment of principal is made on CMOs of a class until all CMOs of other classes
having earlier stated maturities or final distribution dates have been paid in
full. One or more classes of CMOs may have coupon rates that reset periodically
based on an index, such as the London Interbank Offered Rate ("LIBOR").
The interest rates on the mortgages underlying the ARMS and the CMOs in which
the Short-Intermediate U.S. Government Income Fund may invest generally are
readjusted at intervals of one year or less in response to changes in a
predetermined interest rate index. There are two main categories of indices:
those based on U.S. Treasury securities and those derived from a calculated
measure, such as cost-of-funds index or a moving average of mortgage rates.
Commonly utilized indices include the one-year and five-year constant maturity
U.S. Treasury note rates, the three-month U.S. Treasury bill rate, the 180-day
U.S. Treasury bill rate, rates on longer-term U.S. Treasury securities, the
National Median Cost of Funds, the one-month, three-month, six-month or one-year
LIBOR, a published prime rate, or commercial paper rates. Certain of these
indices follow overall market interest rates more closely than others.
Adjustable rate mortgages, an increasingly common form of residential
financing, generally are originated by banks and thrift institutions and have a
specified maturity date. Most provide for amortization of principal in a manner
similar to fixed-rate mortgages but have interest payment amounts that change in
response to changes in a specified interest rate index. The rate of interest due
on such a mortgage is calculated by adding an agreed-upon "margin" to the
specified index, although there generally are limitations or "caps" on interest
rate movements in any given period or over the life of the mortgage. To the
extent that the interest rates on adjustable rate mortgages underlying the ARMS
or the CMOs in which the Short-Intermediate U.S. Government Income Fund may
invest cannot be adjusted in response to interest rate changes because of such
caps, the ARMS or CMOs are likely to respond to changes in market rates more
like fixed-rate securities. In other words, interest rate increases in excess of
such caps can be expected to cause the ARMS or CMOs backed by mortgages that
have such caps to
PROSPECTUS A-8
<PAGE> 661
decline in value to a greater extent than would be the case in the absence of
such caps. Conversely, interest rate decreases below such floors can be expected
to cause the ARMS or CMOs backed by mortgages that have such floors to increase
in value to a greater extent than would be the case in the absence of such
floors.
Since the interest rates on many mortgages underlying ARMS and CMOs are reset
on an annual basis and generally are subject to caps, it can be expected that
the prices of such ARMS and CMOs will fluctuate to the extent prevailing market
interest rates are not reflected in the interest rates payable on the underlying
adjustable rate mortgages or the CMO. In this regard, the NAV of the
Short-Intermediate U.S. Government Income Fund's shares could fluctuate to the
extent interest rates on underlying mortgages differ from prevailing market
interest rates during interim periods between interest rate reset dates.
Accordingly, investors could experience some principal loss or less gain than
might otherwise be achieved if they redeem their Fund shares before the interest
rates on the mortgages underlying the Fund's portfolio securities are adjusted
to reflect prevailing market interest rate.
The holder of ARMS and certain CMOs receives not only monthly scheduled
payments of principal and interest but also may receive unscheduled principal
payments representing prepayments on the underlying mortgages. An investor,
therefore, may have to reinvest the periodic payments and any unscheduled
prepayments of principal it receives at a rate of interest which is lower than
the rate on the ARMS and CMOs held by it.
The Short-Intermediate U.S. Government Income Fund also may invest cash
balances temporarily in U.S. Treasury bills, which are short-term U.S.
Government obligations with maturities which do not exceed one year.
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 such
Fund's outstanding voting securities, as described under "Capital Stock" in the
SAI for each Fund. If the Board of Directors determines 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 a matter of fundamental policy for the Intermediate Bond Fund, the Fund may
not purchase or sell commodity contracts or invest in oil, gas or mineral
exploration or development programs, except that the Fund may enter into futures
contracts and
A-9 PROSPECTUS
<PAGE> 662
related options. The Fund may not 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. The Fund may
not purchase securities of companies for the purpose of exercising control. The
Fund may not acquire any other investment company except in connection with a
merger, consolidation, reorganization or acquisition of assets or where
otherwise permitted by the 1940 Act. The Fund may not act as an underwriter of
securities within the meaning of the Securities Act of 1933. The Fund may not
write or sell put options, call options, straddles, spreads, or any combination
thereof, except that the Fund may enter into transactions in options on
securities, futures contracts and options on futures contracts. The Fund may not
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 up to 10% of the value of the total assets at the time of such
borrowing. The Fund may not purchase securities (except U.S. Government
securities and repurchase agreements collateralized by such securities) if more
than 5% of its total assets at the time of purchase will be invested in
securities of any one issuer, except that up to 25% of a Fund's total assets may
be invested without regard to this 5% limitation. Subject to the foregoing 25%
exception, the Fund may not purchase more than 10% of the outstanding voting
securities of any issuer. The 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. The Fund may not borrow money except in
amounts up to 10% of the value of its total assets at the time of borrowing.
For the Funds, 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, each Fund will not at any time have more
than 15% (10% for the Ginnie Mae Fund) of its net assets invested in illiquid
securities.
As matters of fundamental policy for the Ginnie Mae and Short-Intermediate
U.S. Government Income Funds, a Fund may: (i) not purchase securities of any
issuer (except U.S. Government obligations) if as a result more than 5% of the
value of a Fund's total assets would be invested in the securities of such
issuer or a Fund would own more than 10% of the outstanding voting securities of
such issuer; (ii) make loans of portfolio securities in accordance with its
investment policies; and (iii) not invest 25% or more of its assets (i.e.,
concentrate) in any particular industry, except that the Fund may invest 25% or
more of its assets in U.S. Government obligations. In addition, as a matter of
fundamental policy, the Short-Intermediate U.S. Government Income Fund may
borrow from banks up to 10% of the current value of its net assets for temporary
purposes only in order to meet redemptions, and these borrowings may be secured
by the pledge of up to 10% of the current value of its net assets. As a matter
of fundamental policy, the Ginnie Mae Fund may borrow from banks up to 20% of
the current value of its net assets for temporary purposes only in order to meet
redemptions, and these
PROSPECTUS A-10
<PAGE> 663
borrowings may be secured by the pledge of up to 20% of the current value of its
net assets. Each Fund may not purchase investments while any such outstanding
borrowing exceeds 5% of such Fund's net assets.
With respect to fundamental investment policy (i) above, the
Short-Intermediate U.S. Government Income Fund is subject to this restriction
only with respect to 75% of the Fund's assets, and, with regard to both Funds,
it may be possible that the Company would own more than 10% of the outstanding
voting securities of the issuer. With respect to fundamental investment policy
concerning bank borrowing above, the Ginnie Mae Fund presently does not intend
to put at risk more than 5% of its assets during the coming year. With respect
to fundamental investment policy (ii) above, the Short-Intermediate U.S.
Government Income Fund does not intend to make loans of its portfolio securities
during the coming year, and the Ginnie Mae Fund does not intend to put at risk
more than 5% of its assets during the coming year.
Non-fundamental Investment Policies
As a matter of nonfundamental policy, the Ginnie Mae Fund may invest up to 10%
of the current value of its net assets in repurchase agreements having
maturities of more than seven days, illiquid securities and fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days.
As a matter of nonfundamental policy, the Short-Intermediate U.S. Government
Income Fund may invest up to 15% of the current value of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
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-11 PROSPECTUS
<PAGE> 664
Advised by WELLS FARGO BANK, N.A.
Sponsored/Distributed by
Stephens Inc., Member NYSE/SIPC
LOGO
NOT FDIC INSURED
<PAGE> 665
LOGO
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH FUNDS:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- 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 LOGO
principal
</TABLE>
LOGO
Printed on Recycled Paper SC 0210 (2/97)
<PAGE> 666
LOGO
------------------------------
PROSPECTUS
------------------------------
PRIME MONEY MARKET MUTUAL FUND
TREASURY MONEY MARKET MUTUAL FUND
SERVICE CLASS
FEBRUARY 1, 1997
<PAGE> 667
STAGECOACH FUNDS(R)
PRIME MONEY MARKET MUTUAL FUND
TREASURY MONEY MARKET MUTUAL FUND
SERVICE CLASS SHARES
Stagecoach Funds, Inc. (the "Company") is an open-end investment company. This
Prospectus contains information about Service Class shares offered in two funds
of the Stagecoach Family of Funds -- the PRIME MONEY MARKET MUTUAL FUND and the
TREASURY MONEY MARKET MUTUAL FUND (each, a "Fund" and collectively, the
"Funds").
The 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).
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 February 1, 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 Funds' 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
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 FEBRUARY 1, 1997
PROSPECTUS
<PAGE> 668
TABLE OF CONTENTS
-------
PROSPECTUS SUMMARY 1
SUMMARY OF FUND EXPENSES 3
FINANCIAL HIGHLIGHTS 5
HOW THE FUNDS WORK 8
THE FUNDS AND MANAGEMENT 13
INVESTING IN THE FUNDS 15
EXCHANGES 19
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS 20
MANAGEMENT AND SERVICING FEES 21
TAXES 24
PROSPECTUS APPENDIX - ADDITIONAL INVESTMENT POLICIES A-1
PROSPECTUS
<PAGE> 669
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
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 the Funds. Although each Fund seeks to
maintain a stable net asset value of $1.00 per share, there can be no
assurance that it will be able to do so. The Funds may not achieve as high a
level of current income as other mutual funds that do not limit their
investments to the high credit quality instruments in which the Funds
invest. As with all mutual funds, there can be no assurance that either 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> 670
Q. HOW DO I INVEST?
A. Qualified investors may invest by purchasing Service Class shares of a 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 of an Institution's trust division, as well as
individuals, corporations, partnerships and other businesses that maintain
qualified accounts at an Institution (including Individual Retirement and
Keogh Plan accounts) may invest in the Funds. Investors purchasing Service
Class shares may include officers, directors and employees of an
Institution. Purchases, exchanges and redemptions are effected through the
customer's account with the Institution under the terms of the customer
account agreement with the Institution. The Company reserves the right to
impose charges for wiring redemption proceeds. Investors wishing to purchase
a Fund's shares should contact their account representatives to discuss
whether Service Class shares, which are sold with various shareholder
services and subject to a charge for such services, or Institutional Class
shares, sold subject to investment minimums, with no shareholder services
and no service charge imposed, best meet their service and investment needs.
See "Investing in the Funds" and "Exchanges" for additional information.
Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends are declared daily and distributed monthly, and any capital gains
are distributed at least annually. All distributions are automatically
reinvested in additional Service class shares of the Funds at NAV.
Shareholders may also 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. Service 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 Funds -- Redemption of Service Class Shares."
PROSPECTUS 2
<PAGE> 671
SUMMARY OF FUND EXPENSES
SERVICE CLASS SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
PRIME MONEY TREASURY MONEY
MARKET MUTUAL FUND MARKET MUTUAL FUND
<S> <C> <C>
Maximum Sales Charge 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 NET ASSETS)
<TABLE>
<CAPTION>
PRIME MONEY TREASURY MONEY
MARKET MUTUAL FUND MARKET MUTUAL FUND
<S> <C> <C>
Management Fee (after waivers or
reimbursements)(1)............ 0.12% 0.12%
Rule 12b-1 Fee.................. None None
Other Expenses (after waivers or
reimbursements)(2)............ 0.33% 0.33%
TOTAL FUND OPERATING EXPENSES
(after waivers or
reimbursements)(3)............ 0.45% 0.45%
</TABLE>
- -------------------
(1) Management Fee (before waivers or reimbursements) would be 0.25%.
(2) Other Expenses (before waivers or reimbursements) would be 0.38%.
(3) Total Fund Operating Expenses (before waivers or reimbursements) would be
0.63%.
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.
3 PROSPECTUS
<PAGE> 672
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment in
a Fund's Service Class shares,
assuming (A) a 5% annual return and
(B) redemption at the end of each
time period indicated:
Prime Money Market Mutual
Fund........................... $5 $14 $25 $ 57
Treasury Money Market Mutual
Fund........................... $5 $14 $25 $ 57
</TABLE>
EXPLANATION OF TABLES
The purpose of the above tables is to help you understand the various costs
and expenses that an investor in a Fund will pay directly or indirectly.
SHAREHOLDER TRANSACTION EXPENSES are charges incurred when a shareholder buys
or sells Fund shares. Service Class 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 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. Wells Fargo Bank and Stephens have each agreed to waive or
reimburse all or a portion of their respective fees charged to, or expenses paid
by, each Fund to ensure that the respective "Total Fund Operating Expenses" do
not exceed, on an annual basis, 0.45% of the Prime Money Market Mutual Fund's or
Treasury Money Market Mutual Fund's average daily net assets through August 31,
1997. Any waivers or reimbursements would reduce a Fund's total expenses. There
can be no assurances that waivers or reimbursements will continue after that
time. 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 the Funds, such as requiring a
higher minimum initial investment or payment of a separate fee for additional
expenses. 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
PROSPECTUS 4
<PAGE> 673
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.
FINANCIAL HIGHLIGHTS
The following information has been derived from the Financial Highlights in
the Funds' financial statements for the year ended September 30, 1996. This
information is provided to assist you in evaluating the historical performance
of each Fund. Except as set forth below, the Funds' financial statements were
audited by KPMG Peat Marwick LLP. The financial information for all periods
prior to October 1, 1995, was audited by other auditors to the predecessor
portfolios. On September 6, 1996 the Service Class shares of certain portfolios
of Pacifica Funds Trust were reorganized as the Service Class shares of the
Prime Money Market Mutual and Treasury Money Market Mutual Funds. The financial
statements and the report thereon for the year ended September 30, 1996, are
incorporated by reference into the SAI. This information should be read in
conjunction with the Funds' 1996 financial statements and the notes thereto. The
SAI for the Funds has been incorporated by reference into this Prospectus.
5 PROSPECTUS
<PAGE> 674
PRIME MONEY MARKET MUTUAL FUND(1)
SERVICE CLASS SHARES
<TABLE>
<CAPTION>
YEAR ENDED SEPT. PERIOD
30, ENDED YEAR ENDED MARCH 31,
------------------- SEPT. 30, ----------------------------------------------------
1996 1995 1994(2) 1994 1993 1992 1991 1990
-------- -------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment Operations:
Net Investment Income................. 0.05 0.05 0.02 0.03 0.03 0.05 0.07 0.08
Net realized and unrealized gain on
investments......................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total from Investment Operations.... 0.05 0.05 0.02 0.03 0.03 0.05 0.07 0.08
Less Distributions:
Dividends from net investment
income.............................. (0.05) (0.05) (0.02) (0.03) (0.03) (0.05) (0.07) (0.08)
Distributions from net realized
gain................................ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total From Distributions.............. (0.05) (0.05) (0.02) (0.03) (0.03) (0.05) (0.07) (0.08)
Net Asset Value, end of period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return (not annualized)....... 5.19% 5.60% 3.71% (3) 3.00% 3.32% 5.22% 7.72% 8.82%
Ratios/Supplemental Data:
Net Assets, end of year (000s)........ $740,760 $614,101 $565,305 $527,599 $468,479 $528,397 $543,834 $493,641
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets.............................. 0.45% 0.41% 0.41% 0.41% 0.41% 0.43% 0.47% 0.54%
Ratio of net investment income to
average net assets.................. 5.14% 5.47% 3.67% 2.96% 3.27% 5.09% 7.38% 7.95%
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses................. 0.62% 0.68% 0.89% 0.89% 0.89% 0.91% 0.94% 0.90%
Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses........ 4.97% 5.20% 3.19% 2.48% 2.79% 4.61% 6.91% 7.59%
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1989 1988 1987
-------- -------- --------
<S> <C<C> <C> <C>
Net Asset Value, beginning of period.... $ 1.00 $ 1.00 $ 1.00
Income from Investment Operations:
Net Investment Income................. 0.08 0.06 0.06
Net realized and unrealized gain on
investments......................... 0.00 0.00 0.00
Total from Investment Operations.... 0.08 0.06 0.06
Less Distributions:
Dividends from net investment
income.............................. (0.08) (0.06) (0.06)
Distributions from net realized
gain................................ 0.00 0.00 0.00
Total From Distributions.............. (0.08) (0.06) (0.06)
Net Asset Value, end of period........ $ 1.00 $ 1.00 $ 1.00
Total Return (not annualized)....... 7.88% 6.50% 5.97%
Ratios/Supplemental Data:
Net Assets, end of year (000s)........ $496,675 $628,987 $407,815
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets.............................. 0.56% 0.58% 0.68%
Ratio of net investment income to
average net assets.................. 7.58% 6.38% 5.81%
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses................. 0.90% 0.93% 0.93%
Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses........ 7.24% 6.03% 5.56%
</TABLE>
- -------------------
(1) The 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, the Fund was
reorganized as the Pacific American Money Market Portfolio, a portfolio of
Pacifica Funds Trust. In July 1995, the Fund was renamed the Pacifica Prime
Money Market Fund, and on September 6, 1996, the Fund was reorganized as the
Prime Money Market Mutual Fund of the Company. Prior to April 1, 1996, First
Interstate Capital Management, Inc. ("FICM") served as the Fund's adviser.
In connection with the merger of First Interstate Bancorp into Wells Fargo &
Company on April 1, 1996, FICM was renamed Wells Fargo Investment
Management, Inc.
(2) The Fund changed its fiscal year-end from March 31 to September 30.
(3) Annualized.
PROSPECTUS 6
<PAGE> 675
TREASURY MONEY MARKET MUTUAL FUND(1)
SERVICE CLASS SHARES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
SEPT. 30, ENDED YEAR ENDED MAR. 31,
------------------------ SEPT. 30, ------------------------------
1996 1995 1994(2) 1994 1993 1992
---------- ---------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- -------- -------- -------- --------
Income from Investment Operations:
Net Investment income................................. 0.05 0.05 0.02 0.03 0.03 0.05
Net realized and unrealized gain on investments....... 0.00 0.00 0.00 0.00 0.00 0.00
---------- ---------- -------- -------- -------- --------
Total from Investment Operations....................... 0.05 0.05 0.02 0.03 0.03 0.05
---------- ---------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment income.................. (0.05) (0.05) (0.02) (0.03) (0.03) (0.05)
Distributions from net realized gain................... 0.00 0.00 0.00 0.00 0.00 0.00
---------- ---------- -------- -------- -------- --------
Total From Distributions............................... (0.05) (0.05) (0.02) 0.03 (0.03) (0.05)
---------- ---------- -------- -------- -------- --------
Net asset value, end of period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ======== ======== ======== ========
Total Return (not annualized):......................... 5.03% 5.42% 3.75% (3) 2.81% 3.13% 5.03%
Ratios/Supplemental Data:
Net Assets, end of year (000's)........................ $1,340,325 $1,001,707 $690,630 $654,950 $614,237 $281,343
Ratios to average net assets (annualized):
Ratio of expenses to average net assets............... 0.45% 0.42% 0.43% 0.43% 0.43% 0.45%
Ratio of net investment income to average net
assets.............................................. 4.98% 5.32% 3.72% 2.77% 3.04% 4.73%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses................. 0.60% 0.66% 0.90% 0.90% 0.91% 0.93%
Ratio of net investment income to average net assets
prior to waived fees and reimbursed expenses........ 4.83% 5.08% 3.25% 2.30% 2.56% 4.25%
<CAPTION>
1991 1990 1989 1988 1987
-------- ------- ------- -------- --------
<S> <C<C> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- -------- --------
Income from Investment Operations:
Net Investment income................................. 0.07 0.08 0.07 0.06 0.06
Net realized and unrealized gain on investments....... 0.00 0.00 0.00 0.00 0.00
-------- ------- ------- -------- --------
Total from Investment Operations....................... 0.07 0.08 0.07 0.06 0.06
-------- ------- ------- -------- --------
Less Distributions:
Dividends from net investment income.................. (0.07) (0.08) (0.07) (0.06) (0.06)
Distributions from net realized gain................... 0.00 0.00 0.00 0.00 0.00
-------- ------- ------- -------- --------
Total From Distributions............................... (0.07) (0.08) (0.07) (0.064) (0.06)
-------- ------- ------- -------- --------
Net asset value, end of period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======== ========
Total Return (not annualized):......................... 7.42% 8.58% 7.63% 6.20% 5.64%
Ratios/Supplemental Data:
Net Assets, end of year (000's)........................ $118,623 $98,398 $90,672 $101,066 $134,375
Ratios to average net assets (annualized):
Ratio of expenses to average net assets............... 0.48% 0.56% 0.63% 0.69% 0.69%
Ratio of net investment income to average net
assets.............................................. 7.10% 7.73% 7.36% 6.12% 5.50%
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses................. 0.94% 0.97% 0.98% 1.05% 0.94%
Ratio of net investment income to average net assets
prior to waived fees and reimbursed expenses........ 6.64% 7.32% 7.01% 5.76% 5.25%
</TABLE>
- -------------------
(1) The Fund operated as a portfolio of Pacific American Funds through October
1, 1994, when it was reorganized as the Pacific American Money Market
Portfolio, of Pacifica Funds Trust. In July 1995, the Fund was renamed the
Pacifica Treasury Money Market Fund. On September 6, 1996, the Fund was
reorganized as a series of the Company. Prior to April 1, 1996, First
Interstate Capital Management, Inc. ("FICM") served as the Fund's adviser.
In connection with the merger of First Interstate Bancorp into Wells Fargo &
Company on April 1, 1996, FICM was renamed Wells Fargo Investment
Management, Inc. Effective August 11, 1995, existing Fund shares were
classified as Service shares, and the Fund began offering both Service and
Institutional shares to investors. Effective October 1, 1995, the Fund began
offering Investor shares to investors.
(2) The Fund changed its fiscal year-end from March 31 to September 30.
(3) Annualized.
7 PROSPECTUS
<PAGE> 676
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 in 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
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.
The Funds' investment objectives and fundamental policies may not be changed
without the vote of a majority of the outstanding shares of each 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
PROSPECTUS 8
<PAGE> 677
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.
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
9 PROSPECTUS
<PAGE> 678
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 also may 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, therefore, may be less liquid.
The Prime Money Market Mutual Fund also may 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 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. This policy may result in high portfolio turnover,
but it 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" in the SAI.
RISK FACTORS
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.
PROSPECTUS 10
<PAGE> 679
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. The Funds
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
Funds invest. As with all mutual funds, there can be no assurance that the Funds
will achieve their respective investment objectives.
The Funds, under the 1940 Act, must comply with certain investment criteria
designed to provide liquidity, reduce risk, and allow the Funds to 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).
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 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).
11 PROSPECTUS
<PAGE> 680
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 variable or
floating-rate securities that bear interest at a rate that resets quarterly or
more frequently and that resets based on changes in standard money market rate
indices such as U.S. Treasury bills, London Interbank Offered Rate 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.
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
PROSPECTUS 12
<PAGE> 681
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 Fund's class over a
specified period (usually 7 days), expressed as an annual percentage rate.
Effective yield is calculated similarly but assumes reinvestment of the income
earned by a class of a Fund. Because of the effects of compounding, effective
yields are slightly higher than yields.
Average annual total return of Service 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 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 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 such 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 inside 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 twenty-three 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 at NAV. Each class of shares represents an equal,
proportionate interest in a Fund with other shares of the same class.
Shareholders of each class bear their pro rata portion of a Fund's operating
expenses except for certain class-specific expenses that are allocated to a
particular class and, accordingly, may affect performance. 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 inside front
cover of the Prospectus.
13 PROSPECTUS
<PAGE> 682
The Company's Board of Directors supervises the funds' activities and monitors
their contractual arrangements with various service providers. Although the
Company is not required to hold annual shareholder meetings, special meetings
may be required for purposes such as electing or removing Directors, approving
advisory contracts and distribution plans, and changing a fund's investment
objective or fundamental investment policies. All shares of the Company have
equal voting rights and will be voted in the aggregate, rather than by fund or
class, unless otherwise required by law (such as when the voting matter affects
only one fund or class). 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. 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, and transfer and dividend disbursing agent (the "Transfer Agent"). 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 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. Wells Fargo Bank also serves as
investment adviser to other separately managed funds of the Company, and as
investment adviser or sub-adviser to separately managed funds of 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. Wells Fargo Investment Management, Inc.
("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, CA 94111.
Subsequent to its acquisition by Wells Fargo & Company on April 1, 1996, WFIM
(formerly, First Interstate Capital Management, Inc.) served as investment
adviser to the predecessor portfolios. Prior to March 18, 1994, the predecessor
portfolios investment adviser was San Diego Financial Capital Management, Inc.,
which was acquired by First Interstate Bancorp through its merger with San Diego
Financial Corporation.
---------------
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
PROSPECTUS 14
<PAGE> 683
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
Service 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 and federal bank 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 for the Funds
may be earlier than 12:00 Noon.
The Company or Stephens may make a 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 net asset value or NAV. Wells Fargo
Bank calculates the NAV of each class of a Fund's shares as of 12:00 Noon and
1:00 p.m. (Pacific time) on each 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 are accrued
daily and taken into account for the purpose of determining NAV. As noted above,
the Funds seek to maintain a constant $1.00 NAV share price, although there is
no assurance that a Fund 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 SERVICE CLASS SHARES
Service Class shares of the Funds are sold at NAV (without a front-end sales
charge) on a continuous basis primarily to certain customers ("Customers") of
affiliate, franchise or
15 PROSPECTUS
<PAGE> 684
correspondent banks of Wells Fargo & Company and other selected institutions
(previously defined as Institutions). The Funds have no minimum investment
requirement, although an Institution may impose account minimums in connection
with investments in the Funds. Customers of an Institution's trust division, as
well as individuals, corporations, partnerships and other businesses which
maintain qualified accounts at an Institution (including Individual Retirement
and Keogh accounts) may invest in the Funds. Investors purchasing Service Class
shares may include officers, directors and employees of an Institution. 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. Institutions (or their nominees), acting on behalf of
their Customers, normally are the holders of record of Service Class shares.
Customers' beneficial ownership of Service 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 Service Class shares of the Funds should contact
their account representatives.
Service Class shares of the Funds are purchased through procedures established
in connection with the requirements of a Customer's account. These procedures
may include instructions under which a Customer's account is "swept"
automatically, usually not less frequently than weekly, and amounts (federal
funds) in excess of a minimum balance agreed to by an Institution and the
Customer are invested in Service Class shares of one or both of the Funds as
directed by the Customer. The Funds expect that the Institutions will transmit
purchase orders for the purchase of Service Class shares arising from automatic
investment programs the same day as the excess balances are swept. 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.
It is the responsibility of Institutions to transmit orders for purchases by
their Customers and to deliver required funds on a timely basis. If funds are
not received within the period described above, the order will be canceled,
notice thereof will be given, and the Institution will be responsible for any
loss to the Fund or its shareholders. Institutions may charge certain account
fees for the automatic sweep and other cash management services provided,
depending upon 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 Service Class shares of the Funds 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.
PROSPECTUS 16
<PAGE> 685
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 Service Class shares is recorded on the
Company's books, and share certificates are not issued.
WIRE INSTRUCTIONS DIRECT PURCHASES BY BANKS
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 Service
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 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: 1-415-781-4082
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) will typically send investors a confirmation
or statement of the account after every month in which there has been a
transaction that affects their share balance or the Fund account registration.
Every January, investors are provided a statement with tax information for the
previous year to assist them in tax return preparation. At least twice a year,
shareholders receive financial statements.
REDEMPTION OF SERVICE 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. Service Class
shares held by an Institution on behalf of its Customers must be redeemed in
accordance with instructions
17 PROSPECTUS
<PAGE> 686
and limitations pertaining to the Customer's accounts at the Institution. It is
the responsibility of an Institution to transmit redemption requests to the
Company and to credit its Customers' accounts with the redemption proceeds on a
timely basis. The redemption proceeds for Service 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.
With respect to former shareholders who do not have a relationship with a
Bank, shares of the Funds may be redeemed by writing or calling the Funds
directly at the address and phone number shown on the first page of the
Prospectus. When Service Class shares are redeemed directly from the Funds, the
Company will 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 Service 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 Service Class shares of the Funds are made in cash, except
that the commitment to redeem Service 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
PROSPECTUS 18
<PAGE> 687
reserves the right to have a 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 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
The Funds offer a convenient way to exchange Service Class shares of one Fund
for Service Class shares of the other Fund. Before engaging in an exchange
transaction, an investor should read carefully the Prospectus describing the
Fund into which the exchange will occur, which is available without charge and
can be obtained by writing or by calling the Company at the address or phone
number listed on the inside cover page of the Prospectus. A shareholder,
however, may not exchange Service Class shares of one Fund for Service Class
shares of the other Fund if Service Class shares of either Fund are not
qualified for sale in the state of the shareholder's residence. The Company may
terminate or amend the terms of the exchange privilege at any time.
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 a Fund to the
Institution involved. Institutions (or their nominees), acting on behalf of
their Customers, normally are the holders of record of Service Class shares.
Institutions are responsible for transmitting orders for exchanges to the
Company on a timely basis. Investors should receive written confirmation of the
exchange from the Institution within a few days of the completion of the
transaction. In addition, customers' exchange transactions are generally
reflected in the account statements provided by Institutions to their Customers.
Investors wishing to exchange Service Class shares of a Fund for Service Class
shares of the other Fund should contact their account representatives. Investors
with questions may call the Company at 1-800-260-5969.
19 PROSPECTUS
<PAGE> 688
A new account opened by exchange must be established with the same name(s),
address and social security number as the existing account. All exchanges are
made at the NAV of the respective fund next determined following receipt of the
request by the Company in good order.
To exchange Service Class shares, or if you have any questions, simply call
the Company at 1-800-260-5969. A shareholder of record should be prepared to
give the telephone representative the following information: (i) the account
number, social security number and account registration; (ii) the name of the
fund from and the fund into which the transfer is to occur; and (iii) the dollar
or share amount of the exchange. The conversation may be recorded to protect
shareholders and the Company. Telephone exchanges are available unless the
shareholder of record has declined the privilege on the Purchase Application.
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
The Funds intend to distribute dividends on a daily basis payable to Service
Class shareholders of record as of 12:00 noon (Pacific time). Service 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 dividend and/or
capital-gain distributions of a class of shares.
Dividends declared in a month generally are distributed on the last Business
Day of the each month. Dividend and any capital-gain distributions are
automatically invested in additional whole and fractional shares unless the
shareholder has elected to receive distributions in cash.
PROSPECTUS 20
<PAGE> 689
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 a monthly investment advisory fee 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' yields and returns. 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 September 30, 1996, the Prime Money Market Mutual and Treasury Money
Market Mutual Funds paid advisory fees at annual rates equal to 0.14% and 0.13%,
respectively, of their average daily net assets. For the period prior to
September 6, 1996, these amounts include advisory fees paid to Wells Fargo
Investment Management, Inc. by the predecessor portfolios.
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 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 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 Shareholder Servicing Agreements 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 transmitting shareholder
orders for purchases, exchanges and redemptions; maintaining shareholder
accounts and records; and providing such other related services as the Company
or a shareholder may reasonably request. For these services, a Shareholder
Servicing Agent is entitled to receive a fee at the annual rate of up
21 PROSPECTUS
<PAGE> 690
to 0.20% of the average daily net assets attributable to the Service 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 National Association of
Securities Dealers, Inc. ("NASD Rules").
A Shareholder Servicing Agent also may impose certain conditions on its
customers, subject to the terms of this Prospectus, in addition to or different
from those imposed by the Funds, such as requiring a 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 the other services provided 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 receive a monthly fee at the annual rate 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 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 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 and Furman Selz LLC by the predecessor portfolios.
SPONSOR AND DISTRIBUTOR
Stephens is the Company's sponsor and co-administrator and distributes each
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
PROSPECTUS 22
<PAGE> 691
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.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive their respective
fees in whole or in part and reimburse expenses payable to others. Any such
waivers or reimbursements will reduce the Fund's expenses, and, accordingly,
have a favorable impact on the Fund's performance. Except for the expenses borne
by Wells Fargo Bank and Stephens, each fund of the Company bears all costs of
its operations, including its pro rata portion of Company expenses such as fees
and expenses of its independent auditors and legal counsel, compensation of the
Company's directors who are not affiliated with the adviser, administrator or
any of their affiliates; advisory, transfer agency, custody and administration
fees, and any extraordinary expenses. Expenses attributable to each fund or
class are charged against the assets of the fund or class. General expenses of
the Company are allocated among all of the funds of the Company 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.
23 PROSPECTUS
<PAGE> 692
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
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 24
<PAGE> 693
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); and
(v) 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 securities issued by other investment companies;
(vi) negotiable certificates of deposit, fixed time deposits, bankers'
acceptances or other short-term obligations of U.S. banks (including
foreign branches) that have more than $1 billion in total assets at the
time of investment and are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are insured
by the FDIC ("bank instruments");
A- 1 PROSPECTUS
<PAGE> 694
(vii) commercial paper rated at the date of purchase Prime-1 by Moody's
Investors Service, Inc. ("Moody's") or "A1+" or "A-1" by Standard &
Poor's Corporation ("S&P") ("rated commercial paper");
(viii) 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;
(ix) 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).
(x) mortgage-backed securities (discussed below); and
(xi) 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 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
PROSPECTUS A- 2
<PAGE> 695
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.
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 describes settlement of a securities
transaction in the secondary market which 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
A- 3 PROSPECTUS
<PAGE> 696
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, 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 thirteen months or less.
Asset-backed securities purchased by the Fund may include collateralized
mortgage obligations ("CMOs") issued by private companies.
PROSPECTUS A- 4
<PAGE> 697
Illiquid Securities
The Funds 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 a Fund.
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.
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
portfolio securities or other assets, although neither Fund intends to do so
during the current fiscal year.
As a matter of nonfundamental 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
A- 5 PROSPECTUS
<PAGE> 698
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,
determines that a liquid trading market exists.
Illiquid securities shall not include (a) 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 (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 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- 6
<PAGE> 699
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE> 700
Advised by WELLS FARGO BANK, N.A.
Sponsored/Distributed by
Stephens Inc., Member NYSE/SIPC
LOGO
NOT FDIC INSURED
<PAGE> 701
LOGO
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH MONEY MARKET MUTUAL FUNDS:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- 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 LOGO
share, however, there can be no assurance that either
fund will meet this goal. Yields and returns will vary
with market conditions.
</TABLE>
LOGO
Printed on Recycled Paper SC 0208 (2/97)
<PAGE> 702
LOGO
------------------------------
PROSPECTUS
------------------------------
PRIME MONEY MARKET MUTUAL FUND
TREASURY MONEY MARKET MUTUAL FUND
INSTITUTIONAL CLASS
FEBRUARY 1, 1997
<PAGE> 703
STAGECOACH FUNDS(R)
PRIME MONEY MARKET MUTUAL FUND
TREASURY MONEY MARKET MUTUAL FUND
INSTITUTIONAL CLASS
Stagecoach Funds, Inc. (the "Company") is an open-end management investment
company. This Prospectus contains information about Institutional 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 February 1, 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 FEBRUARY 1, 1997
PROSPECTUS
<PAGE> 704
TABLE OF CONTENTS
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<TABLE>
<S> <C>
PROSPECTUS SUMMARY 1
SUMMARY OF FUND EXPENSES 3
FINANCIAL HIGHLIGHTS 5
HOW THE FUNDS WORK 8
THE FUNDS AND MANAGEMENT 13
INVESTING IN THE FUNDS 15
EXCHANGES 19
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS 20
MANAGEMENT AND SERVICING FEES 21
TAXES 24
PROSPECTUS APPENDIX -- ADDITIONAL
INVESTMENT POLICIES A-1
</TABLE>
PROSPECTUS
<PAGE> 705
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
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.
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 investments to
the high credit quality instruments in which each Fund invests. As with all
mutual funds, there can be no assurance that either 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> 706
Q. HOW DO I INVEST?
A. Qualified investors may invest by purchasing Institutional 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 Institutional Class
shares should contact their account representatives. The minimum initial
purchase amount on Institutional Class shares is $5 million 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. See "Investing in the
Funds" for additional information.
Q. HOW WILL I RECEIVE DIVIDEND AND ANY CAPITAL GAIN DISTRIBUTIONS?
A. Dividends are declared daily and distributed monthly and any capital gains
are distributed at least annually. All distributions are automatically
reinvested in additional Institutional Class shares of the Funds 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, 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 Funds -- Redemption of Institutional Class Shares."
PROSPECTUS 2
<PAGE> 707
SUMMARY OF FUND EXPENSES
Institutional Class Shares
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
PRIME MONEY TREASURY MONEY
MARKET MUTUAL FUND MARKET MUTUAL FUND
<S> <C> <C>
Maximum Sales Charge 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 NET ASSETS)
<TABLE>
<CAPTION>
PRIME MONEY TREASURY MONEY
MARKET MUTUAL FUND MARKET MUTUAL FUND
<S> <C> <C>
Management Fee (after waivers or
reimbursements)(1)................... 0.12% 0.12%
Rule 12b-1 Fee......................... None None
Other Expenses (after waivers or
reimbursements)(2)................... 0.13% 0.13%
TOTAL FUND OPERATING EXPENSES (after
waivers or reimbursements)(3)........ 0.25% 0.25%
</TABLE>
- ------------------------------
(1) Management Fee (before waivers or reimbursements) would be 0.25%.
(2) Other Expenses (before waivers or reimbursements) would be 0.33% and 0.32%,
respectively.
(3) Total Fund Operating Expenses (before waivers or reimbursements) would be
0.58% and 0.57%, 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.
3 PROSPECTUS
<PAGE> 708
EXAMPLE OF EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment in a
Fund's Institutional Class shares,
assuming (A) a 5% annual return and (B)
redemption at the end of each time period
indicated:
Prime Money Market Mutual Fund........ $3 $ 8 $14 $ 32
Treasury Money Market Mutual Fund..... $3 $ 8 $14 $ 32
</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.
SHAREHOLDER TRANSACTION EXPENSES are charges incurred when a shareholder buys
or sells Fund shares. Institutional Class 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 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. Wells Fargo Bank and Stephens have each agreed to waive or
reimburse all or a portion of their respective fees charged to, or expenses paid
by, each Fund to ensure that the "Total Fund Operating Expenses" do not exceed,
on an annual basis, 0.25% of the Prime Money Market Mutual Fund's or Treasury
Money Market Mutual Fund's average daily net assets through August 31, 1997. 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 lesser than those shown.
PROSPECTUS 4
<PAGE> 709
FINANCIAL HIGHLIGHTS
The following information has been derived from the Financial Highlights in
the Funds' financial statements for the year ended September 30, 1996. This
information is provided to assist you in evaluating the historical performance
of each Fund. Except as set forth below, the Funds' financial statements were
audited by KPMG Peat Marwick LLP. The financial information for all periods
prior to October 1, 1995, was audited by other auditors to the predecessor. On
September 6, 1996, the Institutional Class shares of certain portfolios of
Pacifica Funds Trust were reorganized as the Institutional Class shares of the
Prime Money Market Mutual and Treasury Money Market Mutual Funds. The financial
statements and the report thereon for the year ended September 30, 1996 are
incorporated by reference into the SAI. This information should be read in
conjunction with the Funds' 1996 financial statements and the notes thereto. The
SAI for the Funds has been incorporated by reference into this Prospectus.
5 PROSPECTUS
<PAGE> 710
PRIME MONEY MARKET MUTUAL FUND(1)
<TABLE>
<CAPTION>
INSTITUTIONAL
SHARES(2) SERVICE SHARES
---------------------- ----------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED YEAR ENDED MAR. 31,
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, --------------------------------
1996 1995 1995 1994(3) 1994 1993 1992
--------- --------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of
period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment Operations:
Net Investment Income............... 0.05 0.01 0.05 0.02 0.03 0.03 0.05
Net realized and unrealized gain on
investments....................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total from Investment
Operations...................... 0.05 0.01 0.05 0.02 0.03 0.03 0.05
Less Distributions:
Dividends from net investment
income............................ (0.05) (0.01) (0.05) (0.02) (0.03) (0.03) (0.05)
Distributions from net realized
gain.............................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total From Distributions.......... (0.05) (0.01) (0.05) (0.02) (0.03) (0.03) (0.05)
Net Asset Value, end of period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return (not annualized)........ 5.39% 5.65% 5.60% 3.71% (4) 3.00% 3.32% 5.22%
Ratios/Supplemental Data:
Net Assets, end of period (000s).... $423,959 $30,606 $614,101 $565,305 $527,599 $468,479 $528,397
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets............................ 0.25% 0.26% 0.41% 0.41% 0.41% 0.41% 0.43%
Ratio of net investment income to
average net assets................ 5.33% 5.67% 5.47% 3.67% 2.96% 3.27% 5.09%
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses............... 0.60% 0.69% 0.68% 0.89% 0.89% 0.89% 0.91%
Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses...... 4.98% 5.24% 5.20% 3.19% 2.48% 2.79% 4.61%
<CAPTION>
SERVICE SHARES
--------------------------------------------------------
YEAR ENDED MAR. 31,
--------------------------------------------------------
1991 1990 1989 1988 1987
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of
period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment Operations:
Net Investment Income............... 0.07 0.08 0.08 0.06 0.06
Net realized and unrealized gain on
investments....................... 0.00 0.00 0.00 0.00 0.00
Total from Investment
Operations...................... 0.07 0.08 0.08 0.06 0.06
Less Distributions:
Dividends from net investment
income............................ (0.07) (0.08) (0.08) (0.06) (0.06)
Distributions from net realized
gain.............................. 0.00 0.00 0.00 0.00 0.00
Total From Distributions.......... (0.07) (0.08) (0.08) (0.06) (0.06)
Net Asset Value, end of period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return (not annualized)........ 7.72% 8.82% 7.88% 6.50% 5.97%
Ratios/Supplemental Data:
Net Assets, end of period (000s).... $543,834 $493,641 $496,675 $628,987 $407,815
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets............................ 0.47% 0.54% 0.56% 0.58% 0.68%
Ratio of net investment income to
average net assets................ 7.38% 7.95% 7.58% 6.38% 5.81%
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses............... 0.94% 0.90% 0.90% 0.93% 0.93%
Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses...... 6.91% 7.59% 7.24% 6.03% 5.56%
</TABLE>
- -------------------
(1) The 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, the Fund was
reorganized as the Pacific American Money Market Portfolio, a portfolio of
Pacifica Funds Trust. In July 1995, the Fund was renamed the Market Fund,
and on September 6, 1996, the Fund was reorganized as the Prime Money Market
Mutual Fund of the Company. Effective August 11, 1995, existing Fund shares
were classified as Service shares and the Fund began offering both Service
and Institutional shares to investors. Effective October 1, 1995, the Fund
also began offering Investor shares to investors. Prior to April 1, 1996,
First Interstate Capital Management, Inc. ("FICM") served as the Fund's
adviser. In connection with the merger of First Interstate Bancorp into
Wells Fargo & Company on April 1, 1996, FICM was renamed Wells Fargo
Investment Management, Inc.
(2) Financial data for the period ended September 30, 1995 and the year ended
September 30, 1996 are for Institutional shares only, which were initially
offered on August 11, 1995. Financial data for all other periods are for
Service shares only.
(3) The Fund changed its fiscal year-end from March 31 to September 30.
(4) Annualized.
PROSPECTUS 6
<PAGE> 711
TREASURY MONEY MARKET MUTUAL FUND(1)
<TABLE>
<CAPTION>
INSTITUTIONAL
SHARES(2) SERVICE SHARES
--------------------- ----------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED YEAR ENDED MAR. 31,
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, --------------------------------
1996 1995 1995 1994(3) 1994 1993 1992
--------- --------- ---------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment Operations:
Net Investment Income.................. 0.05 0.01 0.05 0.02 0.03 0.03 0.05
Net realized and unrealized gain on
investment........................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total from Investment Operations..... 0.05 0.01 0.05 0.02 0.03 0.03 0.05
Less Distributions:
Dividends from net investment income... (0.05) (0.01) (0.05) (0.02) (0.03) (0.03) (0.05)
Distributions from net realized gain... 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total From Distributions............. (0.05) (0.01) (0.05) (0.02) (0.03) (0.03) (0.05)
Net Asset Value, end of period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return (not annualized)........ 5.26% 5.51%(4) 5.42% 3.75% (4) 2.81% 3.13% 5.03%
Ratios/Supplemental Data:
Net Assets, end of year (000s)......... $540,689 $36,443 $1,001,707 $690,630 $654,950 $614,237 $281,343
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets............................... 0.25% 0.26% 0.42% 0.43% 0.43% 0.43% 0.45%
Ratio of net investment income to
average net assets................... 5.21% 5.42% 5.32% 3.72% 2.77% 3.04% 4.73%
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses............................. 0.59% 0.69% 0.66% 0.90% 0.90% 0.91% 0.93%
Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses......... 4.87% 4.99% 5.08% 3.25% 2.30% 2.56% 4.25%
<CAPTION>
SERVICE SHARES
------------------------------------------------------
YEAR ENDED MAR. 31,
------------------------------------------------------
1991 1990 1989 1988 1987
-------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment Operations:
Net Investment Income.................. 0.07 0.08 0.07 0.06 0.06
Net realized and unrealized gain on
investment........................... 0.00 0.00 0.00 0.00 0.00
Total from Investment Operations..... 0.07 0.08 0.07 0.06 0.06
Less Distributions:
Dividends from net investment income... (0.07) (0.08) (0.07) (0.06) (0.06)
Distributions from net realized gain... 0.00 0.00 0.00 0.00 0.00
Total From Distributions............. (0.07) (0.08) (0.07) (0.06) (0.06)
Net Asset Value, end of period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return (not annualized)........ 7.42% 8.58% 7.63% 6.20% 5.64%
Ratios/Supplemental Data:
Net Assets, end of year (000s)......... $118,623 $98,398 $90,672 $101,066 $134,375
Ratios to average net assets
(annualized):
Ratio of expenses to average net
assets............................... 0.48% 0.56% 0.63% 0.69% 0.69%
Ratio of net investment income to
average net assets................... 7.10% 7.73% 7.36% 6.12% 5.50%
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses............................. 0.94% 0.97% 0.98% 1.05% 0.94%
Ratio of net investment income to
average net assets prior to waived
fees and reimbursed expenses......... 6.64% 7.32% 7.01% 5.76% 5.25%
</TABLE>
- -------------------
(1) Prior to August 1, 1990, the Fund was known as the Short-Term Government
Fund, which commenced operations on October 1, 1985, and invested in
obligations issued or guaranteed by agencies and instrumentalities of the
U.S. Government. The Fund operated as a portfolio of Pacific American Funds
through October 1, 1994, when it was reorganized as the Pacific American
U.S. Treasury Portfolio, a portfolio of Pacifica Funds Trust. In July 1995,
the Fund was renamed the Pacifica Treasury Money Market Fund, and on
September 6, 1996, the Fund was reorganized as a Fund of the Company.
Effective August 11, 1995, existing Fund shares were classified as Service
shares and the Fund began offering both Service and Institutional shares to
investors. Effective October 1, 1995, the Fund also began offering Investor
shares to investors. Prior to April 1, 1996, First Interstate Capital
Management, Inc. ("FICM") served as the Fund's adviser. In connection with
the merger of First Interstate Bancorp into Wells Fargo & Company on April
1, 1996, FICM was renamed Wells Fargo Investment Management, Inc.
(2) Financial Data for the period ended September 30, 1995 and the year ended
September 30, 1996 are for Institutional shares only, which were initially
offered on August 11, 1995. Financial Data for all other periods are for
Service shares only.
(3) The Fund changed its fiscal year-end from March 31 to September 30.
(4) Annualized.
7 PROSPECTUS
<PAGE> 712
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 in 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
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.
The Funds' investment objectives and fundamental policies 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
PROSPECTUS 8
<PAGE> 713
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. 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
9 PROSPECTUS
<PAGE> 714
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 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.
PROSPECTUS 10
<PAGE> 715
RISK FACTORS
Investments in the Funds 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. The Funds 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 Funds invest. As with all mutual funds, there can be no assurance
that each 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).
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);
11 PROSPECTUS
<PAGE> 716
- 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. 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.
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 12
<PAGE> 717
"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
reinvestment of the income earned by a class of a Fund. Because of the effects
of compounding, effective yields are slightly higher than yields.
Average annual total return of Institutional 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 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 inside 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 twenty-three 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
13 PROSPECTUS
<PAGE> 718
shares, which are sold primarily to institutional investors at NAV. Each class
of shares represents an equal proportionate interest in a Fund with other shares
of the same class. Shareholders of each class bear their pro rata portion of a
Fund's operating expenses except for certain class-specific expenses that are
allocated to a particular class and, accordingly, may affect performance. 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 inside front cover of the Prospectus.
The Company's Board of Directors supervises the Funds' activities and monitors
their contractual arrangements with various service providers. Although the
Company is not required to hold annual shareholder meetings, special meetings
may be required for purposes such as electing or removing Directors, approving
advisory contracts and distribution plans, and changing a fund's investment
objective or fundamental investment policies. All shares of the Company have
equal voting rights and 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. 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 shareholder servicing agent and
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 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. 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 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 portfolios.
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 94111. Prior to March 18, 1994, the predecessor
portfolios' investment adviser was San
PROSPECTUS 14
<PAGE> 719
Diego Financial Capital Management, Inc., which was acquired by First Interstate
Bancorp through its merger with San Diego Financial Corporation.
------------------------------
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
Institutional 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 and federal bank 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 purchase
and redemption cut-off times discussed below may be earlier than 12:00 Noon.
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 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 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.
15 PROSPECTUS
<PAGE> 720
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 INSTITUTIONAL CLASS SHARES
Institutional 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 Institutional Class shares is $5 million 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 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
Funds is governed by the Customers' account agreements with an Institution.
Investors wishing to purchase Institutional Class shares of the Funds should
contact their account representatives.
Institutional 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.
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 Institutional
Class shares of a Fund may,
PROSPECTUS 16
<PAGE> 721
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 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)
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 month in which there has been a transaction
that affects their share balance or the 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,
shareholders receive financial statements.
17 PROSPECTUS
<PAGE> 722
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 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.
With respect to shareholders who do not have a relationship with an
Institution, shares of the Funds may be redeemed by writing or calling the Funds
directly at the address or phone number shown on the first page of the
Prospectus. When Institutional 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 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.
PROSPECTUS 18
<PAGE> 723
All redemptions of Institutional Class shares of the Funds 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 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
The Funds offer a convenient way to exchange Institutional Class shares in one
Fund for Institutional Class shares in another fund of the Company. Before
engaging in an exchange transaction, an investor should read carefully the
Prospectus describing the fund into which the exchange will occur, which is
available without charge and can be obtained by writing or by calling the
Company at the address or phone number listed on the first page of the
Prospectus. A shareholder may not exchange Institutional Class shares of one
fund for Institutional Class shares of another fund if Institutional Class
shares of both funds are not qualified for sale in the state of the
shareholder's residence. The Company may terminate or amend the terms of the
exchange privilege at any time.
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 a Fund to the
Institution involved.
19 PROSPECTUS
<PAGE> 724
Institutions (or their nominees), acting on behalf of their Customers, normally
are the holders of record of Institutional Class shares. Institutions are
responsible for transmitting orders for exchanges to the Company on a timely
basis. Investors should receive written confirmation of the exchange from the
Institution within a few days of the completion of the transaction. In addition,
customers' exchange transactions are generally reflected in the account
statements provided by Institutions to their Customers. Investors wishing to
exchange Institutional Class shares of a Fund for Institutional Class shares of
another fund should contact their account representatives. Investors with
questions may call the Company at 1-800-260-5969.
A new account opened by exchange must be established with the same name(s),
address and social security number as the existing account. All exchanges are
made at the NAV of the respective funds next determined following receipt of the
request by the Company in good order.
To exchange Institutional Class shares, or if you have questions, simply call
the Company at 1-800-260-5969. A shareholder of record should be prepared to
give the telephone representative the following information: (i) the account
number, social security or taxpayer identification number and account
registration; (ii) the name of the fund from and the fund into which the
transfer is to occur; and (iii) the dollar or share amount of the exchange. The
conversation may be recorded to protect shareholders and the Company. Telephone
exchanges are available unless the shareholder of record has declined the
privilege on the Purchase Application.
In addition, Institutional Class shares of the Funds may be exchanged for each
of the Funds' 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 other cases where Institutional Class shares are not held in
such qualified accounts. Similarly, Class A shares may be exchanged for the
Funds' Institutional Class shares if the shares are to be held in such a
qualified trust, agency or custodial account. These exchanges are made at the
respective NAVs of the Institutional Class shares next determined after the
exchange request is received by the Company.
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
Dividends from net investment income of the Funds are declared daily payable
to Institutional Class shareholders of record as of 12:00 p.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
PROSPECTUS 20
<PAGE> 725
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 the each month. Dividends and any capital-gain distributions are
automatically invested in additional whole and fractional shares unless the
shareholder has elected to receive distributions in cash.
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 September 30, 1996, 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 predecessor portfolios
to Wells Fargo Investment Management, Inc.
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 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 performs its
custodial and transfer and dividend disbursing agency services at 525 Market
Street, San Francisco, California 94105.
21 PROSPECTUS
<PAGE> 726
INSTITUTIONS AND SHAREHOLDER SERVICING AGENTS
The Funds have entered into a Shareholder Servicing Agreement on behalf of
Institutional 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 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 0.25% 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 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.
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 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 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%
PROSPECTUS 22
<PAGE> 727
of each Fund's average daily net assets. For the period prior to September 6,
1996, this includes amounts paid to The Dreyfus Corporation and Furman Selz LLC
by the predecessor portfolios.
SPONSOR AND DISTRIBUTOR
Stephens is the Company's sponsor and co-administrator and distributes each
Fund's shares. Stephens is a full service broker/dealer and investment advisory
firm located at 111 Center Street, Little Rock, Arkansas 72201. Stephens and its
predecessor have been providing securities and investment services for more than
60 years. Additionally, they have been providing discretionary portfolio
management services since 1983. Stephens currently manages investment portfolios
for pension and profit-sharing plans, individual investors, foundations,
insurance companies and university endowments.
Stephens, as the principal underwriter of the 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.
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
23 PROSPECTUS
<PAGE> 728
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
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 24
<PAGE> 729
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 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 securities issued by other investment companies;
(vi) negotiable certificates of deposit, fixed time deposits, bankers'
acceptances or other short-term obligations of U.S. banks (including
foreign branches) that have more than $1 billion in total assets at the
time of investment and are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are
insured by the FDIC ("bank instruments");
A-1 PROSPECTUS
<PAGE> 730
(vii) 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");
(viii) 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;
(ix) 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).
(x) mortgage-backed securities (discussed below); and
(xi) 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 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
PROSPECTUS A-2
<PAGE> 731
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.
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 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
A-3 PROSPECTUS
<PAGE> 732
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, 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.
PROSPECTUS A-4
<PAGE> 733
Illiquid Securities
The Funds 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 a Fund.
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
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 nonfundamental 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
A-5 PROSPECTUS
<PAGE> 734
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.
PROSPECTUS A-6
<PAGE> 735
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE> 736
Advised by WELLS FARGO BANK, N.A.
Sponsored/Distributed by
Stephens Inc., Member NYSE/SIPC
LOGO
NOT FDIC INSURED
<PAGE> 737
LOGO
P.O. Box 7066
San Francisco, CA 94120-7066
STAGECOACH MONEY MARKET MUTUAL FUNDS:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- 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 LOGO
share, however, there can be no assurance that either
fund will meet this goal. Yields and returns will vary
with market conditions.
</TABLE>
LOGO
Printed on Recycled Paper SC0211 (2/97)
<PAGE> 738
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1997
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
CLASS A
---------------
Stagecoach Funds, Inc. (the "Company") is an open-end, series investment
company. This Statement of Additional Information ("SAI") contains information
about one of the funds in the Stagecoach Family of Funds -- the SHORT-
INTERMEDIATE U.S. GOVERNMENT INCOME FUND (the "Fund"). The investment
objective of the Fund is described in its Prospectus under the section entitled
"How the Funds Work -- Investment Objectives and Policies."
This SAI is not a prospectus and should be read in conjunction with
the Fund's Prospectus dated February 1, 1997. All terms used in this SAI that
are defined in the Prospectus will have the meanings assigned in the
Prospectus. A copy of the Prospectus 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 calling the Transfer Agent at the telephone number indicated above.
---------------
1
<PAGE> 739
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities . . . . . . . . . . . . . . . . . . . . . . 4
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Additional Purchase and Redemption Information . . . . . . . . . . . . . . . . . . . . 18
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
2
<PAGE> 740
INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Fund is subject to the following
investment restrictions, all of which are fundamental policies; that is, they
may not be changed without approval by the vote of the holders of a majority of
the Fund's outstanding voting securities, as described under "Capital Stock":
The Fund may not:
(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and
as a result thereof, the value of the Fund's investments in that industry would
be 25% or more of the current value of the Fund's total assets, provided that
there is no limitation with respect to investments in U.S. Government
Obligations;
(2) purchase or sell real estate or real estate limited partnerships
(other than securities secured by real estate or interests therein or
securities issued by companies that invest in real estate or interests
therein);
(3) purchase commodities or commodity contracts (including futures
contracts), except that the Fund may purchase securities of an issuer which
invests or deals in commodities or commodity contracts;
(4) purchase interests, leases, or limited partnership interests in oil,
gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions) or make short sales of securities;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting;
(7) make investments for the purpose of exercising control or management;
(8) borrow money or issue senior securities as defined in the 1940 Act,
except that the Fund may borrow from banks up to 10% of the current value of
its net assets for temporary purposes only in order to meet redemptions, and
these borrowings may be secured by the pledge of up to 10% of the current value
of its net assets (but investments may not be purchased while any such
outstanding borrowings exceed 5% of its net assets), and except that the Fund
may issue multiple Classes of shares in accordance with applicable laws, rules,
regulations or orders;
(9) write, purchase or sell straddles, spreads, warrants, or any
combination thereof;
3
<PAGE> 741
(10) purchase securities of any issuer (except U.S. Government
Obligations) if, as a result, with respect to 75% of its total assets, more
than 5% of the value of the Fund's total assets would be invested in the
securities of any one issuer or, with respect to 100% of its total assets the
Fund's ownership would be more than 10% of the outstanding voting securities of
such issuer; or
(11) make loans, except that the Fund may purchase or hold debt
instruments or lend its portfolio securities in accordance with its investment
policies, and may enter into repurchase agreements.
Non-Fundamental Investment Policies. The Fund is subject to the following
non-fundamental policies; that is, they may be changed by a majority vote of
the Board of Directors without shareholder approval:
The Fund may not:
(1) (a) purchase or retain securities of any issuer if the officers or
Directors of the Company or of the Investment Adviser owning beneficially more
than one-half of one percent (0.5%) of the securities of the issuer together
owned beneficially more than 5% of such securities;
(b) purchase securities of issuers who, with their predecessors,
have been in existence less than three years, unless the securities are fully
guaranteed or insured by the U.S. Government, a state, commonwealth,
possession, territory, the District of Columbia or by an entity in existence at
least three years, or the securities are backed by the assets and revenues of
any of the foregoing if, by reason thereof, the value of its aggregate
investments in such securities will exceed 5% of its total assets.
(2) The Fund reserves the right to invest up to 15% of the current value
of its net assets in fixed time deposits that are subject to withdrawal
penalties and that have maturities of more than seven days, repurchase
agreements maturing in more than seven days or other illiquid securities.
However, as long as the Fund's shares are registered for sale in a state that
imposes a lower limit on the percentage of a fund's assets that may be so
invested, the Fund will comply with such lower limit. The Fund presently is
limited to investing 10% of its net assets in such securities due to limits
applicable in several states.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Pass-Through Obligations. The Fund may invest in pass-through obligations
that represent an ownership interest in a pool of mortgages and the resultant
cash flow from those mortgages. Payments by homeowners on the loans in the
pool flow through to certificate holders in amounts sufficient to repay
principal and to pay interest at the pass-through rate. The stated maturities
of pass-through obligations may be shortened by unscheduled prepayments of
principal on the underlying mortgages. Therefore, it is not possible to
predict accurately the
4
<PAGE> 742
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.
Loans of Portfolio Securities. The Fund may lend securities from its
portfolio to brokers, dealers and financial institutions (but not individuals)
in order to increase the return on the Fund's 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.
When-Issued Securities. The Fund may purchase securities on a when-issued
basis, in which case delivery and payment normally take place within 45 days
after the date of the commitment to purchase. However, the Fund does not
intend to invest more than 5% of its net assets in when-issued securities
during the coming year. The Fund will only make commitments to purchase
securities on a when-issued basis with the intention of actually acquiring the
securities, but may sell them before the settlement date if it is deemed
advisable. When-issued securities are subject to market fluctuation, and no
income accrues to the purchaser during the period prior to issuance. The
purchase price and the interest rate that will be received on debt securities
are fixed at the time the purchaser enters into the commitment. Purchasing a
security on a when-issued basis can involve a risk that the market price at the
time of delivery may be lower than the agreed-upon purchase price, in which
case there could be an unrealized loss at the time of delivery.
The Fund will establish a segregated account in which it will maintain
cash, U.S. Government obligations or other high-quality debt instruments in an
amount at least equal in value to the Fund's commitments to purchase
when-issued securities. If the value of these assets declines, the Fund will
place additional liquid assets in the account on a daily basis so that the
value of the assets in the account is equal to the amount of such commitments.
MANAGEMENT
The following information supplements and should be read in conjunction
with the section in the prospectus entitled "The Funds and Management." The
principal occupations
5
<PAGE> 743
during the past five years of the Directors and principal executive Officer of
the Company are listed below. The address of each, unless otherwise indicated,
is 111 Center Street, Little Rock, Arkansas 72201. Directors deemed to be
"interested persons" of the Company for purposes of the 1940 Act are indicated
by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 45 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate
Professor of Finance of the
School of Business and
Accounting at Wake Forest
University since 1983.
Joseph N. Hankin, 55 Director President, Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; President of Hartford
(appointed as of September 6, 1996) Junior College from 1967 to
1971; Adjunct Professor of
Columbia University
Teachers College since
1976.
</TABLE>
6
<PAGE> 744
<TABLE>
<S> <C> <C>
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 40 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
7
<PAGE> 745
COMPENSATION TABLE
<TABLE>
<CAPTION>
Year Ended Period Ended
---------- ------------
December 31, 1995 September 30, 1996
------------------ ------------------
Total Aggregate Total
Aggregate Compensation Compensation Compensation from
Compensation from Registrant from Registrant
Name and Position from Registrant and Fund Complex Registrant and Fund Complex
----------------- --------------- ---------------- ------------ -------------------
<S> <C> <C> <C> <C>
Jack S. Euphrat $10,188 $39,750 $9,750 $29,250
Director
*R. Greg Feltus $-0- $-0- $-0- $-0-
Director
Thomas S. Goho $10,188 $39,750 $9,750 $29,250
Director
Joseph N. Hankin N/A N/A $-0- $-0-
Director
*Zoe Ann Hines $-0- $-0- $-0- $-0-
Director
(resigned as of
September 6, 1996)
*W. Rodney Hughes $9,438 $37,000 $8,250 $24,750
Director
Robert M. Joses $9,938 $39,000 $9,750 $29,250
Director
*J. Tucker Morse $8,313 $33,250 $8,250 $24,750
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
8
<PAGE> 746
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.
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. The
Advisory Contract provides that Wells Fargo Bank shall furnish to the Fund
investment guidance and policy direction in connection with the daily portfolio
management of the Fund. Pursuant to the Advisory Contract, Wells Fargo Bank
furnishes to the Board of Directors periodic reports on the investment strategy
and performance of the Fund.
Wells Fargo Bank has agreed to provide to the Fund, among other things,
money market security and fixed-income research, analysis and statistical and
economic data and information concerning interest rate and security market
trends, portfolio composition, credit conditions and average maturities of the
portfolio of the Fund.
The Advisory Contract will continue in effect for more than two years
provided the continuance is approved annually (i) by the holders of a majority
of the Fund's outstanding voting securities or by the Company's Board of
Directors and (ii) by a majority of the Directors of the Company who are not
parties to the Advisory Contract or "interested persons" (as defined in the
1940 Act) of any such party. The Advisory Contract may be terminated on 60
days' written notice by either party and will terminate automatically if
assigned.
For the years ended December 31, 1993, 1994 and 1995, 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 indicated amounts:
<TABLE>
<CAPTION>
Dec. 31, 1993 Dec. 31, 1994 Dec. 31, 1995 Sept. 30, 1996
------------- ------------- ------------- --------------
Fees Fees Fees Fees Fees Fees Fees Fees
Paid Waived Paid Waived Paid Waived Paid Waived
---- ------ ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 $3,704 $ 0 $58,270 $56,387 $60,241 $213,467 $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
9
<PAGE> 747
Administration Agreement between Wells Fargo and the Fund, and the
Co-Administration Agreement among Wells Fargo, Stephens and the Fund, state
that Wells Fargo and Stephens shall provide as administrative services, among
other things: (i) general supervision of the operation of the Fund, including
coordination of the services performed by the Fund's investment adviser,
transfer agent, custodian, shareholder servicing agent(s), independent public
accountants and legal counsel, regulatory compliance, including the compilation
of information for documents such as reports to, and filings with, the SEC and
state securities commissions; and preparation of proxy statements and
shareholder reports for the Fund; and (ii) general supervision relative to the
compilation of data required for the preparation of periodic reports
distributed to the Company's officers and Board of Directors. Wells Fargo Bank
and Stephens also furnish office space and certain facilities required for
conducting the business of the Fund together with ordinary clerical and
bookkeeping services. Stephens pays the compensation of the Company's
Directors, officers and employees who are affiliated with Stephens. The
Administrator and Co-Administrator are entitled to receive a monthly fee of
0.04% and 0.02%, respectively, of the average daily net assets of the Fund.
For the years ended December 31, 1993, 1994 and 1995, and the period
ended September 30, 1996, the Fund paid the following dollar amounts of
administrative fees to Stephens who, as sole administrator during these
periods, was entitled to receive a fee, payable monthly, at the annual rate of
0.03% of the Fund's average daily net assets:
<TABLE>
<CAPTION>
Dec. 31, 1993 Dec. 31, 1994 Dec. 31, 1995 Sept. 30, 1996
------------- ------------- ------------- --------------
<S> <C> <C> <C>
$3,522 $3,522 $6,998 $12,808
</TABLE>
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 entered into a
shareholder servicing agreement with Wells Fargo Bank. The Fund did not pay
any shareholder servicing fees to Wells Fargo Bank for the fiscal year ended
December 31, 1995 but paid $15,851 (after waivers) in such fees to Wells Fargo
Bank for the period ended September 30, 1996.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank
has been retained to act as custodian for the Fund. The custodian, among other
things, maintains a custody account or accounts in the name of the Fund;
receives and delivers all assets for the Fund upon purchase and upon sale or
maturity; collects and receives all income and other payments and distributions
on account of the assets of the Fund and pays all expenses of the Fund. For
its services as custodian, Wells Fargo Bank receives an asset-based fee and
transaction charge from the Fund. Wells Fargo Bank also has been retained to
act as the transfer and dividend disbursing agent for the Fund, and receives
for its services a base fee and per-account fees from the Fund.
For the year ended December 31, 1995 and the period ended September 30,
1996, the Fund paid no custodial or transfer and dividend disbursing agency
fees to Wells Fargo Bank.
10
<PAGE> 748
UNDERWRITING COMMISSIONS. For the fiscal years ended December 31, 1993
and 1994, the Funds' distributor retained $26,215,173 and $5,415,227,
respectively in underwriting commissions (front-end sales loads and CDSCs, if
any) in connection with the purchase or redemption of Fund shares. For the
fiscal years ended December 31, 1993 and 1994, Wells Fargo Securities Inc.
("WFSI"), an affiliated broker-dealer of the Company, and its registered
representatives received $378,895 and $904,274, respectively, in underwriting
commissions in connection with the purchase or redemption of Fund shares.
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 $2,538,027 and $136,047, respectively, of
such commissions.
DISTRIBUTION PLAN
As indicated in the Prospectus, the Fund has adopted a distribution plan
(a "Plan") under Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the
"Rule") for its Class A shares. The Plan was adopted by the Board of
Directors, including a majority of the Directors who were not "interested
persons" (as defined in the 1940 Act) of the Fund and who had no direct or
indirect financial interest in the operation of the Plan or in any agreement
related to the Plan (the "Qualified Directors") and approved by the initial
shareholder of the Fund.
Under the Plan, the Fund may defray all or part of the cost of preparing
and printing prospectuses and other promotional materials and of delivering
prospectuses and those materials to prospective shareholders by paying on an
annual basis up to 0.05% of the Fund's average daily net assets attributable to
Class A shares. The Plan provides only for reimbursement of actual expenses.
In addition, each Plan contemplates that to the extent any fees payable
pursuant to a Shareholder Servicing Agreement are deemed to be for
distribution-related services, rather than shareholder services, such payments
are approved and payable pursuant to such Plan.
The Plan will continue in effect from year to year if such continuance is
approved by a majority vote of both the Directors of the Company and the
Qualified Directors. Any Distribution Agreements related to the Plan also must
be approved by such vote of the Directors and the Qualified Directors. Such
Agreements will terminate automatically if assigned, and may be terminated at
any time, without payment of any penalty, by a vote of a majority of the
outstanding voting securities of the Fund. The Plan may not be amended to
increase materially the amounts payable thereunder without the approval of a
majority of the outstanding voting
11
<PAGE> 749
securities of the Fund, and no material amendment to the Plans may be made
except by a majority of both the Directors of the Company and the Qualified
Directors.
The Plan requires that the Treasurer of the Company shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Plan. The Rule also
requires that the selection and nomination of Directors who are not "interested
persons" of the Company be made by such disinterested directors.
For the periods indicated below, the Fund's distributor received the
following amounts of 12b-1 fees for the specified purposes set forth below
under the Fund's Plan for Class A shares.
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Total Prospectus Brochures Underwriters
----- ---------- --------- ------------
<S> <C> <C> <C> <C>
Year Ended
December 31, 1995 $7,200 $6,422 $778 N/A
Period Ended
September 30, 1996 $-0- $-0- $-0- N/A
</TABLE>
For the year ended December 31, 1995 and the period ended September 30,
1996, WFSI and its registered representatives received no compensation under
the Fund's Plans.
PERFORMANCE CALCULATIONS
As indicated in the Prospectus, the Fund may advertise certain total
return information computed in the manner described in the Prospectus. As and
to the extent required by the SEC, an average annual compound rate of return
("T") will be computed by using the redeemable value at the end of a specified
period ("ERV") of a hypothetical initial investment ("P") over a period of
years ("n") according to the following formula: P(1+T)n = ERV. In addition,
as indicated in the Prospectus, if the Fund assesses a sales charge, at times,
it also may calculate total return based on net asset value per share (rather
than the public offering price), in which case the figures would not reflect
the effect of any sales charges that would have been paid by an investor, or
based on the assumption that a sales charge other than the maximum sales charge
(reflecting a Volume Discount) was assessed, provided that total return data
derived pursuant to the calculation described above also are presented.
12
<PAGE> 750
<TABLE>
<CAPTION>
Average Annual Total Return for the Applicable Period Ended September 30, 1996
------------------------------------------------------------------------------
Inception1 Inception One Year One Year
With No With No
Class Sales Charge2 Sales Charge Sales Charge Sales Charge
----- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
A 3.22% 4.31% 1.44% 4.54%
</TABLE>
1 The Fund commenced operations on October 27, 1993.
2 For all periods ended September 3, 1996, the term "Sales Charge" for
Class A shares means a front-end sales load of 3.00%.
The Fund may advertise the cumulative total return of its shares.
Cumulative total return of shares is computed on a per share basis and assumes
the reinvestment of dividends and distributions. Cumulative total return of
shares generally is expressed as a percentage rate which is calculated by
combining the income and principal changes for a specified period and dividing
by the net asset value per share at the beginning of the period.
Advertisements may include the percentage rate of total return of shares or may
include the value of a hypothetical investment in shares at the end of the
period which assumes the application of the percentage rate of total return.
In addition to the above performance information, the Fund may also
advertise the cumulative total return of the Fund for one-month, three-month,
six-month, and year-to-date periods. The cumulative total return for such
periods is based on the overall percentage change in value of a hypothetical
investment in the Fund, assuming all Fund dividends and capital gain
distributions are reinvested, without reflecting the effect of any sales charge
that would be paid by an investor, and is not annualized.
<TABLE>
<CAPTION>
Cumulative Total Return for the Applicable Period Ended September 30, 1996
--------------------------------------------------------------------------
Inception(1) Inception
With No
Class Sales Charge(2) Sales Charge
------ ------------ ------------
<S> <C> <C>
A 9.70% 13.10%
</TABLE>
(1) The Fund commenced operations on October 27, 1993.
(2) For all periods ended September 30, 1996, the term "Sales Charge" for
Class A Shares means a front-end sales load of 3.00%.
As indicated in the Prospectus, the Fund may advertise certain yield
information. As and to the extent required by the SEC, yield will be
calculated based on a 30-day (or one month) period, computed by dividing the
net investment income share earned during the period by the maximum offering
price per share on the last day of the period, according to the following
formula: YIELD = 2[((a-b/cd)+1)6-1], where a = dividends and interest earned
during
13
<PAGE> 751
the period; b = expenses accrued for the period (net of reimbursements); c =
the average daily number of shares outstanding during the period that were
entitled to receive dividends; and d = the maximum offering price per share on
the last day of the period. The net investment income includes actual interest
income, plus or minus amortized purchase discount (which may include original
issue discount) or premium, less accrued expenses. Realized and unrealized
gains and losses on portfolio securities are not included in the Fund's net
investment income. For purposes of sales literature, yield also may be
calculated on the basis of the net asset value per share rather than the public
offering price, provided that the yield data derived pursuant to the
calculation described above also are presented.
<TABLE>
<CAPTION>
Yield Calculations for the Applicable Period Ended September 30, 1996(1)
---------------------------------------------------------------------
Thirty Day Yield Thirty-Day Tax-Equivalent Yield(2)
---------------- -------------------------------
After Wavier Before Waiver After Waiver Before Waiver
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Class A 5.66% 5.31% 10.53% 9.88%
</TABLE>
- ---------------
1 "After Waiver" figures reflect any reimbursed expenses throughout the period.
2 Based on a federal income tax rate of 28.00%.
The yield for the Fund will fluctuate from time to time, unlike bank
deposits or other investments that pay a fixed yield for a stated period of
time, and does not provide a basis for determining future yields since it is
based on historical data. Yield is a function of portfolio quality,
composition, maturity and market conditions as well as the expenses allocated
to the Fund.
In addition, investors should recognize that changes in the net asset
values of shares of the Fund will affect the yield of the Fund for any
specified period, and such changes should be considered together with the
Fund's yield in ascertaining the total return to shareholders for the period.
Yield information for the Fund may be useful in reviewing the performance of
the Fund and for providing a basis for comparison with investment alternatives.
The yield of the Fund, however, may not be comparable to the yields from
investment alternatives because of differences in the foregoing variables and
differences in the methods used to value portfolio securities, compute expenses
and calculate yield.
The Company also may disclose in sales literature, information and
statements the distribution rate on the shares of each class of the Funds.
Distribution rate, which may be annualized, is the amount determined by
dividing the dollar amount per share of the most recent dividend by the most
recent NAV or maximum offering price per share as of a date specified in the
sales literature. Distribution rate will be accompanied by the standard 30-day
yield as required by the SEC.
14
<PAGE> 752
From time to time and only to the extent the comparison is appropriate
for the Fund, the Company may quote performance or price-earning ratios for the
Fund in advertising and other types of literature as compared to the
performance of the Lehman Brothers Municipal Bond Index, 1-Year Treasury Bill
Rate, S&P Index, the Dow Jones Industrial Average, the Lehman Brothers 20+
Treasury Index, the Lehman Brothers 5-7 Year Treasury Index, Donoghue's Money
Fund Averages, Real Estate Investment Averages (as reported by the National
Association of Real Estate Investment Trusts), Gold Investment Averages
(provided by the World Gold Council), Bank Averages (which is calculated from
figures supplied by the U.S. League of Savings Institutions based on effective
annual rates of interest on both passbook and certificate accounts), average
annualized certificate of deposit rates (from the Federal Reserve G-13
Statistical Releases or the Bank Rate Monitor), the Salomon One Year Treasury
Benchmark Index, the Consumer Price Index (as published by the U.S. Bureau of
Labor Statistics), Ten Year U.S. Government Bond Average, S&P's Corporate Bond
Yield Averages, Schabacter Investment Management Indices, Salomon Brothers High
Grade Bond Index, Lehman Brothers Long-Term High Quality Government/Corporate
Bond Index, other managed or unmanaged indices or performance data of bonds,
stocks or government securities (including data provided by Ibbotson
Associates), or by other services, companies, publications or persons who
monitor mutual funds on overall performance or other criteria. The S&P Index
and the Dow Jones Industrial Average are unmanaged indices of selected common
stock prices. The Fund's performance also may be compared to the performance
of other mutual funds having similar objectives. This comparative performance
could be expressed as a ranking prepared by Lipper Analytical Services, Inc.,
CDA Investment Technologies, Inc., Bloomberg Financial Markets or Morningstar,
Inc., independent services which monitor the performance of mutual funds. The
performance of the Fund will be calculated by relating net asset value per
share at the beginning of a stated period to the net asset value of the
investment, assuming reinvestment of all gains distributions and dividends
paid, at the end of the period. Any such comparisons may be useful to
investors who wish to compare the Fund's past performance with that of its
competitors. Of course, past performance cannot be a guarantee of future
results. The Company also may include, from time to time, a reference to
certain marketing approaches of the Distributor, including, for example, a
reference to a potential shareholder being contacted by a selected broker or
dealer. General mutual fund statistics provided by the Investment Company
Institute may also be used.
In addition, the Company also may use, in advertisements and other types
of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank, and
its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and
the related "Tax Freedom Day."
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,
15
<PAGE> 753
the Los Angeles Times, the Boston Globe, the Washington Post, the Chicago
Sun-Times, Investor Business Daily, Worth, Bank Investor, American Banker,
Smart Money, the 100 Best Mutual Funds (Adams Publishing), Morningstar or Value
Line.
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate
for the Fund: (i) the Consumer Price Index may be used to assess the real rate
of return from an investment in the Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of the Fund or the general economic, business,
investment, or financial environment in which the Fund operates; (iii) the
effect of tax-deferred compounding on the investment returns of the Fund, or on
returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in the Fund (or returns in general) on a tax-deferred basis
(assuming reinvestment of capital gains and dividends and assuming one or more
tax rates) with the return on a taxable basis; and (iv) the sectors or
industries in which the Fund invests may be compared to relevant indices of
stocks or surveys (e.g., S&P Industry Surveys) to evaluate the historical
performance of the Fund or current or potential value with respect to the
particular industry or sector.
The Company also may include, from time to time, a reference to certain
marketing approaches of the Distributor, including, for example, a reference to
a potential shareholder being contacted by a selected broker or dealer.
The Company also may discuss in advertising and other types of literature
that the Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as Standard & Poor's Corporation. Such
rating would assess the creditworthiness of the investments held by the Fund.
The assigned rating would not be a recommendation to purchase, sell or hold the
Fund's shares since the rating would not comment on the market price of the
Fund's shares or the suitability of the Fund for a particular investor. In
addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or unavailability of, information
relating to the Fund or its investments. The Company may compare the Fund's
performance with other investments which are assigned ratings by NRSROs. Any
such comparisons may be useful to investors who wish to compare the Fund's past
performance with other rated investments.
From time to time, the Fund may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Stagecoach Funds, provides
various services to its customers that are also shareholders of the Funds.
These services may include access to Stagecoach Funds' account information
through Automated Teller Machines (ATMs), the placement of purchase and
redemption requests for shares of the Funds through ATMs and the availability
of combined Wells Fargo Bank and Stagecoach Funds account statements."
The Company 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. The Company may also disclose in advertising and other types of sales
literature the assets and categories of assets under
16
<PAGE> 754
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 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.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for the Fund is determined by the Custodian of
the Fund on each day the NYSE is open for trading.
Securities of the Fund for which market quotations are available are
valued at latest prices. Securities of the Fund for which the primary market
is a national securities exchange or the National Association of Securities
Dealers Automated Quotations National Market System are valued at last sale
prices. In the absence of any sale of such securities on the valuation date
and in the case of other securities, including U.S. Government securities but
excluding money market instruments maturing in 60 days or less, the valuations
are based on latest quoted bid prices. Money market instruments maturing in
60 days or less are valued at amortized cost. Futures contracts will be marked
to market daily at their respective settlement prices determined by the
relevant exchange. These prices are not necessarily final closing prices, but
are intended to represent prices prevailing during the final 30 seconds of the
trading day. Options listed on a national exchange are valued at the last sale
price on the exchange on which they are traded at the close of the NYSE, or, in
the absence of any sale on the valuation date, at latest quoted bid prices.
Options not listed on a national exchange are valued at latest quoted bid
prices. Debt securities maturing in 60 days or less are valued at amortized
cost. In all cases, bid prices will be furnished by a reputable independent
pricing service approved by the Board of Directors. Prices
17
<PAGE> 755
provided by an independent pricing service may be determined without exclusive
reliance on quoted prices and may take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data. All other securities and other assets of the Fund for which current
market quotations are not readily available are valued at fair value as
determined in good faith by the Company's Directors and in accordance with
procedures adopted by the Directors.
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, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day (each a "Holiday"). When any Holiday falls
on a weekend, the NYSE typically is closed on the weekday immediately before or
after such Holiday.
Payment for shares may, in the discretion of the adviser, be made in the
form of securities that are permissible investments for the Fund as described
in the Prospectuses. For further information about this form of payment please
contact Stephens. In connection with an in-kind securities payment, the Fund
will require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by the Fund and that the
Fund receives satisfactory assurances that (i) it will have good and marketable
title to the securities received by it; (ii) that the securities are in proper
form for transfer to the Fund; and (iii) adequate information will be provided
concerning the basis and other matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule
or regulation), an emergency exists as a result of which disposal or valuation
of portfolio securities is not reasonably practicable, or for such periods as
the SEC may permit.
The Company may suspend redemption rights or postpone redemption payments
for such periods as are permitted under the 1940 Act. The Company may also
redeem shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to reimburse the
Fund for any losses sustained by reason of the failure of a shareholders to
make full payment for shares purchased or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
shares of the Fund as provided from time to time in the Prospectus.
18
<PAGE> 756
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.
Wells Fargo Bank, as the investment adviser of the Fund, may, in
circumstances in which two or more dealers are in a position to offer
comparable results for the Fund portfolio transaction, give preference to a
dealer that has provided statistical or other research services to Wells Fargo
Bank. By allocating transactions in this manner, Wells Fargo Bank is able to
supplement its research and analysis with the views and information of
securities firms. Information so received will be in addition to, and not in
lieu of, the services required to be performed by Wells Fargo Bank under the
Advisory Contract, and the expenses of Wells Fargo Bank will not necessarily be
reduced as a result of the receipt of this supplemental research information.
Furthermore, research services furnished by dealers through which Wells Fargo
Bank places securities transactions for the Fund may be used by Wells Fargo
Bank in servicing its other accounts, and not all of these services may be used
by Wells Fargo Bank in connection with advising the Fund.
Brokerage Commissions. For the years ended December 31, 1993, 1994 and
1995, and the period ended September 30, 1996, the Fund did not pay any
brokerage commissions.
Securities of Regular Broker/Dealers. On the indicated dates, the Fund
owned securities of its "regular brokers or dealers," or their parents, as
defined in the 1940 Act, as follows:
19
<PAGE> 757
<TABLE>
<CAPTION>
Regular Broker/Dealer Amount
--------------------- ------
<S> <C> <C>
September 30, 1996 Goldman Sachs & Co. $2,170,000
December 31, 1995 Goldman Sachs & Co. $1,119,000
</TABLE>
Portfolio Turnover. Portfolio turnover generally involves some expenses
to the Fund, including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover can generate short-term capital gain tax
consequences. The portfolio turnover rate for the Fund generally is not
expected to exceed 100%. The portfolio turnover rate is not a limiting factor
when Wells Fargo Bank deems portfolio changes appropriate.
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 each 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
20
<PAGE> 758
provisions of the Code applicable to regulated investment companies will
generally be applied to the Fund, rather than to the Company as a whole. In
addition, net capital gains, net investment income, and operating expenses will
be determined separately for the Fund.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) the Fund derive at least 90% of its annual gross
income from interest, payments with respect to securities loans, dividends and
gains from the sale or other disposition of securities or options thereon; (b)
the Fund derive less than 30% of its gross income from gains from the sale or
other disposition of securities or options thereon held for less than three
months; and (c) the Fund diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash, government securities and other securities
limited in respect of any one issuer to an amount not greater than 5% of the
Fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government obligations and the securities of
other regulated investment companies), or in two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades
or businesses. As a regulated investment company, the Fund will not be subject
to federal income tax on its net investment income and net capital gains
distributed to its shareholders, provided that it distributes to its
shareholders at least 90% of its net investment income, 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.
21
<PAGE> 759
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 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 generally
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.
However, each Fund has elected to recognize accrued market discount annually,
so that the entire gain on the disposition of such instruments, if any, will be
capital in nature. 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
22
<PAGE> 760
tax withholding, but, in the case of a foreign shareholder who is a nonresident
alien individual, such distributions ordinarily will be subject to U.S. income
tax at a rate of 30% if the individual is physically present in the U.S. for
more than 182 days during the taxable year.
Backup Withholding. The Company may be required to withhold, subject to
certain exemptions, at a rate of 31% ("backup withholding") on dividends,
capital gain distributions, and redemption proceeds (including proceeds from
exchanges and redemptions in kind) paid or credited to an individual Fund
shareholder, unless a shareholder certifies that the Taxpayer Identification
Number ("TIN") provided is correct and that the shareholder is not subject to
backup withholding, or the IRS notifies the Company that the shareholder's TIN
is incorrect or the shareholder is subject to backup withholding. Such tax
withheld does not constitute any additional tax imposed on the shareholder, and
may be claimed as a tax payment on the shareholder's federal income tax return.
An investor must provide a valid TIN upon opening or reopening an account.
Failure to furnish a valid TIN to the Company could subject the investor to
penalties imposed by the IRS.
Other Matters. Investors should be aware that the investments to be made
by the Fund may involve sophisticated tax rules that may result in income or
gain recognition by the Fund without corresponding current cash receipts.
Although the Fund will seek to avoid significant noncash income, such noncash
income could be recognized by the Fund, in which case the Fund may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the prospectus applicable
to each shareholder address only some of the federal tax considerations
generally affecting investments in the Fund. Each investor is urged to consult
his or her tax advisor regarding specific questions as to federal, state or
local taxes and foreign taxes.
CAPITAL STOCK
The Fund is one of the funds of the Stagecoach Family of Funds. The
Company was organized as a Maryland corporation on September 9, 1991 and
currently offers shares of twenty-four 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.
23
<PAGE> 761
The Fund offers two classes of shares: Class A shares and Institutional
Class shares. All shares of the Company have equal voting rights and will be
voted in the aggregate, and not by series, except where voting by a series is
required by law or where the matter involved only affects one series. For
example, a change in a Fund's fundamental investment policy affects only one
series and would be voted upon only by shareholders of the Fund affected.
Additionally, approval of an advisory contract is a matter to be determined
separately by Fund. Approval by the shareholders of one Fund is effective as
to that Fund whether or not sufficient votes are received from the shareholders
of the other investment portfolios to approve the proposal as to those
investment portfolios. As used in the Prospectus of the Fund and in this SAI,
the term "majority," when referring to approvals to be obtained from
shareholders of the Fund, means the vote of the lesser of (i) 67% of the shares
of the Fund represented at a meeting if the holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of the Fund. The term "majority," when
referring to the approvals to be obtained from shareholders of the Company as a
whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held.
The Company may dispense with an annual meeting of shareholders in any
year in which it is not required to elect Directors under the 1940 Act.
Each share of the Fund represents an equal proportional interest in the
Fund with each other share and is entitled to such dividends and distributions
out of the income earned on the assets belonging to the Fund as are declared in
the discretion of the Directors. In the event of the liquidation or
dissolution of the Company, shareholders of the Fund are entitled to receive
the assets attributable to the Fund that are available for distribution, and a
distribution of any general assets not attributable to a particular investment
portfolio that are available for distribution in such manner and on such basis
as the Directors in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares, when
issued for the consideration described in the Prospectus, will be fully paid
and non-assessable by the Company.
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>
SHORT-INTERMEDIATE Wells Fargo Bank Class A 27.48% 9.60%
U.S. GOVERNMENT P.O. Box 63015 Beneficially
INCOME San Francisco, CA Owned
94163
Stephens Inc. Class A 14.06% 4.90%
111 Center Street Beneficially
Little Rock, AR Owned
72201
</TABLE>
24
<PAGE> 762
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 Registration Statement, including the Prospectus for the Fund, the
SAI and the exhibits filed therewith, may be examined at the office of the SEC
in Washington, D.C. Statements contained in the Prospectus or the SAI as to
the contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
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 Fund 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 are attached to all SAIs delivered to current or prospective
shareholders.
25
<PAGE> 763
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> 764
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1997
DIVERSIFIED INCOME FUND
CLASS A AND CLASS B
----------------------------
Stagecoach Funds, Inc. (the "Company") is an open-end, series
investment company. This Statement of Additional Information ("SAI") contains
information about one of the Company's investment portfolios -- the DIVERSIFIED
INCOME FUND (the "Fund"). This SAI relates to Class A and Class B shares. The
investment objective of the Fund is described in the Prospectus under the
selection entitled "How the Fund Works -- Investment Objective and Policies."
This SAI is not a prospectus and should be read in conjunction
with the Fund's Prospectus dated February 1, 1997. All terms used in this SAI
that are defined in the Prospectus will have the meanings assigned in the
Prospectus. A copy of the Prospectus may be obtained without charge by writing
Stephens Inc. ("Stephens"), the Company's sponsor, co-administrator and
distributor, at 111 Center Street, Little Rock, Arkansas 72201, or calling the
Transfer Agent at the telephone number indicated above.
----------------------------
1
<PAGE> 765
TABLE OF CONTENTS
Statement of Additional Information
<TABLE>
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities. . . . . . . . . . . . . . . 5
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Performance Calculations. . . . . . . . . . . . . . . . . . . . . . . . 15
Determination of Net Asset Value. . . . . . . . . . . . . . . . . . . . 19
Additional Purchase and Redemption Information. . . . . . . . . . . . . 19
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . . . . 20
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Federal Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 23
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . 28
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . 28
SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
2
<PAGE> 766
INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Fund is subject to the
following investment restrictions, all of which are fundamental policies; that
is, they may not be changed without approval by the vote of the holders of a
majority of the Fund's outstanding voting securities, as described under
"Capital Stock":
(1) The Fund may not purchase the securities of issuers
conducting their principal business activity in the same industry if,
immediately after the purchase and as a result thereof, the value of the Fund's
investments in that industry would equal or exceed 25% of the current value of
the Fund's total assets, provided that there is no limitation with respect to
investments in securities issued or guaranteed by the United States Government,
its agencies or instrumentalities.
(2) The Fund may not purchase or sell real estate (other than
securities secured by real estate or interests therein or securities issued by
companies that invest in real estate or interests therein), commodities or
commodity contracts or interests in oil, gas, or other mineral exploration or
development programs.
(3) The Fund may not purchase securities on margin (except for
short-term credits necessary for the clearance of transactions) or make short
sales of securities.
(4) The Fund may not underwrite securities of other issuers,
except to the extent that the purchase of permitted investments directly from
the issuer thereof or from an underwriter for an issuer and the later
disposition of such securities in accordance with the Fund's investment program
may be deemed to be an underwriting.
(5) The Fund may not make investments for the purpose of
exercising control or management.
(6) The Fund may not issue senior securities, except that the
Fund may borrow from banks up to 10% of the current value of its net assets for
temporary purposes only in order to meet redemptions, and these borrowings may
be secured by the pledge of up to 10% of the current value of its net assets,
but investments may not be purchased while any such outstanding borrowings
exceed 5% of its net assets.
(7) The Fund may not purchase securities of any issuer (except
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities) if, as a result, with respect to 75% of its total assets,
more than 5% of the value of its total assets would be invested in the
securities of any one issuer or, with respect to 100% of its total assets, the
Fund would own more than 10% of the outstanding voting securities of such
issuer.
(8) The Fund may not write, purchase or sell puts, calls or
options or any combination thereof, except that the Fund may purchase
securities with put rights in order to maintain liquidity.
3
<PAGE> 767
(9) The Fund may not make loans of portfolio securities having
a value that exceeds 50% of the current value of its total assets, provided
that, for purposes of this restriction, loans will not include the purchase of
fixed time deposits, repurchase agreements, commercial paper and other types of
debt instruments commonly sold in a public or private offering.
With respect to fundamental investment policy (9), the Fund does
not intend to loan its portfolio securities during the coming year.
Non-Fundamental Investment Policies. The Fund is subject to the
following non-fundamental policies; that is, they may be changed by a majority
vote of the Board of Directors without shareholder approval:
(1) The Fund may invest not more than 5% of its net assets at
the time of purchase in warrants, and not more than 2% of its net assets in
warrants which are not listed on the New York or American Stock Exchange.
(2) The Fund may not purchase or retain securities of any
issuer if the officers or Directors of the Company or its Investment Adviser
owning beneficially more than one-half of one percent (0.50%) of the securities
of the issuer together own beneficially more than 5% of such securities.
(3) The Fund may invest in shares of other open-end, management
investment companies, subject to the limitations of Section 12(d)(1) of the
1940 Act, provided that any such purchases will be limited to temporary
investments in shares of unaffiliated investment companies and the Investment
Adviser will waive its advisory fees for that portion of the Fund's assets so
invested, except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition. The Fund does not intend to invest more than 5%
of its net assets in such securities during the coming year. Notwithstanding
any other investment policy or limitation (whether or not fundamental), the
Fund may invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental
investment objective, policies and limitations as the Fund.
(4) The Fund may not invest in securities of issuers who, with
their predecessors, have been in existence less than three years, unless the
securities are fully guaranteed or insured by the U.S. Government if, by reason
thereof, the value of its aggregate investment in such securities will exceed
5% of its total assets.
(5) The Fund may not purchase or sell real estate limited
partnership interests.
(6) The Fund will not invest more than 10% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
4
<PAGE> 768
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Privately Issued Securities (Rule 144A). The Fund may invest in
privately issued securities which may be resold only in accordance with Rule
144A under the Securities Act of 1933 ("Rule 144A Securities"). Rule 144A
Securities are restricted securities and will not be publicly traded.
Accordingly, the liquidity of the market for specific Rule 144A Securities may
vary. The investment adviser, under guidelines approved by Board of Directors
of the Company will evaluate the liquidity characteristics of each Rule 144A
Security proposed for purchase by the Fund on a case-by-case basis and will
consider the following factors, among others, in their evaluation: (1) the
frequency of trades and quotes for the Rule 144A Security; (2) the number of
dealers willing to purchase or sell the Rule 144A Security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the
Rule 144A Security; and (4) the nature of the Rule 144A Security and the nature
of the marketplace trades (e.g., the time needed to dispose of the Rule 144A
Security, the method of soliciting offers and the mechanics of transfer).
Warrants. The Fund may invest not more than 5% of its net assets
at the time of purchase in warrants (other than those that have been acquired
in units or attached to other securities) and not more than 2% of its net
assets in warrants which are not listed on the New York or American Stock
Exchange. Warrants represent rights to purchase securities at a specific price
valid for a specific period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying securities. The Fund may only
purchase warrants on securities in which the Fund may invest directly.
When-Issued Securities. The Fund may purchase securities on a
when-issued basis, in which case delivery and payment normally take place
within 120 days after the date of the commitment to purchase. However, the
Fund does not intend to invest more than 5% of its net assets in when-issued
securities during the coming year. The Fund will only make commitments to
purchase securities on a when-issued basis with the intention of actually
acquiring the securities, but may sell them before the settlement date if it is
deemed advisable. When-issued securities are subject to market fluctuation,
and no income accrues to the purchaser during the period prior to issuance.
The purchase price and the interest rate that will be received on debt
securities are fixed at the time the purchaser enters into the commitment.
Purchasing a security on a when-issued basis can involve a risk that the market
price at the time of delivery may be lower than the agreed-upon purchase price,
in which case there could be an unrealized loss at the time of delivery.
The Fund will segregate cash, U.S. Government obligations, and
other high-quality debt instruments in an amount at least equal in value to the
Fund's commitments to purchase when-issued securities. If the value of these
assets declines, the Fund will segregate additional liquid assets on a daily
basis so that the value of the segregated assets is equal to the amount of such
commitments.
5
<PAGE> 769
Other Investment Companies. As a shareholder in another
investment company, the Fund would bear, along with other shareholders, its pro
rata portion of the other investment company's expenses, including advisory
fees, in addition to the advisory and other expenses the Fund bears directly in
connection with its own operations.
Unrated Investments. The Fund may purchase instruments that are
not rated if, in the opinion of Wells Fargo Bank, such obligations are of
investment quality comparable to other rated investments that are permitted to
be purchased by the Fund. After purchase by a Fund, a security may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require a sale of such security by the Fund. To
the extent the ratings given by Moody's or S&P may change as a result of
changes in such organizations or their rating systems, the Fund will attempt to
use comparable ratings as standards for investments in accordance with the
investment policies contained in its Prospectus and in this SAI. The ratings
of Moody's and S&P are more fully described in the SAI Appendix.
Letters of Credit. Certain of the debt obligations (including
certificates of participation, commercial paper and other short-term
obligations) which the Fund may purchase may be backed by an unconditional and
irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of Wells Fargo Bank,
are of comparable quality to issuers of other permitted investments of the Fund
may be used for letter of credit-backed investments.
Convertible Securities (Lower Rated Securities). Subject to the
limitations described in the Fund's Prospectus, the Fund may invest in
convertible securities that are not rated in one of the four highest rating
categories by a NRSRO. The yields on such lower rated securities, which
includes securities also known as junk bonds, generally are higher than the
yields available on higher-rated securities. However, investments in lower
rated securities and comparable unrated securities generally involve greater
volatility of price and risk of loss of income and principal, including the
probability of default by or bankruptcy of the issuers of such securities.
Lower rated securities and comparable unrated securities (a) will likely have
some quality and protective characteristics that, in the judgment of the rating
organization, are outweighed by large uncertainties or major risk exposures to
adverse conditions and (b) are predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation. Accordingly, it is possible that these types of
factors could, in certain instances, reduce the value of securities held in the
Fund's portfolio, with a commensurate effect on the value of the Fund's shares.
Therefore, an investment in the Fund should not be considered as a complete
investment program and may not be appropriate for all investors.
While the market values of lower rated securities and comparable
unrated securities tend to react less to fluctuations in interest rate levels
than the market values of higher-rated securities, the market values of certain
lower rated securities and comparable unrated securities also tend to be more
sensitive to individual corporate developments and changes in economic
6
<PAGE> 770
conditions than higher-rated securities. In addition, lower rated securities
and comparable unrated securities generally present a higher degree of credit
risk. Issuers of lower rated securities and comparable unrated securities
often are highly leveraged and may not have more traditional methods of
financing available to them so that their ability to service their debt
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such
issuers is significantly greater because lower rated securities and comparable
unrated securities generally are unsecured and frequently are subordinated to
the prior payment of senior indebtedness. The Fund may incur additional
expenses to the extent that it is required to seek recovery upon a default in
the payment of principal or interest on its portfolio holdings. The existence
of limited markets for lower rated securities and comparable unrated securities
may diminish the Fund's ability to (a) obtain accurate market quotations for
purposes of valuing such securities and calculating its net asset value and (b)
sell the securities at fair value either to meet redemption requests or to
respond to changes in the economy or in financial markets.
Certain lower rated debt securities and comparable unrated
securities frequently have call or buy-back features that permit their issuers
to call or repurchase the securities from their holders, such as the Fund. If
an issuer exercises these rights during periods of declining interest rates,
the Fund may have to replace the security with a lower yielding security, thus
resulting in a decreased return to the Fund.
The market for certain lower rated securities and comparable
unrated securities is relatively new and has not weathered a major economic
recession. The effect that such a recession might have on such securities is
not known. Any such recession, however, could disrupt severely the market for
such securities and adversely affect the value of such securities. Any such
economic downturn also could adversely affect the ability of the issuers of
such securities to repay principal and pay interest thereon.
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the prospectus entitled "The Funds and
Management." The principal occupations during the past five years of the
Directors and principal executive Officer of the Company are listed below. The
address of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Directors deemed to be "interested persons" of the Company
for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
</TABLE>
7
<PAGE> 771
<TABLE>
<S> <C> <C>
*R. Greg Feltus, 45 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate
Professor of Finance
of the School of Business and
Accounting at Wake Forest
University since 1983.
Joseph N. Hankin, 55 Director President, Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; President of Hartford
(appointed as of September 6, 1996) Junior College from 1967 to
1971; Adjunct Professor of
Columbia University
Teachers College since 1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
</TABLE>
8
<PAGE> 772
<TABLE>
<S> <C> <C>
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 40 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
9
<PAGE> 773
COMPENSATION TABLE
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, 1995 September 30, 1996
-------------------------------- --------------------------------
Total Total
Aggregate Compensation Aggregate Compensation
Compensation from Registrant Compensation from Registrant
from and Fund from and Fund
Name and Position Registrant Complex Registrant Complex
----------------- ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Jack S. Euphrat $10,188 $39,750 $9,750 $29,250
Director
*R. Greg Feltus $-0- $-0- $-0- $-0-
Director
Thomas S. Goho $10,188 $39,750 $9,750 $29,250
Director
Joseph N. Hankin N/A N/A $-0- $-0-
Director
*Zoe Ann Hines $-0- $-0- $-0- $-0-
Director
(resigned as of
September 6, 1996)
*W. Rodney Hughes $9,438 $37,000 $8,250 $24,750
Director
Robert M. Joses $9,938 $39,000 $9,750 $29,250
Director
*J. Tucker Morse $8,313 $33,250 $8,250 $24,750
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
10
<PAGE> 774
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 which provides that Wells Fargo Bank shall
furnish to the Fund investment guidance and policy direction in connection with
the daily portfolio management of the Fund. Pursuant to the Advisory Contract,
Wells Fargo Bank furnishes to the Board of Directors periodic reports on the
investment strategy and performance of the Fund.
Wells Fargo Bank has agreed to provide to the Fund, among other
things, money market security and fixed- income research, analysis and
statistical and economic data and information concerning interest rate and
security market trends, portfolio composition, credit conditions and, average
maturities of the Fund.
The Advisory Contract will continue in effect for more than two
years provided the continuance is approved annually (i) by the holders of a
majority of the Fund's outstanding voting securities or by the Company's Board
of Directors and (ii) by a majority of the Directors of the Company who are not
parties to the Advisory Contract or "interested persons" (as defined in the
1940 Act) of any such party. The Advisory Contract may be terminated on 60
days' written notice by either party and will terminate automatically if
assigned.
For the years ended December 31, 1993, 1994 and 1995, 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 indicated
amounts:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1994 December 31, 1995 September 30, 1996
------------------ ------------------- ------------------ ------------------
Fees Fees Fees Fees Fees Fees Fees Fees
Paid Waived Paid Waived Paid Waived Paid Waived
---- ------ ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 $63,535 $192,033 $ 0 $312,512 $ 0 $415,025 $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 and the Fund, and
the Co-Administration Agreement among Wells Fargo, Stephens and the Fund, state
that Wells Fargo and Stephens shall provide as administrative services, among
other things: (i) general supervision of the
11
<PAGE> 775
operation of the Fund, including coordination of the services performed by the
Fund's investment adviser, transfer agent, custodian, shareholder servicing
agent(s), independent public accountants and legal counsel, regulatory
compliance, including the compilation of information for documents such as
reports to, and filings with, the SEC and state securities commissions; and
preparation of proxy statements and shareholder reports for the Fund; and (ii)
general supervision relative to the compilation of data required for the
preparation of periodic reports distributed to the Company's officers and Board
of Directors. Wells Fargo Bank and Stephens also furnish office space and
certain facilities required for conducting the business of the Fund together
with ordinary clerical and bookkeeping services. Stephens pays the
compensation of the Company's Directors, officers and employees who are
affiliated with Stephens. The Administrator and Co-Administrator are entitled
to receive a monthly fee of 0.04% and 0.02%, respectively, of the average daily
net assets of the Fund.
For the years ended December 31, 1993, 1994 and 1995, and the
period ended September 30, 1996, the Fund paid the following dollar amounts of
administrative fees to Stephens who, as sole administrator during these
periods, was entitled to receive a fee, payable monthly, at the annual rate of
0.03% of the Fund's average daily net assets:
<TABLE>
<CAPTION>
Dec. 31, 1993 Dec. 31, 1994 Dec. 31, 1995 Sept. 30, 1996
------------- ------------- ------------- --------------
<S> <C> <C> <C>
$3,810 $11,522 $18,751 $24,902
</TABLE>
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
entered into a shareholder servicing agreement with Wells Fargo Bank. The
dollar amount of shareholder servicing fees paid by the Fund to Wells Fargo
Bank or its affiliates for the year ended December 31, 1995 and the period
ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996
----------------- ------------------
<S> <C>
$174,644 $249,015
</TABLE>
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT. Wells
Fargo Bank has been retained to act as custodian and transfer and [dividend]
disbursing agent for the Fund. The custodian, among other things, maintains a
custody account or accounts in the name of the Fund, receives and delivers all
assets for the Fund upon purchase and upon sale or maturity, collects and
receives all income and other payments and distributions on account of the
assets of the Fund and pays all expenses of the Fund. For its services as
custodian, Wells Fargo is entitled to receive fees as follows: a net asset
charge at the annual rate of 0.0167%, payable monthly, plus specified
transaction charges. Wells Fargo also will provide portfolio accounting
services under the Custody Agreement as follows: a monthly base fee of $2,000
plus a net asset fee at the annual
12
<PAGE> 776
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 year ended December 31, 1995 and the period ended
September 30, 1996, the Fund paid no custody fees to Wells Fargo Bank.
For its services as transfer and dividend disbursing agent for the
Fund, Wells Fargo is entitled to receive monthly payments at the annual rate of
0.07% of the Fund's average daily net assets. For the year ended December 31,
1995 the Fund paid no transfer and dividend disbursing agency fees, and for the
period ended September 30, 1996, the Fund paid $27,158 (after waivers) in
transfer and dividend disbursing agency fees to Wells Fargo Bank or its
affiliates.
UNDERWRITING COMMISSIONS. For the years ended December 31, 1993
and 1994, the Company's distributor retained $26,215,173 and $5,415,227,
respectively in underwriting commissions (front-end sales loads and CDSCs, if
any) in connection with the purchase or redemption of the Company's shares.
For the years ended December 31, 1993 and 1994, Wells Fargo Securities Inc.
("WFSI"), an affiliated broker-dealer of the Company, and its registered
representatives received $378,895 and $904,274, respectively, in underwriting
commissions in connection with the purchase or redemption of the Company's
shares.
For the year ended December 31, 1995, the aggregate amount of
underwriting commissions on sales/redemptions of the Company's shares was
$1,584,545. Stephens retained $1,251,311 of such commissions. WFSI and its
registered representatives retained $333,234 of such commissions.
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.
DISTRIBUTION PLAN
As indicated in the Prospectus, the Fund, on behalf of each Class
of shares, has adopted a distribution plan (a "Plan") under Section 12(b) of
the 1940 Act and Rule 12b-1 thereunder (the "Rule"). The Plan for the shares
of the Fund now designated the Class A Shares was adopted on October 22, 1992,
by the Board of Directors, including a majority of the Directors who were not
"interested persons" (as defined in the 1940 Act) of the Fund and who had no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan (the "Qualified Directors"), and was approved by
the initial shareholder of the Fund on October 21, 1992. The Plan for the
Class B Shares was adopted by the Board of Directors, including a majority of
Qualified Directors, on July 27, 1994.
Under the Class A Plan, the Fund may defray all or part of the
cost of preparing and printing prospectuses and other promotional materials and
of delivering prospectuses and those
13
<PAGE> 777
materials to prospective shareholders of the Fund by paying on an annual basis
up to 0.05% of the average daily net assets attributable to Class A Shares.
The Class A Plan provides only for reimbursement of actual expenses. Under the
Class B Plan the Fund may defray all or part of the cost of preparing and
printing prospectuses and other promotional materials and of delivering
prospectuses and those materials to prospective Fund shareholders by paying on
an annual basis up to 0.70% of the average daily net assets of Class B Shares.
The Class B Plan provides for reimbursement of actual expenses and payment of
compensation to the Distributor and Selling Agents for sales support services.
In addition, the Plans contemplate that to the extent any fees payable pursuant
to a Shareholder Servicing Agreement are deemed to be for distribution-related
services, rather than shareholder services, such payments are approved and
payable pursuant to such Plan.
Each Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Qualified Directors. Any Distribution Agreement related to the Plans
also must be approved by such vote of the Directors and the Qualified
Directors. Distribution Agreements will terminate automatically if assigned,
and may be terminated at any time, without payment of any penalty, by a vote of
a majority of the outstanding voting securities of the Class involved. The
Plans may not be amended to increase materially the amounts payable thereunder
without the approval of a majority of the outstanding voting securities of the
Class of the Fund to which said Plan applies, and no material amendment to a
Plan may be made except by the affirmative vote of a majority of both the
Directors of the Company and the Qualified Directors.
Each Plan requires that the Treasurer of the Company shall provide
to the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under such Plan. The
Rule also requires that the selection and nomination of Directors who are not
"interested persons" of the Company be made by such disinterested Directors.
For the year ended December 31, 1995, the Funds' distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under the Plan for each Class.
<TABLE>
<CAPTION>
Printing & Mailing Marketing Compensation to
Total Prospectus Brochures Underwriters
----- ------------------ --------- ---------------
<S> <C> <C> <C> <C>
Class A $42,250 $27,257 $14,993 N/A
Class B $14,987 N/A N/A $14,987
</TABLE>
For the period ended September 30, 1996, the Fund's distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under the Plan for each Class.
14
<PAGE> 778
<TABLE>
<CAPTION>
Printing & Mailing Marketing Compensation to
Total Prospectus Brochures Underwriters
----- ------------------ --------- ---------------
<S> <C> <C> <C> <C>
Class A $ -0- $ -0- $ -0- N/A
Class B $49,796 N/A N/A $49,796
</TABLE>
For the the year ended December 31, 1995, and the period ended
September 30, 1996, WFSI and its registered representatives received no
compensation under the Plan for each Class.
PERFORMANCE CALCULATIONS
As indicated in the Prospectus, the Fund may advertise certain
total return information for a Class of shares computed in the manner described
in the Prospectus. As and to the extent required by the SEC, an average annual
compound rate of return ("T") will be computed by using the redeemable value at
the end of a specified period ("ERV") of a hypothetical initial investment in a
Class of shares ("P") over a period of years ("n") according to the following
formula: P(1+T)n = ERV. In addition, as indicated in the Prospectus, the Fund
also may, at times, calculate total return of a Class of shares based on net
asset value per share of such Class (rather than the public offering price), in
which case the figures would not reflect the effect of any sales charges that
would have been paid by an investor, or based on the assumption that a sales
charge other than the maximum sales charge (reflecting a Volume Discount) was
assessed, provided that total return data derived pursuant to the calculation
described above also are presented.
Average Annual Total Return for the Applicable Period Ended September 30, 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Inception(1) Inception Three Year Three Year One Year One Year
With No With No With No
Class Sales Charge(2) Sales Charge Sales Charge Sales Charge Sales Charge Sales Charge
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A 13.24% 14.59% 12.88% 14.63% 14.02% 19.41%
B 22.62% 23.60% N/A N/A 15.66% 18.65%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Fund's Class A shares commenced operations November 18, 1992; Class
B shares - January 2, 1995.
(2) For all periods ended September 30, 1996, the term "Sales Charge" for
Class A shares means a front-end sales load of 4.50%. For Class B shares the
term "Sales Charge" means the maximum applicable contingent deferred sales
charge ("CDSC") as described in the prospectus.
The Fund may advertise the cumulative total return on its shares.
Cumulative total return of shares is computed on a per share basis and assumes
the reinvestment of dividends and distributions. Cumulative total return of
shares generally is expressed as a percentage rate which is calculated by
combining the income and principal changes for a specified period and dividing
by the net asset value per share at the beginning of the period.
Advertisements may include the percentage rate of total return of shares or may
include the value of a hypothetical investment in
15
<PAGE> 779
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.
Cumulative Total Return for the Applicable Period Ended September 30, 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Inception(1) Inception Three Year Three Year
With No With No
Class Sales Charge(2) Sales Charge Sales Charge Sales Charge
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A 61.92% 69.53% 43.84% 50.64%
B 42.89% 44.89% N/A N/A
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Fund's Class A shares commenced operations November 18, 1992; Class
B shares - January 2, 1995.
(2) For all periods ended September 30, 1996, the term "Sales Charge" for
Class A shares means a front-end sales load of 4.50%. For Class B shares the
term "Sales Charge" means the maximum applicable contingent deferred sales
charge ("CDSC") as described in the prospectus.
From time to time and only to the extent the comparison is
appropriate for each Class of shares of the Fund, the Company may quote the
performance or price-earning ratio of such Class in advertising and other types
of literature as compared to the performance of the Lehman Brothers Municipal
Bond Index, the 1-Year Treasury Bill Rate, the S&P Index, the Dow Jones
Industrial Average, the Lehman Brothers 20+ Treasury Index, the Lehman Brothers
5-7 Year Treasury Index, Donoghue's Money Fund Averages, Real Estate Investment
Averages (as reported by the National Association of Real Estate Investment
Trusts), Gold Investment Averages (provided by the World Gold Council), Bank
Averages (which are calculated from figures supplied by the U.S. League of
Savings Institutions based on effective annual rates of interest on both
passbook and certificate accounts), average annualized certificate of deposit
rates (from the Federal Reserve G-13 Statistical Releases or the Bank Rate
Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics), other managed or
unmanaged indices or performance data of bonds, stocks or government securities
(including data provided by Ibbotson Associates), or by other services,
companies, publications or persons who monitor mutual funds on overall
performance or other criteria. The S&P Index and the Dow Jones Industrial
Average are unmanaged indices of selected common stock prices. The performance
of each Class of the Fund also may be compared to those of other mutual funds
having similar objectives. This comparative performance could be expressed as
a ranking prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the performance of mutual funds. The
performance of each Class of the Fund will be calculated by relating net asset
value per share of such Class at the beginning of a
16
<PAGE> 780
stated period to the net asset value of the investment, assuming reinvestment
of all gains distributions and dividends paid, at the end of the period. Any
such comparisons may be useful to investors who wish to compare the Fund's past
performance with that of its competitors. Of course, past performance cannot
be a guarantee of future results. The Company also may include, from time to
time, a reference to certain marketing approaches of the Distributor,
including, for example, a reference to a potential shareholder being contacted
by a selected broker or dealer. General mutual fund statistics provided by the
Investment Company Institute may also be used.
The Company also may use the following information in
advertisements and other types of literature only to the extent the information
is appropriate for each Class of the Fund: (i) the Consumer Price Index may be
used to assess the real rate of return from an investment in a Class of shares
of the Fund; (ii) other government statistics, including, but not limited to,
The Survey of Current Business, may be used to illustrate investment attributes
of a Class of shares of the Fund or the general economic, business, investment,
or financial environment in which the Fund operates; (iii) the effect of
tax-deferred compounding on the investment returns of a Class of the Fund, or
on returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in a Class of the Fund (or returns in general) on a tax-deferred
basis (assuming reinvestment of capital gains and dividends and assuming one or
more tax rates) with the return on a taxable basis; and (iv) the sectors or
industries in which a Fund invests may be compared to relevant indices of
stocks or surveys (e.g., S&P Industry Surveys) to evaluate a Fund's historical
performance or current or potential value with respect to the particular
industry or sector.
In addition, the Company also may use, in advertisements and other
types of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank, and
its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and
the related "Tax Freedom Day."
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 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,
17
<PAGE> 781
by S&P and/or Moody's. In the event one rating agency does not rate the issue
or issuer, as the case may be, in the same tier as the other agency, the
highest rating is used in the calculation.
The Company also may discuss in advertisements and other types of
literature that the Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as Standard & Poor's Ratings
Group. Such rating would assess the creditworthiness of the investments held
by the Fund. The assigned rating would not be a recommendation to purchase,
sell or hold the Fund's shares since the rating would not comment on the market
price of the Fund's shares or the suitability of the Fund for a particular
investor. In addition, the assigned rating would be subject to change,
suspension or withdrawal as a result of changes in, or unavailability of,
information relating to the Fund or its investments. The Company may compare
the Fund's performance with other investments which are assigned ratings by
NRSROs. Any such comparisons may be useful to investors who wish to compare
the Fund's past performance with other rated investments.
From time to time, the Fund may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Stagecoach Funds, provides
various services to its customers that are also shareholders of the Funds.
These services may include access to Stagecoach Funds' account information
through Automated Teller Machines (ATMs), the placement of purchase and
redemption requests for shares of the Funds through ATMs and the availability
of combined Wells Fargo Bank and Stagecoach Funds account statements." The
Company may also disclose in advertising and other types of sales literature
the assets and categories of assets under management by the Company's
investment adviser. The Company may also disclose in advertising and other
types of sales literature the assets and categories of assets under management
by a fund's investment adviser or sub-adviser and the total amount of assets
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
18
<PAGE> 782
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 for each Class of the Fund is determined
by the custodian of the Fund on each day the NYSE is open for trading.
Securities of the Fund for which market quotations are available
are valued at latest prices. Any security for which the primary market is an
exchange is valued at the last sale price on such exchange on the day of
valuation or if there was no sale on such day, the latest bid price quoted on
such day. In the case of other securities, including U.S. Government
securities but excluding money market instruments maturing in 60 days or less,
the valuations are based on latest quoted bid prices. Money market instruments
maturing in 60 days or less are valued at amortized cost. Prices may be
furnished by a reputable independent pricing service approved by the Board of
Directors. Prices provided by an independent pricing service may be determined
without exclusive reliance on quoted prices and may take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. All other securities and other assets
of the Fund for which current market quotations are not readily available are
valued at fair value as determined in good faith by the Company's Directors and
in accordance with procedures adopted by the Directors.
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,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day (each a "Holiday"). When any Holiday falls
on a weekend, the NYSE typically is closed on the weekday immediately before or
after such Holiday.
Payment for shares may, in the discretion of the adviser, be made
in the form of securities that are permissible investments for the Fund as
described in the Prospectuses. For further information about this form of
payment please contact Stephens. In connection with an in-kind securities
payment, the Fund will require, among other things, that the securities be
valued on the day of purchase in accordance with the pricing methods used by
the Fund and that the Fund receives satisfactory assurances that (i) it will
have good and marketable title to the securities received by it; (ii) that the
securities are in proper form for transfer to the Fund; and (iii) adequate
information will be provided concerning the basis and other matters relating to
the securities.
19
<PAGE> 783
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 Fund 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 Fund also may purchase portfolio securities in underwritten offerings and
may purchase securities directly from the issuer. The cost of executing the
Fund's portfolio securities transactions consists primarily of dealer spreads
and underwriting commissions. Under the 1940 Act, persons affiliated with the
Company are prohibited from dealing with the Company as a principal in the
purchase and sale of securities unless an exemptive order or other relief
allowing such transactions is obtained from the SEC or an exemption is
otherwise available. The Fund may purchase securities from underwriting
syndicates of which Stephens or Wells Fargo is a member under certain
conditions in accordance with the provisions of a rule adopted under the 1940
Act and in compliance with procedures adopted by the Board of Directors.
The Company has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors, Wells Fargo is
responsible for Fund decisions and the placing of portfolio transactions. In
placing orders, it is the policy of the Company to obtain the best overall
terms taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. While Wells Fargo
generally seeks reasonably competitive spreads or commissions, the Fund will
not necessarily be paying the lowest spread or commission available.
<PAGE> 784
In assessing the best overall terms available for any transaction,
Wells Fargo Bank considers factors deemed relevant, including the breadth of
the market in the security, the price of the security, the financial condition
and execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing
basis. Wells Fargo Bank may cause the Fund to pay a broker/dealer which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker/dealer for effecting the same transaction,
provided that Wells Fargo Bank determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker/dealer, viewed in terms of either the particular
transaction or the overall responsibilities of Wells Fargo Bank. Such
brokerage and research services might consist of reports and statistics
relating to specific companies or industries, general summaries of groups of
stocks or bonds and their comparative earnings and yields, or broad overviews
of the stock, bond, and government securities markets and the economy.
Supplementary research information so received is in addition to,
and not in lieu of, services required to be performed by Wells Fargo Bank and
does not reduce the advisory fees payable by the Fund. The Board of Directors
will periodically review the commissions paid by the Fund to consider whether
the commissions paid over representative periods of time appear to be
reasonable in relation to the benefits inuring to the Fund. It is possible
that certain of the supplementary research or other services received will
primarily benefit one or more other investment companies or other accounts for
which investment discretion is exercised. Conversely, the Fund may be the
primary beneficiary of the research or services received as a result of
portfolio transactions effected for such other account or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an
adviser shall not be "deemed to have acted unlawfully or to have breached its
fiduciary duty" solely because under certain circumstances it has caused the
account to pay a higher commission than the lowest available. To obtain the
benefit of Section 28(e), an adviser must make a good faith determination that
the commissions paid are "reasonable in relation to the value of the brokerage
and research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Fund in any transaction may be less favorable than that
available from another broker/dealer if the difference is reasonably justified
by other aspects of the portfolio execution services offered.
Broker/dealers utilized by Wells Fargo Bank may furnish
statistical, research and other information or services which are deemed by
Wells Fargo Bank to be beneficial to the Fund's investment programs. Research
services received from brokers supplement Wells Fargo Bank's own research and
may include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
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;
21
<PAGE> 785
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 are 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 paid the
following in brokerage commissions:
<TABLE>
<CAPTION>
Dec. 31, 1993 Dec. 31, 1994 Dec. 31, 1995 Sept. 30, 1996
------------- ------------- ------------- --------------
<S> <C> <C> <C>
$68,477 $134,777 $193,078 $267,469
</TABLE>
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:
<TABLE>
<CAPTION>
Fund Amount Regular Broker/Dealer
- ---- ------ ---------------------
<S> <C> <C>
Diversified Income $7,521,000 Goldman Sachs & Co.
</TABLE>
Securities of Regular Broker/Dealers. As of December 31, 1995,
the Fund owned securities of its "regular brokers or dealers" or their parents
as defined in the Act, as follows:
<TABLE>
<CAPTION>
Fund Amount Regular Broker/Dealer
- ---- ------ ---------------------
<S> <C> <C>
Diversified Income $2,373,000 Goldman Sachs & Co.
</TABLE>
Portfolio Turnover. Portfolio turnover generally involves some
expenses to the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gain tax
consequences. The portfolio turnover rate for the Fund generally is not
22
<PAGE> 786
expected to exceed 150%. 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.
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.
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
23
<PAGE> 787
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 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.
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
24
<PAGE> 788
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 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.
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 Fund will attempt to
monitor Section 988 transactions to avoid an adverse tax impact.
If the Fund purchases shares in a "passive foreign investment
company" ("PFIC"), the Fund may be subject to federal income tax and an
interest charge imposed by the IRS upon 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
25
<PAGE> 789
any distributions by the PFIC, the Fund will not be subject to federal income
tax or the interest charge with respect to its interest in the PFIC.
Foreign Shareholders. Under the Code, distributions of net
investment income by the Fund to a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or a lower treaty rate). Withholding will not apply if a
dividend paid by the Fund to a foreign shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents or domestic
corporations will apply. Distributions of net long-term capital gains are not
subject to tax withholding, but, in the case of a foreign shareholder who is a
nonresident alien individual, such distributions ordinarily will be subject to
U.S. income tax at a rate of 30% if the individual is physically present in the
U.S. for more than 182 days during the taxable year.
Backup Withholding. The Company may be required to withhold,
subject to certain exemptions, at a rate of 31% ("backup withholding") on
dividends, capital gain distributions, and redemption proceeds (including
proceeds from exchanges and redemptions in kind) paid or credited to an
individual Fund shareholder, unless a shareholder certifies that the Taxpayer
Identification Number ("TIN") provided is correct and that the shareholder is
not subject to backup withholding, or the IRS notifies the Company that the
shareholder's TIN is incorrect or the shareholder is subject to backup
withholding. Such tax withheld does not constitute any additional tax imposed
on the shareholder, and may be claimed as a tax payment on the shareholder's
federal income tax return. An investor must provide a valid TIN upon opening
or reopening an account. Failure to furnish a valid TIN to the Company could
subject the investor to penalties imposed by the IRS.
Other Matters. Investors should be aware that the investments to
be made by the Fund may involve sophisticated tax rules that may result in
income or gain recognition by the Fund without corresponding current cash
receipts. Although the Fund will seek to avoid significant noncash income,
such noncash income could be recognized by the Fund, in which case the Fund may
distribute cash derived from other sources in order to meet the minimum
distribution requirements described above.
The foregoing discussion and the discussions in the prospectus
applicable to each shareholder address only some of the federal tax
considerations generally affecting investments in the Fund. Each investor is
urged to consult his or her tax advisor regarding specific questions as to
federal, state or local taxes and foreign taxes.
CAPITAL STOCK
The Fund is one of the funds of the Stagecoach Family
of Funds. The Company was organized as a Maryland corporation on September 9,
1991 and currently offers shares of twenty-four other funds.
26
<PAGE> 790
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 two Classes of shares -- Class A Shares
and Class B Shares. With respect to matters that affect one Class but not
another (for example, the approval of a Plan), shareholders vote as a Class.
Subject to the foregoing, all shares of a Fund have equal voting rights and
will be voted in the aggregate, and not by series, except where voting by a
series is required by law or where the matter involved only affects one series.
For example, a change in a Fund's fundamental investment policies affects only
one series and would be voted upon only by shareholders of the affected Fund
and not shareholders of the Company's other series. Additionally, approval of
an advisory contract is a matter to be determined separately by series.
Approval by the shareholders of one series is effective as to that series
whether or not sufficient votes are received from the shareholders of the other
series to approve the proposal as to those series. As used in the Prospectus
and in this SAI, the term "majority," when referring to approvals to be
obtained from shareholders of a Class of the Fund, means the vote of the lesser
of (i) 67% of the shares of such Class represented at a meeting if the holders
of more than 50% of the outstanding shares of such Class are present in person
or by proxy, or (ii) more than 50% of the outstanding shares of such Class.
The term "majority," when referring to the approvals to be obtained from
shareholders of the Company as a whole, means the vote of the lesser of (i) 67%
of the Company's shares represented at a meeting if the holders of more than
50% of the Company's outstanding shares are present in person or by proxy, or
(ii) more than 50% of the Company's outstanding shares. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held.
The Company may dispense with annual meetings of shareholders in
any year in which it is not required to elect Directors under the 1940 Act.
Each share of the Fund represents an equal proportional interest
in the Fund with each other share and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Fund as
are declared in the discretion of the Directors. In the event of the
liquidation or dissolution of the Company, shareholders of the Fund are
entitled to receive the assets attributable to the Fund that are available for
distribution, and a distribution of any general assets not attributable to the
Fund or a particular portfolio that are available for distribution in such
manner and on such basis as the Directors in their sole discretion may
determine.
Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.
27
<PAGE> 791
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>
DIVERSIFIED Wells Fargo Bank Class A 34.80% 29.40%
INCOME 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 Registration Statement, including the Prospectus, the SAI and
the exhibits filed therewith, may be examined at the office of the SEC in
Washington, D.C. Statements contained in the Prospectus or the SAI as to the
contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company. KPMG Peat Marwick LLP provides audit services, tax
return preparation and assistance and consultation in connection with review of
certain SEC filings. KPMG Peat Marwick LLP's address is Three Embarcadero
Center, San Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and
independent auditors' report for the Fund 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 are attached
to all SAIs delivered to current or prospective shareholders.
28
<PAGE> 792
APPENDIX
The following is a description of the ratings given by Moody's and
S&P to corporate bonds and commercial paper.
Corporate Bonds
Moody's: The four highest ratings for corporate bonds are "Aaa,"
"Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best quality"
and carry the smallest amount of investment risk. Bonds rated "Aa" are of
"high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds
rated "A" possess many favorable investment attributes and are considered to be
upper medium grade obligations. Bonds rated "Baa" are considered to be medium
grade obligations; interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1,
2 and 3 in each rating category from "Aa" through "Baa" in its rating system.
The modifier 1 indicates that the security ranks in the higher end of its
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate bonds are "AAA,"
"AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned by
S&P and have an extremely strong capacity to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity to pay interest and repay
principal" and differ "from the highest rated issued only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having an "adequate capacity" to pay interest and
repay principal, but changes in economic conditions or other circumstances are
more likely to lead to a "weakened capacity" to make such repayments. The
ratings from "AA" to "BBB" may be modified by the addition of a plus or minus
sign to show relative standing within the category.
Commercial Paper
Moody's: The highest rating for commercial paper is "P-1"
(Prime-1). Issuers rated "P-1" have a "superior capacity for repayment of
short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
A-1
<PAGE> 793
S&P: The "A-1" rating for commercial paper indicates that the
"degree of safety regarding timely payment is either overwhelming or very
strong." Commercial paper with "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> 794
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1997
MONEY MARKET MUTUAL FUND
CALIFORNIA TAX-FREE MONEY MARKET MUTUAL FUND
CLASS A
----------------------------------
Stagecoach Funds, Inc. (the "Company") is an open-end, series
investment company. This Statement of Additional Information ("SAI") contains
information about two of the funds in the Stagecoach Family of Funds -- the
MONEY MARKET MUTUAL FUND and the CALIFORNIA TAX-FREE MONEY MARKET MUTUAL FUND
(each a "Fund" and collectively, the "Funds"). This SAI relates to the Class A
shares of the Money Market Mutual Fund and to the shares of the California
Tax-Free Money Market Mutual Fund (collectively, the "Class A shares"). The
investment objective of each Fund is described in its respective 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 February 1, 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., the Company's sponsor,
administrator and distributor, at 111 Center Street, Little Rock, Arkansas
72201 or calling the Transfer Agent at the telephone number indicated above.
----------------------------------
<PAGE> 795
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Additional Permitted Investment Activities . . . . . . . . . . . . . . . . . 3
Special Considerations Affecting
California Municipal Obligations . . . . . . . . . . . . . . . . . . . . . 5
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . 19
Additional Purchase and Redemption Information. . . . . . . . . . . . . . . . 20
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
i
<PAGE> 796
INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Funds are subject to the following
investment restrictions, all of which are fundamental policies.
The Funds 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 such Fund's investments in that industry
would be 25% or more of the current value of such Fund's total assets, provided
that there is no limitation with respect to investments in (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), with respect to the California Tax-Free Money Market
Mutual Fund, (ii) obligations of the United States Government, its agencies or
instrumentalities, and (iii) with respect to both Funds, the obligations of
domestic banks (for the purpose of this restriction, domestic bank obligations
do not include obligations of U.S. branches of foreign banks or obligations of
foreign branches of U.S. banks);
(2) purchase or sell real estate or real estate limited
partnerships (other than municipal obligations with respect to the California
Tax-Free Money Market Mutual Fund, or other than money market securities with
respect to the Money Market Mutual Fund, 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 both Funds and
except for margin payments in connection with options, futures and options on
futures with regard to the California Tax-Free Money Market Mutual Fund) 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 a 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
1
<PAGE> 797
(7) write, purchase or sell puts, calls, options, warrants or any
combination thereof, except that the Funds may purchase securities with put
rights in order to maintain liquidity.
In addition, neither Fund may make loans of portfolio securities
or other assets, except that loans for purposes of this restriction will not
include the purchase of fixed time deposits, repurchase agreements, commercial
paper and other short-term obligations, and other types of debt instruments
commonly sold in public or private offerings.
Non-Fundamental Investment Policies. The Funds are subject to the
following non-fundamental policies.
(1) The Funds may not purchase or retain securities of any issuer
if the officers or Directors of the Company or the investment adviser owning
beneficially more than one-half of one percent (0.5%) of the securities of the
issuer together owned beneficially more than 5% of such securities.
(2) The Funds may not purchase interests, leases, or limited
partnership interests in oil, gas, or other mineral exploration or development
programs.
(3) The Money Market Mutual Fund may not purchase or sell real
estate limited partnership interests.
(4) The Funds 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.
(5) The Funds 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 such Fund's aggregate investment
in such classes of securities will exceed 5% of its total assets.
(6) The California Tax-Free Money Market Mutual Fund may not
invest more than 10% of the current value of their net assets in repurchase
agreements maturing in more than seven days or other illiquid securities
(including restricted securities). The Money Market Mutual Fund may not invest
more than 10% of the current value of its net assets in securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale and fixed time deposits that are subject to
withdrawal penalties and that have maturities of more than seven days.
In addition, the Funds may invest in shares of other open-end,
management investment companies, subject to the limitations of Section 12(d)(1)
of the 1940 Act, provided that any such purchases will be limited to temporary
investments in shares of unaffiliated
2
<PAGE> 798
investment companies. However, the Funds' investment adviser will waive its
advisory fees for that portion of the Funds' assets so invested, except when
such purchase is part of a plan of merger, consolidation, reorganization or
acquisition. In the case of the California Tax-Free Money Market Mutual Fund
these unaffiliated investment companies must have a fundamental investment
policy of investing at least 80% of their net assets in obligations that are
exempt from federal income taxes and are not subject to the federal alternative
minimum tax.
In addition, as provided in Rule 2a-7 under the 1940 Act, the
Money Market Mutual Fund may only purchase "Eligible Securities" (as defined in
Rule 2a-7) and only if, immediately after such purchase: the Money Market
Mutual Fund would have no more than 5% of its total assets in "First Tier
Securities" (as defined in Rule 2a-7) of any one issuer, excluding government
securities and except as otherwise permitted for temporary purposes and for
certain guarantees and unconditional puts; the Money Market Mutual Fund would
own no more than 10% of the voting securities of any one issuer; the Money
Market Mutual Fund would have no more than 5% of its total assets in "Second
Tier Securities" (as defined in Rule 2a-7); and the Money Market Mutual Fund
would have no more than the greater of $1 million or 1% of its total assets in
Second Tier Securities of any one issuer.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Unrated Investments. The Funds 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 such Funds. The Funds may purchase unrated instruments only if
they are purchased in accordance with the procedures of each Fund adopted by
the Company's Board of Directors in accordance with Rule 2a-7 under the 1940
Act. After purchase by a Fund, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by such Fund. Neither
event will require a sale of such security by the Fund, provided that when a
security ceases to be rated, the Company's Board of Directors determines that
such security presents minimal credit risks and, provided further that, when a
security rating is downgraded below the eligible quality for investment or no
longer presents minimal credit risks, the Board finds that the sale of such
security would not be in such Funds' best interest. To the extent the ratings
given by Moody's or S&P may change as a result of changes in such organizations
or their rating systems, each Fund will attempt to use comparable ratings as
standards for investments in accordance with the investment policies contained
in the Prospectus of the Fund 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 Funds may purchase may be backed by an
unconditional and irrevocable letter of credit of a bank, savings and loan
association or insurance company which assumes the obligation for payment of
principal and interest in the event of default by the issuer. Only banks,
savings and loan associations and insurance companies which, in the opinion of
Wells Fargo Bank, are of comparable quality to issuers of other permitted
investments of each such Fund may be used for
3
<PAGE> 799
letter of credit-backed investments, provided that, in the case of the
California Tax-Free Money Market Mutual Fund, the Company's Board approves or
ratifies such investments.
When-Issued Securities. Certain of the securities in which the
California Tax-Free Money Market Mutual Fund may invest will be purchased on a
when-issued basis, in which case delivery and payment normally take place
within 45 days after the date of the commitment to purchase. However, the
California Tax-Free Money Market Mutual Fund has no present intention to invest
in when-issued securities during the coming year. The Fund will only make
commitments to purchase securities on a when-issued basis with the intention of
actually acquiring the securities, but may sell them before the settlement date
if it is deemed advisable. When-issued securities are subject to market
fluctuation, and no income accrues to the purchaser during the period prior to
issuance. The purchase price and the interest rate that will be received on
debt securities are fixed at the time the purchaser enters into the commitment.
Purchasing a security on a when-issued basis can involve a risk that the market
price at the time of delivery may be lower than the agreed-upon purchase price,
in which case there could be an unrealized loss at the time of delivery.
Each Fund will establish a segregated account in which it will
maintain cash, U.S. Government obligations, or other high-quality debt
instruments in an amount at least equal in value to their respective
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will place additional liquid assets in the account on a
daily basis so that the value of the assets in the account is equal to the
amount of such commitments.
Municipal Bonds. The California Tax-Free Money Market Mutual Fund
may invest in municipal bonds. As discussed in the Fund's Prospectus, the two
principal classifications of municipal bonds are "general obligation" and
"revenue" bonds. Municipal bonds are debt obligations issued to obtain funds
for various public purposes, including the construction of a wide range of
public facilities such as bridges, highways, housing, hospitals, mass
transportation, schools, streets, and water and sewer works. Other purposes
for which municipal bonds may be issued include the refunding of outstanding
obligations and obtaining funds for general operating expenses or to loan to
other public institutions and facilities. Industrial development bonds are a
specific type of revenue bond backed by the credit and security of a private
user. Certain types of industrial development bonds are issued by or on behalf
of public authorities to obtain funds to provide privately-operated housing
facilities, sports facilities, convention or trade show facilities, airport,
mass transit, port or parking facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity, or
sewage or solid waste disposal. 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.
4
<PAGE> 800
TANs. An uncertainty in a municipal issuer's capacity to raise
taxes as a result of such things as a decline in its tax base or a rise in
delinquencies could adversely affect the issuer's ability to meet its
obligations on outstanding TANs. Furthermore, some municipal issuers mix
various tax proceeds into a general fund that is used to meet obligations other
than those of the outstanding TANs. Use of such a general fund to meet various
obligations could affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations
on its BANs is primarily dependent on the issuer's adequate access to the
longer term municipal bond market and the likelihood that the proceeds of such
bond sales will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as
anticipated revenues from another level of government, could adversely affect
an issuer's ability to meet its obligations on outstanding RANs. In addition,
the possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
The values of outstanding municipal securities will vary as a
result of changing market evaluations of the ability of their issuers to meet
the interest and principal payments (i.e., credit risk). Such values also will
change in response to changes in the interest rates payable on new issues of
municipal securities (i.e., market risk). Should such interest rates rise, the
values of outstanding securities, including those held in 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.
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,
5
<PAGE> 801
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, 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 Investors Service lowered its rating from "Aa" to "A1," Standard &
Poor's Ratings Group 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 & Poors 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
6
<PAGE> 802
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 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.
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 valorem 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
7
<PAGE> 803
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 Money Market Mutual Fund may be obligations payable solely from lease
payments on real or personal property leased to the state, cities, counties or
their various public entities. California law provides that a lessor may not
be required to make payments during any period that it is denied use and
occupancy of the property in proportion to such loss. Moreover, the lessor
only agrees to appropriate funding for lease payments in its annual budget for
each fiscal year. In case of a default under the lease, the only remedy
available against the lessor is that of reletting the property; no acceleration
of lease payments is permitted. Each of these factors presents a risk that the
lease financing obligations held by the California Tax- Free Money Market
Mutual Fund would not be paid in a timely manner.
Certain debt obligations held by the California Tax-Free Money
Market Mutual 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.
8
<PAGE> 804
* * *
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.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 45 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate
Professor of Finance
of the
</TABLE>
9
<PAGE> 805
<TABLE>
<S> <C>
School of Business and
Accounting at Wake
Forest University
since 1983.
Joseph N. Hankin, 55 Director President, Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; President of Hartford
(appointed as of September 6, 1996) Junior College from 1967 to
1971; Adjunct Professor of
Columbia University
Teachers College since
1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real
10 Legrae Street Estate Developer
Charleston, SC 29401 Chairman of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 40 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
10
<PAGE> 806
COMPENSATION TABLE
<TABLE>
<CAPTION>
Year Ended Period Ended
---------- -------------
December 31, 1995 September 30, 1996
------------------ ------------------
Total Total
Aggregate Compensation from Aggregate Compensation from
Compensation Registrant Compensation Registrant
from Registrant and Fund Complex from Registrant and Fund Complex
--------------- ---------------- --------------- -----------------
Name and Position
-----------------
<S> <C> <C> <C> <C>
Jack S. Euphrat $10,188 $39,750 $9,750 $29,250
Director
*R. Greg Feltus $-0- $-0- $-0- $-0-
Director
Thomas S. Goho $10,188 $39,750 $9,750 $29,250
Director
Joseph N. Hankin N/A N/A $-0- $-0-
Director
*Zoe Ann Hines $-0- $-0- $-0- $-0-
Director
(resigned as of
September 6, 1996)
*W. Rodney Hughes $9,438 $37,000 $8,250 $24,750
Director
Robert M. Joses $9,938 $39,000 $9,750 $29,250
Director
*J. Tucker Morse $8,313 $33,250 $8,250 $24,750
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
11
<PAGE> 807
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 Funds are advised by Wells Fargo Bank
pursuant to Advisory Contracts approved by the Board of Directors on October
22, 1991, and by the initial shareholder of each Fund on December 2, 1991. The
Advisory Contract for each Fund provides that Wells Fargo Bank shall furnish to
the Fund investment guidance and policy direction in connection with the daily
portfolio management of the Fund. Pursuant to the Advisory Contracts, Wells
Fargo Bank furnishes to the Company's Board of Directors periodic reports on
the investment strategy and performance of each Fund.
Wells Fargo Bank has agreed to provide to each Fund with, among
other things, money market security and fixed-income research, analysis and
statistical and economic data and information concerning interest rate and
security market trends, portfolio composition, credit conditions and average
maturities of each Fund's portfolio.
Each Advisory Contract will continue in effect for more than two
years provided the continuance is approved annually (i) by the holders of a
majority of the respective Fund's outstanding voting securities or by the
Company's Board of Directors and (ii) by a majority of the Directors of the
Company who are not parties to the Advisory Contract or "interested persons"
(as defined in the 1940 Act) of any such party. The Advisory Contracts 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 Funds paid to Wells Fargo Bank the
advisory fees indicated below and Wells Fargo Bank waived the indicated
amounts:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1994 December 31, 1996 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>
California Tax-Free $3,406,799 $458,784 $304,857 $3,809,902 $4,867,523 $0 $4,099,437 $0
Money Market
Mutual
Money Market Mutual $1,285,690 $0 $2,073,686 $2,008,946 $12,729,506 $0 $11,593,678 $0
</TABLE>
12
<PAGE> 808
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 and each Fund, and
the Co-Administration Agreement among Wells Fargo, Stephens and each Fund,
state that Wells Fargo and Stephens shall provide as administrative services,
among other things: (i) general supervision of the operation of the Funds,
including coordination of the services performed by each Fund's investment
adviser, transfer agent, custodian, shareholder servicing agent(s), independent
public accountants and legal counsel, regulatory compliance, including the
compilation of information for documents such as reports to, and filings with,
the SEC and state securities commissions; and preparation of proxy statements
and shareholder reports for the Funds; 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 Funds 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.
For the fiscal years ended December 31, 1993, 1994 and 1995, and
the period ended September 30, 1996, the Funds paid the following dollar
amounts of administrative fees to Stephens, the sole administrator during these
periods, based on a monthly fee at the annual rate of 0.03% of each Fund's
average daily net assets:
<TABLE>
<CAPTION>
Fund Dec. 31, Dec. 31, Dec. 31, Sept. 30,
---- 1993 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
California Tax-Free Money Market Mutual $232,585 $247,666 $292,095 $245,966
Money Market Mutual $ 96,535 $306,209 $954,713 $872,577
</TABLE>
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 each Fund's
prospectus under the heading "Shareholder Servicing Agent," the Funds have
entered into shareholder servicing agreements with Wells Fargo Bank. The
dollar amounts of shareholder servicing fees paid by each of the Funds to Wells
Fargo Bank or its affiliates for the fiscal year ended December 31, 1995 and
the period ended September 30, 1996, were as follows:
<TABLE>
<CAPTION>
Fund December 31, 1995 September 30, 19961
- ---- ----------------- ------------------
<S> <C> <C>
California Tax-Free Money Market Mutual $522,756 $344,032
Money Market Mutual $8,542,616 $7,594,481
</TABLE>
13
<PAGE> 809
- -------------
1 These amounts include shareholder servicing fees paid by other classes of
each Fund and reflect fee waivers.
CUSTODIAN AND TRANSFER AND DIVIDEND AGENT. Wells Fargo Bank has
been retained to act as custodian and transfer and dividend disbursing agent
for each Fund. The custodian, among other things, maintains a custody account
or accounts in the name of each Fund; receives and delivers all assets for each
Fund upon purchase and upon sale or maturity; collects and receives all income
and other payments and distributions on account of the assets of each Fund and
pays all expenses of each Fund. For its services as custodian, Wells Fargo
Bank receives an asset-based fee and transaction charges from each Fund; and
for its services as transfer and dividend disbursing agent, it receives a base
fee and per-account fees from each Fund. For the year ended December 31, 1995
and the period ended September 30, 1996, the Funds did not pay any custody fees
or transfer and dividend disbursing agency fees to Wells Fargo Bank.
UNDERWRITING COMMISSIONS. The Funds do not assess any front-end
sales loads or contingent deferred sales charges in connection with the
purchase and redemption of shares, and therefore pay no underwriting
commissions to the Distributor.
DISTRIBUTION PLAN
Each of the Funds has adopted a distribution plan (a "Plan") under
Section 12(b) of the 1940 Act and Rule 12b-1 thereunder as described in each
Fund's Prospectus. The Plans for the Class A shares of the Funds were 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 respective
Fund and who had no direct or indirect financial interest in the operation of
the Plans or in any agreement related to the Plans (the "Qualified Directors")
on October 22, 1991, and were approved by the initial shareholder of the
respective Funds on December 2, 1991.
Under the Plans in effect for the Class A shares of the Funds,
each Fund may defray all or part of the cost of preparing and printing
prospectuses and other promotional materials and of delivering prospectuses and
those materials to prospective Fund shareholders by paying on an annual basis
up to 0.05% of the respective Fund's average daily net assets attributable to
Class A shares. The Plans for the Class A shares of the Funds provide only for
reimbursement of actual expenses. In addition, each Plan contemplates that to
the extent any fees payable pursuant to a Shareholder Servicing Agreement are
deemed to be for distribution-related services, rather than shareholder
services, such payments are approved and payable pursuant to such Plan.
Each Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Qualified Directors. Any Agreements related to the Plans also must be
approved by the Majority vote of the Directors and the Qualified Directors.
Such Agreements will terminate automatically if assigned, and may, in the case
of the California Tax-Free Money Market Mutual Fund, be terminated at any time,
without payment of any penalty, by a vote of a majority of the outstanding
voting securities of the respective Fund. In the case of the Money Market
Mutual Fund, such agreement may be
14
<PAGE> 810
terminated at any time without penalty by a vote of a majority of the
outstanding voting securities of the respective Class of such Fund affected by
the Agreement. The Plans may not be amended to increase materially the amounts
payable thereunder, in the case of the California Tax-Free Money Market Mutual
Fund, without the approval of a majority of the outstanding voting securities
of the Fund and in the case of the Money Market Mutual Fund, without the
approval of a majority of the outstanding voting securities of the respective
Class of such Fund affected by the proposed increase. No material amendment to
the Plans may be made except by the approval of a majority of both the
Directors of the Company and the Qualified Directors.
Each Plan requires that the Treasurer of the Company shall provide
to the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under the Plan. The
Rule also requires that the selection and nomination of Directors who are not
"interested persons" of the Company be made by such disinterested Directors.
For the year ended December 31, 1995, the Funds' distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under each Fund's Plan.
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Fund Total Prospectus Brochures Underwriters
---- ----- ---------- --------- ------------
<S> <C> <C> <C> <C>
California Tax-Free
Money Market Mutual $326,122 $132,394 $193,728 N/A
Money Market Mutual
Class A $332,859 $122,263 $210,596 -0-
</TABLE>
For the period ended September 30, 1996, the Funds' distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under each Fund's Plan.
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Fund Total Prospectus Brochures Underwriters
---- ----- ---------- --------- ------------
<S> <C> <C> <C> <C>
California Tax-Free
Money Market Mutual $188,355 $ 39,668 $148,687 N/A
Money Market Mutual
Class A $383,963 $ 24,454 $359,509 N/A
</TABLE>
For the year ended December 31, 1995 and the period ended
September 30, 1996, WFSI and its registered representatives received no
compensation under each Fund's Plans.
PERFORMANCE CALCULATIONS
15
<PAGE> 811
Yield for each Fund is calculated based on the net changes,
exclusive of capital changes, over a seven-day period, in the value of a
hypothetical pre-existing account having a balance of one share at the
beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then multiplying the base period return by (365/7) with the
resulting yield figure carried to at least the nearest hundredth of one
percent. Tax-equivalent yield for the California Tax-Free Money Market Mutual
Fund is computed by dividing that portion of the yield of the Fund which is
tax-exempt by one minus a stated income tax rate and adding the product to that
portion, if any, of the yield of the Fund that is not tax-exempt.
Effective yield and effective tax-equivalent yield for the
California Tax-Free Money Market Mutual Fund are calculated by determining the
net change, or tax-equivalent assumed net change, exclusive of capital changes,
in the value of a hypothetical pre-existing account having a balance of one
share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then compounding the base period return by adding one,
raising the sum to a power equal to 365 divided by seven, and subtracting one
from the result.
Yield For The Applicable Period Ended September 30, 1996
<TABLE>
<CAPTION>
Seven-Day
Seven-Day Tax- Seven-Day Effective Effective Tax-
Fund Seven-Day Yield Equivalent Yield Yield Equivalent Yield
---- --------------- ---------------- ----- ----------------
<S> <C> <C> <C> <C>
California Tax-Free Money
Market Mutual 2.94% 5.52% 3.01% 5.60%
Money Market Mutual
Class A 4.86% N/A 4.98% N/A
</TABLE>
The yield for the Funds will fluctuate from time to time, unlike
bank deposits or other investments that pay a fixed yield for a stated period
of time, and does not provide a basis for determining future yields since it is
based on historical data. Yield is a function of portfolio quality,
composition, maturity and market conditions as well as the expenses allocated
to the Fund.
Yield information for a Fund or Class of shares in a Fund may be
useful in reviewing the performance of such Fund or Class of shares and for
providing a basis for comparison with investment alternatives. The yield of a
Fund and the yield of a Class of shares in a 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.
16
<PAGE> 812
In addition, investors should recognize that changes in the net
asset value of shares of each Class of the Money Market Mutual 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 to shareholders of each Class of shares for the period. Yield
information for the Funds and each Class may be useful in reviewing the
performance of the Funds and each Class and for providing a basis for
comparison with investment alternatives. The yield of a Fund and the yield of
each Class, 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 Fund or a Class of shares, the Company may quote the
performance or price-earning ratio of a Fund or Class in advertising and other
types of literature as compared to the performance of the S&P Index, the Dow
Jones Industrial Average, the Lehman Brothers 20+ Treasury Index, the Lehman
Brothers 5-7 Year Treasury Index, Donoghue's Money Fund Averages, Real Estate
Investment Averages (as reported by the National Association of Real Estate
Investment Trusts), Gold Investment Averages (provided by World Gold Council),
Bank Averages (which are calculated from figures supplied by the U.S. League of
Savings Institutions based on effective annual rates of interest on both
passbook and certificate accounts), average annualized certificate of deposit
rates (from the Federal Reserve G-13 Statistical Releases or the Bank Rate
Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics), other managed or
unmanaged indices or performance data of bonds, municipal securities, stocks or
government securities (including data provided by Ibbotson Associates), or by
other services, companies, publications or persons who monitor mutual funds on
overall performance or other criteria. The S&P Index and the Dow Jones
Industrial Average are unmanaged indices of selected common stock prices. The
performance of the Funds or a Class also may be compared to that 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
Funds' performance will be calculated by relating net asset value per share at
the beginning of a stated period to the net asset value of the investment,
assuming reinvestment of all gains distributions and dividends paid, at the end
of the period. The Funds' comparative performance will be based on a
comparison of yields, as described above, or total return, as reported by
Lipper, Survey Publications, Donoghue or Morningstar, Inc.
Any such comparisons may be useful to investors who wish to
compare past performance of the Funds or a Class with that of competitors. Of
course, past performance cannot be a guarantee of future results. The Company
also may include, from time to time, a reference to certain marketing
approaches of the Distributor, including, for example, a reference to a
potential shareholder being contacted by a selected broker or dealer. General
mutual fund statistics provided by the Investment Company Institute may also be
used.
The Company also may use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for the Fund: (i) the
17
<PAGE> 813
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 Fund, or on returns in
general, may be illustrated by graphs, charts, etc., where such graphs or
charts would compare, at various points in time, the return from an investment
in a Fund (or returns in general) on a tax-deferred basis (assuming
reinvestment of capital gains and dividends and assuming one or more tax rates)
with the return on a taxable basis; and (iv) the sectors or industries in which
a Fund invests may be compared to relevant indices of stocks or surveys (e.g.,
S&P Industry Surveys) to evaluate a Fund's historical performance or current or
potential value with respect to the particular industry or sector.
In addition, the Company also may use, in advertisements and other
types of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank,
and its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and
the related "Tax Freedom Day."
The Company also may discuss in advertising and other types of
literature that a Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to
purchase, sell or hold the Fund's shares since the rating would not comment on
the market price of the Fund's shares or the suitability of the Fund for a
particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. The Company may
compare the Fund's performance with other investments which are assigned
ratings by NRSROs. Any such comparisons may be useful to investors who wish to
compare the Fund's past performance with other rated investments.
From time to time, the Funds may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Stagecoach Funds, provides
various services to its customers that are also shareholders of the Funds. These
services may include access to Stagecoach Funds' account information through
Automated Teller Machines (ATMs), the placement of purchase and redemption
requests for shares of the Funds through ATMs and the availability of combined
Wells Fargo Bank and Stagecoach Funds account statements." The Company may also
disclose in advertising and other types of sales literature the assets and
categories of assets under management by the Company's investment adviser. The
Company 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 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 December 31, 1996, Wells Fargo Bank
18
<PAGE> 814
and its affiliates provided investment Advisory services for approximately $54
billion of assets of individual, trusts, estates and institutions and $20
billion of mutual fund assets.
The Company also may discuss in advertising and other types of
literature the features, terms and conditions of Wells Fargo Bank accounts
through which investments in the Funds may be made via a "sweep" arrangement,
including, without limitation, the Managed Sweep Account, Money Market Checking
Account, California Tax-Free Money Market Checking Account, Money Market Access
Account and California 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 Funds 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 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 Fund share is determined by the Custodian on
each Business Day, as described in the Prospectus for each Fund.
19
<PAGE> 815
As indicated under "Investing In The Funds -- Share Price" in the
Prospectus, each Fund uses the amortized cost method to determine the value of
its portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The
amortized cost method involves valuing a security at its cost and 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 Funds 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 Funds'
portfolio on a particular day, a prospective investor in the Funds would be
able to obtain a somewhat higher yield than would result from investment in a
fund using solely market values, and existing Fund shareholders would receive
correspondingly less income. The converse would apply during periods of rising
interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, a Fund must maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase securities having remaining maturities
(as defined in Rule 2a-7) of thirteen months or less and invest only in those
high-quality securities that are determined by the Board of Directors to
present minimal credit risks. The maturity of an instrument is generally
deemed to be the period remaining until the date when the principal amount
thereof is due or the date on which the instrument is to be redeemed. However,
Rule 2a-7 provides that the maturity of an instrument may be deemed shorter in
the case of certain instruments, including certain variable and floating rate
instruments subject to demand features. Pursuant to the Rule, the Board is
required to establish procedures designed to stabilize, to the extent
reasonably possible, a Fund's price per share as computed for the purpose of
sales and redemptions at $1.00. Such procedures include review of the Fund's
portfolio holdings by the Board of Directors, at such intervals as it may deem
appropriate, to determine whether the Fund's net asset value calculated by
using available market quotations deviates from $1.00 per share based on
amortized cost. The extent of any deviation will be examined by the Board of
Directors. If such deviation exceeds 1/2 of 1%, the Board will promptly
consider what action, if any, will be initiated. In the event the Board
determines that a deviation exists that may result in material dilution or
other unfair results to investors or existing shareholders, the Board will take
such corrective action as it regards as necessary and appropriate, including
the sale of portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity, withholding dividends or
establishing a net asset value per share by using available market quotations.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day a 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 Funds are typically closed on the
20
<PAGE> 816
weekday immediately before or after such Holiday. The Funds observe the same
Holidays as Wells Fargo Bank, except Martin Luther King Jr. Day, Columbus Day
and Veterans Day. Nonetheless, for purposes of Fund share purchases, these
three days are, effectively, 'Holidays' for the Funds, since Wells Fargo Bank
is closed.
Payment for shares may, in the discretion of the adviser, be made
in the form of securities that are permissible investments for the Funds as
described in the Prospectuses. For further information about this form of
payment please contact Stephens. In connection with an in-kind securities
payment, the Funds will require, among other things, that the securities be
valued on the day of purchase in accordance with the pricing methods used by a
Fund and that such Fund receives satisfactory assurances that (i) it will have
good and marketable title to the securities received by it; (ii) that the
securities are in proper form for transfer to the Fund; and (iii) adequate
information will be provided concerning the basis and other matters relating to
the securities.
Under the 1940 Act, the Funds may suspend the right of redemption
or postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule
or regulation) an emergency exists as a result of which disposal or valuation
of portfolio securities is not reasonably practicable, or for such periods as
the SEC may permit.
The Company may suspend redemption rights or postpone redemption
payments for such periods as are permitted under the 1940 Act. The Company may
also redeem shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to
reimburse the Funds for any losses sustained by reason of the failure of a
shareholders to make full payment for shares purchased or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to shares of a Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors, Wells Fargo Bank is
responsible for the Funds' portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company to obtain the
best results taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. While Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions, the Funds will
not necessarily be paying the lowest spread or commission available.
21
<PAGE> 817
Purchase and sale orders of the securities held by the Funds may
be combined with those of other accounts that Wells Fargo Bank manages, and for
which it has brokerage placement authority, in the interest of seeking the most
favorable overall net results. When Wells Fargo Bank determines that a
particular security should be bought or sold for a Fund and other accounts
managed by Wells Fargo Bank, Wells Fargo Bank undertakes to allocate those
transactions among the participants equitably.
Purchases and sales of securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or
to dealers serving as market makers for the securities at a net price. The
Funds also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, municipal obligations
and taxable money market securities are traded on a net basis and do not
involve brokerage commissions. The cost of executing a Fund's portfolio
securities transactions will consist primarily of dealer spreads and
underwriting commissions. Under the 1940 Act, persons affiliated with the
Company are prohibited from dealing with the Company as a principal in the
purchase and sale of securities unless an exemptive order allowing such
transactions is obtained from the SEC or an exemption is otherwise available.
The Funds may purchase municipal obligations from underwriting
syndicates of which Stephens or Wells Fargo Bank is a member under certain
conditions in accordance with the provisions of a rule adopted under the 1940
Act and in compliance with procedures adopted by the Board of Directors.
Wells Fargo Bank, as the investment adviser of each Fund, may, in
circumstances in which two or more dealers are in a position to offer
comparable results for a Fund portfolio transaction, give preference to a
dealer that has provided statistical or other research services to Wells Fargo
Bank. By allocating transactions in this manner, Wells Fargo Bank is able to
supplement its research and analysis with the views and information of
securities firms. Information so received will be in addition to, and not in
lieu of, the services required to be performed by Wells Fargo Bank under the
Advisory Contracts, and the expenses of Wells Fargo Bank will not necessarily
be reduced as a result of the receipt of this supplemental research
information. Furthermore, research services furnished by dealers through which
Wells Fargo Bank places securities transactions for each Fund may be used by
Wells Fargo Bank in servicing its other accounts, and not all of these services
may be used by Wells Fargo Bank in connection with advising such Fund.
Brokerage Commissions. The Funds did not pay any brokerage
commissions on portfolio transactions for the year ended December 31, 1995 and
for the period ended September 30, 1996.
Securities of Regular Broker/Dealers. As of December 31, 1995,
the California Tax-Free Money Market Mutual Fund owned no securities of its
"regular brokers or dealers" or their parents, as defined in the Act. As of
December 31, 1995, the Money Market Mutual Fund owned securities of its
"regular brokers or dealers" or their parents, as defined in the Act, as
follows: $125,955,000 of Goldman Sachs & Co. debt securities.
22
<PAGE> 818
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:
<TABLE>
<CAPTION>
Fund Amount Regular Broker/Dealer
---- ------ ---------------------
<S> <C> <C>
California Tax-Free Money Market Mutual N/A N/A
Money Market Mutual $202,778,000 Goldman Sachs & Co.
</TABLE>
Portfolio Turnover. Because the portfolios of the Funds 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 the 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 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 a Fund's shares;
pricing services, and any extraordinary expenses. Expenses attributable to a
Fund are charged against a 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.
FEDERAL INCOME TAXES
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.
23
<PAGE> 819
The Company intends to qualify the Funds 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 $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.
24
<PAGE> 820
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 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
25
<PAGE> 821
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.
Special Tax Considerations for the California Tax-Free Money Market Mutual
Fund.
Federal -- The California Tax-Free Money Market Mutual Fund
intends that at least 50% of the value of its total assets at the close of each
quarter of its 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 the
Fund with respect to any taxable year that constitutes exempt-interest
dividends will be the same for all shareholders receiving dividends during such
year. 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. However, see "California" below.
Not later than 60 days after the close of its taxable year,
the Fund will notify its shareholders of the portion of the dividends paid 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
26
<PAGE> 822
incurred to purchase or carry shares of the 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 the 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
shares in the Fund. Furthermore, shareholders will not be permitted to deduct
any of their share of the 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 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 Fund would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and IRAs since such plans and accounts
are generally tax-exempt and, therefore, would not benefit from the exempt
status of dividends from the Fund. Such dividends would be ultimately taxable
to the beneficiaries when distributed to them.
California -- The California Tax-Free Money Market Mutual Fund
expects to be exempt from tax in California on the same basis as under
Subchapter M of the Code as described above. Moreover, if at the close of each
quarter of the Fund's taxable year, at least 50% of the value of its total
assets consists of obligations the interest on which, if such obligations were
held by an individual, would be exempt from California personal income tax
(under either the laws of California or of the United States), the Fund will be
entitled to pay dividends to its shareholders which will be exempt from
California personal income tax (referred to herein as "California
exempt-interest dividends"). Under normal market conditions, the Fund will
invest primarily in municipal securities of the State of California, its
cities, municipalities and other political authorities so that it can pay
California exempt-interest dividends.
Not later than 60 days after the close of its taxable year, the
Fund will notify its shareholders of the portion of the dividends paid which
constitutes California exempt-interest dividends with respect to such taxable
year. The total amount of California exempt-interest dividends paid by the
Fund to all of its shareholders with respect to any taxable year cannot exceed
the amount of interest received by the Fund during such year on California
municipal securities and other obligations the interest on which is tax exempt,
less any expenses or
27
<PAGE> 823
expenditures (including any expenditures attributable to the acquisition of
securities of other investment companies). Dividends paid by the Fund in
excess of this limitation will be treated as ordinary dividends subject to
California personal income tax at ordinary rates.
Long-term and/or short-term capital gain distributions will not
constitute California exempt-interest dividends and will be taxed as capital
gains and ordinary income dividends, respectively. Moreover, interest on
indebtedness incurred by a shareholder to purchase or carry shares of the Fund
is not deductible for California personal income tax purposes to the extent the
shareholder receives California exempt-interest dividends during his or her
taxable year. Exempt-interest dividends will be tax exempt for purposes of the
California personal income tax. For corporate shareholders, dividends will be
subject to the corporate franchise taxes in California.
Other Matters. Investors should be aware that the investments to
be made by 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.
CAPITAL STOCK
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 twenty-three 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 California Tax-Free Money Market Fund offers a single Class of
shares. The Money Market Mutual Fund is comprised of three Classes of shares:
Class A shares, Class S
28
<PAGE> 824
shares and Institutional Class shares. With respect to matters affecting one
Class, but not another, shareholders of the Money Market Mutual Fund vote as a
Class. For example, approval of a distribution plan is voted on only by
members of the Class affected by the plan. Subject to the foregoing, all
shares of a Fund have equal voting rights. In situations where voting by
series is required by law or where the matter involved only affects one series,
shares of each Fund will be voted by series. For example, a change in a Fund's
fundamental investment policy would be voted upon only by shareholders of the
Fund involved. Additionally, approval of an advisory contract is a matter to
be determined separately by Fund. Approval by the shareholders of one Fund is
effective as to that Fund whether or not sufficient votes are received from the
shareholders of the other investment portfolios to approve the proposal as to
those investment portfolios. As used in the Prospectus of the Money Market
Mutual Fund, and in this SAI, the term "majority," when referring to approvals
to be obtained from shareholders of a Class of shares of such Fund means the
vote of the lesser of (i) 67% of the shares of the respective 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. As used in
the Prospectus of each Fund and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of a Fund, means the
vote of the lesser of (i) 67% of the shares of a 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 a Fund. The term "majority," when referring to the approvals to be obtained
from shareholders of the Company as a whole, means the vote of the lesser of
(i) 67% of the Company's shares represented at a meeting if the holders of more
than 50% of the Company's outstanding shares are present in person or by proxy,
or (ii) more than 50% of the Company's outstanding shares. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held.
The Company may dispense with an annual meeting of shareholders in
any year in which it is not required to elect Directors under the 1940 Act.
However, the Company has undertaken to hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a Director
or Directors if requested in writing by the holders of at least 10% of the
Company's outstanding voting securities, and to assist in communicating with
other shareholders as required by Section 16(c) of the 1940 Act.
Each share of a Fund represents an equal proportional interest in
the Fund with each other share and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Fund as
are declared in the discretion of the Directors. In the event of the
liquidation or dissolution of the Company, shareholders of a Fund are entitled
to receive the assets attributable to the Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular investment portfolio that are available for distribution in such
manner and on such basis as the Directors in their sole discretion may
determine.
Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.
29
<PAGE> 825
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>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
FUND ADDRESS OF OWNERSHIP OF CLASS OF FUND
---- ------- ------------ -------- -------
<S> <C> <C> <C> <C>
CALIFORNIA TAX- Wells Fargo Bank Class A 83.96% 83.96%
FREE MONEY P.O. Box 7066 Beneficially
MARKET MUTUAL San Francisco, CA 94120 Owned
MONEY MARKET Wells Fargo Bank Class A 90.12% 76.70%
MUTUAL P.O. Box 7066 Beneficially
San Francisco, CA 94120 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 or more than 25% of a class (or Fund) and has voting and/or
investment powers, it may be presumed to control such class.
OTHER
The Registration Statement, including the Prospectus of each Fund,
the SAI and the exhibits filed therewith, may be examined at the office of the
SEC in Washington, D.C. Statements contained in the Prospectus or the SAI of
each Fund as to the contents of any contract or other document are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditor
for the Company. KPMG Peat Marwick LLP provides audit services, tax return
preparation and assistance and consultation in connection with review of
certain SEC filings. KPMG Peat Marwick LLP's address is Three Embarcadero
Center, San Francisco, California 94111.
30
<PAGE> 826
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and
independent auditors' report for the Funds for the fiscal period 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 are attached to all SAIs delivered to current or prospective
shareholders.
31
<PAGE> 827
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.
32
<PAGE> 828
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.
33
<PAGE> 829
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1997
GINNIE MAE FUND
GROWTH AND INCOME FUND
CLASS A AND CLASS B
---------------------------
Stagecoach Funds, Inc. is an open-end series investment company.
This Statement of Additional Information ("SAI") contains information about two
of the funds in the Stagecoach Family of Funds -- the GINNIE MAE FUND and the
GROWTH AND INCOME FUND (each, a "Fund" and collectively, the "Funds"). This
SAI relates to Class A and Class B Shares offered by each Fund. The investment
objective of each Fund is described in its Prospectus under "How the Funds Work
- -- Investment Objectives and Policies."
This SAI is not a prospectus and should be read in conjunction
with the Prospectus dated February 1, 1997, for each of the Funds. All terms
used in this SAI that are defined in each Fund's Prospectus will have the
meaning assigned in such Prospectus. A copy of the Prospectus for each Fund
may be obtained without charge by writing Stephens Inc., the Company's sponsor,
co-administrator and distributor, at 111 Center Street, Little Rock, Arkansas
72201 or calling the Transfer Agent at the telephone number indicated above.
---------------------------
1
<PAGE> 830
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment
Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . 15
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . 16
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . 22
Additional Purchase and Redemption Information . . . . . . . . . . . 22
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . 23
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . 27
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . 32
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . 32
SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
2
<PAGE> 831
INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Funds are subject to the
following investment restrictions, all of which are fundamental policies; that
is, they may not be changed without approval by the vote of the holders of a
majority of the Funds' outstanding voting securities, as described under
"Capital Stock":
The Funds 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 any Fund's investments in that industry would
be 25% or more of the current value of such Fund's total assets, provided that
there is no limitation with respect to investments in obligations of the United
States Government, its agencies or instrumentalities;
(2) purchase or sell real estate or real estate limited
partnerships (other than securities secured by real estate or interests therein
or securities issued by companies that invest in real estate or interests
therein);
(3) purchase commodities or commodity contracts (including
futures contracts), except that a Fund may purchase securities of an issuer
which invests or deals in commodities or commodity contracts;
(4) purchase interests, leases, or limited partnership
interests in oil, gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions and except for margin
payments in connection with options, futures and options on futures) or make
short sales of securities;
(6) underwrite securities of other issuers, except to the extent
that the purchase of permitted investments directly from the issuer thereof or
from an underwriter for an issuer and the later disposition of such securities
in accordance with the Fund's investment program may be deemed to be an
underwriting;
(7) make investments for the purpose of exercising control or
management;
(8) issue senior securities, except the Growth and Income Fund
may borrow from banks up to 10% of the current value of its net assets for
temporary purposes only in order to meet redemptions, and these borrowings may
be secured by the pledge of up to 10% of the current value of each such Fund's
net assets (but investments may not be purchased by such Funds while any such
outstanding borrowings exceed 5% of the respective Fund's net assets), and
except that the Ginnie Mae Fund may borrow up to 20% of the current value of its
net assets for temporary purposes only in order to meet redemptions, and these
borrowings may be secured
3
<PAGE> 832
by the pledge of up to 20% of the current value of such Fund's net assets (but
investments may not be purchased by such Fund while any such outstanding
borrowings exceed 5% of the Fund's net assets);
(9) write, purchase or sell puts, calls, straddles, spreads,
warrants, options or any combination thereof, except that the Growth and Income
Fund may purchase securities with put rights in order to maintain liquidity and
may invest up to 5% of its net assets in warrants in accordance with its
investment policies as stated below; or
(10) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies and instrumentalities) if,
as a result, more than 5% of the value of the Fund's total assets would be
invested in the securities of any one issuer or the Fund's ownership would be
more than 10% of the outstanding voting securities of such issuer.
All of the Funds may make loans in accordance with their investment policies.
Non-Fundamental Investment Policies. The Funds are subject to the
following non-fundamental policies which may be changed by a majority vote of
the Board of Directors without shareholder approval:
The Funds 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 such Fund's aggregate investment in such Classes of
securities will exceed 5% of its total assets; or
(4) invest more than 10% of the current value of its net assets
in repurchase agreements maturing in more than seven days or other illiquid
securities (including restricted securities).
In addition, the Funds may invest in shares of other open-end,
management investment companies, subject to the limitations of Section 12(d)(1)
of the 1940 Act, provided
4
<PAGE> 833
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.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Unrated Investments. The Funds may purchase instruments that are
not rated if, in the opinion of Wells Fargo Bank, such obligations are of
investment quality comparable to other rated investments that are permitted to
be purchased by such Fund. After purchase by a Fund, a security may cease to
be rated or its rating may be reduced below the minimum required for purchase
by such Fund. Neither event will require a sale of such security by such Fund.
To the extent the ratings given by Moody's or S&P may change as a result of
changes in such organizations or their rating systems, each Fund will attempt
to use comparable ratings as standards for investments in accordance with the
investment policies contained in its Prospectus and in this SAI. The ratings
of Moody's and S&P are more fully described in the SAI Appendix.
Letters of Credit. Certain of the debt obligations (including
certificates of participation, commercial paper and other short-term
obligations) which the Funds may purchase may be backed by an unconditional and
irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of Wells Fargo Bank,
are of comparable quality to issuers of other permitted investments of such
Fund may be used for letter of credit-backed investments.
Pass-Through Obligations. Certain of the debt obligations in
which the Ginnie Mae Fund may invest may be pass-through obligations that
represent an ownership interest in a pool of mortgages and the resultant cash
flow from those mortgages. Payments by homeowners on the loans in the pool
flow through to certificate holders in amounts sufficient to repay principal
and to pay interest at the pass-through rate. The stated maturities of
pass-through obligations may be shortened by unscheduled prepayments of
principal on the underlying mortgages. Therefore, it is not possible to
predict accurately the average maturity of a particular pass-through
obligation. Variations in the maturities of pass-through obligations will
affect the yield of the Ginnie Mae Fund. Furthermore, as with any debt
obligation, fluctuations in interest rates will inversely affect the market
value of pass-through obligations. The Ginnie Mae Fund may invest in
pass-through obligations that are supported by the full faith and credit of the
U.S. Government (such as those issued by the Government National Mortgage
Association) or those that are guaranteed by an agency or instrumentality of
the U.S. Government or government-sponsored enterprise (such as the Federal
National Mortgage Association or the Federal Home Loan Mortgage Corporation) or
bonds collateralized by any of the foregoing.
When-Issued Securities. Certain of the securities in which the
Funds may invest will be purchased on a when-issued basis, in which case
delivery and payment normally take place
5
<PAGE> 834
within 120 days after the date of the commitment to purchase. The Funds only
will make commitments to purchase securities on a when-issued basis with the
intention of actually acquiring the securities, but may sell them before the
settlement date if it is deemed advisable. When-issued securities are subject
to market fluctuation, and no income accrues to the purchaser during the period
prior to issuance. The purchase price and the interest rate that will be
received on debt securities are fixed at the time the purchaser enters into the
commitment. Purchasing a security on a when-issued basis can involve a risk
that the market price at the time of delivery may be lower than the agreed-upon
purchase price, in which case there could be an unrealized loss at the time of
delivery. The Growth and Income Fund currently does not intend to invest more
than 5% of its assets in when-issued securities during the coming year.
Each Fund will segregate cash, U.S. Government obligations or
other high-quality debt instruments in an amount at least equal in value to the
Fund's commitments to purchase when-issued securities. If the value of these
assets declines, the Fund will segregate additional liquid assets on a daily
basis so that the value of the segregated assets is equal to the amount of such
commitments.
Loans of Portfolio Securities. All of the Funds may lend
securities from their portfolios to brokers, dealers and financial institutions
(but not individuals) if cash, U.S. Government securities or other high-quality
debt obligations equal to at least 100% of the current market value of the
securities loan (including accrued interest thereon) plus the interest payable
to such Fund with respect to the loan is maintained with the Fund. In
determining whether to lend a security to a particular broker, dealer or
financial institution, the Fund's Investment Adviser will consider all relevant
facts and circumstances, including the creditworthiness of the broker, dealer,
or financial institution. Any loans of portfolio securities will be fully
collateralized based on values that are marked to market daily. The Funds will
not enter into any portfolio security lending arrangement having a duration of
longer than one year. Any securities that a Fund may receive as collateral
will not become part of the Fund's portfolio at the time of the loan and, in
the event of a default by the borrower, the Fund will, if permitted by law,
dispose of such collateral except for such part thereof that is a security in
which the Fund is permitted to invest. During the time securities are on loan,
the borrower will pay the Fund any accrued income on those securities, and the
Fund may invest the cash collateral and earn additional income or receive an
agreed-upon fee from a borrower that has delivered cash-equivalent collateral.
None of the Funds will lend securities having a value that exceeds 33 1/3% of
the current value of its total assets. Loans of securities by any of the Funds
will be subject to termination at the Fund's or the borrower's option. The
Funds may pay reasonable administrative and custodial fees in connection with a
securities loan and may pay a negotiated portion of the interest or fee earned
with respect to the collateral to the borrower or the placing broker.
Borrowers and placing brokers may not be affiliated, directly or indirectly,
with Stagecoach, its Investment Adviser, or its Distributor. The Ginnie Mae
Fund currently intends to limit the practice of lending portfolio securities to
no more than 5% of its net assets during the coming year.
Foreign Obligations. Investments in foreign obligations involve
certain considerations that are not typically associated with investing in
domestic obligations. There
6
<PAGE> 835
may be less publicly available information about a foreign issuer than about a
domestic issuer. Foreign issuers also are not generally subject to uniform
accounting, auditing and financial reporting standards or governmental
supervision comparable to those applicable to domestic issuers. In addition,
with respect to certain foreign countries, taxes may be withheld at the source
under foreign income tax laws, and there is a possibility of expropriation or
confiscatory taxation, political or social instability or diplomatic
developments that could adversely affect investments in, the liquidity of, and
the ability to enforce contractual obligations with respect to, securities of
issuers located in those countries. The Ginnie Mae Fund does not intend to
invest in foreign obligations during the coming year. The Growth and Income
Fund currently does not intend to invest more than 10% of its assets in foreign
obligations. Neither of the Funds may invest 25% or more of its assets in
foreign obligations.
Convertible Securities (Lower Rated Securities) Subject to the
limitations described in its Prospectus, the Growth and Income Fund may invest
in convertible securities that are not rated in one of the four highest rating
categories by an NRSRO. The yields on such lower rated securities, which
include securities also known as junk bonds, generally are higher than the
yields available on higher-rated securities. However, investments in lower
rated securities and comparable unrated securities generally involve greater
volatility of price and risk of loss of income and principal, including the
probability of default by or bankruptcy of the issuers of such securities.
Lower rated securities and comparable unrated securities (a) will likely have
some quality and protective characteristics that, in the judgment of the rating
organization, are outweighed by large uncertainties or major risk exposures to
adverse conditions and (b) are predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation. Accordingly, it is possible that these types of
factors could, in certain instances, reduce the value of securities held in the
Fund's portfolio, with a commensurate effect on the value of the Fund's shares.
Therefore, an investment in the Fund should not be considered as a complete
investment program and may not be appropriate for all investors.
While the market values of lower rated securities and comparable
unrated securities tend to react less to fluctuations in interest rate levels
than the market values of higher-rated securities, the market values of certain
lower rated securities and comparable unrated securities also tend to be more
sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, lower rated securities
and comparable unrated securities generally present a higher degree of credit
risk. Issuers of lower rated securities and comparable unrated securities
often are highly leveraged and may not have more traditional methods of
financing available to them so that their ability to service their debt
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such
issuers is significantly greater because lower rated securities and comparable
unrated securities generally are unsecured and frequently are subordinated to
the prior payment of senior indebtedness. The Fund may incur additional
expenses to the extent that it is required to seek recovery upon a default in
the payment of principal or interest on its portfolio holdings. The existence
of limited markets for lower rated securities and comparable unrated securities
may diminish the Fund's ability to (a) obtain accurate market quotations for
purposes of valuing such securities and calculating net asset value
7
<PAGE> 836
and (b) sell the securities at fair value either to meet redemption requests or
to respond to changes in the economy or in financial markets.
Certain lower rated debt securities and comparable unrated
securities frequently have call or buy-back features that permit their issuers
to call or repurchase the securities from their holders, such as the Fund. If
an issuer exercises these rights during periods of declining interest rates,
the Fund may have to replace the security with a lower yielding security, thus
resulting in a decreased return to the Fund.
The market for certain lower rated securities and comparable
unrated securities is relatively new and has not weathered a major economic
recession. The effect that such a recession might have on such securities is
not known. Any such recession, however, could disrupt severely the market for
such securities and adversely affect the value of such securities. Any such
economic downturn also could adversely affect the ability of the issuers of
such securities to repay principal and pay interest thereon.
Privately Issued Securities (Rule 144A). The Growth and Income
Fund may invest in privately issued securities which may be resold only in
accordance with Rule 144A under the Securities Act of 1933 ("Rule 144A
Securities"). Rule 144A Securities are restricted securities and will not be
publicly traded. Accordingly, the liquidity of the market for specific Rule
144A Securities may vary. The Company's investment adviser, pursuant to
guidelines established by the Board of Directors of the Company will evaluate
the liquidity characteristics of each Rule 144A Security proposed for purchase
by the Fund on a case-by-case basis and will consider the following factors,
among others, in their evaluation: (1) the frequency of trades and quotes for
the Rule 144A Security; (2) the number of dealers willing to purchase or sell
the Rule 144A Security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the Rule 144A Security; and (4) the nature of
the Rule 144A Security and the nature of the marketplace trades (e.g., the time
needed to dispose of the Rule 144A Security, the method of soliciting offers
and the mechanics of transfer). The Growth and Income Fund does not intend to
invest more than 5% of its net assets in Rule 144A Securities during the coming
year.
The Funds so indicated below may engage in the following
investment activities although none has a present intention to do so:
Investment in Warrants. The Growth and Income Fund may invest no
more than 5% of its net assets at the time of purchase in warrants (other than
those that have been acquired in units or attached to other securities), and
not more than 2% of its net assets in warrants which are not listed on the New
York or American Stock Exchange. Warrants represent rights to purchase
securities at a specific price valid for a specific period of time. The prices
of warrants do not necessarily correlate with the prices of the underlying
securities. The Growth and Income Fund may only purchase warrants on
securities in which it may invest directly.
8
<PAGE> 837
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the prospectus entitled "The Funds and
Management." The principal occupations during the past five years of the
Directors and principal executive Officer of the Company are listed below. The
address of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Directors deemed to be "interested persons" of the Company
for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 45 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate
Professor of Finance of the
School of Business and
Accounting at Wake Forest
University since 1983.
</TABLE>
9
<PAGE> 838
<TABLE>
<S> <C> <C>
Joseph N. Hankin, 55 Director President, Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; President of Hartford
(appointed as of September 6, 1996) Junior College from 1967 to
1971; Adjunct Professor of
Columbia University
Teachers College since
1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 40 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
10
<PAGE> 839
COMPENSATION TABLE
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, 1995 September 30, 1996
------------------------------- -------------------------------
Total Total
Aggregate Compensation Aggregate Compensation
Compensation from Registrant Compensation from Registrant
from and Fund from and Fund
Name and Position Registrant Complex Registrant Complex
- ----------------- ------------ -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Jack S. Euphrat $10,188 $39,750 $9,750 $29,250
Director
*R. Greg Feltus $-0- $-0- $-0- $-0-
Director
Thomas S. Goho $10,188 $39,750 $9,750 $29,250
Director
Joseph N. Hankin N/A N/A $-0- $-0-
Director
*Zoe Ann Hines $-0- $-0- $-0- $-0-
Director
(resigned as of
September 6, 1996)
*W. Rodney Hughes $9,438 $37,000 $8,250 $24,750
Director
Robert M. Joses $9,938 $39,000 $9,750 $29,250
Director
*J. Tucker Morse $8,313 $33,250 $8,250 $24,750
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
11
<PAGE> 840
Managed Series Investment Trust together form a separate fund complex (the
"BGFA Fund Complex"). Each of the Directors and Officers of the Company serves
in the identical capacity as directors and officers or as trustees and/or
officers of each registered open-end management investment company in both the
Wells Fargo and BGFA Fund Complexes, except for Joseph N. Hankin, who only
serves the aforementioned members of the Wells Fargo Fund Complex, and Zoe Ann
Hines who, after September 6, 1996, only serves the aforementioned members of
the BGFA Fund Complex. The Directors are compensated by other companies and
trusts within a fund complex for their services as directors/trustees to such
companies and trusts. Currently the Directors do not receive any retirement
benefits or deferred compensation from the Company or any other member of each
fund complex. As of the date of this SAI, Directors and Officers of the
Company as a group beneficially owned less than 1% of the outstanding shares of
the Company.
As of the date of this SAI, Directors and Officers of the Company
as a group beneficially owned less than 1% of the outstanding shares of the
Company.
INVESTMENT ADVISER. Each of the Funds is advised by Wells Fargo
Bank pursuant to an Advisory Contract. The Advisory Contracts provide that
Wells Fargo Bank shall furnish to the Funds investment guidance and policy
direction in connection with the daily portfolio management of each Fund.
Pursuant to the Advisory Contracts, Wells Fargo Bank furnishes to the Board of
Directors periodic reports on the investment strategy and performance of each
Fund. Wells Fargo Bank has agreed to provide to the Funds, among other things,
money market security and fixed-income research, analysis and statistical and
economic data and information concerning interest rate and security market
trends, portfolio composition, credit conditions and, in the case of the Ginnie
Mae Fund, the average maturities of its portfolios.
Each Advisory Contract will continue in effect for more than two
years provided the continuance is approved annually (i) by the holders of a
majority of the respective Fund's outstanding voting securities or by the
Company's Board of Directors and (ii) by a majority of the Directors of the
Company who are not parties to the Advisory Contract or "interested persons"
(as defined in the 1940 Act) of any such party. Each Advisory Contract may be
terminated on 60 days' written notice by either party and will terminate
automatically if assigned.
For the years ended December 31, 1993, 1994 and 1995, and the
period ended September 30, 1996, the Funds paid to Wells Fargo Bank the
advisory fees indicated below and Wells Fargo Bank waived the indicated
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-
Growth and
Income $443,874 -0- $587,977 -0- $754,149 -0- $799,899 $-0-
</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
12
<PAGE> 841
Administration Agreement between Wells Fargo and each Fund, and the
Co-Administration Agreement among Wells Fargo, Stephens and each Fund, state
that Wells Fargo 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 public
accountants and legal counsel, regulatory compliance, including the compilation
of information for documents such as reports to, and filings with, the SEC and
state securities commissions; and preparation of proxy statements and
shareholder reports for 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.
For the fiscal years ended December 31, 1993, 1994 and 1995, and
the period ended September 30, 1996, the Funds paid the following dollar
amounts of administrative fees to Stephens who, as sole administrator during
these periods, was entitled to receive a fee, payable monthly, at the annual
rate of 0.05% of each Fund's average daily net assets:
<TABLE>
<CAPTION>
Fund Dec. 31, 1993 Dec. 31, 1994 Dec. 31, 1995 Sept. 30, 1996
---- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Ginnie Mae $ 81,058 $71,842 $50,407 $40,747
Growth and Income $ 26,644 $35,279 $45,249 $51,193
</TABLE>
SPONSOR AND DISTRIBUTOR. As discussed in each Fund's prospectus
under the heading "Management and Servicing Fees," Stephens 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
entered into shareholder servicing agreements with Wells Fargo Bank. The
dollar amounts of shareholder servicing fees paid by each Fund to Wells 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)
Growth and Income $452,488 $457,088
</TABLE>
- -------------
(1) This amount include shareholder servicing fees paid by other classes of
each Fund and reflects fee waivers.
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. The
13
<PAGE> 842
custodian, among other things, maintains a custody account or accounts in the
name of each Fund; receives and delivers all assets for each Fund upon purchase
and upon sale or maturity; collects and receives all income and other payments
and distributions on account of the assets of each Fund and pays all expenses
of each Fund. For its services as custodian, Wells Fargo Bank receives an
asset-based fee and transaction charge from the respective Funds.
For the year ended December 31, 1995 and the period ended
September 30, 1996, the Funds paid custody fees to Wells Fargo Bank as
follows:
<TABLE>
<CAPTION>
Fund December 31, 1995 September 30, 1996(1)
---- ----------------- ------------------
<S> <C> <C>
Ginnie Mae $-0- $-0-
Growth and Income $15,578 $17,963
</TABLE>
- -------------
(1) These amounts reflect fee waivers.
For the year ended December 31, 1995 and the period ended
September 30, 1996, the Funds paid transfer and dividend disbursing agency
fees to Wells Fargo Bank or its affiliates as follows:
<TABLE>
<CAPTION>
Fund December 31, 1995 September 30, 1996
---- ----------------- ------------------
<S> <C> <C>
Ginnie Mae $-0- $-0-(1)
Growth and Income $160,168 $217,737
</TABLE>
- -------------
(1) This amount reflects fee waivers.
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.
14
<PAGE> 843
DISTRIBUTION PLANS
As indicated in each Fund's respective Prospectus, each of the
Funds has adopted a distribution plan (a "Plan") under Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Rule"). The Plans for the Class A
Shares of each Fund were adopted by the Company's Board of Directors on October
22, 1991, including a majority of the Directors who were not "interested
persons" (as defined in the 1940 Act) of the respective Fund and who had no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan (the "Qualified Directors"), and were approved by
the initial shareholder of each Fund on December 31, 1991. The Plans for the
Class B Shares of each Fund were adopted by the Company's Board of Directors,
including a majority of the Qualified Directors, on July 27, 1994.
The Plans in effect for the Class A Shares of each Fund allow the
Funds to defray all or part of the cost of preparing and printing prospectuses
and other promotional materials and of delivering prospectuses and those
materials to prospective shareholders of each Fund by paying on an annual basis
up to 0.05% of the respective Fund's average daily net assets attributable to
Class A Shares. The Plans for the Class A Shares provide only for the
reimbursement of actual expenses. The Plans for the Class B Shares allow each
Fund to defray all or part of the cost of printing prospectuses and other
promotional materials and of delivering materials to prospective shareholders
by paying on an annual basis up to 0.70% of the average daily net assets
attributable to the Class B Shares of each respective Fund. In addition, each
Plan contemplates that to the extent any fees payable pursuant to a Shareholder
Servicing Agreement are deemed to be for distribution-related services, rather
than shareholder services, such payments are approved and payable pursuant to
such Plan.
Each Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Qualified Directors. Any agreements related to the Plans
("Agreements") also must be approved by majority vote of the Directors and the
Qualified Directors. Such Agreements will terminate automatically if assigned.
Each Fund may terminate such Agreements at any time, without payment of any
penalty, by a vote of a majority of outstanding voting securities of the Class
of shares affected by such Agreement. The amounts payable under each Plan may
not be increased materially without the approval of a majority of the voting
securities of each Class of Funds affected by such Agreements. Material
amendments to a Plan may not be made except by affirmative vote of a majority
of both the Directors of the Company and the Qualified Directors.
Each Plan requires that the Treasurer of the Company shall provide
to the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under the Plan. The
Rule also requires that the selection and nomination of Directors who are not
"interested persons" of the Company be made by such disinterested directors.
For the year ended December 31, 1995, the Funds' distributor received the
following amounts of 12b-1 fees for the specified purposes set forth below
under the Plans.
15
<PAGE> 844
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Fund Total Prospectus Brochures Underwriters
---- ----- ---------- --------- ------------
<S> <C> <C> <C> <C>
Ginnie Mae Fund
Class A $66,400 $20,590 $45,810 N/A
Class B $29,355 N/A N/A $29,355
Growth and Income Fund
Class A $50,138 $ 41,902 $ 8,236 N/A
Class B $13,068 N/A N/A $13,068
</TABLE>
For the period ended September 30, 1996, the Funds' distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under the Plans.
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Fund Total Prospectus Brochures Underwriters
---- ----- ---------- --------- ------------
<S> <C> <C> <C> <C>
Ginnie Mae
Class A $29,455 $3,510 $25,945 N/A
Class B $98,885 N/A N/A $98,885
Growth and Income
Class A $35,064 $1,266 $33,798 N/A
Class B $43,495 N/A N/A $43,495
</TABLE>
For the year ended December 31, 1995 and the period ended
September 30, 1996, WFSI and its registered representatives received no
compensation under the Plans.
PERFORMANCE CALCULATIONS
As described in the Prospectuses for each Fund, the IRA Funds of
the Trust were reorganized into the corresponding Funds of the Company on
January 2, 1992. Therefore, the performance information for the Funds is based
on that of the IRA Funds for the periods prior to January 2, 1992, and
reference should be made to the footnotes to the condensed financial
information in the "Financial Highlights" section of each Prospectus regarding
differences in investment objectives, policies and/or restrictions between
certain of the Funds and the IRA Funds, which may affect the relevance of the
performance information provided below.
Each Fund may advertise certain total return information computed
in the manner described in its Prospectus. As and to the extent required by
the SEC, an average annual compound rate of return ("T") will be computed by
using the redeemable value at the end of a specified period ("ERV") of a
hypothetical initial investment in a Class of shares ("P") over a
16
<PAGE> 845
period of years ("n") according to the following formula: P(1+T)n = ERV. In
addition, a Fund that assesses a sales charge, at times, also may calculate
total return based on net asset value per share of each Class (rather than the
public offering price), in which case the figures would not reflect the effect
of any sales charges that would have been paid by an investor, or based on the
assumption that a sales charge other than the maximum sales charge (reflecting
a Volume Discount) was assessed, provided that total return data derived
pursuant to the calculation described above also are presented.
Average Annual Total Return for the Applicable Period Ended September 30, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Inception(1) Inception Five Year Five Year Three Year Three Year One Year One Year
With No With No With No With No
Sales Sales Sales Sales Sales Sales Sales Sales
Fund Charge(2) Charge Charge Charge Charge Charge Charge Charge
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ginnie Mae
Class A 6.37% 7.22% 5.51% 6.48% 3.11% 4.71% -0.44% 4.21%
Class B 8.08% 9.15% N/A N/A N/A N/A 0.57% 3.48%
- --------------------------------------------------------------------------------------------------------------------
Growth and
Income
Class A 13.48% 14.32% 13.96% 12.67% 14.42% 9.52% 14.67%
Class B 22.06% 23.04% N/A N/A N/A N/A 10.90% 13.90%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Each Fund commenced operations as follows: Ginnie Mae Class A - January 3,
1991, Class B - January 2, 1995; Growth and Income Class A - August 2,
1990, Class B - January 2, 1995.
(2) For all periods ended September 30, 1996, the term "Sales Charge" for
Class A Shares means a front-end sales load of 4.50%. For Class B
Shares the term "Sales Charge" means the maximum applicable contingent
deferred sales charge ("CDSC") as described in the respective Fund's
prospectus.
The Funds may advertise the cumulative total return on each class
of shares. Cumulative total return of shares is computed on a per share basis
and assumes the reinvestment of dividends and distributions. Cumulative total
return of shares generally is expressed as a percentage rate which is
calculated by combining the income and principal changes for a specified period
and dividing by the net asset value per share at the beginning of the period.
Advertisements may include the percentage rate of total return of shares or may
include the value of a hypothetical investment in shares at the end of the
period which assumes the application of the percentage rate of total return.
In addition to the above performance information, the 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.
17
<PAGE> 846
Cumulative Total Return for the Applicable Period Ended September 30, 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Inception(1) Inception Five Year Five Year Three Year Three Year
With No With No With No
Fund Sales Charge(2) Sales Charge Sales Charge Sales Charge Sales Charge Sales Charge
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ginnie Mae
Class A 42.61% 49.31% 30.74% 36.85% 9.62% 14.79%
Class B 14.56% 16.56% N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
Growth and
Income
Class A 118.05% 128.30% 83.52% 92.17% 43.02% 49.80%
Class B 41.73% 43.73% N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Each Fund commenced operations as follows: Ginnie Mae Class A -
January 3, 1991, Class B - January 2, 1995; Growth and Income Class A
- August 2, 1990, Class B - January 2, 1995.
(2) For all periods ended September 30, 1996, the term "Sales Charge"
for Class A Shares means a front-end sales load of 4.50%. For Class B
Shares the term "Sales Charge" means the maximum applicable contingent
deferred sales charge ("CDSC") as described in the respective Fund's
prospectus.
The Ginnie Mae Fund may advertise certain yield information on its
shares. As and to the extent required by the SEC, yield on each Class of
shares will be calculated based on a 30-day (or one month) period, computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to
the following formula: YIELD = 2[((a-b/cd)+1)6-1], where a = dividends and
interest earned during the period; b = expenses accrued for the period (net of
reimbursements); c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and d = the maximum offering
price per share on the last day of the period. The net investment income of a
Fund includes actual interest income, plus or minus amortized purchase discount
(which may include original issue discount) or premium, less accrued expenses.
Realized and unrealized gains and losses on portfolio securities are not
included in a Fund's net investment income. For purposes of sales literature,
yield also may be calculated on the basis of the net asset value per share
rather than the public offering price, provided that the yield data derived
pursuant to the calculation described above also are presented.
Yield for the Applicable Period Ended September 30, 1996(1)
<TABLE>
<CAPTION>
Thirty Day Yield Thirty Day Yield
Ginnie Mae Fund After Waiver Before Waiver
- --------------- ------------ -------------
<S> <C> <C>
Class A 6.52% 6.17%
Class B 6.13% 5.68%
</TABLE>
___________________________________
(1) "After Waiver" figures reflect any reimbursed expenses throughout the
period.
The yield on each Class of the Ginnie Mae Fund will fluctuate from
time to time, unlike bank deposits or other investments that pay a fixed yield
for a stated period of time, and does not provide a basis for determining
future yields since it is based on historical data. Yield is
18
<PAGE> 847
a function of portfolio quality, composition, maturity and market conditions as
well as the expenses allocated to the Fund.
In addition, investors should recognize that changes in the net
asset values of shares of each Class of shares of the Ginnie Mae Fund will
affect the yield of each such Class for any specified period, and such changes
should be considered together with the yield of each Class in ascertaining the
total return for the period to shareholders. Yield information for each Class
of shares of the Fund may be useful in reviewing the Fund's performance and for
providing a basis for comparison with investment alternatives. The yield of
each Class of the Fund, however, may not be comparable to the yields from
investment alternatives because of differences in the foregoing variables and
differences in the methods used to value portfolio securities, compute expenses
and calculate yield.
From time to time and only to the extent the comparison is
appropriate for a Class of shares of a Fund, the Company may quote the
performance or price-earning ratio of a Class of shares in advertising and
other types of literature as compared to the performance of the Lehman Brothers
Municipal Bond Index, the 1-Year Treasury Bill Rate, the S&P Index, the Dow
Jones Industrial Average, the Lehman Brothers 20+ Treasury Index, the Lehman
Brothers 5-7 Year Treasury Index, Donoghue's Money Fund Averages, Real Estate
Investment Averages (as reported by the National Association of Real Estate
Investment Trusts), Gold Investment Averages (provided by the World Gold
Council), Bank Averages (which is calculated from figures supplied by the U.S.
League of Savings Institutions based on effective annual rates of interest on
both passbook and certificate accounts), average annualized certificate of
deposit rates (from the Federal Reserve G-13 Statistical Releases or the Bank
Rate Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer
Price Index (as published by the U.S. Bureau of Labor Statistics), Ten Year
U.S. Government Bond Average, S&P's Corporate Bond Yield Averages, Schabacter
Investment Management Indices, Salomon Brothers High Grade Bond Index, Lehman
Brothers Long-Term High Quality Government/Corporate Bond Index, other managed
or unmanaged indices or performance data of bonds, stocks or government
securities (including data provided by Ibbotson Associates), or by other
services, companies, publications or persons who monitor mutual funds on
overall performance or other criteria. The S&P Index and the Dow Jones
Industrial Average are unmanaged indices of selected common stock prices. The
performance of a Class of shares of a Fund also may be compared to those of
other mutual funds having similar objectives. This comparative performance
could be expressed as a ranking prepared by Lipper Analytical Services, Inc.,
CDA Investment Technologies, Inc., Bloomberg Financial Markets or Morningstar,
Inc., independent services which monitor the performance of mutual funds. The
performance of a Class of shares of a Fund will be calculated by relating net
asset value per share at the beginning of a stated period to the net asset
value of the investment, assuming reinvestment of all gains, distributions and
dividends paid, at the end of the period. Any such comparisons may be useful
to investors who wish to compare the past performance of a Class of shares of a
Fund with that of its competitors. Of course, past performance cannot be a
guarantee of future results. The Company also may include, from time 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.
19
<PAGE> 848
In addition, the Company also may use, in advertisements and other
types of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank, and
its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and
the related "Tax Freedom Day."
From time to time the Company may reprint, reference or otherwise
use material from magazines, newsletters, newspapers and books including, but
not limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.
The Company also may 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
20
<PAGE> 849
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 Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by a Fund. The assigned rating would not be a recommendation to purchase,
sell or hold a Fund's shares since the rating would not comment on the market
price of the Fund's shares or the suitability of the Fund for a particular
investor. In addition, the assigned rating would be subject to change,
suspension or withdrawal as a result of changes in, or unavailability of,
information relating to the Fund or its investments. The Company may compare a
Fund's performance with other investments which are assigned ratings by NRSROs.
Any such comparisons may be useful to investors who wish to compare the Fund's
past performance with other rated investments.
From time to time, the Funds may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Stagecoach Funds, provides
various services to its customers that are also shareholders of the Funds.
These services may include access to Stagecoach Funds' account information
through Automated Teller Machines (ATMs), the placement of purchase and
redemption requests for shares of the Funds through ATMs and the availability
of combined Wells Fargo Bank and Stagecoach Funds account statements." The
Company may also disclose in advertising and other types of sales literature
the assets and categories of assets under management by the Company's
investment adviser. The Company 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 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
21
<PAGE> 850
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 for each Class of each Fund is
determined by the Custodian of the Fund on each day the NYSE is open for
trading.
Securities of a Fund for which market quotations are available are
valued at latest prices. Securities of a Fund for which the primary market is
a national securities exchange or the National Association of Securities
Dealers Automated Quotations National Market System are valued at last sale
prices. In the absence of any sale of such securities on the valuation date
and in the case of other securities, including U.S. Government securities but
excluding money market instruments maturing in 60 days or less, the valuations
are based on latest quoted bid prices. Money market instruments maturing in 60
days or less are valued at amortized cost. Futures contracts will be marked to
market daily at their respective settlement prices determined by the relevant
exchange. These prices are not necessarily final closing prices, but are
intended to represent prices prevailing during the final 30 seconds of the
trading day. Options listed on a national exchange are valued at the last sale
price on the exchange on which they are traded at the close of the NYSE, or, in
the absence of any sale on the valuation date, at latest quoted bid prices.
Options not listed on a national exchange are valued at latest quoted bid
prices. Debt securities maturing in 60 days or less are valued at amortized
cost. In all cases, bid prices will be furnished by a reputable independent
pricing service approved by the Board of Directors. Prices provided by an
independent pricing service may be determined without exclusive reliance on
quoted prices and may take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data. All other securities and other assets of the Funds for which current
market quotations are not readily available are valued at fair value as
determined in good faith by the Company's Directors and in accordance with
procedures adopted by the Directors.
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,
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.
22
<PAGE> 851
Payment for shares may, in the discretion of the adviser, be made in
the form of securities that are permissible investments for the Funds as
described in the Prospectuses. For further information about this form of
payment please contact Stephens. In connection with an in-kind securities
payment, the Funds will require, among other things, that the securities be
valued on the day of purchase in accordance with the pricing methods used by a
Fund and that such Fund receives satisfactory assurances that (i) it will have
good and marketable title to the securities received by it; (ii) that the
securities are in proper form for transfer to the Fund; and (iii) adequate
information will be provided concerning the basis and other matters relating to
the securities.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule
or regulation) an emergency exists as a result of which disposal or valuation
of portfolio securities is not reasonably practicable, or for such periods as
the SEC may permit.
The Company may suspend redemption rights or postpone redemption
payments for such periods as are permitted under the 1940 Act. The Company may
also redeem shares involuntarily or make payment for redemption in securities
or other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to reimburse
the Funds for any losses sustained by reason of the failure of a shareholders
to make full payment for shares purchased or to collect any charge relating to
a transaction effected for the benefit of a shareholder which is applicable to
shares of a Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors, Wells Fargo Bank is
responsible for each Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company to obtain the
best results taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. While Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions, the Funds will
not necessarily be paying the lowest spread or commission available.
Except in the case of equity securities purchased by the Growth
and Income Fund, purchases and sales of securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or
to dealers serving as market makers for the securities at a net price. Each of
the Funds also will purchase portfolio securities in underwritten offerings and
may purchase securities directly from the issuer. Generally, money market
securities,
23
<PAGE> 852
ARMS and CMOs are traded on a net basis and do not involve brokerage
commissions. The cost of executing a Fund's portfolio securities transactions
will consist primarily of dealer spreads and underwriting commissions. Under
the 1940 Act, persons affiliated with the Company are prohibited from dealing
with the Company as a principal in the purchase and sale of securities unless
an exemptive order allowing such transactions is obtained from the SEC or an
exemption is otherwise available.
The Growth and Income Fund. Purchases and sales of equity
securities on a securities exchange are effected through brokers who charge a
negotiated commission for their services. Orders may be directed to any broker
including, to the extent and in the manner permitted by applicable law,
Stephens or Wells Fargo Securities Inc. In the over-the- counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. No Fund will deal with Stephens, Wells Fargo Bank or
their affiliates in any transaction in which any of them acts as principal
without an exemptive order from the SEC or unless an exemption is otherwise
available.
In 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 Growth and Income Fund to pay a
broker/dealer which furnishes brokerage and research services a higher
commission than that which might be charged by another broker/dealer for
effecting the same transaction, provided that Wells Fargo Bank determines in
good faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker/dealer, viewed in terms
of either the particular transaction or the overall responsibilities of Wells
Fargo Bank. Such brokerage and research services might consist of reports and
statistics relating to specific companies or industries, general summaries of
groups of stocks or bonds and their comparative earnings and yields, or broad
overviews of the stock, bond, and government securities markets and the
economy.
Supplementary research information so received is in addition to,
and not in lieu of, services required to be performed by Wells Fargo Bank and
does not reduce the advisory fees payable by the Fund. The Board of Directors
will periodically review the commissions paid by the Fund to consider whether
the commissions paid over representative periods of time appear to be
reasonable in relation to the benefits inuring to the Fund. It is possible
that certain of the supplementary research or other services received will
primarily benefit one or more other investment companies or other accounts for
which investment discretion is exercised. Conversely, the Fund may be the
primary beneficiary of the research or services received as a result of
portfolio transactions effected for such other account or investment company.
24
<PAGE> 853
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 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. For the years ended December 31, 1993,
1994 and 1995, and the period ended September 30, 1996, the Funds paid the
following for brokerage commissions:
<TABLE>
<CAPTION>
Fund Dec. 31, 1993 Dec. 31, 1994 Dec. 31, 1995 Sept. 30, 1996
- ---- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Ginnie Mae $ -0- $ -0- $ -0- $ -0-
Growth and Income $ 347,779 $ 407,643 $ 607,442 $ 531,052
</TABLE>
25
<PAGE> 854
As of September 30, 1996, each Fund owned securities of its
"regular brokers or dealers" or their parents as defined in the Act, as
follows:
<TABLE>
<CAPTION>
Fund Amount Regular Broker/Dealer
- ---- ------ ---------------------
<S> <C> <C>
Ginnie Mae Fund $4,475,000 Goldman Sachs & Co.
Growth and Income Fund $6,438,000 Goldman Sachs & Co.
</TABLE>
Securities of Regular Broker/Dealers. As of December 31, 1995,
each Fund owned securities of its "regular brokers or dealers" or their parents
as defined in the Act, as follows:
<TABLE>
<CAPTION>
Fund Amount Regular Broker/Dealer
- ---- ------ ---------------------
<S> <C> <C>
Ginnie Mae $ 587,000 Goldman Sachs & Co.
Growth and Income $1,998,000 Goldman Sachs & Co.
</TABLE>
Portfolio Turnover Rate. The higher portfolio turnover rates for
the Ginnie Mae Fund should not adversely affect it because portfolio
transactions ordinarily are made directly with principals on a net basis and,
consequently, the Fund usually does not incur brokerage expenses. Portfolio
turnover rate is not a limiting factor when Wells Fargo Bank deems portfolio
changes appropriate.
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 each Fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.
26
<PAGE> 855
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 Prospectuses generally describe the tax
treatment of distributions by each Fund. 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 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
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 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, 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 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.
27
<PAGE> 856
Corporate shareholders of the Growth and Income 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 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 shareholders not later than 60 days after the close of the Fund's
taxable year.
Other Distributions. Although dividends by the Ginnie Mae 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) 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.
28
<PAGE> 857
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 a 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.
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. Although the Growth and
Income Fund may engage in transactions subject to Section 988 of the Code, the
Fund will attempt to monitor Section 988 transactions to avoid an adverse tax
impact.
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 a 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 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
29
<PAGE> 858
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 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 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 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 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 twenty-three 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.
30
<PAGE> 859
Each of the Funds has three classes of shares -- Class A Shares,
Class B Shares and Institutional Class Shares. With respect to matters
affecting one Class but not another, shareholders vote as a Class. Subject to
the foregoing, all shares of a Fund have equal voting rights and will be voted
in the aggregate, and not by series, except where voting by a series is
required by law or where the matter involved only affects one series. For
example, a change in a Fund's fundamental investment policy affects only one
series and would be voted upon only by shareholders of the Fund involved.
Additionally, approval of an advisory contract, since it affects only one Fund,
is a matter to be determined separately by Series. Approval by the
shareholders of one Series is effective as to that Series whether or not
sufficient votes are received from the shareholders of the other Series to
approve the proposal as to those Series. As used in the Prospectus of each
Fund and in this SAI, the term "majority," when referring to approvals to be
obtained from shareholders of a Class of shares of a Fund, means the vote of
the lesser of (i) 67% of the shares of the Class represented at a meeting if
the holders of more than 50% of the outstanding shares of the Class are present
in person or by proxy, or (ii) more than 50% of the outstanding shares of the
Class of the Fund. As used in the Prospectus of each Fund and in this SAI, the
term "majority," when referring to approvals to be obtained from shareholders
of the Fund, means the vote of the lesser of (i) 67% of the shares of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of the Fund are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of the Fund. The term "majority," when referring to the
approvals to be obtained from shareholders of the Company as a whole, means the
vote of the lesser of (i) 67% of the Company's shares represented at a meeting
if the holders of more than 50% of the Company's outstanding shares are present
in person or by proxy, or (ii) more than 50% of the Company's outstanding
shares. Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held.
The Company may dispense with an annual meeting of shareholders in
any year in which it is not required to elect Directors under the 1940 Act.
Each share represents an equal proportional interest in the Fund
with each other share in the same Class of shares and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
the Fund as are declared in the discretion of the Directors. In the event of
the liquidation or dissolution of the Company, shareholders of a Fund are
entitled to receive the assets attributable to the Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular investment portfolio that are available for distribution in such
manner and on such basis as the Directors in their sole discretion may
determine.
Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.
31
<PAGE> 860
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>
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 Owned
94163
GROWTH AND Wells Fargo Bank Class A 53.01% 46.20%
INCOME P.O. Box 63015 Beneficially
San Francisco, CA Owned
94163
</TABLE>
For purposes of the 1940 Act, any person who owns directly or
through one or more controlled companies more than 25% of the voting securities
of a company is presumed to "control" such company. Accordingly, to the extent
that a shareholder identified in the foregoing table is identified as the
beneficial holder of more than 25% of a class (or 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 Registration Statement, including the Prospectus for each
Fund, the SAI and the exhibits filed therewith, may be examined at the office
of the SEC in Washington, D.C. Statements contained in a Prospectus or the SAI
as to the contents of any contract or other document referred to herein or in a
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company. KPMG Peat Marwick LLP provides audit services, tax
return preparation and 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.
32
<PAGE> 861
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and
independent auditors' report for the Funds for the fiscal period 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 are attached to all SAIs delivered to current or prospective
shareholders.
33
<PAGE> 862
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> 863
STAGECOACH FUNDS, INC.
Telephone: (800) 222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1997
SMALL CAP FUND
CLASS A AND CLASS B
---------------------------
Stagecoach Funds, Inc. (the "Company") is an open-end, series
investment company. This Statement of Additional Information ("SAI") contains
information about one of the Company's series -- the SMALL CAP FUND (the
"Fund"). The Fund offers three classes of shares -- Class A Shares, Class B
Shares and Institutional Class shares. This SAI relates only to the Class A
Shares and Class B Shares of the Fund. The investment objective of the Fund is
described in the Prospectus under the heading "Investment Objective and
Policies." The Fund seeks to achieve its investment objective by investing all
of its assets in the Small Cap Master Portfolio (at times, the "Master
Portfolio") of Master Investment Trust ("MIT"), which has the same investment
objective as the Fund. The Fund may withdraw its investment in the Small Cap
Master Portfolio at any time, if the Board of Directors of the Company
determines that such action is in the best interests of the Fund and its
shareholders. Upon such withdrawal, the Company's Board would consider
alternative investments, including investing all of the Fund's assets in
another investment company with the same investment objective as the Fund or
hiring an investment adviser to manage the Fund's assets in accordance with the
investment policies and restrictions described in the Prospectus and below with
respect to MIT.
This SAI is not a prospectus and should be read in conjunction
with the Fund's Prospectus, dated February 1, 1997. All terms used in this SAI
that are defined in the Prospectus will have the meanings assigned in the
Prospectus. A copy of the Prospectus may be obtained without charge by writing
Stephens Inc. ("Stephens"), the Company's sponsor, co-administrator and
distributor, at 111 Center Street, Little Rock, Arkansas 72201, or calling the
Transfer Agent at the telephone number indicated above.
---------------------------
<PAGE> 864
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . 1
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Servicing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . . . 12
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . 16
Additional Purchase and Redemption Information . . . . . . . . . . . . . 17
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 18
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
<PAGE> 865
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 Fund shareholders and it will cast its votes as instructed by such
shareholders.
The Fund and the Master Portfolio 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 passthrough
securities), commodities or commodity contracts or interests in oil, gas, or
other mineral exploration or development programs;
(3) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions) or make short sales of
securities;
(4) underwrite securities of other issuers, except to the
extent that the purchase of permitted investments directly from the issuer
thereof or from an underwriter for an issuer and the later disposition of such
securities in accordance with the Fund's investment program may be deemed to be
an underwriting; and provided further, that the purchase by the Fund of
securities issued by a diversified, open-end management investment company, or
a series thereof, with substantially the same investment objective, policies
and restrictions as such Fund shall not constitute an underwriting for purposes
of this paragraph (4);
(5) make investments for the purpose of exercising control or
management; provided that the Fund may invest all its assets in a diversified,
open-end management company, or a series thereof, with substantially the same
investment objective, policies and restrictions as such Fund, without regard to
the limitations set forth in this paragraph (5);
1
<PAGE> 866
(6) issue senior securities, except that the Fund may borrow
from banks up to 10% of the current value of its net assets for temporary
purposes only in order to meet redemptions, and these borrowings may be secured
by the pledge of up to 10% of the current value of its net assets (but
investments may not be purchased while any such outstanding borrowings exceed
5% of its net assets);
(7) make loans of portfolio securities having a value that
exceeds 33 1/3% of the current value of its total assets, provided that, this
restriction does not apply to the purchase of fixed time deposits, repurchase
agreements, commercial paper and other types of debt instruments commonly sold
in a public or private offering; nor
(8) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if, as
a result, with respect to 75% of its total assets, more than 5% of the value of
its total assets would be invested in the securities of any one issuer or, with
respect to 100% of its total assets, the Fund's ownership would be more than
10% of the outstanding voting securities of such issuer, provided that the Fund
may invest all its assets in a diversified, open-end management investment
company, or a series thereof, with substantially the same investment objective,
policies and restrictions as such Fund, without regard to the limitations set
forth in this paragraph (8).
Non-Fundamental Investment Policies. The Fund and the Master
Portfolio are subject to the following investment restrictions, all of which
are non-fundamental policies. These restrictions may be changed by a vote of a
majority of the Directors of the Company or the Trustees of MIT, as the case
may be, at any time.
The Fund and the Master Portfolio 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;
2
<PAGE> 867
(5) invest more than 15% of the Fund's net assets in illiquid
securities. For this purpose, illiquid securities include, among others, (a)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (b) fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, and (c) repurchase agreements not terminable within seven days;
(6) In addition, as a matter of non-fundamental policy, the
Fund may invest in shares of other open-end, management investment companies,
subject to the limitations of Section 12(d)(1) of the Act, provided that any
such purchases will be limited to temporary investments in shares of
unaffiliated investment companies and the Investment Adviser will waive its
advisory fees for that portion of the Fund's assets so invested, except when
such purchase is part of a plan of merger, consolidation, reorganization or
acquisition; nor
(7) Invest more than 25% of their respective net assets in
securities of foreign governmental and foreign private issues that are
denominated in and pay interest in U.S. dollars.
Notwithstanding any other investment policy or limitation (whether
or not fundamental), the Fund may invest all of its assets in the securities of
a single open-end management investment company with substantially the same
fundamental investment objective, policies and limitations as the Fund. A
decision to so invest all of its assets may, depending on the circumstances
applicable at the time, require approval of shareholders.
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the prospectus entitled "The Funds and
Management." The principal occupations during the past five years of the
Directors and principal executive Officer of the Company are listed below. The
address of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Directors deemed to be "interested persons" of the Company
for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 45 Director, Senior Vice President
Chairman and of Stephens; Manager
</TABLE>
3
<PAGE> 868
<TABLE>
<S> <C> <C>
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate Professor of Finance
of the School of Business and Accounting at
Wake Forest University since 1983.
Joseph N. Hankin, 55 Director President, Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; President of Hartford
(appointed as of September 6, 1996) Junior College from 1967 to
1971; Adjunct Professor of
Columbia University
Teachers College since
1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
</TABLE>
4
<PAGE> 869
<TABLE>
<S> <C> <C>
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 40 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
5
<PAGE> 870
COMPENSATION TABLE
<TABLE>
<CAPTION>
Year Ended Period Ended
------------------------------- -------------------------------
December 31, 1995 September 30, 1996
------------------------------- -------------------------------
Total Total
Aggregate Compensation Aggregate Compensation
Compensation from Registrant Compensation from Registrant
from and Fund from and Fund
Name and Position Registrant Complex Registrant Complex
----------------- ------------ --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Jack S. Euphrat $10,188 $39,750 $9,750 $29,250
Director
*R. Greg Feltus $-0- $-0- $-0- $-0-
Director
Thomas S. Goho $10,188 $39,750 $9,750 $29,250
Director
Joseph N. Hankin N/A N/A $-0- $-0-
Director
*Zoe Ann Hines $-0- $-0- $-0- $-0-
Director
(resigned as of September
6, 1996)
*W. Rodney Hughes $9,438 $37,000 $8,250 $24,750
Director
Robert M. Joses $9,938 $39,000 $9,750 $29,250
Director
*J. Tucker Morse $8,313 $33,250 $8,250 $24,750
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
6
<PAGE> 871
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.
MASTER/FEEDER STRUCTURE. The Fund seeks to achieve its investment
objective by investing all of its assets into the Small Cap Master Portfolio of
MIT. 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. See "Management and Servicing Fees" for additional
description of the Fund's and Master Portfolio's expenses and management.
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 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.
7
<PAGE> 872
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 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.
The Advisory Contract provides that Wells Fargo shall furnish to the Master
Portfolio investment guidance and policy direction in connection with the daily
portfolio management of the Master Portfolio. Pursuant to the Advisory
Contract, Wells Fargo furnishes to the Board of Trustees of 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 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 begun September 16, 1996 (the Fund's commencement
of operations) and ended September 30, 1996, the Master Portfolio paid to 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.
8
<PAGE> 873
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained
Wells Fargo Bank as Administrator and Stephens as Co-Administrator on behalf of
the Fund. In addition, MIT has retained Wells Fargo Bank as Administrator and
Stephens as Co-Administrator on behalf of the Master Portfolio. Under the
respective Administration and Co- Administration Agreements among Wells Fargo
Bank, Stephens and the Company and MIT, Wells Fargo Bank, Stephens shall
provide as administrative services, among other things: (i) general
supervision of the Fund's and the Master Portfolio's operations, including
coordination of the services performed by the investment adviser (in the case
of the Master Portfolio), 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 the Master Portfolio;
and (ii) general supervision relative to the compilation of data required for
the preparation of periodic reports distributed to the Company's and MIT's
Officers, Directors and Trustees. Wells Fargo Bank and Stephens also furnish
office space and certain facilities required for conducting the Fund's and the
Master Portfolio's business together with ordinary clerical and bookkeeping
services. Stephens pays the compensation of MIT's and Company's
Directors/Trustees, 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 begun September 16, 1996 and ended September 30,
1996, Stephens served as sole administrator to the Fund, and received $492 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.
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
entered into a shareholder servicing agreement with Wells Fargo Bank. The
Class A and B shares of the Fund paid no shareholder servicing fees to Wells
Fargo Bank or its affiliates for the period ended September 30, 1996.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo
has been retained to act as custodian and transfer and dividend disbursing
agent for the Fund and the Master Portfolio. The custodian, among other
things, maintains a custody account or accounts in the name of the Fund and the
Master Portfolio, receives and delivers all assets for the Fund and the Master
Portfolio upon purchase and upon sale or maturity, collects and receives all
income and other payments and distributions on account of the assets of the
Fund and the Master Portfolio and pays all expenses of the Fund and the Master
Portfolio. For its services as custodian, Wells Fargo is entitled to receive
fees as
9
<PAGE> 874
follows: a net asset charge at the annual rate of 0.0167%, payable monthly,
plus specified transaction charges. Wells Fargo also will provide portfolio
accounting services under the Custody Agreement as follows: a monthly base fee
of $2,000 plus a net asset fee at the annual rate of 0.070% of the first
$50,000,000 of the Fund's average daily net assets, 0.045% of the next
$50,000,000, and 0.020% of the average daily net assets in excess of
$100,000,000.
For the period begun September 16, 1996 and ended September 30,
1996, the Fund paid no custody fees to Wells Fargo Bank.
For its services as transfer and dividend disbursing agent for the
Fund, Wells Fargo is entitled to receive monthly payments at the annual rate of
0.07% of the Fund's average daily net assets.
For the period begun September 16, 1996 and ended September 30,
1996, the Fund paid to 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 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.
COLLECTIVE INVESTMENT FUND MANAGEMENT FEES. Prior to September
16, 1996, Wells Fargo provided management and administrative services to the
Collective Investment Fund. For these services Wells Fargo charged fees at an
annual rate of 0.75% of the Collective Investment Fund's average net assets.
Wells Fargo was also entitled to be reimbursed by the Collective Investment
Fund for expenses incurred on its behalf, excluding costs incurred in
establishing and organizing the Fund. The Collective Investment Fund was
entitled to pay up to 0.10% of its net assets for "Audit Expenses."
10
<PAGE> 875
There were no sales charges. The Collective Investment Fund paid all brokerage
commissions incurred on its portfolio transactions.
DISTRIBUTION PLANS
The following information supplements and should be read in
conjunction with the Prospectus section entitled "Distribution Plans." As
indicated in the Prospectus, the Fund, on behalf of each of its classes of
shares, has adopted a Plan under Section 12(b) of the Act and Rule 12b-1
thereunder (the "Rule"). Each Plan was adopted by a majority of the directors
who were not "interested persons" (as defined in the Act) of the Fund and who
had no direct or indirect financial interest in the operation of the Plans or
in any agreement related to the Plans (the "Qualified Directors").
Under the Distribution Agreement for the Class A Shares, Stephens
is entitled to receive from the Fund, as reimbursement for all or part of the
cost of preparing and printing prospectuses and other promotional materials and
of delivering prospectuses and those materials to prospective shareholders and
as reimbursement for other distribution- related services, a fee computed on a
monthly basis at an annual rate of up to 0.10% of the average daily net assets
of the Class A Shares of the Fund.
Under the Distribution Agreement for the Class B Shares, Stephens
is entitled to receive from the Fund as compensation for distribution-related
services provided or as reimbursement for distribution-related expenses
incurred, a monthly fee at an annual rate of up to 0.75% of the average daily
net assets of the Class B Shares of the Fund.
For the period begun September 16, 1996 and ended September 30,
1996, the Fund's distributor received the following amounts of 12b-1 fees for
the specified purposes set forth below under each Plan.
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Small Cap Fund Total Prospectus Brochures Underwriters
- -------------- ----- ---------- --------- ------------
<S> <C> <C> <C> <C>
Class A $ 2 $-0- $ 2 N/A
Class B $-0- N/A N/A $-0-
</TABLE>
Each Plan will continue in effect from year to year if its
continuance is approved by a majority vote of both the directors of the Company
and the Qualified Directors. Agreements related to the Plans also must be
approved by such vote of the directors and the Qualified Directors. Such
agreements will terminate automatically if assigned, and may be terminated at
any time, without payment of any penalty, by a vote of a majority of the
outstanding voting securities of the Fund. The Plans may not be amended to
increase materially the amounts payable thereunder without the approval of a
majority of the outstanding voting securities of the Fund, and no material
amendment to a
11
<PAGE> 876
Plan may be made except by a majority of both the directors of the Company and
the Qualified Directors.
The Plans require that the Treasurer of the Fund shall provide to
the directors, and the directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefore) under such Plan. The
Rule also requires that the selection and nomination of directors who are not
"interested persons" of the Company be made by such disinterested directors.
SERVICING PLAN
The Company's Board of Directors, on behalf of the Fund, adopted a
Servicing Plan ("Servicing Plan") on August 28th and 29th, 1996, with respect
to each class of the Fund's shares. The Servicing Plan was approved by a
majority of the Directors who were not "interested persons" (as defined in the
Act) of the Fund and who had no direct or indirect financial interest in the
operation of the Servicing Plan or in any agreement related to the Servicing
Plan (the "Servicing Plan Non-Interested Directors").
Under the Servicing Plan and pursuant to the shareholder servicing
agreements for the Class A or B Shares, the Fund may pay one or more servicing
agents, as compensation for performing certain services, a fee at an annual
rate of up to 0.25% of the average daily net assets of the Fund's Class A or B
Shares attributable to the servicing agent's customers. The actual fee payable
to servicing agents is determined, within such limits, from time to time by
mutual agreement between the Company and each servicing agent and will not
exceed the maximum service fees payable by mutual funds sold by members of the
NASD under the NASD Rules of Fair Practice.
Each Servicing Plan continues in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Servicing Plan Non-Interested Directors. Any form of servicing
agreement related to the Servicing Plan also must be approved by such vote of
the Directors and the Servicing Plan Non- Interested Directors. Servicing
agreements may be terminated at any time, without payment of any penalty, by
vote of a majority of the Servicing Plan Non-Interested Directors. No material
amendment to the Servicing Plans may be made except by a majority of both the
Directors of the Company and the Servicing Plan Non-Interested Directors.
Each Servicing Plan requires that the administrator shall provide
to the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under the Servicing
Plan.
12
<PAGE> 877
PERFORMANCE CALCULATIONS
The following information supplements and should be read in
conjunction with the sections in the Prospectus entitled "Investing in the Fund
- -- Share Value" and "How the Fund Works -- Performance."
As indicated in the Prospectus, the Fund may advertise certain
total return information for a class of shares, computed in the manner
described in the Prospectus. As and to the extent required by the Commission,
an average annual compound rate of return ("T") will be computed by using the
redeemable value at the end of a specified period ("ERV") of a hypothetical
initial investment in a class of shares ("P") over a period of years ("n")
according to the following formula: P(1+T)n = ERV. In addition, as indicated
in the Prospectus, the Fund also may, at times, calculate total return for a
class of shares based on net asset value per share (rather than the public
offering price), in which case the figures would not reflect the effect of any
sales charges that would have been paid by an investor, or would be based on
the assumption that a sales charge other than the maximum sales charge
(reflecting a Volume Discount) was assessed, provided that total return data
derived pursuant to the calculation described above also are presented.
In addition to the above performance information, the Fund may
also advertise the cumulative total return of a class. The cumulative total
return for such periods is based on the overall percentage change in value of a
hypothetical investment in a class of shares, assuming all dividends and
capital gain distributions are reinvested in shares of that class, without
reflecting the effect of any sales charge that would be paid by an investor,
and is not annualized.
Performance information may be advertised for non-standardized
periods, including year-to-date and other periods less than a year.
The total return information presented below and advertised by the
Fund for the period prior to September 16, 1996, the date the Fund commenced
operations, is based upon the prior performance of the Collective Investment
Fund. The performance information is adjusted to reflect each class' current
level of operating expenses.
For the Applicable Period Ended September 30, 1996
<TABLE>
<CAPTION>
Average Annual Total Return Cumulative Total Return
------------------------------------------------- ----------------------------
Inception(1) Inception One Year One Year Inception Inception
With Sales No Sales With Sales No Sales With Sales No Sales
CLASS Charge(2) Charge Charge Charge Charge Charge
----- ----------- --------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
A 47.00% 50.56% 29.94% 36.08% 109.25% 119.09%
B 48.96% 49.68% 32.39% 35.39% 114.63% 116.63%
</TABLE>
13
<PAGE> 878
- -----------
(1) The Small Cap Fund commenced operations on September 16, 1996, as the
successor to Small Capitalization Growth Fund for BRP Employment Retirement
Plans, an unregistered bank collective investment fund (the "Predecessor
Fund") which, in turn, commenced operations on November 2, 1994.
(2) For Class A Shares, there is a front-end sales charge of 4.50%. For Class
B Shares, there is a maximum contingent deferred sales charge ("CDSC") of
3.00%.
From time to time and only to the extent the comparison is
appropriate for a class of shares of the Fund, the Company may quote the
performance or price-earning ratio of a class of shares of the Fund in
advertising and other types of literature as compared to the performance of the
1-Year Treasury Bill Rate, the S&P Index, the Dow Jones Industrial Average, the
Lehman Brothers 20+ Years Treasury Index, the Lehman Brothers 5-7 Year Treasury
Index, Donoghue's Money Fund Averages, Real Estate Investment Averages (as
reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by the World Gold Council), Bank Averages (which
is calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the Federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), Ten Year U.S. Government Bond Average, S&P's
Corporate Bond Yield Averages, Schabacter Investment Management Indices,
Salomon Brothers High Grade Bond Index, Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, other managed or unmanaged indices or
performance data of bonds, stocks or government securities (including data
provided by Ibbotson Associates), or by other services, companies, publications
or persons who monitor mutual funds on overall performance or other criteria.
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stock prices. The performance of a class of shares of the Fund
also may be compared to the performance of other mutual funds having similar
objectives. This comparative performance could be expressed as a ranking
prepared by Lipper Analytical Services, Inc., CDA Investment Technologies,
Inc., Bloomberg Financial Markets or Morningstar, Inc., independent services
which monitor the performance of mutual funds. The performance of a class of
shares of the Fund will be calculated by relating net asset value per share at
the beginning of a stated period to the net asset value of the investment,
assuming reinvestment of all gains distributions and dividends paid, at the end
of the period. Any such comparisons may be useful to investors who wish to
compare the class' past performance with that of its competitors. Of course,
past performance cannot be a guarantee of future results. The Company also may
include, from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
In addition, the Company also may use, in advertisements and other
types of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital
14
<PAGE> 879
growth; and (2) describing Wells Fargo, and its affiliates and predecessors, as
one of the first investment managers to advise investment accounts using asset
allocation and index strategies. The Company also may include in advertising
and other types of literature information and other data from reports and
studies prepared by the Tax Foundation, including information regarding federal
and state tax levels and the related "Tax Freedom Day."
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
15
<PAGE> 880
the Fund with other investments that are assigned ratings by the NRSROs. Any
such comparisons may be useful to investors who wish to compare the Fund's past
performance with other rated investments.
The Company also may disclose, in advertising and other types of
literature, information and statements that 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 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 may maintain Web
sites, pages or other information sites accessible through Electronic Channels
(an "Information Site") and may describe the contents and features of the
Information Site and instruct investors on how to access the Information Site
and open a Sweep Account. Advertising and other literature may also disclose
the procedures employed by Wells Fargo Bank to secure information provided by
investors, including disclosure and discussion of the tools and services for
accessing Electronic Channels. Such advertising or other literature may
include discussions of the advantages of establishing and maintaining a Sweep
Account through Electronic Channels and testimonials from Wells Fargo Bank
customers or employees and may also include descriptions of locations where
product demonstrations may occur. The Company may also disclose the ranking of
Wells Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the Prospectus section entitled "Investing in the Fund." Net
asset value per share for each class of the Fund and net asset value per unit
of the Master Portfolio are each determined by Wells Fargo on each day the
Exchange is open for trading as of the close of regular trading on the
Exchange, which is currently 1:00 p.m. Pacific time.
16
<PAGE> 881
Securities of the Master Portfolio for which market quotations are
available are valued at latest prices. Any security for which the primary
market is an exchange is valued at the last sale price on such exchange on the
day of valuation or, if there was no sale on such day, the latest bid price
quoted on such day. In the case of other securities, including U.S. Government
securities but excluding money market instruments maturing in 60 days or less,
the valuations are based on latest quoted bid prices. Money market instruments
maturing in 60 days or less are valued at amortized cost. The assets of the
Master Portfolio other than money market instruments maturing in 60 days or
less are valued at latest quoted bid prices. Prices may be furnished by a
reputable independent pricing service approved by the Board of Trustees.
Prices provided by an independent pricing service may be determined without
exclusive reliance on quoted prices and may take into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data. All other securities and other assets of the Master
Portfolio for which current market quotations are not readily available are
valued at fair value as determined in good faith by 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,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day (each a "Holiday"). When any Holiday falls
on a weekend, the NYSE typically is closed on the weekday immediately before or
after such Holiday.
Payment for shares may, in the discretion of the adviser, be made
in the form of securities that are permissible investments for the Fund as
described in the Prospectuses. For further information about this form of
payment please contact Stephens. In connection with an in-kind securities
payment, the Fund will require, among other things, that the securities be
valued on the day of purchase in accordance with the pricing methods used by
the Fund and that the Fund receives satisfactory assurances that (i) it will
have good and marketable title to the securities received by it; (ii) that the
securities are in proper form for transfer to the Fund; and (iii) adequate
information will be provided concerning the basis and other matters relating to
the securities.
Under the 1940 Act, the Fund may suspend the right of redemption
or postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule
or regulation), an emergency exists as a
17
<PAGE> 882
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 is a member under
certain conditions in accordance with the provisions of a rule adopted under
the 1940 Act and in compliance with procedures adopted by the Board of
Trustees.
The Trust has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by MIT's Board of Trustees, Wells Fargo is responsible for
the Master Portfolio decisions and the placing of portfolio transactions. In
placing orders, it is the policy of 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 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
18
<PAGE> 883
broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. Wells Fargo Bank may cause
the Master Portfolio to pay a broker/dealer which furnishes brokerage and
research services a higher commission than that which might be charged by
another broker/dealer for effecting the same transaction, provided that Wells
Fargo Bank determines in good faith that such commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker/dealer, viewed in terms of either the particular transaction or the
overall responsibilities of Wells Fargo Bank. Such brokerage and research
services might consist of reports and statistics relating to specific companies
or industries, general summaries of groups of stocks or bonds and their
comparative earnings and yields, or broad overviews of the stock, bond, and
government securities markets and the economy.
Supplementary research information so received is in addition to,
and not in lieu of, services required to be performed by Wells Fargo Bank and
does not reduce the advisory fees payable by the Master Portfolio. The Board of
Trustees will periodically review the commissions paid by the Master Portfolio
to consider whether the commissions paid over representative periods of time
appear to be reasonable in relation to the benefits inuring to the Master
Portfolio. It is possible that certain of the supplementary research or other
services received will primarily benefit one or more other investment companies
or other accounts for which investment discretion is exercised. Conversely,
the Master Portfolio may be the primary beneficiary of the research or services
received as a result of portfolio transactions effected for such other account
or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Master Portfolio in any transaction may be less favorable than
that available from another broker/dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.
Broker/dealers utilized by Wells Fargo Bank may furnish
statistical, research and other information or services which are deemed by
Wells Fargo Bank to be beneficial to the Master Portfolio's investment
programs. Research services received from brokers supplement Wells Fargo
Bank's own research and may include the following types of information:
statistical and background information on industry groups and individual
companies; forecasts and interpretations with respect to U.S. and foreign
economies, securities, markets, specific industry groups and individual
companies; information on political developments; portfolio management
strategies; performance information on
19
<PAGE> 884
securities and information concerning prices of securities; and information
supplied by specialized services to Wells Fargo Bank and to MIT's Trustees with
respect to the performance, investment activities and fees and expenses of
other mutual Funds. Such information may be communicated electronically,
orally or in written form. Research 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.
Brokerage Commissions. For the period ended September 30, 1996,
the Fund paid the following for brokerage commissions:
<TABLE>
<CAPTION>
September 30, 1996
------------------
<S> <C>
Small Cap Fund $1,856
</TABLE>
Securities of Regular Broker/Dealers. As of September 30, 1996,
the Fund owned no 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 Master Portfolio, 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 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
20
<PAGE> 885
and printing prospectuses (except the expense of printing and mailing
prospectuses used for promotional purposes, unless otherwise payable pursuant
to a Plan), shareholders' reports, notices, proxy statements and reports to
regulatory agencies; insurance premiums and certain expenses relating to
insurance coverage; trade association membership dues; brokerage and other
expenses connected with the execution of portfolio transactions; fees and
expenses of its custodian, including those for keeping books and accounts and
calculating the NAV per share of the Fund; expenses of shareholders' meetings;
expenses relating to the issuance, registration and qualification of the Fund's
shares; pricing services, and any extraordinary expenses. Expenses
attributable to the Fund are charged against Fund assets. General expenses of
the Company are allocated among all of the funds of the Company, including the
Fund, in a manner proportionate to the net assets of the Fund, on a
transactional basis, or on such other basis as the Company's Board of Directors
deems equitable.
FEDERAL INCOME TAXES
In General. The following information supplements and should be
read in conjunction with the Prospectus sections entitled "Dividend and Capital
Gain Distributions" and "Taxes." The Prospectus of the Fund describes
generally the tax treatment of distributions by the 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 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
21
<PAGE> 886
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-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
22
<PAGE> 887
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 Fund Investments. Gains or losses on sales of
portfolio securities by the Master Portfolio will generally be long-term
capital gains or losses if the securities have been held by it for more than
one year, except in certain cases such as where the Master Portfolio acquires a
put or writes a call thereon. 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.
23
<PAGE> 888
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 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
24
<PAGE> 889
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 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
25
<PAGE> 890
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, the Master
Portfolio 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 twenty-four 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 Shares,
Class B Shares and Institutional Class Shares. With respect to matters that
affect one class but not another, shareholders vote as a class; for example,
the approval of a Plan. Subject to the foregoing, on any matter submitted to a
vote of shareholders, all shares then entitled to vote will be voted separately
by portfolio unless otherwise required by the Act, in which case all shares
will be voted in the aggregate. For example, a change in the Fund's
fundamental investment policies would be voted upon only by shareholders of the
Fund and not shareholders of the Company's other investment portfolios.
Additionally, approval of an advisory contract is a matter to be determined
separately by the Fund. Approval by the shareholders of one portfolio is
effective as to that portfolio whether or not sufficient votes are received
from the shareholders of the other portfolios to approve the proposal as to
those portfolios. As used in the Prospectus and in this Statement of
Additional Information, the term "majority," when referring to approvals to be
obtained from shareholders of a class of the Fund, means the vote of the lesser
of (i) 67% of the shares of such class of the Fund represented at a meeting if
the holders of more than 50%
26
<PAGE> 891
of the outstanding shares of such class of the Fund are present in person or by
proxy, or (ii) more than 50% of the outstanding shares of such class of the
Fund. The term "majority," when referring to the approvals to be obtained from
shareholders of the Company as a whole, means the vote of the lesser of (i) 67%
of the Company's shares represented at a meeting if the holders of more than
50% of the Company's outstanding shares are present in person or by proxy, or
(ii) more than 50% of the Company's outstanding shares. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held.
The Company may dispense with annual meetings of shareholders in
any year in which it is not required to elect directors under the Act.
However, the Company undertakes to hold a special meeting of its shareholders
for the purpose of voting on the question of removal of a director or directors
if requested in writing of the holders of at least 10% of the Company's
outstanding voting securities, and to assist in communicating with other
shareholders as required by Section 16(c) of the Act.
Each share of a class of the Fund represents an equal proportional
interest in the Fund with each other share of the same class and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to the Fund as are declared in the discretion of the Directors. In
the event of the liquidation or dissolution of the Company, shareholders of the
Fund are entitled to receive the assets attributable to the Fund that are
available for distribution, and a distribution of any general assets not
attributable to the Fund that are available for distribution in such manner and
on such basis as the Directors in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.
The Trust is a business trust organized under the laws of
Delaware. In accordance with Delaware law and in connection with the tax
treatment sought by 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.
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
27
<PAGE> 892
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of the
Trustee's office.
The interests in the Master Portfolio have substantially identical
voting and other rights as those rights enumerated above for Fund shares. The
Trust also intends to dispense with annual meetings, but will hold a special
meeting and assist investor communications under the circumstances described
above with respect to the Company in accord with provisions under Section 16(c)
of the Act. Whenever the Fund is requested to vote on a matter with respect to
the Master Portfolio, the Fund will hold a meeting of Fund shareholders and
will cast its votes as instructed by such shareholders. In a situation where
the Fund does not receive instruction from certain of its shareholders on how
to vote the corresponding shares of the Master Portfolio, the Fund will vote
such shares in the same proportion as the shares for which the Fund does
receive voting instructions.
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 93.49% 86.30%
420 Montgomery Street Class
San Francisco, CA 94104 Record Holder
Wells Fargo Bank Class A 48.93% N/A
P.O. Box 63015 Benefically
San Francisco, CA 94163 Owned
Stephens Inc. Class A 33.62% N/A
111 Center Street Benefically
Little Rock, AR 72201 Owned
Stephens Inc. Class B 5.90% N/A
P.O. Box 34127 Benefically
Little Rock, AR 72203 Owned
Acct. 77586707
Stephens Inc. Class B 11.71% N/A
P.O. Box 34127 Benefically
Little Rock, AR 72203 Owned
Acct. 77478661
</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
28
<PAGE> 893
Fund) and has voting and/or investment powers, it may be presumed to control
such class (or Fund).
OTHER
The Registration Statements of MIT and the Company, including the
Fund's Prospectus, the SAI and the exhibits filed therewith, may be examined at
the office of the Commission in Washington, D.C. Statements contained in the
Prospectus or the SAI as to the contents of any contract or other document
referred to herein or in the Prospectus are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent
auditors 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 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 are attached
to all SAIs delivered to current or prospective shareholders.
The portfolio of investments, audited financial statements and
independent auditors' report for the fiscal period ended September 30, 1996 for
the Small Cap Master Portfolio of Master Investment Trust are hereby
incorporated by reference to the Company's Annual Reports as filed with the
SEC on December 9, 1996.
29
<PAGE> 894
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> 895
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1997
NATIONAL TAX-FREE MONEY MARKET MUTUAL FUND
----------------------------------
Stagecoach Funds, Inc. (the "Company") is an open-end, series
investment company. This Statement of Additional Information ("SAI") contains
information about one of the funds in the Stagecoach Family of Funds -- the
NATIONAL TAX-FREE MONEY MARKET MUTUAL FUND (the "Fund"). 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.
The Fund may withdraw its investment in the Master Portfolio at
any time if the Board of Directors of the Company determines that such action
is in the best interests of the Fund and its shareholders. Upon such
withdrawal, the Company's Board of Directors would consider alternative
investments, including investing all of the Fund's assets in another investment
company with the same investment objective as the Fund or hiring an investment
adviser to manage the Fund's assets in accordance with the investment policies
and restrictions described in the Fund's then current Prospectus and SAI.
This SAI is not a prospectus and should be read in conjunction
with the Fund's Prospectus dated February 1, 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
Wells Fargo Bank, N.A. ("Wells Fargo Bank") at 1-800-222-8222.
1
<PAGE> 896
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction............................................................ 3
Investment Restrictions................................................. 3
Additional Permitted Investment
Activities.............................................................. 6
Management.............................................................. 9
Distribution Plan....................................................... 14
Performance Calculations................................................ 15
Determination of Net Asset Value........................................ 20
Additional Purchase and Redemption Information.......................... 21
Portfolio Transactions.................................................. 21
Fund Expenses........................................................... 23
Federal Income Taxes.................................................... 23
Capital Stock........................................................... 26
Other................................................................... 29
Independent Auditors................................................... 29
Financial Information.................................................. 29
SAI Appendix........................................................... A-1
</TABLE>
2
<PAGE> 897
INTRODUCTION
MIT is a registered, open-end, management investment company. MIT
is a "series fund," which is a mutual fund divided into separate portfolios.
MIT currently offers nine diversified portfolios: the Asset Allocation,
Capital Appreciation, Cash Investment Trust, Corporate Stock, Short-Term
Municipal Income, Short-Term Government-Corporate Income, Small Cap, Tax-Free
Money Market and U.S. Government Allocation Master Portfolios. The Fund
invests substantially all of its assets in the Tax-Free Money Market Master
Portfolio, which has the same investment objective as the Fund.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies. The Fund and the Master
Portfolio are subject to the following investment restrictions, all of which
are fundamental policies.
The Fund and the Master Portfolio 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 or the Master Portfolio's
investments in that industry would be 25% or more of the current value of the
Fund's or the Master Portfolio'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 and Master Portfolio may
purchase securities of an issuer which invests or deals in commodities and
commodity contracts and except that the Fund and Master Portfolio may enter
into futures and options contracts in accordance with their respective
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
3
<PAGE> 898
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's or Master Portfolio's investment program (including
the Fund's investments in the Master Portfolio) may be deemed to be an
underwriting;
(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 and Master
Portfolio may each 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 and Master Portfolio 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 or Master
Portfolio'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 or Master Portfolio'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 and Master Portfolio may
each 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 and Master Portfolio intend 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 or Master Portfolio may hold in excess of 25% of the value of
the assets in obligations of the banking industry to the extent that the Fund
or Master Portfolio 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.
4
<PAGE> 899
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 and the Master Portfolio to comply with Rule 2a-7's
diversification requirements.
Non-Fundamental Investment Policies. The Fund and the Master
Portfolio are subject to the following non- fundamental policies.
Neither the Fund nor the Master Portfolio may:
(1) purchase or retain securities of any issuer if the Officers
or Directors/Trustees of the Company, MIT 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 or Master Portfolio's aggregate investment in
such classes of securities will exceed 5% of its total assets.
The Fund and the Master Portfolio may each 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 or the Master Portfolio'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 and the Master Portfolio each 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
5
<PAGE> 900
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 and the
Master Portfolio 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.
Furthermore, the Fund and the Master Portfolio may not purchase or
sell real estate limited partnership interests. The Fund and the Master
Portfolio do not currently intend to make loans of their portfolio securities.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Unrated and Downgraded Investments. The Master Portfolio 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 Master Portfolio.
The Master Portfolio may purchase unrated instruments only if they are
purchased in accordance with the Master Portfolio's procedures adopted by MIT's
Board of Trustees in accordance with Rule 2a-7 under the 1940 Act. After
purchase by the Master Portfolio, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Master
Portfolio. 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 Trustees has determined
that disposal of the portfolio security would not be in the best interests of
the Master Portfolio. 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 Master Portfolio will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in its Part A
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 Master Portfolio 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 Master Portfolio may be used for letter of credit-backed
investments, provided that MIT's Board of Trustees approves or ratifies such
investments.
Loans of Portfolio Securities. The Master Portfolio 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 Master Portfolio with respect to the loan is maintained
with the Master Portfolio. In determining whether or not to lend a security to
a particular broker, dealer or financial institution, the Master Portfolio's
investment adviser considers all relevant facts and
6
<PAGE> 901
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
Master Portfolio will not enter into any portfolio security lending arrangement
having a duration longer than one year. Any securities that the Master
Portfolio receives as collateral do not become part of the Master Portfolio's
portfolio at the time of the loan and, in the event of a default by the
borrower, the Master Portfolio will, if permitted by law, dispose of such
collateral except for such part thereof that is a security in which the Master
Portfolio is permitted to invest. During the time securities are on loan, the
borrower will pay the Master Portfolio any accrued income on those securities,
and the Master Portfolio may invest the cash collateral and earn additional
income or receive an agreed-upon fee from a borrower that has delivered
cash-equivalent collateral. The Master Portfolio will not lend securities
having a value that exceeds one-third of the current value of its total assets.
Loans of securities by the Master Portfolio are subject to termination at the
Master Portfolio's or the borrower's option. The Master Portfolio 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 MIT, 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 Master
Portfolio 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.
7
<PAGE> 902
Municipal Bonds. The Master Portfolio 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 or solid waste disposal. The Master Portfolio 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
8
<PAGE> 903
of municipal securities (i.e., market risk). Should such interest rates rise,
the values of outstanding securities, including those held in the Master
Portfolio'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 Master Portfolio's
portfolio arising from these or other factors will cause changes in the net
asset value per share of the Master Portfolio.
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the prospectus entitled "The Funds and
Management." The principal occupations during the past five years of the
Directors and principal executive Officer of the Company are listed below. The
address of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Directors deemed to be "interested persons" of the Company for
purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 45 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate Professor of
Finance of the School of Business and
Accounting at Wake Forest University
since 1983.
</TABLE>
9
<PAGE> 904
<TABLE>
<S> <C> <C>
Joseph N. Hankin, 55 Director President, Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; President of Hartford
(appointed as of Junior College from 1967 to
September 6, 1996) 1971; Adjunct Professor of
Columbia University
Teachers College since
1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 40 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary Director of Stephens
and Sports Management
Treasurer Inc.; and Director of
Capo Inc.
</TABLE>
10
<PAGE> 905
COMPENSATION TABLE
<TABLE>
<CAPTION>
Year Ended Period Ended
---------- -------------
December 31, 1995 September 30, 1996
------------------ ------------------
Total
Aggregate Total Compensation Aggregate Compensation from
Compensation from Registrant Compensation Registrant
Name and Position from Registrant and Fund Complex from Registrant and Fund Complex
----------------- --------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Jack S. Euphrat $10,188 $39,750 $9,750 $29,250
Director
*R. Greg Feltus $-0- $-0- $-0- $-0-
Director
Thomas S. Goho $10,188 $39,750 $9,750 $29,250
Director
Joseph N. Hankin N/A N/A $-0- $-0-
Director
*Zoe Ann Hines $-0- $-0- $-0- $-0-
Director
(resigned as of
September 6, 1996)
*W. Rodney Hughes $9,438 $37,000 $8,250 $24,750
Director
Robert M. Joses $9,938 $39,000 $9,750 $29,250
Director
*J. Tucker Morse $8,313 $33,250 $8,250 $24,750
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
11
<PAGE> 906
Managed Series Investment Trust together form a separate fund complex (the
"BGFA Fund Complex"). Each of the Directors and Officers of the Company serves
in the identical capacity as directors and officers or as trustees and/or
officers of each registered open-end management investment company in both the
Wells Fargo and BGFA Fund Complexes, except for Joseph N. Hankin, who only
serves the aforementioned members of the Wells Fargo Fund Complex, and Zoe Ann
Hines who, after September 6, 1996, only serves the aforementioned members of
the BGFA Fund Complex. The Directors are compensated by other companies and
trusts within a fund complex for their services as directors/trustees to such
companies and trusts. Currently the Directors do not receive any retirement
benefits or deferred compensation from the Company or any other member of each
fund complex.
As of the date of this SAI, Directors and Officers of the Company
as a group beneficially owned less than 1% of the outstanding shares of the
Company.
MASTER/FEEDER STRUCTURE. The Fund seeks to achieve its investment
objective by investing all of its assets in the Tax-Free Money Market Master
Portfolio of MIT. 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. See "Management and Servicing Fees" for
additional description of the Fund's and Master Portfolio's expenses and
management.
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 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.
12
<PAGE> 907
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 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 is advised by Wells Fargo Bank pursuant to an
Investment Advisory Contract approved by the Board of Trustees of MIT. The
Investment 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.
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 begun April 2, 1996 (commencement of operations)
and ended September 30, 1996, the Master Portfolio paid to Wells Fargo Bank
$76,987 in advisory fees. $10,704 in advisory fees were waived during this
period.
The Investment 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 Investment Advisory Contract or "interested persons" (as
defined in the 1940 Act) of any such party. The Investment 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. In addition, MIT has retained Wells Fargo Bank as Administrator and
Stephens as Co-Administrator on behalf of the Master Portfolio. Under the
respective Administration and Co- Administration
13
<PAGE> 908
Agreements among Wells Fargo Bank, Stephens and the Company and MIT, Wells
Fargo Bank, Stephens shall provide as administrative services, among other
things: (i) general supervision of the Fund's and the Master Portfolio's
operations, including coordination of the services performed by the investment
adviser (in the case of the Master Portfolio), 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
the Master Portfolio; and (ii) general supervision relative to the compilation
of data required for the preparation of periodic reports distributed to the
Company's and MIT's Officers, Directors and Trustees. Wells Fargo Bank and
Stephens also furnish office space and certain facilities required for
conducting the Fund's and the Master Portfolio's business together with
ordinary clerical and bookkeeping services. Stephens pays the compensation of
MIT's and Company's Directors/Trustees, 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 begun 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.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo
Bank has been retained to act as custodian for both the Fund and the Master
Portfolio. The custodian, among other things, maintains separate custody
accounts in the names of the Fund and the Master Portfolio; receives and
delivers all assets for the Fund and the Master Portfolio upon purchase and
upon sale or maturity; collects and receives all income and other payments and
distributions on account of the assets of the Fund and the Master Portfolio and
pays all expenses of the Fund and the Master Portfolio. Wells Fargo Bank is
not entitled to receive a fee for its services as transfer and dividend
disbursing agent and custodian for both the Fund and the Master Portfolio.
For the period begun April 2, 1996 and ended September 30, 1996,
the Fund paid no compensation for custodial services or transfer and
dividend disbursing agency services to Wells Fargo Bank.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the "Distribution Plan")
under Section 12(b) of the 1940 Act and Rule 12b-1 thereunder. The
Distribution Plan for the Fund was adopted by the Company's Board of Directors
on October 10, 1995, including a majority of Directors who were not "interested
persons" (as defined in the 1940 Act) of the Fund and who
14
<PAGE> 909
had no direct or indirect financial interest in the operation of the
Distribution Plan (the "Qualified Directors").
The Distribution Plan permits the Fund to pay Stephens, for
distribution-related activities provided and related expenses incurred, a
monthly fee at the annual rate of up to 0.05% of the average daily net assets
of the Fund. The Distribution Plan authorizes Stephens to compensate
broker/dealers or financial institutions that have entered into Selling Group
Agreements with Stephens for distribution-related series.
The Distribution 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 Qualified Directors. Any Agreements related to the
Distribution Plan also must be approved by such vote of the Directors and the
Qualified Directors. Such Agreements terminate automatically if assigned, and
may be terminated at any time, without payment of any penalty, by a vote of a
majority of the outstanding voting securities of the Fund. The Distribution
Plan may not be amended to increase materially the amounts payable thereunder
without the approval of a majority of the outstanding voting securities of the
Fund, and no material amendment to the Distribution Plan may be made except by
a majority of both the Directors of the Company and the Qualified Directors.
The Distribution Plan requires the Company to provide to the
Directors, and the Directors to review, at least quarterly, a written report of
the amounts expended (and purposes therefor) under the Distribution Plan and
any related agreements. The Rule also requires that the selection and
nomination of Directors who are not "interested persons" of the Company be made
by such disinterested Directors.
For the period begun April 2, 1996 and ended September 30, 1996,
the Fund's distributor received the following amounts of 12b-1 fees for the
specified purposes set forth below under its Plan.
<TABLE>
<CAPTION>
Printing & Mailing Marketing Compensation to
Total Prospectus Brochures Underwriters
- ----- ---------- --------- ------------
<S> <C> <C> <C>
$144 $ -0- $ 144 N/A
</TABLE>
PERFORMANCE CALCULATIONS
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
15
<PAGE> 910
return for a class of shares based on net asset value per share (rather than
the public offering price), in which case the figures would not reflect the
effect of any sales charges that would have been paid by an investor, or would
be based on the assumption that a sales charge other than the maximum sales
charge (reflecting a Volume Discount) was assessed, provided that total return
data derived pursuant to the calculation described above also are presented.
In addition to the above performance information, the Fund may
also advertise the cumulative total return of a class. The cumulative total
return for such periods is based on the overall percentage change in value of a
hypothetical investment in a class of shares, assuming all dividends and
capital gain distributions are reinvested in shares of that class, without
reflecting the effect of any sales charge that would be paid by an investor,
and is not annualized.
Performance information may be advertised for non-standardized
periods, including year-to-date and other periods less than a year.
<TABLE>
<CAPTION>
Average Annual Total Return(1) Cumulative Total Return
Inception to September 30, 1996 Inception to September 30, 1996
- ------------------------------- -------------------------------
<S> <C>
1.51% 1.51%
</TABLE>
(1) The Fund commenced operations on April 2, 1996 and does not assess sales
charges.
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
16
<PAGE> 911
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 in the foregoing
variables and differences in the methods used to value portfolio securities,
compute expenses and calculate yield.
Yield for the Applicable Period Ended September 30, 1996(1)
<TABLE>
<CAPTION>
Thirty-Day Tax-
Thirty-Day Equivalent Seven-Day
Fund Yield Yield(2) Seven-Day Yield Effective Yield
---- ----- ----- --------------- ---------------
<S> <C> <C> <C> <C>
National Tax-Free Money Market 2.73% 5.08% 3.00% 3.04%
</TABLE>
(1) These figures reflect any reimbursed expenses throughout the period.
The yield of the predecessor portfolio's shares through September 5, 1996 is
also reflected for the thirty day figures.
(2) Based on a federal income tax rate of 28.00%.
Performance Comparisons. From time to time and only to the extent
the comparison is appropriate for the Fund, the Company may quote the Fund's
performance or price-earning ratio in advertising and other types of literature
as compared to the performance of the 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.
17
<PAGE> 912
The Fund's performance also may be compared to the performance of
other mutual funds having similar objectives. This comparative performance
could be expressed as a ranking prepared by Lipper Analytical Services, Inc.
(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 the Fund: (i) the Consumer Price Index may be
used to assess the real rate of return from an investment in the Fund; (ii)
other government statistics, including, but not limited to, The Survey of
Current Business, may be used to illustrate investment attributes of the Fund
or the general economic, business, investment, or financial environment in
which the Fund operates; (iii) the effect of tax-deferred compounding on the
investment returns of the Fund, or on returns in general, may be illustrated by
graphs, charts, etc., where such graphs or charts would compare, at various
points in time, the return from an investment in the Fund (or returns in
general) on a tax-deferred basis (assuming reinvestment of capital gains and
dividends and assuming one or more tax rates) with the return on a taxable
basis; and (iv) the sectors or industries in which the Fund invests may be
compared to relevant indices of stocks or surveys (e.g., S&P Industry Surveys)
to evaluate the 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 or Master Portfolio'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 December 31, 1996, Wells
Fargo Bank and its affiliates
18
<PAGE> 913
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 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.
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
19
<PAGE> 914
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 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 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
20
<PAGE> 915
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 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.
Payment for shares may, in the discretion of the adviser, be made
in the form of securities that are permissible investments for the Fund as
described in the Prospectuses. For further information about this form of
payment please contact Stephens. In connection with an in-kind securities
payment, the Fund will require, among other things, that the securities be
valued on the day of purchase in accordance with the pricing methods used by the
Fund and that the Fund receives satisfactory assurances that (i) it will have
good and marketable title to the securities received by it; (ii) that the
securities are in proper form for transfer to the Fund; and (iii) adequate
information will be provided concerning the basis and other matters relating to
the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule
or regulation), an emergency exists as a result of which disposal or valuation
of portfolio securities is not reasonably practicable, or for such periods as
the SEC may permit.
The Company may suspend redemption rights or postpone redemption
payments for such periods as are permitted under the 1940 Act. The Company may
also redeem shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to
reimburse the Fund for any losses sustained by reason of the failure of a
shareholders to make full payment for shares purchased or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to shares of a Fund as provided from time to time in the Prospectus.
21
<PAGE> 916
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 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
Investment 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 the Master Portfolio may be
used by
22
<PAGE> 917
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 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 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.
23
<PAGE> 918
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 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.
24
<PAGE> 919
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 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
25
<PAGE> 920
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 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 twenty-four 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
26
<PAGE> 921
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.
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 (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, a no-load, diversified, open-end management investment
company, was organized as a Delaware business trust on August 15, 1991. 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
27
<PAGE> 922
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 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.
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.
28
<PAGE> 923
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
Class A 6.82% 6.82%
Karl R. Kriegbaum [Record Holder]
11259 Good Night
Lane #1
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 Registration Statements of the Company and MIT, including the
Fund's Prospectus, the SAI and the exhibits filed therewith, may be examined at
the office of the SEC in Washington, D.C. Statements contained in the
Prospectus or the SAI as to the 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 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 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 are attached to all SAIs delivered to current or prospective
shareholders.
The portfolio of investments, audited financial statements and
independent auditors' report for the fiscal period ended September 30, 1996 for
the Tax-Free Money Market Master Portfolio of Master Investment Trust are
hereby incorporated by reference to the Company's Annual Reports as filed with
the SEC on December 9, 1996.
29
<PAGE> 924
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> 925
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> 926
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1997
U.S. GOVERNMENT ALLOCATION FUND
CORPORATE STOCK FUND
ASSET ALLOCATION FUND
CLASS A AND CLASS B
---------------------------
Stagecoach Funds, Inc. is an open-end, series investment company.
This Statement of Additional Information ("SAI") contains information about
three of the funds in the Stagecoach Family of Funds. This SAI is not a
prospectus, but supplements and should be read in conjunction with the current
Prospectus describing the U.S. GOVERNMENT ALLOCATION FUND and the ASSET
ALLOCATION FUND, and the prospectus describing the CORPORATE STOCK FUND, each
dated February 1, 1997, (each, a "Fund" and collectively, the "Funds") of
Stagecoach Funds, Inc. (the "Company") as it may be revised from time to time.
All terms used in this SAI that are defined in each Fund's Prospectus will have
the meaning assigned in such Prospectus. A copy of the Prospectus for each
Fund may be obtained without charge by writing Stephens Inc. ("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.
As described in each Prospectus, each of these Funds invests all of
its assets in a separate Master Portfolio of Master Investment Trust ("MIT"),
an open-end management investment company, having the same investment objective
as the Fund bearing the corresponding name. Each of the Funds, other than the
Corporate Stock Fund, offers two classes (each a "Class") of shares -- Class A
shares and Class B shares. This SAI relates to the shares offered by the
Corporate Stock Fund (which shares sometimes referred to herein collectively,
the "Class A shares") and to both Classes of shares offered by the other Funds.
The investment objective of each Fund is described in its Prospectus under the
Section entitled "How the Funds Work -- Investment Objectives and Policies."
Wells Fargo Bank, N.A. ("Wells Fargo Bank") is investment adviser and
administrator, and Barclays Global Fund Advisors ("BGFA"), an affiliate of
Barclays Bank PLC ("Barclays"), is investment sub-adviser to each of the Master
Portfolios of MIT.
---------------------------
1
<PAGE> 927
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities . . . . . 8
Management of the Company . . . . . . . . . . . . . . 18
Compensation Table . . . . . . . . . . . . . . . . . 21
Distribution Plans . . . . . . . . . . . . . . . . . 27
Performance Calculations . . . . . . . . . . . . . . 29
Determination of Net Asset Value . . . . . . . . . . 36
Additional Purchase and Redemption Information . . . 36
Portfolio Transactions . . . . . . . . . . . . . . . 37
Fund Expenses . . . . . . . . . . . . . . . . . . . . 40
Federal Income Taxes . . . . . . . . . . . . . . . . 41
Capital Stock . . . . . . . . . . . . . . . . . . . . 46
Other . . . . . . . . . . . . . . . . . . . . . . . . 49
Independent Auditors . . . . . . . . . . . . . . . . 49
Financial Information . . . . . . . . . . . . . . . . 49
SAI Appendix . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
2
<PAGE> 928
INTRODUCTION
The Company is a registered investment company consisting of
twenty-five series including the Funds. MIT is a registered investment company
consisting of nine series including the Master Portfolios. Each Fund invests
all of its assets in the corresponding Master Portfolio of MIT (as illustrated
below), which has the same investment objectives as the related Fund.
Fund Corresponding Master Portfolio
U.S. Government Allocation Fund U.S. Government Allocation Master Portfolio
Corporate Stock Fund Corporate Stock Master Portfolio
Asset Allocation Fund Asset Allocation Master Portfolio
INVESTMENT RESTRICTIONS
General. Each Master Portfolio has the same investment objective as
its related Fund. Each Fund may withdraw its investment in the corresponding
Master Portfolio at any time if the Board of Directors of the Company
determines that such action is in the best interests of the Fund and its
shareholders. Upon such withdrawal, the Company's Board of Directors would
consider alternative investments, including investing all of the Fund's assets
in another investment company with the same investment objective as the Fund or
hiring an investment adviser to manage the Fund's assets in accordance with the
investment policies and restrictions described in the Fund's Prospectus and
this SAI.
Fundamental Investment Policies. Each Fund has adopted 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
(as defined in the Investment Company Act of 1940, as amended (the "1940 Act"))
of the outstanding voting securities of such Fund. Whenever a Fund is
requested to vote on a fundamental policy of the Master Portfolio in which it
invests, such Fund holds a meeting of Fund shareholders and casts its votes as
instructed by such Fund's shareholders.
The Funds 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 any 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 (i) obligations of the United
States Government, its agencies or instrumentalities, (ii) in the case of the
Corporate Stock Fund and the Asset Allocation Fund, any industry in which the
S&P 500 Index becomes concentrated to the same degree during the same period,
and (iii) in the case of the Asset Allocation Fund, money market instruments
3
<PAGE> 929
invested in the banking industry (but the Fund will not do so unless the SEC
staff confirms that it does not object to the Fund reserving freedom of action
to concentrate investments in the banking industry); and provided further, that
a 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 (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);
(3) purchase or sell commodities or commodity contracts; except
that each Fund may purchase and sell (i.e., write) options, forward contracts,
futures contracts, including those relating to indices, and options on futures
contracts or indices, and may participate in interest rate and index swaps;
(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 transactions in options, forward contracts, futures contracts,
including those relating to indices, and options on futures contracts or
indices) 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; and provided further, that the purchase by a 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 (6);
(7) make investments for the purpose of exercising control or
management; provided that a 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 (7);
(8) issue senior securities, except to the extent the activities
permitted in Investment Restrictions Nos. 3 and 5 may be deemed to give rise
to a senior security but do not violate the provisions of section 18 of the
1940 Act, and except that each Fund may borrow up to 20% of the current value
of each such Fund's 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 each such Fund's net assets (but investments
4
<PAGE> 930
may not be purchased by such Funds while any such outstanding borrowings exceed
5% of the respective Fund's net assets);
(9) write, purchase or sell puts, calls, straddles, spreads,
warrants, options or any combination thereof, except that each Fund may engage
in options transactions to the extent permitted in Investment Restrictions Nos.
3 and 5, and except that each Fund may purchase securities with put rights in
order to maintain liquidity; 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, provided that a 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 (10).
Each Fund may make loans in accordance with its investment policies.
As a fundamental policy, each Fund may invest, notwithstanding any
other investment restrictions (whether or not fundamental), all of its assets
in the securities of a single open-end, management investment company with
substantially the same fundamental investment objectives, policies and
restrictions as such Fund.
Non-Fundamental Investment Policies. Each Fund is subject to the
following non-fundamental policies which may be changed by a majority vote of
the Board of Directors of the Company at any time and without approval of the
shareholders.
The Funds 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 (0.50%) 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
5
<PAGE> 931
which are not readily marketable if by reason thereof the value of its
aggregate investment in such classes of securities will exceed 5% of its total
assets; or
(4) invest more than 15% of its net assets in illiquid securities,
including repurchase agreements maturing in more than seven days.
Fundamental Investment Policies of the Master Portfolios. Each Master
Portfolio has adopted 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 (as defined in the 1940 Act) of the
outstanding voting securities of such Master Portfolio.
The Master Portfolios 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 any Master Portfolio'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 (i)
obligations of the United States Government, its agencies or instrumentalities,
(ii) in the case of the Corporate Stock Master Portfolio and the Asset
Allocation Master Portfolio, any industry in which the S&P 500 Index becomes
concentrated to the same degree during the same period, and (iii) in the case
of the Asset Allocation Master Portfolio, money market instruments invested in
the banking industry (but the Master Portfolio will not do so unless the SEC
staff confirms that it does not object to the Master Portfolio reserving
freedom of action to concentrate investments in the banking industry);
(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 or sell commodities or commodity contracts; except
that each Master Portfolio may purchase and sell (i.e., write) options, forward
contracts, futures contracts, including those relating to indices, and options
on futures contracts or indices, and may participate in interest rate and index
swaps;
(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 transactions in options, forward contracts, futures contracts,
including those relating to indices, and options on futures contracts or
indices) 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
6
<PAGE> 932
issuer and the later disposition of such securities in accordance with the
Master Portfolio'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 to the extent the activities
permitted in Investment Restrictions Nos. 3 and 5 may be deemed to give rise
to a senior security but do not violate the provisions of section 18 of the
1940 Act, and except that each Master Portfolio may borrow up to 20% of the
current value of each such Master Portfolio's 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 each such Master Portfolio's net
assets (but investments may not be purchased by such Master Portfolios while
any such outstanding borrowings exceed 5% of the respective Master Portfolio's
net assets);
(9) write, purchase or sell puts, calls, straddles, spreads,
warrants, options or any combination thereof, except that each Master Portfolio
may engage in options transactions to the extent permitted in Investment
Restrictions Nos. 3 and 5, and except that each Master Portfolio may purchase
securities with put rights in order to maintain liquidity; 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 Master Portfolio's total assets would
be invested in the securities of any one issuer or the Master Portfolio's
ownership would be more than 10% of the outstanding voting securities of such
issuer.
Each Master Portfolio may make loans in accordance with their
investment policies.
Non-Fundamental Investment Policies. Each Master Portfolio is subject
to the following non-fundamental policies which may be changed by a majority
vote of the Board of Trustees of MIT at any time and without approval of the
shareholders.
The Master Portfolios may not:
(1) purchase or retain securities of any issuer if the officers or
Directors of MIT or Wells Fargo Bank 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
7
<PAGE> 933
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 its aggregate investment in such classes of securities
will exceed 5% of its total assets; or
(4) invest more than 15% of its net assets in illiquid securities,
including repurchase agreements maturing in more than seven days.
In addition, the Master Portfolios may invest in shares of other open-
end, management investment companies, subject to the limitations of Section
12(d)(1) of the 1940 Act, provided that any such purchases will be limited to
temporary investments in shares of unaffiliated investment companies and Wells
Fargo Bank will waive its advisory fees for that portion of the Master
Portfolios' assets so invested, except when such purchase is part of a plan of
merger, consolidation, reorganization or acquisition.
MIT may make commitments more restrictive than the restrictions listed
above, so as to permit the sale of shares of a feeder fund that invests in the
Master Portfolio in certain states. Should MIT determine that a commitment is
no longer in the best interest of the Master Portfolio and its interestholders,
MIT reserves the right to revoke the commitment by terminating the sale of such
Master Portfolio's shares in the state involved.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
PORTFOLIO SECURITIES. To the extent set forth in the Prospectus and
SAI, each Master Portfolio may invest in the securities described below.
Asset Allocation Model. A key component of the Asset Allocation Model
is a set of assumptions concerning expected risk and return and investor
attitudes toward risk which are incorporated into the asset allocation decision.
The principal inputs of financial data to the Asset Allocation Model currently
are (i) consensus estimates of the earnings, dividends and payout ratios on a
broad cross-section of common stocks as reported by independent financial
reporting services which survey a broad cross-section of Wall Street analysts,
(ii) the estimated current yield to maturity on new long-term corporate bonds
rated "AA" by S&P, (iii) the present yield on money market instruments, (iv) the
historical statistical standard deviation in investment return for each class of
asset, and (v) the historical statistical correlation of investment returns
among the various asset classes in which the Asset Allocation Master Portfolio
invests. Using these data, the Asset Allocation Model is run daily to determine
the recommended asset allocation. The model's recommendations are presently
made in 10% increments.
8
<PAGE> 934
Unrated Investments. Each Master Portfolio may purchase instruments
that are not rated if, in the opinion of Wells Fargo Bank, such obligations are
of investment quality comparable to other rated investments that are permitted
to be purchased by such Master Portfolio. After purchase by a Master Portfolio,
a security may cease to be rated or its rating may be reduced below the minimum
required for purchase by such Master Portfolio. Neither event will require a
sale of such security by such Master Portfolio. To the extent the ratings given
by Moody's or S&P may change as a result of changes in such organizations or
their rating systems, each Master Portfolio 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 Master Portfolios may purchase may be backed by an
unconditional and irrevocable letter of credit of a bank, savings and loan
association or insurance company which assumes the obligation for payment of
principal and interest in the event of default by the issuer. Only banks,
savings and loan associations and insurance companies which, in the opinion of
Wells Fargo Bank, are of comparable quality to issuers of other permitted
investments of such Fund may be used for letter of credit-backed investments.
Pass-Through Obligations. The Master Portfolios 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 U.S.
Government Allocation Master Portfolio and the Asset Allocation Master
Portfolio may invest will be purchased on a when-issued basis, in which case
delivery and payment normally take place within 45 days after the date of the
commitment to purchase. These Master Portfolios only will make commitments to
purchase securities on a when-issued basis with the intention of actually
acquiring the securities, but may sell them before the settlement date if it is
deemed advisable. When- issued securities are subject to market fluctuation,
and no income accrues to the purchaser during the period prior to issuance.
The purchase price and the interest rate that will be received on debt
securities are fixed at the time the purchaser enters into the commitment.
Purchasing a security on a when-issued basis can involve a risk that the market
price at the time of delivery may be lower than the agreed-upon purchase price,
in which case there could be an unrealized loss at the time of delivery.
Each Master Portfolio will segregate cash, U.S. Government obligations
or other high-quality debt instruments in an amount at least equal in value to
the Master
9
<PAGE> 935
Portfolio's commitments to purchase when-issued securities. If the value of
these assets declines, the Master Portfolio will segregate additional liquid
assets on a daily basis so that the value of the segregated assets is equal to
the amount of such commitments.
Loans of Portfolio Securities. All of the Master Portfolios may lend
securities from their portfolios to brokers, dealers and financial institutions
(but not individuals) if cash, U.S. Government obligations or other
high-quality debt instruments equal to at least 100% of the current market
value of the securities loan (including accrued interest thereon) plus the
interest payable to such Master Portfolio with respect to the loan is
maintained with the Master Portfolio. In determining whether to lend a
security to a particular broker, dealer or financial institution, Wells Fargo
Bank 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 Master Portfolios 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 Master Portfolio could
experience delays in recovering securities or collateral or could lose all or
part of the value of the loaned securities. Any securities that a Master
Portfolio may receive as collateral will not become part of the Master
Portfolio's portfolio at the time of the loan and, in the event of a default by
the borrower, the Master Portfolio will, if permitted by law, dispose of such
collateral except for such part thereof that is a security in which the Master
Portfolio is permitted to invest. During the time securities are on loan, the
borrower will pay the Master Portfolio any accrued income on those securities,
and the Master Portfolio may invest the cash collateral and earn additional
income or receive an agreed-upon fee from a borrower that has delivered
cash-equivalent collateral. None of the Master Portfolios will lend securities
having a value that exceeds one third of the current value of its total assets.
Loans of securities by any of the Master Portfolios will be subject to
termination at the Master Portfolio's or the borrower's option. The Master
Portfolios may pay reasonable administrative and custodial fees in connection
with a securities loan and may pay a negotiated portion of the interest or fee
earned with respect to the collateral to the borrower or the placing broker.
Borrowers and placing brokers may not be affiliated, directly or indirectly,
with the Company, MIT, its Adviser, or its Distributor.
Futures Contracts and Options Transactions. The Corporate Stock Fund
may engage in futures transactions as discussed below. A futures transaction
involves a firm agreement to buy or sell a commodity or financial instrument at
a particular price on a specified future date, while an option transaction
generally involves a right, which may or may not be exercised, to buy or sell a
commodity of financial instrument at a particular price on a specified future
date. Futures contracts and options are standardized and exchange-traded, where
the exchange serves as the ultimate counterparty for all contracts.
Consequently, the only credit risk on futures contracts is the creditworthiness
of the exchange. Futures contracts, however, are subject to market risk (i.e.,
exposure to adverse price changes).
10
<PAGE> 936
The Corporate Stock Fund may trade futures contracts and options on
futures contracts in U.S. domestic markets, such as the Chicago Board of Trade
and the International Monetary Market of the Chicago Mercantile Exchange.
The Corporate Stock Fund's futures transactions must constitute
permissible transactions pursuant to regulations promulgated by the Commodity
Futures Trading Commission. In addition, the Fund may not engage in futures
transactions if the sum of the amount of initial margin deposits and premiums
paid for unexpired options on futures contracts, other than those contracts
entered into for bona fide hedging purposes, would exceed 5% of the liquidation
value of the Fund's assets, after taking into account unrealized profits and
unrealized losses on such contracts; provided, however, that in the case of an
option on a futures contract that is in-the money at the time of purchase, the
in-the money amount may be excluded in calculating the 5% liquidation amount.
Pursuant to regulations and/or published positions of the SEC, the Fund may be
required to segregate cash, U.S. Government obligations or other high-quality
debt instruments in connection with its futures transactions in an amount
generally equal to the entire value of the underlying commitment.
Initially, when purchasing or selling futures contracts the Corporate
Stock Fund will be required to deposit with its custodian in the broker's name
an amount of cash or cash equivalents up to approximately 10% of the contract
amount. This amount is subject to change by the exchange or board of trade on
which the contract is traded, and members of such exchange or board of trade
may impose their own higher requirements. This amount is known as "initial
margin" and is in the nature of a performance bond or good faith deposit on the
contract that is returned to the Fund upon termination of the futures position,
assuming all contractual obligations have been satisfied. Subsequent payments,
known as "variation margin", to and from the broker will be made daily as the
price of the index or securities underlying the futures contract fluctuates,
making the long and short positions in the futures contract more or less
valuable. At any time prior to the expiration of a futures contract, the Fund
may elect to close the position by taking an opposite position, at the then
prevailing price, thereby terminating its existing position in the contract.
Although the Corporate Stock Fund intends to purchase or sell futures
contracts only if there is an active market for such contracts, no assurance
can be given that a liquid market will exist for any particular contract at any
particular time. Many futures exchanges and boards of trade limit the amount
of fluctuation permitted in futures contract prices during a single trading
day. Once the daily limit has been reached in a particular contract, no trades
may be made that day at a price beyond that limit or trading may be suspended
for specified periods during the trading day. Futures contracts prices could
move to the limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
potentially subject the Fund to substantial losses. If it is not possible, or
the Fund determines not, to close a
11
<PAGE> 937
futures position in anticipation of adverse price movements, the Fund will be
required to make daily cash payments of variation margin.
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put)
at a specified exercise price at any time during the option exercise period.
The writer (i.e. seller) of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a
long position if the option is a put). Upon exercise of the option, the
assumption of offsetting futures positions by both the writer and the holder of
the option will be accompanied by delivery of the accumulated cash balance in
the writer's futures margin account in the amount by which the market price of
the futures contract, at exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the futures
contract.
Each Master Portfolio may enter into futures contracts and may purchase
and write options thereon. Upon the exercise, the writer of the option
delivers to the holder of the option the futures position and the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of options on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the time of
sale, there are no daily cash payments to reflect changes in the value of the
underlying contract; however, the value of the option may change daily, and
that change would be reflected in the net asset value of the relevant Master
Portfolio.
Foreign Currency Transactions. If a Master Portfolio enters into a
foreign currency transaction or forward contract, such Master Portfolio
deposits, if required by applicable regulations, with MIT's custodian cash or
high-grade debt securities in a segregated account of the Master Portfolio in
an amount at least equal to the value of the Master Portfolio's total assets
committed to the consummation of the forward contract. If the value of the
securities placed in the segregated account declines, additional cash or
securities are placed in the account so that the value of the account equals
the amount of the Master Portfolio's commitment with respect to the contract.
At or before the maturity of a forward contract, a Master Portfolio
either may sell a portfolio security and make delivery of the currency, or may
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract pursuant to which such Master Portfolio
obtains, on the same maturity date, the same amount of the currency which it is
obligated to deliver. If the Master Portfolio retains the portfolio security
and engages in an offsetting transaction, such Master Portfolio, at the time of
execution of the offsetting transaction, incurs a gain or a loss to the extent
that movement has occurred in forward contract prices. Should forward prices
decline during
12
<PAGE> 938
the period between the Master Portfolio's entering into a forward contract for
the sale of a currency and the date it enters into an offsetting contract for
the purchase of the currency, the Master Portfolio will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the Master
Portfolio will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.
The cost to a Master Portfolio of engaging in current transactions
varies with factors such as the currency involved, the length of the contract
period and the market conditions then prevailing. Because transactions in
currency exchange usually are conducted on a principal basis, no fees or
commissions are involved. Wells Fargo Bank or BGFA, as appropriate, considers
on an ongoing basis the creditworthiness of the institutions with which a Master
Portfolio enters into foreign currency transactions. The use of forward
currency exchange contracts does not eliminate fluctuations in the underlying
prices of the securities, but it does establish a rate of exchange that can be
achieved in the future. If a devaluation generally is anticipated, the Master
Portfolio may not be able to contract to sell the currency at a price above the
devaluation level it anticipates.
The purchase of options on currency futures allows a Master Portfolio,
for the price of the premium it must pay for the option, to decide whether or
not to buy (in the case of a call option) or to sell (in the case of a put
option) a futures contract at a specified price at any time during the period
before the option expires.
Future Developments. Each Master Portfolio may take advantage of
opportunities in the areas of options and futures contracts and options on
futures contracts and any other derivative investments which are not presently
contemplated for use by such Master Portfolio or which are not currently
available but which may be developed, to the extent such opportunities are both
consistent with a Master Portfolio's investment objective and legally
permissible for the Master Portfolio. Before entering into such transactions
or making any such investment, a Master Portfolio would provide appropriate
disclosure in its Prospectus or this SAI.
Stock Index Options. The Master Portfolios may purchase and write
(i.e., sell) put and call options on stock indices as a substitute for
comparable market positions in the underlying securities. A stock index
fluctuates with changes in the market values of the stocks included in the
index. The aggregate premiums paid on all options purchased may not exceed 20%
of a Master Portfolio's total assets and the value of the options written may
not exceed 10% of the value of the Master Portfolio's total assets.
The effectiveness of purchasing or writing stock index options will
depend upon the extent to which price movements in a Master Portfolio's
portfolio correlate with price movements of the stock index selected. Because
the value of an index option depends upon movements in the level of the index
rather than the price of a particular stock,
13
<PAGE> 939
whether a Master Portfolio will realize a gain or loss from purchasing or
writing stock index options depends upon movements in the level of stock prices
in the stock market generally or, in the case of certain indices, in an
industry or market segment, rather than movements in the price of particular
stock.
When a Master Portfolio writes an option on a stock index, the Master
Portfolio will place in a segregated account with the Master Portfolio's
custodian cash or liquid securities in an amount at least equal to the market
value of the underlying stock index and will maintain the account while the
option is open or otherwise will cover the transaction.
Stock Index Futures and Options on Stock Index Futures. Each Master
Portfolio may invest in stock index futures and options on stock index futures
as a substitute for a comparable market position in the underlying securities.
A stock index future obligates the seller to deliver (and the purchaser to
take), effectively, an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
No physical delivery of the underlying stocks in the index is made. With
respect to stock indices that are permitted investments, each Master Portfolio
intends to purchase and sell futures contracts on the stock index for which it
can obtain the best price with consideration also given to liquidity.
Interest-Rate Futures Contracts and Options on Interest-Rate Futures
Contracts. Each Master Portfolio may invest in interest-rate futures contracts
and options on interest-rate futures contracts as a substitute for a comparable
market position in the underlying securities. Each Master Portfolio may also
sell options on interest- rate futures contracts as part of closing purchase
transactions to terminate its options positions. No assurance can be given
that such closing transactions can be effected or as to the degree of
correlation between price movements in the options on interest rate futures and
price movements in the Master Portfolio's portfolio securities which are the
subject of the transaction.
Interest-Rate and Index Swaps. Each Master Portfolio may enter into
interest-rate and index swaps in pursuit of its investment objective.
Interest-rate swaps involve the exchange by a Master Portfolio with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating-rate payments for fixed-rate payments). Index swaps
involve the exchange by the Master Portfolio with another party of cash flows
based upon the performance of an index of securities or a portion of an index
of securities that usually include dividends or income. In each case, the
exchange commitments can involve payments to be made in the same currency or in
different currencies. Each Master Portfolio will usually enter into swaps on a
net basis. In so doing, the two payment streams are netted out, with the
Master Portfolio receiving or paying, as the case may be, only the net amount
of the two payments. If a Master Portfolio enters into a swap, it will
maintain a segregated account on a gross basis, unless
14
<PAGE> 940
the contract provides for a segregated account on a net basis. If there is a
default by the other party to such a transaction, the Master Portfolio will
have contractual remedies pursuant to the agreements related to the
transaction.
The use of interest-rate and index swaps is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. There is no limit,
except as provided below, on the amount of swap transactions that may be entered
into by a Master Portfolio. These transactions generally do not involve the
delivery of securities or other underlying assets or principal. Accordingly,
the risk of loss with respect to swaps generally is limited to the net amount of
payments that the Master Portfolio is contractually obligated to make. There is
also a risk of a default by the other party to a swap, in which case the Fund
may not receive net amount of payments that the Master Portfolio contractually
is entitled to receive. Each Fund and Master Portfolio may invest up to 10% of
its respective net assets in interest-rate and index swaps.
Some of the permissible investments described herein are considered
"derivative" securities because their value is derived, at least in part, from
the price of another security or a specified asset, index or rate. For
example, the futures contracts and options on futures contracts that the Master
Portfolios may purchase are considered derivatives. The Master Portfolios may
only purchase or sell these contracts or options as substitutes for comparable
market positions in the underlying securities. Also, asset-backed securities
issued or guaranteed by U.S. Government agencies or instrumentalities and
certain floating- and variable-rate instruments can be considered derivatives.
Some derivatives may be more sensitive than direct securities to changes in
interest rates or sudden market moves. Some derivatives also may be
susceptible to fluctuations in yield or value due to their structure or
contract terms.
Wells Fargo Bank and BGFA use a variety of internal risk management
procedures to ensure that derivatives use is consistent with a Master
Portfolio's investment objective, does not expose the Master Portfolio to undue
risk and is closely monitored. These procedures include providing periodic
reports to the Board of Trustees concerning the use of derivatives.
The use of derivatives by the Master Portfolios also is subject to
broadly applicable investment policies. For example, a Master Portfolio may not
invest more than a specified percentage of its assets in "illiquid securities,"
including those derivatives that do not have active secondary markets. Nor may
a Master Portfolio use certain derivatives without establishing adequate "cover"
in compliance with Securities and Exchange Commission rules limiting the use of
leverage.
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
15
<PAGE> 941
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. None of the Master Portfolios may invest
25% or more of its assets in foreign obligations.
Warrants. The Master Portfolios each may invest no more than 5% of
their respective 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 each of their 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 price
of warrants do not necessarily correlate with the prices of the underlying
securities. The Master Portfolios may not only purchase warrants on securities
in which they may invest directly.
ASSET ALLOCATION MODEL
BGFA compares the Asset Allocation Master Portfolio's investments
daily to the Asset Allocation Model's recommended allocation. The investment
model recommends allocations among each asset class in 10% increments only. Any
recommended reallocation will be implemented in accordance with trading policies
that have been designed to take advantage of market opportunities and to reduce
transaction costs. Under current trading policies employed by BGFA, recommended
reallocations may be implemented promptly upon receipt of recommendations or may
not be acted upon for as long as two or three months thereafter depending on
factors such as the percentage change from previous recommendations and the
consistency of recommended reallocations over a period of time. In addition, the
Asset Allocation Master Portfolio generally will invest the net proceeds from
the sale of shares of the Master Portfolio and will liquidate existing Master
Portfolio investments to meet net redemption requirements in a manner that best
allows the Master Portfolio's existing asset allocation to follow that
recommended by the Model. Notwithstanding any recommendation of the Model to the
contrary, the Asset Allocation Master Portfolio will generally maintain at least
that portion of its assets in money market instruments reasonably considered
necessary to meet redemption requirements. In general, cash maintained for
short- term liquidity needs is only invested in U.S. Treasury bills, shares of
other mutual funds and repurchase agreements. There is no requirement that the
Master Portfolio maintain positions in any particular asset class or classes.
Wells Fargo Bank and BGFA manage other portfolios which also invest in
accordance with the Asset Allocation Model. The performance of each of those
other
16
<PAGE> 942
portfolios is likely to vary among themselves and from the performance of the
Fund and the Master Portfolio. Such variation in performance is primarily due
to different equilibrium asset mix assumptions used for the various portfolios,
timing differences in the implementation of the model's recommendations and
differences in expenses and liquidity requirements.
There are 500 common stocks, including Wells Fargo & Company stock,
which make up the S&P 500 Index. S&P occasionally makes changes in the S&P 500
Index based on its criteria for inclusion of stocks in the S&P 500 Index. The
S&P 500 Index is market-capitalization-weighted so that each stock in the S&P
500 Index represents its proportion of the total market value of all stocks in
the S&P 500 Index. In making its stock investments, the policy of the Asset
Allocation Master Portfolio is to invest its assets in substantially the same
stocks, and in substantially the same percentages, as the S&P 500 Index,
including Wells Fargo & Company stock.
U.S. GOVERNMENT ALLOCATION MODEL
BGFA compares the U.S. Government Allocation Master Portfolio's
investments daily to the U.S. Government Allocation Model's recommended
allocation. Any recommended reallocation will be implemented in accordance with
trading policies that have been designed to take advantage of market
opportunities and to reduce transaction costs. Under current trading policies
employed by BGFA, recommended reallocations may be implemented promptly upon
receipt of recommendations or may not be acted upon for as long as two to three
months thereafter depending on factors such as the percentage change from
previous recommendations and the consistency of recommended reallocations over
a period of time. In addition, the U.S. Government Allocation Master Portfolio
generally will invest the net proceeds from the sale of shares of the Master
Portfolio and will liquidate existing Master Portfolio investments to meet net
redemption requirements in a manner that best allows the Master Portfolio's
existing asset allocation to follow the allocation recommended by the computer
Model. Notwithstanding any recommendation of the computer model to the
contrary, the Master Portfolio will generally maintain at least that portion of
its assets in money market instruments reasonably considered necessary to meet
redemption requirements. In general, cash maintained for short-term liquidity
needs is only invested in U.S. Treasury bills, shares other mutual funds and
repurchase agreements. There is no requirement that the Master Portfolio
maintain positions in any particular asset class or classes.
BGFA manages other funds which invest in accordance with a
substantially similar version of the Model. The performance of each of those
other funds is likely to vary among themselves and from the performance of the
Master Portfolio. Such variation in performance is primarily due to timing
differences in the implementation of the Model's recommendations, differences in
expenses and liquidity requirements, and the ability of other funds to invest a
higher portion of their assets in short-term investments
17
<PAGE> 943
that may generate a higher yield, but are not issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
Although BGFA intends to use the Models as bases for its investment
decisions with respect to the Asset Allocation Master Portfolio and U.S.
Government Allocation Master Portfolio, BGFA may change from time to time the
criteria and methods it uses to implement the model's recommendations if it
believes such a change is desirable for a Master Portfolio. Nevertheless, Wells
Fargo Bank has continuing and exclusive authority over the management of the
Master Portfolios, the conduct of their affairs and the disposition of the
Master Portfolios' assets, and Wells Fargo Bank has the right to reject BGFA's
investment decisions for a Master Portfolio if Wells Fargo Bank determines that
any such decision is not consistent with the best interests of a Master
Portfolio.
A key component of the U.S. Government Allocation Model is a set of
assumptions concerning expected risk and return and investor attitudes toward
risk, which are incorporated into the allocation decision. The principal inputs
of financial data to the model currently are: (i) yields on 90-day U.S.
Treasury bills, 5-year U.S. Treasury notes and 30-year U.S. Treasury bonds;
(ii) the expected statistical standard deviation in investment returns for each
class of fixed income instrument; and (iii) the expected statistical
correlation of investment return among the various classes of fixed income
instruments. Using these and other data, the model is run daily to determine
the recommended allocation. The model's recommendations are presently
implemented in 10% increments. Because the Master Portfolio may shift its
investment allocations significantly from time to time, its performance may
differ from funds which invest in one asset class or from funds with a constant
mix of assets.
MANAGEMENT OF THE COMPANY
The following information supplements and should be read in conjunction
with the section in the prospectus entitled "The Funds and Management." The
principal occupations during the past five years of the Directors and principal
executive Officer of the Company are listed below. The address of each, unless
otherwise indicated, is 111 Center Street, Little Rock, Arkansas 72201.
Directors deemed to be "interested persons" of the Company for purposes of the
1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 45 Director, Senior Vice President
</TABLE>
18
<PAGE> 944
<TABLE>
<S> <C> <C>
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of
Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate
Professor of Finance
of the School of Business
and Accounting at Wake
Forest University since 1983.
Joseph N. Hankin, 55 Director President, Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; President of Hartford
(Appointed as of September 6, 1996) Junior College from 1967 to
1971; Adjunct Professor of
Columbia University
Teachers College since
1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
</TABLE>
19
<PAGE> 945
<TABLE>
<S> <C> <C>
*J. Tucker Morse, 52 Director Private Investor;
10 Legrae Street 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., 40 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
20
<PAGE> 946
COMPENSATION TABLE
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, 1995 September 30, 1996
----------------------------- ----------------------------
Total Total
Aggregate Compensation Aggregate Compensation
Compensation from Registrant Compensation from Registrant
from and Fund from and Fund
Name and Position Registrant Complex Registrant Complex
----------------- ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Jack S. Euphrat $10,188 $39,750 $9,750 $29,250
Director
*R. Greg Feltus $-0- $-0- $-0- $-0-
Director
Thomas S. Goho $10,188 $39,750 $9,750 $29,250
Director
Joseph N. Hankin N/A N/A $-0- $-0-
Director
*Zoe Ann Hines $-0- $-0- $-0- $-0-
Director
(resigned as of
September 6, 1996)
*W. Rodney Hughes $ 9,438 $37,000 $8,250 $24,750
Director
Robert M. Joses $ 9,938 $39,000 $9,750 $29,250
Director
*J. Tucker Morse $ 8,313 $33,250 $8,250 $24,750
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
21
<PAGE> 947
Trust together form a separate fund complex (the "BGFA Fund Complex"). Each of
the Directors and Officers of the Company serves in the identical capacity as
directors and officers or as trustees and/or officers of each registered
open-end management investment company in both the Wells Fargo and BGFA Fund
Complexes, except for Joseph N. Hankin, who only serves the aforementioned
members of the Wells Fargo Fund Complex, and Zoe Ann Hines who, after September
6, 1996, only serves the aforementioned members of the BGFA Fund Complex. The
Directors are compensated by other companies and trusts within a fund complex
for their services as directors/trustees to such companies and trusts.
Currently the Directors do not receive any retirement benefits or deferred
compensation from the Company or any other member of each fund complex.
As of the date of this SAI, Directors and Officers of the Company as a
group beneficially owned less than 1% of the outstanding shares of the Company.
MASTER/FEEDER STRUCTURE. Each Fund seeks to achieve its investment
objective by investing all of its assets into a corresponding Master Portfolio
of MIT. The Funds and other entities investing in the corresponding Master
Portfolio are each liable for all obligations of the Master Portfolio. However,
the risk of a Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance existed and MIT
itself is unable to meet its obligations. Accordingly, the Company's Board of
Directors believes that neither a 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. See "Management and Servicing Fees" for
additional description of the Funds' and Master Portfolios' expenses and
management.
A Fund may withdraw its investment in a 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 such withdrawal, the Company's
Board would consider alternative investments, including investing all of such
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 a 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 a Fund, as an interestholder of
the corresponding Master Portfolio, is requested to vote on any matter
submitted to interestholders of such Master Portfolio, the Fund will hold a
meeting of its shareholders to consider such matters. A Fund will cast its
22
<PAGE> 948
votes in proportion to the votes received from its shareholders. Shares for
which a Fund receives no voting instructions will be voted in the same
proportion as the votes received from the other Fund shareholders.
Certain policies of a Master Portfolio which are non-fundamental may be changed
by vote of a majority of MIT's Trustees without interestholder approval. If a
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. A Fund may also elect to redeem
its interests in a 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 Funds will provide shareholders with
30 days' written notice prior to the implementation of any change in the
investment objective of such Fund or Master Portfolio, to the extent possible.
See "Investment Objective and Policies" for additional information regarding
the Funds' and the Master Portfolios' investment objectives and policies.
Additional information regarding the officers and Directors/Trustees of the
Company and MIT is located in each Fund's SAI under "Management."
INVESTMENT ADVISER. Wells Fargo Bank provides investment advisory
services to each Master Portfolio pursuant to an Investment Advisory Agreement
dated April 30, 1996 with MIT. Each such Investment Advisory Agreement will be
referred to as the "Advisory Agreement". The Advisory Agreements provide that
Wells Fargo Bank shall furnish to the Master Portfolios investment guidance and
policy direction in connection with the daily portfolio management of each
Master Portfolio. Pursuant to the Advisory Agreements, Wells Fargo Bank
furnishes to the Board of Trustees periodic reports on the investment strategy
and performance of each Master Portfolio. As to each Master Portfolio, the
applicable Advisory Agreement has an initial two-year term, and will thereafter
be subject to annual approval by (i) MIT's Board of Trustees or (ii) vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
such Master Portfolio, provided that in either event the continuance also is
approved by a majority of MIT's Board of Trustees who are not "interested
persons" (as defined in the 1940 Act) of MIT or Wells Fargo Bank, by vote cast
in person at a meeting called for the purpose of voting on such approval. As
to each Master Portfolio, the Advisory Agreement is terminable without penalty,
on 60 days' written notice, by MIT's Board of Trustees or by vote of the
holders of a majority of such Master Portfolio's shares or, on not less than 60
days' written notice, by Wells Fargo Bank. Each Advisory Agreement terminates
automatically, as to the relevant Master Portfolio, in the event of its
assignment (as defined in the 1940 Act).
Wells Fargo Bank has engaged BGFA to provide sub-investment advisory
services to each Master Portfolio of MIT pursuant to a Sub-Investment Advisory
23
<PAGE> 949
Agreement (the "Sub-Advisory Agreement") dated April 30, 1996. As to each
Master Portfolio, the Sub-Advisory Agreement has an initial two-year term, and
will thereafter be subject to annual approval by (i) MIT's Board of Trustees or
(ii) vote of a majority (as defined in the 1940 Act) of the outstanding
securities of such Master Portfolio, provided that in either event the
continuance also is approved by a majority of MIT's Board of Trustees who are
not interested persons (as defined in the 1940 Act) of the Master Portfolio or
BGFA, by vote cast in person at a meeting called for the purpose of voting on
such approval. As to each Master Portfolio, the Sub-Advisory Agreement is
terminable without penalty, on 60 days' written notice, by MIT's Board of
Trustees or by vote of the holders of a majority of such Master Portfolio's
interests. The Sub-Advisory Agreement terminates automatically upon an
assignment (as defined in the 1940 Act). Subject to the direction of MIT's
Board of Trustees and the overall supervision and control of Wells Fargo Bank
and MIT, BGFA is responsible for investing and reinvesting the Master
Portfolios' assets. BGFA has agreed to furnish to Wells Fargo Bank periodic
reports on the investment activity and performance of the Master Portfolios,
and such additional reports and information as Wells Fargo Bank and MIT's Board
of Trustees and officers shall reasonably request.
Wells Fargo Bank has agreed to provide to the Master Portfolios, among
other things, money market security and fixed-income research, analysis and
statistical and economic data and information concerning interest rate and
security market trends, portfolio composition, credit conditions and, in the
case of the U.S. Government Allocation Master Portfolio and the Asset
Allocation Master Portfolio, average maturities of the portfolios of each of
those Master Portfolios.
Prior to the Funds' conversion to master/feeder structure on April 29,
1996, Wells Fargo Bank provided investment advisory services directly to the
Funds. After the Funds' conversion to master/feeder structure, Wells Fargo
Bank provided investment advisory services to each Fund's corresponding Master
Portfolio. For the years ended December 31, 1993, 1994 and 1995 and the period
ended September 30, 1996 the Fund paid advisory fees to Wells Fargo Bank as
indicated below. For the period begun April 29, 1996 and ended September 30,
1996, these amounts represent advisory fees paid by the Master Portfolios on
behalf of the corresponding Funds. No advisory fees were waived during these
periods.
<TABLE>
<CAPTION>
Fund/ Year Ended Year Ended Year Ended Period Ended Period Ended
Master Portfolio 12/31/93 12/31/94 12/31/95 04/28/96 09/30/96
- ---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Asset Allocation $3,136,581 $3,907,880 $3,814,364 $1,353,641 $1,764,081
Corporate Stock $1,248,207 $1,259,739 $1,398,439 $ 538,107 $ 710,941
U.S. Government $1,090,400 $1,034,079 $ 680,049 $ 231,278 $ 308,379
Allocation
</TABLE>
24
<PAGE> 950
Prior to the Reorganization on January 1, 1996, WFNIA provided
sub-advisory services directly to the Funds. After the Reorganization on
January 1, 1996, BGFA provided sub-advisory services to each Fund. BGFA was
created by the reorganization of Wells Fargo Nikko Investment Advisors
("WFNIA"), a former affiliate of Wells Fargo Bank, with and into an affiliate
of Wells Fargo Institutional Trust Company, N.A. (the "Reorganization"). After
the Funds' conversion to master/feeder structure on April 29, 1996, BGFA
provided sub-advisory services to each Fund's corresponding Master Portfolio.
For the years ended December 31, 1993, 1994 and 1995, Wells Fargo paid to
WFNIA, and for the periods ended April 28 and September 30, 1996, Wells Fargo
paid to BGFA the sub-advisory fees indicated below with respect to the Funds
and Master Portfolios, respectively:
<TABLE>
<CAPTION>
Fund/ Year Ended Year Ended Year Ended Period Ended Period Ended
Master Portfolio 12/31/93 12/31/94 12/31/95 04/28/96 09/30/96
- ---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Asset Allocation $1,586,982 $2,106,980 $2,043,249 $758,967 $956,278
Corporate Stock $ 239,319 $ 241,489 $ 269,787 $105,272 $136,733
U.S. Government $ 366,951 $ 353,761 $ 244,478 $ 84,527 $107,540
Allocation
</TABLE>
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells
Fargo Bank as Administrator and Stephens as Co-Administrator on behalf of each
Fund. In addition, MIT has retained Wells Fargo Bank as Administrator and
Stephens as Co-Administrator on behalf of each Master Portfolio. Under the
respective Administration and Co-Administration Agreements among Wells Fargo
Bank, Stephens, the Company and MIT, Wells Fargo Bank and Stephens shall
provide as administrative services, among other things: (i) general
supervision of each Fund's and Master Portfolio's operations, including
coordination of the services performed by the investment adviser (in the case
of the Master Portfolios), 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 Master Portfolio;
and (ii) general supervision relative to the compilation of data required for
the preparation of periodic reports distributed to the Company's and MIT's
Officers, Directors and Trustees. Wells Fargo Bank and Stephens also furnish
office space and certain facilities required for conducting the Funds' and the
Master Portfolios' business together with ordinary clerical and bookkeeping
services. Stephens pays the compensation of MIT's and the Company's
Directors/Trustees, 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 fiscal years ended December 31, 1993, 1994 and 1995, and the
period ended September 30, 1996, the Funds paid the following dollar amounts of
administrative
25
<PAGE> 951
fees to Stephens, the sole administrator during these periods, at the annual
rate of 0.05% of the Fund's average daily net assets:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Period Ended
Fund 12/31/93 12/31/94 12/31/95 09/30/96
---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Asset Allocation $238,347 $315,787 $306,436 $257,419
Corporate Stock $ 74,804 $ 75,748 $ 92,555 $ 79,533
U.S. Government $ 65,395 $ 62,168 $ 40,803 $ 32,354
Allocation
</TABLE>
SPONSOR AND DISTRIBUTOR. As discussed in each Fund's prospectus under
the heading "Management and Servicing Fees," Stephens 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 entered into
shareholder servicing agreements with Wells Fargo Bank. The dollar amount of
shareholder servicing fees paid by the Corporate Stock Fund and each class of
the Asset Allocation and U.S. Government Allocation Funds is listed below:
<TABLE>
<CAPTION>
Year-Ended Period Ended
Fund December 31, 1995 September 30, 1996
---- ----------------- ------------------
<S> <C> <C>
Corporate Stock Fund $ 861,478 $ 793,396
Asset Allocation Fund: Class A $3,029,551 $ 2,464,701
Asset Allocation Fund: Class B $ 34,813 $ 109,487
U.S. Government Allocation Fund: Class A $ 406,707 $ 310,872
U.S. Government Allocation Fund: Class B $ 1,322 $ 12,668
</TABLE>
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT. Barclays Global
Investors, N.A. ("BGI") acts as the custodian for the Funds and the Master
Portfolios. For its services as custodian, BGI receives an asset-based fee and
transaction charge from the respective Funds. For the year ended December 31,
1995 and the period ended September 30, 1996, the Funds did not pay any custody
fees.
Wells Fargo Bank has been retained to act as the transfer and dividend
disbursing agent for the Funds, and receives for its services a base fee and
per-account fees from each Fund. For the year ended December 31, 1995 and the
period ended September 30, 1996, the Funds paid transfer and dividend
disbursing agency fees to Wells Fargo Bank as follows:
26
<PAGE> 952
<TABLE>
<CAPTION>
Year Ended Period Ended
Fund December 31, 1995 September 30, 1996(1)
---- ----------------- ---------------------
<S> <C> <C>
Asset Allocation Fund $470,918 $662,394
Corporate Stock Fund $ 43,987 $153,589
U.S. Government Allocation Fund $ 95,715 $ 77,292
</TABLE>
- ----------
(1) These amounts reflect fee waivers.
UNDERWRITING COMMISSIONS. For the fiscal years ended December 31,
1993 and 1994, the Funds' distributor retained $26,215,173 and $5,415,227,
respectively, in underwriting commissions (front-end sales loads and CDSCs, if
any) in connection with the purchase or redemption of Fund shares. For the
fiscal years ended December 31, 1993 and 1994, Wells Fargo Securities Inc.
("WFSI"), and its registered representatives received $378,895 and $904,274,
respectively, in underwriting commissions in connection with the purchase or
redemption of Fund shares.
For the year ended December 31, 1995, the aggregate amount of
underwriting commissions paid to Stephens on sales/redemptions of the
Registrant's shares was $1,251,311. Stephens retained $162,660 of such
commissions. WFSI and its registered representatives retained $399,809 of such
commissions.
For the period ended September 30, 1996, the aggregate amount of
underwriting commissions paid to Stephens on sales/redemptions of the
Registrant'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.
DISTRIBUTION PLANS
As indicated in each Fund's respective Prospectus, each of the Funds
has adopted a distribution plan (a "Plan") under Section 12(b) of the 1940 Act
and Rule 12b-1 thereunder (the "Rule"). The Plans for the Corporate Stock Fund
and the shares now designated the Class A Shares of each other Fund were
adopted by the Company's Board of Directors on October 22, 1991, including a
majority of the Directors who were not "interested persons" (as defined in the
1940 Act) of the respective Fund and who had no direct or indirect financial
interest in the operation of the Plan or in any agreement related to the Plan
(the "Qualified Directors"), and were approved by the initial shareholder of
each Fund on December 31, 1991. The Plans for the Class B shares of each Fund
having such shares were adopted by the Company's Board of Directors, including
a majority of the Qualified Directors, on July 27, 1994.
The Plans in effect for the Corporate Stock Fund and the Class A
Shares of each other Fund allow such Funds to defray all or part of the cost of
preparing and printing
27
<PAGE> 953
prospectuses and other promotional materials and of delivering prospectuses and
those materials to prospective shareholders of each such Fund by paying on an
annual basis up to 0.05% of the respective Fund's average daily net assets or
average daily net assets attributable to Class A Shares of such Fund, as the
case may be. The plans for the Corporate Stock Fund and Class A Shares of the
other Funds provide only for the reimbursement of actual expenses. The plans
for the Class B Shares allow each Fund with such shares to pay to Stephens
Inc., as compensation for distribution- related services provided, or as
reimbursement for distribution-related expenses incurred a monthly fee at the
annual rate of up to 0.70% of the average daily net assets attributable to the
Class B Shares of each respective Fund. The actual fee payable to Stephens
shall, within such limit, be determined from time to time by mutual agreement
between the Company and Stephens. In addition, each Plan contemplates that to
the extent any fees payable pursuant to a Shareholder Servicing Agreement are
deemed to be for distribution-related services, rather than shareholder
services, such payments are approved and payable pursuant to such Plan.
Each Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Qualified Directors. Any agreements related to the Plans
("Agreements") also must be approved by majority vote of the Directors and the
Qualified Directors. Such Agreements will terminate automatically if assigned.
The Corporate Stock Fund may terminate such Agreements at any time, without
payment of any penalty, by a vote of a majority of the outstanding voting
securities of such Fund. Each of the Funds with Class A and Class B shares may
terminate such Agreements at any time, without payment of any penalty, by a
vote of a majority of outstanding voting securities of the Class of shares
affected by such Agreement. The amounts payable under each Plan may not be
increased materially without, in the case of the Corporate Stock Fund, the
approval of a majority of the voting securities of such Fund, or, in the case
of the other Funds, without the approval of a majority of the voting securities
of each Class of Funds effected by such Agreements. Material amendments to a
Plan may not be made except by affirmative vote of a majority of both the
Directors of the Company and the Qualified Directors.
Each Plan requires that the Treasurer of the Company shall provide to
the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under the Plan. The
Rule also requires that the selection and nomination of Directors who are not
"interested persons" of the Company be made by such disinterested directors.
For the year ended December 31, 1995, the Funds paid the fees and/or
expenses listed below pursuant to their 12b-1 distribution plans.
28
<PAGE> 954
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation
Fund Total Prospectus Brochures to Dealers
---- ----- ---------- --------- ----------
<S> <C> <C> <C> <C>
Asset Allocation
Class A $955,893 $58,656 $897,237 N/A
Class B $59,525 N/A N/A $59,525
Corporate Stock $41,620 $16,503 $25,117 N/A
U.S. Government Allocation
Class A $95,225 $19,422 $ 75,803 N/A
Class B $13,468 N/A N/A $13,468
</TABLE>
For the period ended September 30, 1996, the Funds paid the fees
and/or expenses listed below pursuant to their 12b-1 distribution plans.
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation
Fund Total Prospectus Brochures to Dealers
---- ----- ---------- --------- ----------
<S> <C> <C> <C> <C>
Asset Allocation
Class A $154,937 $10,773 $144,164 N/A
Class B $255,252 N/A N/A $255,252
Corporate Stock $174,041 $10,228 $163,813 N/A
U.S. Government Allocation
Class A $ 11,912 $ 464 $ 11,448 N/A
Class B $ 27,524 N/A N/A $ 27,524
</TABLE>
For the year ended December 31, 1995 and the period ended September
30, 1996, WFSI and its registered representatives received no compensation
under the Plan for each Class.
PERFORMANCE CALCULATIONS
As described in the Prospectuses for each Fund, the IRA Funds of the
Trust were reorganized into the corresponding Funds of the Company on January
2, 1992. Therefore, the performance information for the Funds is based on that
of the IRA Funds for the periods prior to January 2, 1992, and reference should
be made to the footnotes to the condensed financial information in the
"Financial Highlights" section of each Prospectus regarding differences in
investment objectives, policies and/or restrictions
29
<PAGE> 955
between certain of the Funds and the IRA Funds, which may affect the relevance
of the performance information provided below.
TOTAL RETURN: Each Fund may advertise certain total return
information computed in the manner described in its Prospectus. As and to the
extent required by the SEC, an average annual compound rate of return ("T")
will be computed by using the redeemable value at the end of a specified period
("ERV") of a hypothetical initial investment in shares of the Fund ("P") over a
period of years ("n") according to the following formula: P(1+T)n = ERV. In
addition, the Funds, at times, may calculate total return based on net asset
value per share (rather than the public offering price), in which case the
figures would not reflect the effect of any sales charges that would have been
paid by an investor, or based on the assumption that a sales charge other than
the maximum sales charge (reflecting a Volume Discount) was assessed, provided
that total return data derived pursuant to the calculation described above also
are presented.
Average Annual Total Return for the Applicable Period Ended September 30, 1996
<TABLE>
<CAPTION>
Inception(1) Inception Five Year Five Year Three Year Three Year One Year One Year
With No With No With No With No
Sales Sales Sales Sales Sales Sales Sales Sales
Fund Charge(2) Charge Charge Charge Charge Charge Charge Charge
---- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset
Allocation
Class A 10.73% 11.25% 10.71% 11.74% 8.29% 9.96% 5.49% 10.46%
Class B 17.22% 18.23% N/A N/A N/A N/A 7.07% 10.06%
Corporate
Stock(3) N/A 14.28% N/A 14.05% N/A 16.20% N/A 19.06%
U.S.
Government
Allocation
Class A 7.37% 7.88% 6.60% 7.60% 0.57% 2.13% -1.25% 3.44%
Class B 6.82% 7.90% N/A N/A N/A N/A -0.32% 2.61%
</TABLE>
(1) Each Fund commenced operations as follows: Asset Allocation Class A -
11/13/86, Class B - 1/2/95; U.S. Government Allocation Class A -
3/31/87, Class B - 1/2/95; Corporate Stock - 1/25/84.
(2) With respect to periods ended September 30, 1996, the term "Sales Charge"
for Class A Shares reflects a front-end sales load of 4.50%, and for Class B
Shares reflects the maximum applicable Contingent Deferred Sales Charge
("CDSC").
(3) The Corporate Stock Fund has been in operation for over ten years without
any sales charges. Its
30
<PAGE> 956
Average Annual Total Return for the ten year period ended September 30,
1996 was 13.54%.
CUMULATIVE TOTAL RETURN: Each Fund 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.
Cumulative Total Return for the Applicable Period Ended September 30, 1996
<TABLE>
<CAPTION>
Inception(1) Inception Ten Year Ten Year Five Year Five Year Three Year Three Year
With No With No With No With No
Sales Sales Sales Sales Sales Sales Sales Sales
Fund Charge(2) Charge Charge Charge Charge Charge Charge Charge
---- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset
Allocation
Class A 173.65% 186.51% N/A N/A 66.29% 74.17% 26.99% 32.96%
Class B 32.05% 34.05% N/A N/A N/A N/A N/A N/A
Corporate
Stock N/A 442.32% N/A 256.09% N/A 92.93% N/A 56.90%
U.S.
Government
Allocation
Class A 97.65% 106.94% N/A N/A 37.68% 44.21% 1.72% 6.53%
Class B 12.24% 14.24% N/A N/A N/A N/A N/A N/A
</TABLE>
(1) Each Fund commenced operations as follows: Asset Allocation Class A -
11/13/86, Class B - 1/2/95; U.S. Government Allocation Class A -
3/31/87, Class B - 1/2/95; Corporate Stock - 1/25/84.
(2) The term "Sales Charge" for Class A Shares reflects a front-end sales
load of 4.50%, and for Class B Shares reflects the maximum applicable
Contingent Deferred Sales Charge ("CDSC").
YIELD CALCULATIONS: As indicated in its Prospectus, the U.S.
Government Allocation Fund may advertise certain yield information on their
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
31
<PAGE> 957
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.
Yield for the Applicable Period Ended September 30, 1996(1)
<TABLE>
<CAPTION>
Fund Thirty Day Yield
---- -----------------
<S> <C>
U.S. Government Allocation
Class A 4.93%
Class B 4.72%
</TABLE>
- -----------
(1) This figure reflects any reimbursed expenses throughout the period.
The yield on each Class of the U.S. Government Allocation 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 the U.S. Government Allocation 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 of each Fund. Yield information
for each Fund or each Class of shares of the Funds, as the case may be, may be
useful in reviewing the performance of such Funds and for providing a basis for
comparison with investment alternatives. The yield of each Fund or each Class
of a 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 Fund or Class of shares of a Fund, the Company may quote the performance
or price-earning ratio of a Fund or 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
32
<PAGE> 958
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, sap'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 Class of shares, as appropriate, 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 Fund or Class of shares, as appropriate,
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 Fund or Class of shares with that of its competitors. Of
course, past performance cannot be a guarantee of future results. The Company
also may include, from time to time, a reference to certain marketing
approaches of the Distributor, including, for example, a reference to a
potential shareholder being contacted by a selected broker or dealer. General
mutual fund statistics provided by the Investment Company Institute may also be
used.
In addition, the Company also may use, in advertisements and other
types of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank, and
its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and
the related "Tax Freedom Day."
From time to time the Company may reprint, reference or otherwise use
material from magazines, newsletters, newspapers and books including, but not
limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.
33
<PAGE> 959
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 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 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 a Fund's historical performance or current or potential value with
respect to the particular industry or sector.
In addition, performance information for a Class of shares of the U.S.
Government Allocation Fund, the Asset Allocation Fund and the shares of the
Corporate Stock Fund may be compared, in reports and promotional literature, to
the S&P 500 Index, the Wilshire 5000 Equity Index, the Lehman Brothers 20+
Treasury Index, Donoghue's Money Fund Averages, the Lehman Brothers 5-7 Year
Treasury Index, or other appropriate managed or unmanaged indices of the
performance of various types of investments, so that investors may compare
results of a Fund or Class of shares with those of indices widely regarded by
investors as representative of the security markets in general. Unmanaged
indices may assume the reinvestment of dividends, but generally do not reflect
deductions for administrative and management costs and expenses. Managed
indices generally do reflect such deductions.
From time to time, the Company also may include in advertisements or
other marketing materials a discussion of certain of the objectives of the
investment strategy of the U.S. Government Allocation Fund and the
corresponding Master Portfolio and the Asset Allocation Fund and the
corresponding Master Portfolio and a comparison of this strategy with other
investment strategies. In particular, the responsiveness of these Funds as to
changing market conditions may be discussed. For example, the Company may
describe the benefits derived by having Wells Fargo Bank monitor and reallocate
investments among the asset categories described in the Prospectus of each Fund
and Master Portfolio. The Company's advertising or other marketing material
also might set forth illustrations depicting examples of recommended
allocations in different market conditions. It may state, for example, that
when the model indicates that stocks represent a better value than bonds or
money market instruments, the Asset Allocation Master Portfolio might consist
of 70% stocks, 25% bonds and 5% money market instruments and that when the
model indicates that bonds represent a better value than stocks or money market
instruments, the balance of assets might shift to 60% bonds, 20% stocks and 20%
money market instruments.
34
<PAGE> 960
The Company also may include, from time to time, a reference to
certain marketing approaches of the Distributor, including, for example, a
reference to a potential shareholder being contacted by a selected broker or
dealer.
The Company also may discuss in advertising and other types of
literature that a Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by 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 a Fund's performance with other investments which are assigned ratings
by NRSROs. Any such comparisons may be useful to investors who wish to compare
the Fund's past performance with other rated investments.
From time to time, the Funds may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Stagecoach Funds, provides
various services to its customers that are also shareholders of the Funds.
These services may include access to Stagecoach Funds' account information
through Automated Teller Machines (ATMs), the placement of purchase and
redemption requests for shares of the Funds through ATMs and the availability of
combined Wells Fargo Bank and Stagecoach Funds account statements." The Company
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 its investment adviser or sub-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 also may disclose in sales literature the distribution
rate on the shares of each class 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 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
35
<PAGE> 961
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 for each Master Portfolio or per share for
each Class of each Master Portfolio is determined by the Custodian of the
Master Portfolio on each day the NYSE is open for trading.
Securities of a Master Portfolio for which market quotations are
available are valued at latest prices. Securities of a Master Portfolio 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 Master
Portfolios for which current market quotations are not readily available are
valued at fair value as determined in good faith by the Company's Directors and
in accordance with procedures adopted by the Directors.
36
<PAGE> 962
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,
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 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.
37
<PAGE> 963
PORTFOLIO TRANSACTIONS
GENERAL
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 the MIT's Board of Trustees, Wells Fargo Bank is responsible for
each Master Portfolio's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the 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
Portfolios will not necessarily be paying the lowest spread or commission
available.
Except in the case of equity securities purchased by the Corporate
Stock Master Portfolio and the Asset Allocation Master Portfolio, purchases and
sales of securities usually will be principal transactions. Portfolio
securities normally will be purchased or sold from or to dealers serving as
market makers for the securities at a net price. Each of the Master Portfolios
also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, money market
securities, ARMs and CMOs are traded on a net basis and do not involve
brokerage commissions. The cost of executing a Master Portfolio's portfolio
securities transactions will consist 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 allowing such transactions is obtained
from the SEC or an exemption is otherwise available.
The Corporate Stock and Asset Allocation Master Portfolios. Purchases
and sales of equity securities on a securities exchange are effected through
brokers who charge a negotiated commission for their services. Orders may be
directed to any broker including, to the extent and in the manner permitted by
applicable law, Stephens or Wells Fargo Securities Inc. In the
over-the-counter market, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price that includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. No Master Portfolio will deal with
Stephens, Wells Fargo Bank or their affiliates in any transaction in which any
of them acts as principal without an exemptive order from the SEC or unless an
exemption is otherwise available.
In 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 Portfolios 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
38
<PAGE> 964
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 Portfolios. The Board of
Trustees will periodically review the commissions paid by the Master Portfolios
to consider whether the commissions paid over representative periods of time
appear to be reasonable in relation to the benefits inuring to the Master
Portfolios. 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 Portfolios 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 a 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 a 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
Trustees with respect to the performance, investment activities and fees and
expenses of other mutual funds. Such
39
<PAGE> 965
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 Portfolios by improving the quality
of Wells Fargo Bank's investment advice. The advisory fees paid by the Master
Portfolios are 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 Funds paid the following
for brokerage commissions, none of which were paid to affiliated brokers:
<TABLE>
<CAPTION>
Fund Dec. 31, 1993 Dec. 31, 1994 Dec. 31, 1995 Sept. 30, 1996
- ---- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Asset Allocation $294,861 $99,002 $34,488 $6,561
Corporate Stock $30,123 $31,896 $8,696 $6,233
U.S. Government $- 0 - $- 0 - $- 0 - $-0-
Allocation
</TABLE>
Securities of Regular Broker/Dealers. As of December 31, 1995 the
Asset Allocation Fund owned securities of J.P. Morgan & Co., Inc. in an amount
equal to $1,895,104. The other Funds did not own securities of their regular
broker-dealers. As of September 30, 1996, none of the Funds owned securities
of their "regular brokers or dealers" or their parents, as defined in the 1940
Act.
Portfolio Turnover Rate: The historically higher portfolio turnover
rate for the U.S. Government Allocation Master Portfolio should not adversely
affect this Master Portfolio because portfolio transactions ordinarily are made
directly with principals on a net basis and, consequently, this Master
Portfolio 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
40
<PAGE> 966
affiliated with Stephens or Adviser 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 each 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 Prospectuses describe generally the tax
treatment of distributions by each Master Portfolio and each Fund. 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 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
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 each Fund's assets and 10%
41
<PAGE> 967
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.
For purposes of complying with these qualification requirements, each Fund will
be deemed to own a proportionate share of the corresponding Master Portfolio's
assets. 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 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.
Each Fund seeks to qualify as regulated investment company by
investing substantially all of its assets in a corresponding Master Portfolio.
Each Master Portfolio will be treated as a non-publicly traded partnership
rather than as a regulated investment company or a corporation under the Code.
As a non-publicly traded partnership, any interest, dividends, gains and losses
of a Master Portfolio shall be deemed to have been "passed through" to its
corresponding Fund (and the Master Portfolio's other investors) in proportion
to the Fund's ownership interest in the Master Portfolio. Therefore, to the
extent a Master Portfolio were to accrue but not distribute any interest,
dividends or gains, its corresponding Fund would be deemed to have realized and
recognized its proportionate share of interest, dividends or gains without
receipt of any corresponding distribution. However, each Master Portfolio will
seek to minimize recognition by investors of interest, dividends, gains or
losses without a corresponding distribution.
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
42
<PAGE> 968
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 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 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 Fund Investments. Gains or losses on sales of
portfolio securities by a 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 a
43
<PAGE> 969
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 a 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 a Master Portfolio lapses or is terminated
through a closing transaction, such as a repurchase by such Master Portfolio of
the option from its holder, the Master Portfolio will realize a short-term
capital gain or loss, depending on whether the premium income is greater or
less than the amount paid by the Master Portfolio in the closing transaction.
Some realized capital losses may be deferred if they result from a position
which is part of a "straddle," discussed below. If securities are sold by a
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 a Master Portfolio pursuant to the exercise of a
put option written by it, such Master Portfolio will subtract the premium
received from its cost basis in the securities purchased. The requirement that
the Funds derive less than 30% of its gross income from gains from the sale of
securities held for less than three months may limit each 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
44
<PAGE> 970
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 Master Portfolio purchases shares in a "passive foreign
investment company" ("PFIC"), its corresponding 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 a
Master Portfolio invests in a PFIC, the corresponding 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 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 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
45
<PAGE> 971
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 Portfolios may involve sophisticated tax rules that may
result in income or gain recognition by the Fund without corresponding current
cash receipts. Although the Master Portfolios will seek to avoid significant
noncash income, such noncash income could be recognized by the Funds, 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 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 three of the funds of the Stagecoach Family of Funds. The
Company was organized as a Maryland corporation on September 9, 1991 and
currently offers shares of twenty-two 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 Asset Allocation and U.S. Government Allocation Funds have two
classes of shares -- Class A shares and Class B shares. The Corporate Stock
Fund has a single class of shares. With respect to matters affecting one Class
but not another, shareholders
46
<PAGE> 972
vote as a Class. Subject to the foregoing, all shares of a Fund have equal
voting rights and will be voted in the aggregate, and not by series, except
where voting by a series is required by law or where the matter involved only
affects one series. For example, a change in a Fund's fundamental investment
policy affects only one series and would be voted upon only by shareholders of
the Fund involved. Additionally, approval of an advisory contract, since it
affects only one Fund, is a matter to be determined separately by Series.
Approval by the shareholders of one Series is effective as to that Series
whether or not sufficient votes are received from the shareholders of the other
Series to approve the proposal as to those Series. As used in the Prospectus
of each Fund and in this SAI, the term "majority," when referring to approvals
to be obtained from shareholders of a Class of shares of a Fund, means the vote
of the lesser of (i) 67% of the shares of the Class represented at a meeting if
the holders of more than 50% of the outstanding shares of the Class are present
in person or by proxy, or (ii) more than 50% of the outstanding shares of the
Class of the Fund. As used in the Prospectus of each Fund and in this SAI, the
term "majority," when referring to approvals to be obtained from shareholders
of the Fund, means the vote of the lesser of (i) 67% of the shares of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of the Fund are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of the Fund. The term "majority," when referring to the
approvals to be obtained from shareholders of the Company as a whole, means the
vote of the lesser of (i) 67% of the Company's shares represented at a meeting
if the holders of more than 50% of the Company's outstanding shares are present
in person or by proxy, or (ii) more than 50% of the Company's outstanding
shares. Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held.
The Company may dispense with an annual meeting of shareholders in any
year in which it is not required to elect Directors under the 1940 Act.
However, the Company has undertaken to hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a Director
or Directors if requested in writing by the holders of at least 10% of the
Company's outstanding voting securities, and to assist in communicating with
other shareholders as required by Section 16(c) of the 1940 Act.
Each share of a Fund or Class represents an equal proportional
interest in the Fund or Class with each other share and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
the Fund as are declared in the discretion of the Directors. In the event of
the liquidation or dissolution of the Company, shareholders of a Fund are
entitled to receive the assets attributable to the Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular investment portfolio that are available for distribution in such
manner and on such basis as the Directors in their sole discretion may
determine.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non- assessable by the Company.
47
<PAGE> 973
MIT is an open-end, series management investment company organized as
a Delaware business trust. 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's liabilities and
obligations, but only to the extent MIT property is not sufficient 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 existed and MIT itself was
unable to meet its obligations.
The Declaration of Trust further provides that obligations of MIT are
not binding upon its 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 each Master Portfolio of MIT have substantially
identical voting and other rights as those rights described above for shares of
the Funds. MIT may 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
a Fund is required to vote on a matter with respect to MIT, the Fund will hold
a meeting of Fund shareholders and will cast its votes as instructed by such
shareholders. In a situation where a Fund does not receive instruction from
certain of its shareholders on how to vote the corresponding shares of MIT,
such Fund will vote such shares in the same proportion as the shares for which
the Fund does receive voting instructions.
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 Fund or 5% or more of the voting securities of each 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>
ASSET ALLOCATION Wells Fargo Bank Class A 74.34% 66.60%
P.O. Box 63015 Beneficially Owned
San Francisco, CA 94163
U.S. GOVERNMENT Wells Fargo Bank Class A 51.90% 47.10%
ALLOCATION P.O. Box 63015 Beneficially Owned
San Francisco, CA 94163
</TABLE>
48
<PAGE> 974
<TABLE>
<S> <C> <C> <C> <C>
CORPORATE STOCK Wells Fargo Bank Class A 95.71% 95.71%
P.O. Box 63015 Beneficially Owned
San Francisco, CA 94163
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through
one or more controlled companies more than 25% of the voting securities of a
company is presumed to "control" such company. Accordingly, to the extent that
a shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or 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 Registration Statements for MIT and the Company, including the
Prospectus for each Fund, the SAI and the exhibits filed therewith, may be
examined at the office of the SEC in Washington, D.C. Statements contained in
a Prospectus or the SAI as to the contents of any contract or other document
referred to herein or in a Prospectus are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditors
for the Company 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, financial statements and independent
auditors' report for the Funds contained in the Company's Annual Reports dated
September 30, 1996, as filed with the SEC on December 9, 1996, are hereby
incorporated by reference into this SAI. The portfolio of investments, audited
financial statements and independent auditors' reports are attached to all SAIs
delivered to current or prospective shareholders.
The portfolio of investments, audited financial statements and
independent auditors' report for the fiscal period ended September 30, 1996 for
the Asset Allocation, Corporate Stock and U.S. Government Allocation Master
Portfolios of Master Investment Trust are hereby incorporated by reference to
the Company's Annual Reports as filed with the SEC on December 9, 1996.
49
<PAGE> 975
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> 976
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1997
AGGRESSIVE GROWTH FUND
CLASS A AND CLASS B
------------------------------
Stagecoach Funds, Inc. (the "Company") is an open-end, series
investment company, commonly referred to as a "mutual fund." This Statement of
Additional Information ("SAI") contains information about one of the funds in
the Stagecoach Family of Funds -- the AGGRESSIVE GROWTH FUND (the "Fund"). The
Fund offers two classes of shares -- Class A Shares and Class B Shares. This
SAI relates to both such classes of shares. The investment objective of the
Fund is described in its Prospectus under the section entitled "How the Fund
Works -- Investment Objectives and Policies." The Fund seeks to achieve its
investment objective by investing all of its assets in the Capital Appreciation
Master Portfolio (at times, the "Master Portfolio") of Master Investment Trust
("MIT"), which has the same investment objective as the Fund. The Fund may
withdraw its investment in the Capital Appreciation Master Portfolio at any
time, if the Board of Directors of the Company determines that such action is
in the best interests of the Fund and its shareholders. Upon such withdrawal,
the Company's Board would consider alternative investments, including investing
all of the Fund's assets in another investment company with the same investment
objective as the Fund or hiring an investment adviser to manage the Fund's
assets in accordance with the investment policies and restrictions described in
the Prospectus and below with respect to MIT.
This SAI is not a prospectus and should be read in conjunction
with the Fund's Prospectus, dated February 1, 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> 977
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . 3
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Servicing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . 15
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . 19
Additional Purchase and Redemption Information . . . . . . . . . . . 19
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . 20
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . 23
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . 31
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . 31
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
2
<PAGE> 978
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 Fund shareholders and it will cast its votes as instructed by such
shareholders.
The Fund and the Master Portfolio 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 company, or a series thereof, with substantially the same
investment objective, policies and restrictions as such Fund, without regard to
the limitations set forth in this paragraph (5);
3
<PAGE> 979
(6) issue senior securities except that the Fund may borrow
from banks up to 10% of the current value of its net assets for temporary
purposes only in order to meet redemptions, and these borrowings may be secured
by the pledge of up to 10% of the current value of its net assets (but
investments may not be purchased while any such outstanding borrowings exceed
5% of its net assets);
(7) make loans of portfolio securities having a value that
exceeds 50% of the current value of its total assets, provided that, this
restriction does not apply to the purchase of fixed time deposits, repurchase
agreements, commercial paper and other types of debt instruments commonly sold
in a public or private offering; nor
(8) purchase securities of any issuer (except securities issued
by the U.S. Government, its agencies or instrumentalities ) if, as a result,
with respect to 75% of its total assets, more than 5% of the value of its total
assets would be invested in the securities of any one issuer or, with respect
to 100% of its total assets the Fund's ownership would be more than 10% of the
outstanding voting securities of such issuer; provided that the Fund may invest
all its assets in a diversified, open-end management investment company, or a
series thereof, with substantially the same investment objective, policies and
restrictions as such Fund, without regard to the limitations set forth in this
paragraph (8).
With respect to fundamental investment policy (7), the Fund and the Master
Portfolio do not intend to loan their portfolio securities during the coming
year.
Non-Fundamental Investment Policies. The Fund and the Master
Portfolio are subject to the following non- fundamental policies. These
restrictions may be changed by a vote of a majority of the Directors of the
Company or the Trustees of MIT, as the case may be, at any time.
The Fund and the Master Portfolio 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 U.S. Government if, by reason
thereof, the value of its aggregate investment in such securities will exceed
5% of its total assets;
4
<PAGE> 980
(5) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if, as
a result, more than 5% of the value of the Fund's total assets would be
invested in the securities of any one issuer; nor
(6) invest more than 15% of the Fund's net assets in illiquid
securities. For this purpose, illiquid securities include, among others, (a)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (b) fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, and (c) repurchase agreements not terminable within seven days.
In addition, as a matter of non-fundamental policy, the Fund may
invest in shares of other open-end, management investment companies, subject to
the limitations of Section 12(d)(1) of the Act, provided that any such
purchases will be limited to temporary investments in shares of unaffiliated
investment companies and the investment adviser will waive its advisory fees
for that portion of the Fund's assets so invested, except when such purchase is
part of a plan of merger, consolidation, reorganization or acquisition. The
Fund does not intend to invest more than 5% of its net assets in such
securities during the coming year. Notwithstanding any other investment policy
or limitation (whether or not fundamental), as a matter of fundamental policy,
the Fund may invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental
investment objective, policies and limitations as the Fund.
As a matter of non-fundamental policy, the Fund and the Master
Portfolio may each invest up to 25% of their respective net assets in
securities of foreign governmental issues that are denominated in and pay
interest in U.S. dollars.
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the prospectus entitled "The Funds and
Management." The principal occupations during the past five years of the
Directors and principal executive Officer of the Company are listed below. The
address of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Directors deemed to be "interested persons" of the Company
for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
</TABLE>
5
<PAGE> 981
<TABLE>
<S> <C> <C>
*R. Greg Feltus, 45 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate Professor of Finance
of the School of Business and Accounting at
Wake Forest University since 1983.
Joseph N. Hankin, 55 Director President, Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; President of Hartford
(appointed as of Junior College from 1967 to
September 6, 1996) 1971; Adjunct Professor of
Columbia University
Teachers College since
1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
</TABLE>
6
<PAGE> 982
<TABLE>
<S> <C> <C>
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 40 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
7
<PAGE> 983
COMPENSATION TABLE
<TABLE>
<CAPTION>
Year Ended Period Ended
---------- -------------
December 31, 1995 September 30, 1996
------------------ ------------------
Total Total
Aggregate Compensation from Aggregate Compensation from
Compensation Registrant Compensation Registrant
Name and Position from Registrant and Fund Complex from Registrant and Fund Complex
----------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Jack S. Euphrat $10,188 $39,750 $9,750 $29,250
Director
*R. Greg Feltus $-0- $-0- $-0- $-0-
Director
Thomas S. Goho $10,188 $39,750 $9,750 $29,250
Director
Joseph N. Hankin N/A N/A $-0- $-0-
Director
*Zoe Ann Hines $-0- $-0- $-0- $-0-
Director
(resigned as of
September 6, 1996)
*W. Rodney Hughes $9,438 $37,000 $8,250 $24,750
Director
Robert M. Joses $9,938 $39,000 $9,750 $29,250
Director
*J. Tucker Morse $8,313 $33,250 $8,250 $24,750
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
8
<PAGE> 984
Trust together form a separate fund complex (the "BGFA Fund Complex"). Each of
the Directors and Officers of the Company serves in the identical capacity as
directors and officers or as trustees and/or officers of each registered
open-end management investment company in both the Wells Fargo and BGFA Fund
Complexes, except for Joseph N. Hankin, who only serves the aforementioned
members of the Wells Fargo Fund Complex, and Zoe Ann Hines who, after September
6, 1996, only serves the aforementioned members of the BGFA Fund Complex. The
Directors are compensated by other companies and trusts within a fund complex
for their services as directors/trustees to such companies and trusts.
Currently the Directors do not receive any retirement benefits or deferred
compensation from the Company or any other member of each fund complex.
As of the date of this SAI, Directors and Officers of the Company
as a group beneficially owned less than 1% of the outstanding shares of the
Company.
MASTER/FEEDER STRUCTURE. The Fund seeks to achieve its investment
objective by investing all of its assets into the Capital Appreciation Master
Portfolio of MIT. 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. See "Management and Servicing Fees" for
additional description of the Fund's and Master Portfolio's expenses and
management.
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 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
9
<PAGE> 985
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 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. The Advisory Contract provides that Wells Fargo Bank shall furnish to
the Master Portfolio investment guidance and policy direction in connection
with the daily portfolio management of the Master Portfolio. Pursuant to the
Advisory Contract, Wells Fargo Bank furnishes to the Board of Trustees periodic
reports on the investment strategy and performance of the Master Portfolio.
Wells Fargo Bank has agreed to provide to the Master Portfolio,
among other things, money market and fixed- income research, analysis and
statistical and economic data and information concerning interest rate and
security market trends, portfolio composition, credit conditions and average
maturities of the portfolio of the Master Portfolio.
For the period begun February 21, 1996 and ended September 30,
1996, the Master Portfolio paid to Wells Fargo Bank $453,282 in advisory
fees. No fees were waived.
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
10
<PAGE> 986
Contract may be terminated on 60 days' written notice by either party and will
terminate automatically if assigned.
Wells Fargo Bank also serves as Custodian and Transfer and
Dividend Disbursing Agent for the Fund and the Master Portfolio. See
"Custodian and Transfer and Dividend Disbursing Agent."
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained
Wells Fargo Bank as Administrator and Stephens as Co-Administrator on behalf of
the Fund. In addition, MIT has retained Wells Fargo Bank as Administrator and
Stephens as Co-Administrator on behalf of the Master Portfolio. Under the
respective Administration and Co- Administration Agreements among Wells Fargo
Bank, Stephens and the Company and MIT, Wells Fargo Bank, Stephens shall
provide as administrative services, among other things: (i) general
supervision of the Fund's and the Master Portfolio's operations, including
coordination of the services performed by the investment adviser (in the case
of the Master Portfolio), 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 the Master Portfolio;
and (ii) general supervision relative to the compilation of data required for
the preparation of periodic reports distributed to the Company's and MIT's
Officers, Directors and Trustees. Wells Fargo Bank and Stephens also furnish
office space and certain facilities required for conducting the Fund's and the
Master Portfolio's business together with ordinary clerical and bookkeeping
services. Stephens pays the compensation of MIT's and Company's
Directors/Trustees, 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 begun February 21, 1996 and ended September 30,
1996, the Fund paid to Stephens, the sole administrator during this period,
$3,829 in administration fees. Stephens was entitled to receive a fee, payable
monthly, at the annual rate of 0.03% of the Fund's average daily net assets.
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.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT. The
following information supplements and should be read in conjunction with the
section of the Prospectus entitled "Custodian, Transfer and Dividend Disbursing
Agent." Wells Fargo Bank has been retained to act as Custodian and Transfer and
Dividend Disbursing Agent for the Fund and the Master Portfolio. The
Custodian, among other things, maintains a custody account or accounts in the
name of the Fund and the Master Portfolio; receives and delivers all assets for
the Fund and the Master Portfolio upon purchase and upon sale
11
<PAGE> 987
or maturity; collects and receives all income and other payments and
distributions on account of the assets of the Fund and the Master Portfolio and
pays all expenses of the Fund and the Master Portfolio. For its services as
custodian, Wells Fargo 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
Fund, Wells Fargo Bank is entitled to receive monthly payments at the annual
rate of 0.10% of the Fund's average daily net assets.
For the period begun February 21, 1996 and ended September 30,
1996, the Fund paid no 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.
DISTRIBUTION PLAN
The following information supplements and should be read in
conjunction with the Prospectus section entitled "Distribution Plans." As
indicated in the Prospectus, the Fund has adopted a distribution plan (a
"Plan") under Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the
"Rule") for the Class A and B shares of the Fund. The Plan for the Class A
Shares and the Plan for the Class B Shares were each adopted by the Board of
Directors on November 15, 1995, including a majority of the Directors who were
not
12
<PAGE> 988
"interested persons" (as defined in the 1940 Act) of the Fund and who had no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan (the "Non-Interested Directors").
Under the Plan and pursuant to the Distribution Agreement, the
Fund may pay the Distributor, as reimbursement for distribution-related
expenses and compensation for distribution-related services, a monthly fee at
an annual rate of up to 0.10% of the average daily net assets attributable to
Class A Shares and up to 0.75% of the average daily net assets attributable to
the Class B Shares of the Fund. The actual fee payable to the Distributor is
determined, within such limits, from time to time by mutual agreement between
the Company and the Distributor and will not exceed the maximum sales charges
payable by mutual funds sold by members of the National Association of
Securities Dealers, Inc. ("NASD") under the NASD Rules of Fair Practice. The
Distributor may enter into selling agreements with one or more selling agents
under which such agents may receive compensation for distribution-related
services from the Distributor, including, but not limited to, commissions or
other payments to such agents based on the average daily net assets of Fund
shares attributable to them. The Distributor may retain any portion of the
total distribution fee payable thereunder to compensate it for
distribution-related services provided by it or to reimburse it for other
distribution-related expenses.
Each Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Non-Interested Directors. Agreements related to the Plans also must be
approved by such vote of the directors and the Non-Interested Directors. Such
Agreements will terminate automatically if assigned, and may be terminated at
any time, without payment of any penalty, by a vote of a majority of the
outstanding voting securities of the relevant class of the Fund or by vote of a
majority of the Non-Interested Directors on not more than 60 days' written
notice. Each Plan may not be amended to increase materially the amounts
payable thereunder without the approval of a majority of the outstanding voting
securities of the relevant class of the Fund, and no material amendment to the
Plans may be made except by a majority of both the Directors of the Company and
the Non-Interested Directors.
Each Plan requires that the Company shall provide to the
Directors, and the directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Plan. The Rule also
requires that the selection and nomination of Directors who are not "interested
persons" of the Company be made by such disinterested directors.
For the period begun February 21, 1996 and ended September 30,
1996, the Fund's distributor received the following amounts of 12b-1 fees for
the specified purposes set forth below under each Plan.
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Total Prospectus Brochures Underwriters
----- ---------- --------- ------------
<S> <C> <C> <C> <C>
Class A $ -0- $ -0- $ -0- N/A
</TABLE>
13
<PAGE> 989
<TABLE>
<S> <C> <C> <C> <C>
Class B $32,412 N/A N/A $32,412
</TABLE>
SERVICING PLAN
As indicated in the Fund's Prospectus, the Fund has adopted a
Servicing Plan ("Servicing Plan") with respect to its Class A and Class B
Shares. The Board of Directors adopted each Servicing Plan on November 15,
1995. The Board of Directors included a majority of the Directors who were not
"interested persons" (as defined in the Act) of the Fund and who had no direct
or indirect financial interest in the operation of the Servicing Plan or in any
agreement related to the Servicing Plan (the "Servicing Plan Non-Interested
Directors").
Under the Servicing Plan and pursuant to the Servicing Agreements
for the Class A Shares, the Fund may pay one or more servicing agents, as
compensation for performing certain services, a fee at an annual rate of up to
0.25% of the average daily net assets of the Fund attributable to its Class A
Shares. Under the Servicing Plan and pursuant to the Servicing Agreements for
the Class B Shares, the Fund may pay one or more servicing agents, as
compensation for performing certain services, a fee at an annual rate of up to
0.25% of the average daily net assets of the Fund attributable to the Class B
Shares. The actual fee payable to servicing agents is determined, within such
limits, from time to time by mutual agreement between the Company and each
servicing agent and will not exceed the maximum service fees payable by mutual
funds sold by members of the NASD under the NASD Rules of Fair Practice.
Each Servicing Plan will continue in effect from year to year if
such continuance is approved by a majority vote of both the Directors of the
Company and the Servicing Plan Non-Interested Directors. Any form of Servicing
Agreement related to the Servicing Plan also must be approved by such vote of
the Directors and the Servicing Plan Non- Interested Directors. Servicing
Agreements will terminate automatically if assigned, and may be terminated at
any time, without payment of any penalty, by a vote of a majority of the
Servicing Plan Non-Interested Directors. No material amendment to the
Servicing Plans may be made except by a majority of both the Directors of the
Company and the Servicing Plan Non-Interested Directors.
Each Servicing Plan requires that the Treasurer of the Company
shall provide to the Directors, and the Directors shall review, at least
quarterly, a written report of the amounts expended (and purposes therefor)
under the Servicing Plan.
For the period begun February 21, 1996 and ended September 30,
1996, the Fund paid no shareholder servicing fees to Wells Fargo Bank.
14
<PAGE> 990
PERFORMANCE CALCULATIONS
The following information supplements and should be read in
conjunction with the sections in the Prospectus entitled "Determination of Net
Asset Value" and "Performance Data."
As indicated in the Prospectus, the Fund may advertise certain
total return information computed in the manner described in the Prospectus.
As and to the extent required by the SEC, an average annual compound rate of
return ("T") will be computed by using the redeemable value at the end of a
specified period ("ERV") of a hypothetical initial investment ("P") over a
period of years ("n") according to the following formula: P(1+T)n = ERV. In
addition, as indicated in the Prospectus, the Fund also may, at times,
calculate total return based on net asset value per share (rather than the
public offering price), in which case the figures would not reflect the effect
of any sales charges that would have been paid by an investor, or based on the
assumption that a sales charge other than the maximum sales charge (reflecting
a Volume Discount) was assessed, provided that total return data derived
pursuant to the calculation described above also are presented.
The total return information presented below and advertised by the Fund
for the period prior to February 21, 1996, the date the Fund commenced
operations, is based upon the prior performance of the Strategic Growth Fund of
Overland Express Funds, Inc., (the "Predecessor Fund"). The performance
information is adjusted to reflect each class' current level of operating
expenses. The Class A and B Shares of the Fund track the performance of the
Predecessor Fund's Class A and D Shares, respectively.
Average Annual Total Return for the Applicable Period Ended September 30, 1996
<TABLE>
<CAPTION>
Inception(1) Inception Three Year Three Year One Year One Year
With Sales No Sales With Sales No Sales With Sales No Sales
Class Charge(2) Charge Charge Charge Charge Charge
----- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
A 24.21% 25.76% 18.20% 20.04% 8.25% 13.36%
B 21.89% 22.09% 18.95% 19.18% 9.60% 12.60%
</TABLE>
(1) Both Classes of the Aggressive Growth Fund commenced operations on
February 21, 1996. The Predecessor Fund commenced operations on January
20, 1993 for its Class A Shares and July 1, 1993 for its Class D Shares.
(2) For all periods ended September 30, 1996, the term "Sales Charge" for the
Class A shares of the Fund means a front-end sales load of 4.50%, and for
Class B Shares means a maximum contingent deferred sales charge ("CDSC")
of 3.00%.
In addition to the above performance information, the Fund may
also advertise the cumulative total return of the Fund. Cumulative total
return is based on the overall
15
<PAGE> 991
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.
Cumulative Total Return for the Applicable Period Ended September 30, 1996
<TABLE>
<CAPTION>
Inception(1) Inception Three Year Three Year
With Sales No Sales With Sales No Sales
Class Charge(2) Charge Charge Charge
----- ------ ------ ------ -------
<S> <C> <C> <C> <C>
A 123.45% 133.96% 65.12% 72.96%
B 90.31% 91.31% 68.30% 69.30%
</TABLE>
(1) Both Classes of the Aggressive Growth Fund commenced operations on
February 21, 1996. The Predecessor Fund commenced operations on January
20, 1993 for its Class A Shares and July 1, 1993 for its Class D Shares.
(2) For all periods ended September 30, 1996, the term "Sales Charge" for
the Class A shares of the Fund means a front-end sales load of 4.50%, and
for Class B Shares means a maximum contingent deferred sales charge
("CDSC") of 3.00%.
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.,
16
<PAGE> 992
Bloomberg Financial Markets or Morningstar, Inc., independent services which
monitor the performance of mutual funds. The performance of a class of shares
the Fund is calculated by relating net asset value per share at the beginning
of a stated period to the net asset value of the investment, assuming
reinvestment of all gains distributions and dividends paid, at the end of the
period. Any such comparisons may be useful to investors who wish to compare
the Fund's past performance with that of its competitors. Of course, past
performance cannot be a guarantee of future results. The Company also may
include, from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
In addition, the Company also may use, in advertisements and other
types of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank, and
its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and
the related "Tax Freedom Day."
The Company also may use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for a class of shares of the Fund: (i) the Consumer
Price Index may be used to assess the real rate of return from an investment in
a class of shares of the Fund; (ii) other government statistics, including, but
not limited to, The Survey of Current Business, may be used to illustrate
investment attributes of a class of shares of the Fund or the general economic,
business, investment, or financial environment in which the Fund operates;
(iii) the effect of tax-deferred compounding on the investment returns of a
class of shares of the Fund, or on returns in general, may be illustrated by
graphs, charts, etc., where such graphs or charts would compare, at various
points in time, the return from an investment in a class of shares of the Fund
(or returns in general) on a tax-deferred basis (assuming reinvestment of
capital gains and dividends and assuming one or more tax rates) with the return
on a taxable basis; and (iv) the sectors or industries in which the Fund or the
Master Portfolio invests may be 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
17
<PAGE> 993
for a particular investor. In addition, the assigned rating would be subject
to change, suspension or withdrawal as a result of changes in, or
unavailability of, information relating to the Fund or its investments. The
Company may compare the Fund's performance with other investments which are
assigned ratings by NRSROs. Any such comparisons may be useful to investors
who wish to compare the Fund's past performance with other rated investments.
From time to time the 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
18
<PAGE> 994
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 "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 the Custodian of the Fund on
each day the Exchange is open for trading as of the close of regular trading on
the Exchange, which is currently 4:00 p.m. 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, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and
19
<PAGE> 995
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.
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 is a member under
certain conditions in accordance with the provisions of a
20
<PAGE> 996
rule adopted under the 1940 Act and in compliance with procedures adopted by
the Board of Trustees.
The Trust has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by MIT's Board of Trustees, Wells Fargo is responsible for
the Master Portfolio decisions and the placing of portfolio transactions. In
placing orders, it is the policy of the Trust to obtain the best overall terms
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo generally seeks
reasonably competitive spreads or commissions, the Master Portfolio will not
necessarily be paying the lowest spread or commission available.
In assessing the best overall terms available for any transaction,
Wells Fargo Bank considers factors deemed relevant, including the breadth of
the market in the security, the price of the security, the financial condition
and execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing
basis. Wells Fargo Bank may cause the Master Portfolio to pay a broker/dealer
which furnishes brokerage and research services a higher commission than that
which might be charged by another broker/dealer for effecting the same
transaction, provided that Wells Fargo Bank determines in good faith that such
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker/dealer, viewed in terms of either the
particular transaction or the overall responsibilities of Wells Fargo Bank.
Such brokerage and research services might consist of reports and statistics
relating to specific companies or industries, general summaries of groups of
stocks or bonds and their comparative earnings and yields, or broad overviews
of the stock, bond, and government securities markets and the economy.
Supplementary research information so received is in addition to,
and not in lieu of, services required to be performed by Wells Fargo Bank and
does not reduce the advisory fees payable by the Master Portfolio. The Board of
Trustees will periodically review the commissions paid by the Master Portfolio
to consider whether the commissions paid over representative periods of time
appear to be reasonable in relation to the benefits inuring to the Master
Portfolio. It is possible that certain of the supplementary research or other
services received will primarily benefit one or more other investment companies
or other accounts for which investment discretion is exercised. Conversely,
the Master Portfolio may be the primary beneficiary of the research or services
received as a result of portfolio transactions effected for such other account
or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an
adviser shall not be "deemed to have acted unlawfully or to have breached its
fiduciary duty" solely because under certain circumstances it has caused the
account to pay a higher commission than the lowest available. To obtain the
benefit of Section 28(e), an adviser must make a good faith determination that
the commissions paid are "reasonable in relation to the value of the brokerage
and research services provided . . . viewed in terms of either that
21
<PAGE> 997
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 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 owned no 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. The Fund and the Predecessor Fund paid
brokerage commissions as follows for the years ended December 31, 1994 and
1995, and the periods thereafter beginning January 1, 1996 and February 21,
1996, respectively.
22
<PAGE> 998
<TABLE>
<CAPTION>
Fund Dec. 31, 1994 Dec. 31, 1995 Feb. 20, 1996 Sept. 30, 1996
---- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Aggressive Growth N/A N/A N/A $194,498
Predecessor Fund $171,356 $190,359 N/A N/A
</TABLE>
Portfolio Turnover. Portfolio turnover generally involves some
expenses to the Master Portfolio, including brokerage commissions or dealer
mark-ups and other transaction costs on the sale of securities and the
reinvestment in other securities. A high portfolio turnover rate should not
result in the Master Portfolio paying substantially more brokerage commissions,
since most transactions in government securities and municipal securities are
effected on a principal basis. Portfolio turnover can generate short-term
capital gain tax consequences. The portfolio turnover rate will not be a
limiting factor when Wells Fargo Bank deems portfolio changes appropriate.
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
23
<PAGE> 999
Distributions" and "Taxes." The Prospectus of the Fund describes generally the
tax treatment of distributions by the Master Portfolio and the Fund. This
section of the SAI includes additional information concerning federal income
taxes.
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.
24
<PAGE> 1000
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
25
<PAGE> 1001
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 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
26
<PAGE> 1002
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 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
27
<PAGE> 1003
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.
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, the Master
Portfolio 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 twenty-four other funds.
28
<PAGE> 1004
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 two classes of shares, Class A Shares and
Class B Shares. With respect to matters that affect one class but not another,
shareholders vote as a class; for example, the approval of a Plan. Subject to
the foregoing, on any matter submitted to a vote of shareholders, all shares
then entitled to vote will be voted separately by series unless otherwise
required by the Act, in which case all shares will be voted in the aggregate.
For example, a change in a series' fundamental investment policy affects only
one series and would be voted upon only by shareholders of the series and not
by shareholders of the Company's other series. Additionally, approval of an
advisory contract is a matter to be determined separately by each series.
Approval by the shareholders of one series is effective as to that series
whether or not sufficient votes are received from the shareholders of the other
series to approve the proposal as to those series. As used in the Prospectus
and in this SAI, the term "majority" when referring to approvals to be obtained
from shareholders of a class of the Fund, means the vote of the lesser of (i)
67% of the shares of such class the Fund represented at a meeting if the
holders of more than 50% of the outstanding shares such class of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of such class the Fund. The term "majority," when referring to the approvals
to be obtained from shareholders of the Company as a whole, means the vote of
the lesser of (i) 67% of the Company's shares represented at a meeting if the
holders of more than 50% of the Company's outstanding shares are present in
person or by proxy, or (ii) more than 50% of the Company's outstanding shares.
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held.
The Company may dispense with an annual meeting of shareholders in
any year in which it is not required to elect directors under the 1940 Act.
Each share of a class of the Fund represents an equal proportional
interest in the Fund with each other share in the same class and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to the Fund as are declared in the discretion of the Directors. In
the event of the liquidation or dissolution of the Company, shareholders of the
Fund are entitled to receive the assets attributable to the relevant class of
shares of the Fund that are available for distribution, and a distribution of
any general assets not attributable to a particular investment portfolio that
are available for
29
<PAGE> 1005
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.
The Trust is a business trust organized under the laws of
Delaware. In accordance with Delaware law and in connection with the tax
treatment sought by 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.
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 MITees will not be liable for any action or failure to act.
However, nothing in the Declaration of Trust protects a Trustee against any
liability to which the Trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of the Trustee's office.
The interests in the Master Portfolio have substantially identical
voting and other rights as those rights enumerated above for Fund shares. The
Trust also intends to dispense with annual meetings, but will hold a special
meeting and assist investor communications under the circumstances described
above with respect to the Company in accord with provisions under Section 16(c)
of the Act. Whenever the Fund is requested to vote on a matter with respect to
the Master Portfolio, the Fund will hold a meeting of Fund shareholders and
will cast its votes as instructed by such shareholders. In a situation where
the Fund does not receive instruction from certain of its shareholders on how
to vote the corresponding shares of the Master Portfolio, the Fund will vote
such shares in the same proportion as the shares for which the Fund does
receive voting instructions.
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.
30
<PAGE> 1006
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
San Francisco, CA 94163 Owned
Stephens Inc. 9.57% 6.80%
111 Center Street Class A
Little Rock, AR 72201 Record Holder
</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 Registration Statement of MIT and the Company, including the
Fund's Prospectus, the SAI and the exhibits filed therewith, may be examined at
the office of the SEC in Washington, D.C. Statements contained in the
Prospectus or the SAI as to the contents of any contract or other document
referred to herein or in the Prospectus are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company and 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 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
The portfolio of investments, audited financial statements and
independent auditors' report for the fiscal period ended September 30, 1996 for
the Capital Appreciation Master Portfolio of Master Investment Trust are hereby
incorporated by reference to the Company's Annual Reports as filed with the
SEC on December 9, 1996.
31
<PAGE> 1007
independent auditors' report are attached to all SAIs delivered to current or
prospective shareholders.
32
<PAGE> 1008
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."
33
<PAGE> 1009
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."
34
<PAGE> 1010
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1997
ARIZONA TAX-FREE FUND
BALANCED FUND
CALIFORNIA TAX-FREE BOND FUND
CALIFORNIA TAX-FREE INCOME FUND
EQUITY VALUE FUND
GOVERNMENT MONEY MARKET MUTUAL FUND
INTERMEDIATE BOND FUND
NATIONAL TAX-FREE FUND
OREGON TAX-FREE FUND
PRIME MONEY MARKET MUTUAL FUND
TREASURY MONEY MARKET MUTUAL FUND
CLASS A AND CLASS B
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Stagecoach Funds, Inc. (the "Company") is an open-end, series investment
company. This Statement of Additional Information ("SAI") contains additional
information about two classes of shares generally offered in eleven funds of
the Stagecoach Family of Funds (each, a "Fund" and collectively, the "Funds").
The ARIZONA TAX-FREE, CALIFORNIA TAX-FREE BOND, CALIFORNIA TAX-FREE INCOME,
NATIONAL TAX-FREE and OREGON TAX-FREE FUNDS (sometimes, collectively, the
"Tax-Free Funds"), the GOVERNMENT MONEY MARKET MUTUAL, PRIME MONEY MARKET
MUTUAL and TREASURY MONEY MARKET MUTUAL FUNDS (sometimes, collectively, the
"Money Market Funds") and the BALANCED, EQUITY VALUE and INTERMEDIATE BOND
FUNDS all offer Class A shares. In addition, Class B shares are offered by all
except the Money Market Funds and the California Tax- Free Income Fund. The
investment objective of each Fund is described in the applicable 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 applicable to each Fund, dated February 1, 1997. All terms used in
this SAI that are defined in the Prospectus for each Fund 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 Company's Transfer Agent at the telephone number
indicated above.
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TABLE OF CONTENTS
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Page
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General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Additional Permitted Investment Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Special Considerations Affecting Arizona Municipal Obligations . . . . . . . . . . . . . . . . . . 30
Special Considerations Affecting California Municipal Obligations . . . . . . . . . . . . . . . . . 31
Special Considerations Affecting Oregon Municipal Obligations . . . . . . . . . . . . . . . . . . . 35
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Servicing Plans and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Additional Purchase and Redemption Information . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
All Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Tax-Free Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
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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 California Tax-Free Bond and California Tax-Free
Income Funds (sometimes referred to as the "California Funds") were originally
organized as funds of Stagecoach. All other Funds herein are sometimes
referred to as the "New Funds." The Arizona Tax-Free, Intermediate Bond,
National Tax- Free and Oregon Tax-Free Funds were originally organized as
investment portfolios of Westcore Trust ("Westcore") under the following names:
Arizona Intermediate Tax-Free, Bonds Plus, Quality Tax-Exempt Income, and
Oregon Tax-Exempt Funds, respectively. On October 1, 1995, each of these Funds
was reorganized as an investment portfolio of Pacifica Funds Trust ("Pacifica"
or the "predecessor Company"). The Balanced, Equity Value, and Government
Money Market Mutual Funds were originally organized as investment portfolios of
Pacifica under the following names: Balanced, Equity Value, and Government
Money Market Funds, respectively. The Prime Money Market Mutual Fund operated
as Pacific American Liquid Assets, Inc. from its commencement of operations on
April 30, 1981 until it was reorganized as a portfolio of Pacific American Fund
on October 1, 1985; on October 1, 1994, it was reorganized as the Pacific
American Money Market Portfolio of Pacifica; and, in July of 1995, it was
renamed the Pacifica Prime Money Market Fund. Prior to August 1, 1990, the
Treasury Money Market Mutual Fund was known as the Short-Term Government Fund
and invested in obligations issued or guaranteed by agencies and
instrumentalities of the U.S. Government in accordance with fundamental
policies that were then effective for the Fund. The Fund operated as a
portfolio of Pacific American Fund through October 1, 1994, when it was
reorganized as the Pacific American U.S. Treasury Portfolio, a portfolio of
Pacifica Funds Trust. In July 1995, the Fund was renamed the Pacifica Treasury
Money Market Fund.
On April 25, 1996, the Agreement and Plan of Reorganization of
Pacifica with Stagecoach and the creation of each predecessor portfolio as a
new fund of Stagecoach were approved by the Company's Board of Directors. On
May 17, 1996, the Agreement and Plan of Reorganization of Pacifica with the
Company was approved by Pacifica's Board of Trustees. The reorganization of
Pacifica with Stagecoach became effective on September 6, 1996 (the
"Reorganization"). Each of the following portfolios of Pacifica was
reorganized as the specified Stagecoach Fund:
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<TABLE>
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PACIFICA FUNDS TRUST PORTFOLIO NAME STAGECOACH FUND NAME
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Pacifica Arizona Tax-Exempt Fund Arizona Tax-Free Fund
Pacifica Balanced Fund Balanced Fund
Pacifica Equity Value Equity Value Fund
Pacifica Government Money Market Fund Government Money Market Mutual Fund
Pacifica Intermediate Bond Fund Intermediate Bond Fund
Pacifica National Tax-Exempt Fund National Tax-Free Fund
Pacifica Oregon Tax-Exempt Fund Oregon Tax-Free Fund
Pacifica Prime Money Market Fund Prime Money Market Mutual Fund
Pacifica Treasury Money Market Fund Treasury Money Market Mutual Fund
</TABLE>
INVESTMENT RESTRICTIONS
The Funds are subject to the investment limitations enumerated below
which may be changed with respect to a particular Fund only by a vote of a
majority of the holders of such Fund's outstanding shares (see "Capital Stock"
below).
The Intermediate Bond Fund and the Arizona, National and Oregon
Tax-Free Funds may not:
1. Purchase or sell commodity contracts (including futures contracts
with respect to the Arizona Tax-Free and National Tax-Free Funds), or invest in
oil, gas or mineral exploration or development programs, except that each 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,
and provided that the Intermediate Bond and Oregon Tax-Free Funds may enter
into futures contracts and related options.
2. Purchase or sell real estate, except that each 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 a Fund might 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
a Fund's investment objective, policies and limitations may be deemed to be
underwriting.
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<PAGE> 1014
6. Write or sell put options, call options, straddles, spreads, or
any combination thereof, except that the Oregon Tax-Free Fund may enter into
transactions in futures contracts and related options, and except that the
Intermediate Bond Fund may enter into transactions in options on securities,
futures contracts and options on futures contracts.
7. Borrow money or issue senior securities, except that each Fund may
borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts 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 a Fund's total assets at
the time of such borrowing. None of these Funds will purchase securities while
its 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 a Fund's investment practices described in this SAI or in its
Prospectus are not deemed to be pledged for purposes of this limitation.
The Intermediate Bond Fund may not:
1. Purchase securities of any one issuer (other than securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities)
if, immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in the securities of such issuer, or more than
10% of the issuer's outstanding voting securities would be owned by the Fund or
the Company, except that up to 25% of the value of the Fund's total assets may
be invested without regard to these limitations.
2. Purchase any securities that would cause 25% or more of the 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 (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; (b) 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 (c) utilities will be divided
according to their services, for example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry.
3. 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 and may lend portfolio securities in an
amount not exceeding 30% of its total assets.
4. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation shall not
apply to the Fund's transactions in futures contracts and related options, and
(b) the Fund may obtain short-term credit as may be necessary for the clearance
of purchases and sales of portfolio securities.
As a matter of non-fundamental policy (which may be changed without
shareholder vote), the Intermediate Bond Fund may not (i) invest in mineral
leases and (ii) purchase, hold or deal in real estate limited partnerships.
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<PAGE> 1015
The Arizona, National and Oregon Tax-Free Funds may not:
1. Purchase securities on margin, make short sales of securities or
maintain a short position, except that the Funds may obtain short-term credit
as may be necessary for the clearance of purchases and sales of portfolio
securities, and except that this limitation shall not apply to the Oregon
Tax-Free Fund's transactions in futures contracts and related options.
2. 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.
3. Make loans, except that each Fund may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies.
The Oregon Tax-Free Fund may not:
1. 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, except that (a) up to 50% of the
value of the Fund's total assets may be invested without regard to this 5%
limitation 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) this 5%
limitation does not apply to securities issued or guaranteed by the U.S.
Government, its agencies, authorities, instrumentalities or political
subdivisions. For purposes of this limitation, 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.
2. Purchase any securities, except securities issued (as defined in
the preceding Investment Limitation) 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, which would cause 25% or more of the value of the Fund's total
assets at the time of purchase to be invested in the securities of issuers
conducting their principal business activities in the same industry.
The Arizona Tax-Free Fund may not:
1. 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)
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<PAGE> 1016
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.
2. Purchase any securities, except securities issued (as defined in
the preceding Investment Limitation) 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, which would cause 25% or more of the value of the Fund's total
assets at the time of purchase to be invested in the securities of issuers
conducting their principal business activities in the same industry.
The National Tax-Free Fund may not:
1. 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.
2. 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 by the U.S.
Government, the District of Columbia, and their respective agencies,
authorities, instrumentalities or political subdivisions.
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<PAGE> 1017
The California Tax-Free Income 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) 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.
(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.
(8) Make loans of portfolio securities having a value that
exceeds 50% of the current value of its total assets provided that, for
purposes of this restriction, loans will not include the purchase of fixed time
deposits, repurchase agreements, commercial paper and other types of debt
instruments commonly sold in a public or private offering.
With respect to fundamental investment policy (8), the Fund does
not intend to loan its portfolio securities during the coming year.
The California Tax-Free Income Fund is subject to the following
non-fundamental policies (which may be changed without shareholder vote).
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(1) The Fund may not purchase or retain securities of any
issuer if the Officers or Directors of the Company or the investment adviser
owning beneficially more than one-half of one percent (0.5%) of the securities
of the issuer together own beneficially more than 5% of such securities.
(2) The Fund may not purchase interests, leases, or limited
partnership interests in oil, gas, or other mineral exploration or development
programs.
(3) The Fund may not purchase securities of issuers who, with
their predecessors, have been in existence less than three years, unless the
securities are fully guaranteed or insured by the U.S. Government, a state,
commonwealth, possession, territory, the District of Columbia or by an entity
in existence at least three years, or the securities are backed by the assets
and revenues of any of the foregoing if, by reason thereof, the value of its
aggregate investments in such securities will exceed 5% of its total assets.
(4) The Fund may not purchase securities of unseasoned issuers,
including their predecessors, which have been in operation for less than three
years, and equity securities of issuers which are not readily marketable if by
reason thereof the value of the Fund's aggregate investment in such classes of
securities will exceed 5% of its total assets.
(5) The Fund may invest not more than 5% of its net assets at
the time of purchase in warrants, and not more than 2% of its net assets in
warrants which are not listed on the New York or American Stock Exchange.
(6) The Fund will not invest more than 15% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
(7) The Fund may invest in shares of other open-end, management
investment companies, subject to the limitations of Section 12(d)(1) of the
1940 Act, provided that any such purchases will be limited to temporary
investments in shares of unaffiliated investment companies that have a
fundamental investment policy of investing at least 80% of their net assets in
obligations that are exempt from federal income taxes and are not subject to
the federal alternative minimum tax. However, the Fund's investment adviser
will waive its advisory fees for that portion of the Fund's assets so invested,
except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition. Notwithstanding any other investment policy or
limitation (whether or not fundamental), the Fund may invest all of its assets
in the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies and
limitations as the Fund.
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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 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.
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<PAGE> 1020
(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 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.
The Balanced, Equity Value and Government Money Market Mutual Funds,
except as indicated, may not:
1. With respect to the Government Money Market Mutual Fund, invest
more than 10% of the aggregate value of its total assets in investments that
are illiquid, or not readily marketable (including repurchase agreements having
maturities of more than seven calendar days, variable- and floating-rate demand
notes requiring receipt of principal note amount on more than seven days notice
and securities of foreign issuers that are not listed on a recognized domestic
or foreign securities exchange).
2. Borrow money or pledge or mortgage its assets, except that a Fund
may borrow from banks up to 10% of the current value of its total net assets
for temporary or emergency purposes and those borrowings may be secured by the
pledge of not more than 15% of the current value of its total net assets (but
investments may not be purchased by a Fund while any such borrowings exist).
3. Make loans, except loans of portfolio securities and except that a
Fund may enter into repurchase agreements with respect to its portfolio
securities and may purchase the types of debt instruments described in the
Prospectuses or the SAI. No Fund will invest in repurchase agreements maturing
in more than seven days (unless subject to a demand feature) if any such
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<PAGE> 1021
investment, together with any illiquid securities (including securities which
are subject to legal or contractual restrictions on resale) held by a Fund,
exceeds 10% of the value of its total assets.
4. Invest in companies for the purpose of exercising control or
management.
5. Knowingly purchase securities of other investment companies,
except (i) in connection with a merger, consolidation, acquisition, or
reorganization; and (ii) the Funds listed above except the Government Money
Market Mutual Fund may invest up to 10% of their net assets in shares of other
investment companies.
6. Invest in real property (including limited partnership interests),
commodities, commodity contracts, or oil, gas and other mineral resource,
exploration, development, lease or arbitrage transactions.
7. Acquire securities subject to restrictions on disposition imposed
by the Securities Act of 1933, if, immediately after and as a result of such
acquisition, the value of such restricted securities and all other illiquid
securities held by a Fund would exceed 10% of the value of the Fund's total
assets.
8. Engage in the business of underwriting securities of other
issuers, except to the extent that the disposal of an investment position may
technically cause it to be considered an underwriter as that term is defined
under the Securities Act of 1933.
9. Sell securities short, except to the extent that a Fund
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short.
10. Purchase securities on margin, except that a Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities.
11. Mortgage, pledge, or hypothecate any of its assets, except as
described in Investment Restriction No. 2.
12. Purchase or retain the securities of any issuer, if those
individual officers and Directors of the Company, its adviser, the sponsor, or
the distributor, each owning beneficially more than 1/2 of 1% of the securities
of such issuer, together own more than 5% of the securities of such issuer.
13. Invest more than 5% of its net assets in warrants which are
unattached to securities, included within that amount, no more than 2% of the
value of a Fund's net assets, may be warrants that are not listed on the New
York or American Stock Exchanges.
14. Write, purchase or sell puts, calls or combinations thereof,
except that all Funds listed above except the Government Money Market Mutual
Fund may purchase or sell puts and calls as otherwise described in the
Prospectus or SAI; however, no Fund will invest more than 5% of its total
assets in these classes of securities.
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<PAGE> 1022
15. Invest more than 5% of the current value of its total assets in
the securities of companies that, including predecessors, have a record of less
than three years' continuous operation.
The Prime Money Market Mutual and the Treasury Money Market Mutual
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 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.
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.
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<PAGE> 1023
As a non-fundamental policy (which may be changed without shareholder
vote), any loans of portfolio securities will be made according to guidelines
established by the SEC and the Company's Board of Directors, and the Fund will
maintain 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
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<PAGE> 1024
15% (10% in the case of the Money Market Funds) 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.
In addition, in accordance with current SEC regulations, the Money
Market 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 the Prime Money Market Mutual Fund nor the Treasury Money Market
Mutual 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.
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 Prospectuses discuss 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
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<PAGE> 1025
policies and portfolio strategies that the Funds may utilize, and certain risks
attendant to such investments, policies and strategies.
U.S. Government Obligations. Each Fund 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 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. Each New 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 Securities
and Exchange Commission 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
14
<PAGE> 1026
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 New Fund considers on an ongoing basis the creditworthiness
of the institutions with which it enters into repurchase agreements.
The Prime and Treasury Money Market Mutual Funds may engage in a
repurchase agreement with respect to any security in which they are authorized
to invest, including U.S. Treasury STRIPS, although the underlying security may
mature in more than thirteen months.
Bank Obligations. Each New 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, a 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 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 a 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
15
<PAGE> 1027
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. The Funds 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 Funds may invest in such
securities in accordance with their respective investment policies.
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. For the
Money Market Funds, these obligations ordinarily have stated maturities in
excess of thirteen months, but 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 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 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,
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<PAGE> 1028
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% (10% for each of the Money Market Funds) 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
Arizona, National and Oregon Tax-Free Funds may include participations in
municipal obligations purchased from and owned by financial institutions,
primarily banks. Participation interests provide these Funds 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 these Funds. 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 their Prospectuses, the Funds (except the Arizona, National and
Oregon Tax-Free Funds) may lend their 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 Funds may at any
time call the loan and obtain the return of the securities loaned within five
business days; (3) the Funds 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 particular Fund. The
Treasury Money Market Mutual Fund does not currently intend to lend its
portfolio securities.
The Funds will earn income for lending their securities because cash
collateral pursuant to these loans will be invested in short-term money market
instruments. In connection with lending securities, the Funds 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, a Fund could experience
delays in recovering securities or collateral or could lose all or part of the
value of the loaned securities. When a 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. 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 a 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
17
<PAGE> 1029
delivery and payment ordinarily take place a number of days after the date of
the commitment to purchase. A Fund will make commitments to purchase such
securities only with the intention of actually acquiring the securities, but
the Fund may sell these securities before the settlement date if it is deemed
advisable. The Fund will not accrue income in respect of a security purchased
on a forward commitment basis prior to its stated delivery date.
Securities purchased on a when-issued or forward commitment basis and
certain other securities held in a Fund's investment portfolio are subject to
changes in value (both generally changing in the same way, i.e., appreciating
when interest rates decline and depreciating when interest rates rise) based
upon the public's perception of the creditworthiness of the issuer and changes,
real or anticipated, in the level of interest rates. Securities purchased on a
when-issued or forward commitment basis may expose the relevant Fund to risk
because they may experience such fluctuations prior to their actual delivery.
Purchasing securities on a when-issued or 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 and California
Tax-Free Income Funds 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 such Fund. After
purchase, a security may cease to be rated or its rating may be reduced below
the minimum required for purchase by these Funds. Neither event will require a
sale of such security by the Funds. 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 Funds 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.
18
<PAGE> 1030
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 and California Tax-
Free Income Funds may purchase may be backed by an unconditional and
irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of Wells Fargo Bank,
are of comparable quality to issuers of other permitted investments of the
Funds may be used for letter of credit-backed investments.
Pass-Through Obligations. Certain of the debt obligations which the
California Tax-Free Bond and California Tax-Free Income Funds 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 Funds. Furthermore, as with any debt
obligation, fluctuations in interest rates will inversely affect the market
value of pass- through obligations. The Funds 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.
Mortgage-Backed Securities. As stated in the Prospectuses, certain
Funds may invest in mortgage-backed securities, including those representing an
undivided ownership interest in a pool of mortgages, such as certificates of
the Government National Mortgage Association ("GNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). These certificates are in most cases
pass-through instruments, through which the holder receives a share of all
interest and principal payments from the mortgages underlying the certificate,
net of certain fees. The average life of a mortgage- backed security varies
with the underlying mortgage instruments, which generally have maximum
maturities of 40 years. The average life is likely to be substantially less
than the original maturity of the mortgage pools underlying the securities as
the result of prepayments, mortgage refinancings or foreclosure. Mortgage
prepayment rates are affected by factors including the level of interest rates,
general economic conditions, the location and age of the mortgage and other
social and demographic conditions. Such prepayments are passed through to the
registered holder with the regular monthly payments of principal and interest
and have the effect of reducing future payments.
There are risks inherent in the purchase of mortgage-backed
securities. For example, these securities are subject to a risk that default in
payment will occur on the underlying mortgages. In addition to default risk,
these securities are subject to the risk that prepayment on the underlying
mortgages will occur earlier or later or at a lessor or greater rate than
expected. To the extent that
19
<PAGE> 1031
adviser's assumptions about prepayments are inaccurate, these securities may
expose the Funds, to significantly greater market risks than expected.
Asset-Backed Securities. To the extent described in the Prospectuses,
the Funds may purchase asset-backed securities, which are securities backed by
installment contracts, credit-card receivables or other assets. Asset-backed
securities represent interests in "pools" of assets in which payments of both
interest and principal on the securities are made monthly, thus in effect
"passing through" monthly payments made by the individual borrowers on the
assets that underlie the securities, net of any fees paid to the issuer or
guarantor of the securities. The average life of asset- backed securities
varies with the maturities of the underlying instruments and is likely to be
substantially less than the original maturity of the assets underlying the
securities as a result of prepayments. For this and other reasons, an
asset-backed security's stated maturity may be shortened, and the security's
total return may be difficult to predict precisely.
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
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
20
<PAGE> 1032
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. Neither California Fund may invest 25% or
more of its assets in industrial development bonds. Assessment bonds, wherein
a specially created district or project area levies a tax (generally on its
taxable property) to pay for an improvement or project may be considered a
variant of either category. There are, of course, other variations in the
types of municipal bonds, both within a particular classification and between
classifications, depending on numerous factors. Some or all of these bonds may
be considered "private activity bonds" for federal income tax purposes.
The Tax-Free 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.
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 Prospectuses, the adviser, under the supervision of
the Board, 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
21
<PAGE> 1033
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 Arizona, California and Oregon obligations, the Funds 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 Arizona, California and Oregon obligations,
specifically, for investment by a Fund and the liquidity and value of the
Fund's portfolio. In such an event, the Fund involved 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 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
Tax-Free Funds may, from time to time, invest more than 25% of their assets in
municipal obligations covered by insurance policies.
As stated in the Prospectus, the Intermediate Bond Fund may, when
deemed appropriate by the adviser in light of the Fund's investment objective,
invest in obligations issued by state and local governmental issuers. Dividends
paid by the Intermediate Bond Fund that are derived from interest of municipal
obligations would be taxable to the Fund's shareholders for federal income tax
purposes.
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
22
<PAGE> 1034
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 they have no present intention to
do so, the Balanced, Equity Value, California Tax-Free Bond and California
Tax-Free Income Funds may each 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 Funds may only purchase
warrants on securities in which the Funds may invest directly.
Stand-By Commitments. The Arizona, National and Oregon Tax-Free Funds
may acquire stand-by commitments with respect to municipal obligations held by
such Funds. Under a stand-by commitment, a dealer or bank agrees to purchase
from a Fund, at the Fund's option, specified municipal obligations at a
specified price. The amount payable to a 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 a Fund only with the underlying instrument.
Each Fund expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a 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 a 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.
Each 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. Each 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.
Each 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
23
<PAGE> 1035
employed by the Funds. 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.
The Equity Value and Balanced Funds may enter into foreign currency
exchange contracts in order to protect against uncertainty in the level of
future foreign exchange rates. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are entered into the interbank market conducted between currency
traders (usually large commercial banks) and their customers. Forward foreign
currency exchange contracts may be bought or sold to protect a Fund against a
possible loss resulting from an adverse change in the relationship between
foreign currencies and the U.S. dollar, or between foreign currencies. Although
such contracts are intended to minimize the risk of loss due to a decline in
the value of the hedged currency, at the same time, they tend to limit any
potential gain which might result should the value of such currency increase.
The Equity Value and Balanced Funds may also invest in ADRs. ADRs are
receipts issued by an American bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. ADRs may be listed on a
national securities exchange or may trade in the over-the-counter market. ADR
prices are denominated in U.S. dollars, although the underlying security may be
denominated in a foreign currency. The underlying security may be subject to
foreign government taxes which could reduce the yield on such securities. Some
institutions issuing ADRs may not be sponsored by the issuer. A non-sponsored
depository may not provide the same shareholder information that a sponsored
depository may be required to provide under its contractual arrangement with
the issuer.
Investments in foreign securities also involve certain inherent risks,
such as political or economic instability of the issuer or the country of
issue, the difficulty of predicting international trade patterns and the
possibility of imposition of exchange controls. Such securities may also be
subject to greater fluctuations in price than securities of domestic
corporations. In addition, there may be less publicly available information
about a foreign company than about a domestic company. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to domestic companies.
Investments
24
<PAGE> 1036
in foreign securities and forward contracts may also be subject to withholding
and other taxes imposed by foreign governments. With respect to certain
foreign countries, there is also a possibility of expropriation or confiscatory
taxation, or diplomatic developments which could affect investments in those
countries.
Options Trading. Certain Funds may buy put and call options and write
covered call and secured put options. Options trading is a highly specialized
activity which entails greater than ordinary investment risk. Options may be
more volatile than the underlying instruments, and therefore, on a percentage
basis, an investment in options may be subject to greater fluctuation than an
investment in the underlying instruments themselves. The Intermediate Bond
Fund may purchase put and call options listed on a national securities exchange
and issued by the Options Clearing Corporation in an amount not exceeding 5% of
its net assets. Purchasing options is a specialized investment technique that
entails a substantial risk of a complete loss of the amounts paid as premiums
to the writer of the option.
The Funds may also write covered call and secured put options from
time to time as the adviser deems appropriate. By writing a covered call
option, a Fund forgoes the opportunity to profit from an increase in the market
of the underlying security above the exercise price except insofar as the
premium represents such a profit, and it is not able to sell the underlying
security until the option expires or is exercised or the Fund effects a closing
purchase transaction by purchasing an option of the same series. 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
the Intermediate Bond Fund will not exceed 25% of the value of its net assets.
The use of covered call options and securities put options will not be a
primary investment technique of the Intermediate Bond Fund, 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, the Fund
would be in a worse position than it would have been had the foregoing
investment techniques not been used.
A call option for a particular security gives the purchaser of the
option the right to buy, and a writer the obligation to sell, the underlying
security at the stated exercise price at any time prior to the expiration of
the option, regardless of the market price of the security. The premium paid to
the writer is in consideration for undertaking the obligation under the option
contract. A put option for a particular security gives the purchaser the right
to sell the security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security.
Options on indices provide the holder with the right to make or receive a cash
settlement upon exercise of the option. With respect to options on indices, the
amount of the settlement equals the difference between the closing price of the
index at the time of exercise and the exercise price of the option expressed in
dollars, times a specified multiple.
The Funds will write call options only if they are "covered." In the
case of a call option on a security or currency, the option is "covered" if a
Fund owns the instrument underlying the call or has an absolute and immediate
right to acquire that instrument without additional cash consideration (or, if
additional cash consideration is required, cash, U.S. Government securities or
25
<PAGE> 1037
other liquid high grade debt obligations, in such amount are held in a
segregated account by the Fund's custodian) upon conversion or exchange of
other securities held by it. For a call option on an index, the option is
covered if a Fund maintains with its custodian a diversified portfolio of
securities comprising the index or liquid assets equal to the contract value. A
call option is also covered if a Fund holds a call on the same instrument or
index as the call written where the exercise price of the call held is (i)
equal to or less than the exercise price of the call written, or (ii) greater
than the exercise price of the call written provided the difference is
maintained by the Fund in liquid assets in a segregated account with its
custodian. The Funds will write put options only if they are "secured" by
liquid assets maintained in a segregated account by the Funds' custodian in an
amount not less than the exercise price of the option at all times during the
option period.
A Fund's obligation to sell an instrument subject to a covered call
option written by it, or to purchase an instrument subject to a secured put
option written by it, may be terminated prior to the expiration date of the
option by the Fund's execution of a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (i.e., same
underlying instrument, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction is ordinarily effected to realize a
profit on an outstanding option, to prevent an underlying instrument from being
called, to permit the sale of the underlying instrument or to permit the
writing of a new option containing different terms on such underlying
instrument. The cost of such a liquidation purchase plus transaction costs may
be greater than the premium received upon the original option, in which event
the Fund will have incurred a loss in the transaction. There is no assurance
that a liquid secondary market will exist for any particular option. An option
writer, unable to effect a closing purchase transaction, will not be able to
sell the underlying instrument (in the case of a covered call option) or
liquidate the segregated account (in the case of a secured put option) until
the option expires or the optioned instrument or currency is delivered upon
exercise with the result that the writer in such circumstances will be subject
to the risk of market decline or appreciation in the instrument during such
period.
When a Fund purchases an option, the premium paid by it is recorded as
an asset of the Fund. When a Fund writes an option, an amount equal to the net
premium (the premium less the commission) received by a Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this asset or deferred credit will be
subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the current bid price. If an option
purchased by a Fund expires unexercised the Fund realizes a loss equal to the
premium paid. If a Fund enters into a closing sale transaction on an option
purchased by it, the Fund realizes a gain if the premium received by the Fund
on the closing transaction is more than the premium paid to purchase the
option, or a loss if it is less. If an option written by a Fund expires on the
stipulated expiration date or if a Fund enters into a closing purchase
transaction, it realizes a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option is eliminated. If an option written by a
Fund is exercised, the proceeds of the sale are increased by the net premium
originally received and the Fund realizes a gain or loss.
26
<PAGE> 1038
There are several risks associated with transactions in options. For
example, there are significant differences between the securities, currency and
options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. In
addition, a liquid secondary market for particular options, whether traded
over-the-counter or on an exchange, may be absent for reasons that include the
following: there may be insufficient trading interest in certain options;
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options or underlying
securities or currencies; unusual or unforeseen circumstances may interrupt
normal operations on an exchange; the facilities of an exchange or the Options
Clearing Corporation may not be adequate at all times to handle current
trading value; or one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of
options (or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of options) would
cease to exist, although outstanding options that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. A Fund is likely to
be unable to control losses by closing its position where a liquid secondary
market does not exist. A decision as to whether, when and how to use options
involves the exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market behavior or
unexpected events.
Stock Index Futures Contracts and Options on Stock Index Futures
Contracts The Equity Value and Balanced Funds may participate in stock index
futures contracts and options on stock index futures contracts. A futures
transaction involves a firm agreement to buy or sell a commodity or financial
instrument at a particular price on a specified future date, while an option
transaction generally involves a right, which may or may not be exercised, to
buy or sell a commodity of financial instrument at a particular price on a
specified future date. Futures contracts and options are standardized and
exchange-traded, where the exchange serves as the ultimate counterparty for all
contracts. Consequently, the only credit risk on futures contracts is the
creditworthiness of the exchange. Futures contracts, however, are subject to
market risk (i.e., exposure to adverse price changes).
A stock index futures contract is an agreement in which one party
agrees to deliver to the other an amount of cash equal to a specific dollar
amount multiplied by the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. As the aggregate market value of the stocks in the index
changes, the value of the index also changes. In the event that the index level
rises above the level at which the stock index futures contract was sold, the
seller of the stock index futures contract realizes a loss determined by the
difference between the two index levels at the time of expiration of the stock
index futures contract, and the purchaser realizes a gain in that amount. In
the event the index level falls below the level at which the stock index
futures contract was sold, the seller recognizes a gain determined by the
difference between the two index levels at the expiration of the stock index
futures contract, and the purchaser realizes a loss. Stock index futures
contracts expire on a fixed date, currently one to seven months from the date
of the contract, and are settled upon expiration of the contract.
27
<PAGE> 1039
Stock index futures contracts may be purchased to protect a Fund
against an increase in the prices of stocks that the Fund intends to purchase.
If the Fund is unable to invest its cash (or cash equivalents) in stock in an
orderly fashion, the Fund may purchase a stock index futures contract to offset
any increase in the price of the stock. However, it is possible that the market
may decline instead, resulting in a loss on the stock index futures contract.
If the Fund then concludes not to invest in stock at that time, or if the price
of the securities to be purchased remains constant or increases, the Fund
realizes a loss on the stock index futures contract that is not offset by a
reduction in the price of securities purchased. The Funds also may buy or sell
stock index futures contracts to close out existing futures positions.
The Equity Value and Balanced Funds may also purchase put options on
stock index futures contracts. Sales of such options may also be made to close
out an open option position. The Funds may, for example, purchase a put option
on a particular stock index futures contract or stock index to protect against
a decline in the value of the common stocks it holds. If the stocks in the
index decline in value, the put should become more valuable and the Funds could
sell it to offset losses in the value of the common stocks. In this way, put
options may be used to achieve the same goals the Funds seek in selling futures
contracts. A put option on a stock index future gives the purchaser the right,
in return for a premium paid, to assume a short (i.e., the right to sell stock
index futures) position in a stock index futures contract at a specified
exercise price ("strike price") at any time during the period of the option. If
the option is exercised by the holder before the last trading date during the
option period, the holder receives the futures position, as well as any balance
in the futures margin account. If an option is exercised on the last trading
day prior to the expiration date of the option, the settlement is made entirely
in cash in an amount equal to the difference between the strike price and the
closing level of the relevant index on the expiration date.
Wells Fargo Bank expects that an increase or decrease in the index in
relation to the strike price level would normally correlate to an increase or
decrease (but not necessarily to the same extent) in the value of a Fund's
common stock portfolio against which the option was written. Thus, any loss in
the option transaction may be offset by an increase in the value of the common
stock portfolio to the extent changes in the index correlate to changes in the
value of that portfolio. The Funds may liquidate the put options they have
purchased by effecting a closing sale transaction rather than exercising the
option. This is accomplished by selling an option of the same series as the
option previously purchased. There is no guarantee that the Funds will be able
to effect the closing sale transaction. The Funds realize a gain from a closing
sale transaction if the price at which the transaction is effected exceeds the
premium paid to purchase the option and, if less, the Funds realize a loss.
Borrowing and Reverse Repurchase Agreements. Each Fund intends to
limit its borrowings (including reverse repurchase agreements) during the
current fiscal year to not more than 10% of its net assets. At the time a Fund
enters into a reverse repurchase agreement (an agreement under which the Fund
sells portfolio securities and agrees to repurchase them at an agreed-upon date
and price), it will place in a segregated custodial account liquid assets such
as U.S. Government securities or other liquid high-grade debt securities having
a value equal to or greater than the repurchase price (including accrued
interest) and will subsequently monitor the account to ensure that such value
is maintained. Reverse repurchase agreements involve the risk that the market
value
28
<PAGE> 1040
of the securities sold by a Fund may decline below the price at which the Fund
is obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings under the 1940 Act.
Nationally Recognized Statistical Ratings Organizations. The ratings
of Moody's Investors Service, Inc., Standard & Poor's Ratings Group, Division
of McGraw Hill, 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 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.
Rule 144A. It is possible that unregistered securities, purchased by
the Prime Money Market 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.
SPECIAL CONSIDERATIONS AFFECTING ARIZONA MUNICIPAL OBLIGATIONS
The concentration of the Arizona Tax-Free Fund in securities issued by
governmental units of only one state exposes the Fund to risks greater than
those of a more diversified portfolio holding securities issued by governmental
units of different states and different regions of the country.
Under its constitution, the State of Arizona is not permitted to issue
general obligation bonds secured by the full faith and credit of the State.
However, certain agencies and instrumentalities of the State are authorized to
issue bonds secured by revenues from specific projects and activities. The
State enters into certain lease transactions that are subject to annual
29
<PAGE> 1041
renewal at the option of the State. Local governmental units in the State are
also authorized to incur indebtedness. The major source of financing for such
local government indebtedness is an ad valorem property tax. In addition, in
order to finance public projects, local governments in the State can issue
revenue bonds payable from the revenues of a utility or enterprise or from the
proceeds of an excise tax, or assessment bonds payable from special
assessments. Arizona local governments have also financed public projects
through leases which are subject to annual appropriation at the option of the
local government.
There is a statutory restriction on the amount of annual increases in
taxes that can be levied by the various taxing jurisdictions in the State
without voter approval. This restriction does not apply to taxes levied to pay
general obligation debt.
There are periodic attempts in the form of voter initiatives and
legislative proposals to further limit the amount of annual increases in taxes
that can be levied by the various taxing jurisdictions without voter approval,
or to restructure the State's revenue mix among sales, income, property and
other taxes. It is possible that if any such proposals were enacted, there
would be an adverse impact on State or local government financing. It is not
possible to predict whether any such proposals will be enacted in the future or
what would be their possible impact on state or local government financing.
Arizona is required by law to maintain a balanced budget. To achieve
this objective, the State has, at various times in the past, utilized a
combination of spending reductions or reductions in the rate of growth in
spending, and tax increases. In recent years, the State's fiscal situation has
improved even while tax reduction measures have been enacted each year since
1992. In 1992, Arizona voters passed a measure that requires a two-thirds vote
of the legislature to increase state revenue. Accordingly, it will be more
difficult to reverse tax reductions, which may adversely affect state fund
balances and fiscal conditions over time.
Arizona state government general fund revenue growth in fiscal year
1996 is forecast to increase just 4.1%, although growth would be projected at
10.9% but for legislative changes, principally an income tax reduction measure
enacted in 1995. The 6.8% adjusted projected increase in sales tax revenue,
adjusted for reductions resulting from legislative changes, reflects continued
strong economic growth in the state. With revenue growth outpacing increased
expenditures, the state general fund is projected to end fiscal year 1996 with
a total general fund balance of approximately $579 million. The amount of this
balance is approximately 12.5% of total general fund expenditures for fiscal
year 1996. Included in the total balance is a general fund ending balance of
approximately $347 million, and a budget stabilization ("rainy day") fund
balance of approximately $232 million.
The fiscal year 1997 budget adopted by the legislature assumes that
the total general fund balance carried forward from fiscal year 1996 will be
drawn down by approximately $230 million during the course of fiscal year 1997.
Based on this assumption, the total general fund balance at the end of fiscal
year 1997 should be lower than for fiscal year 1996.
30
<PAGE> 1042
Additionally, the 1995 legislature enacted a $200 million income tax
reduction package, and the 1996 legislature enacted a $200 million property tax
reduction package. There may be additional legislative activity during 1997 in
the area of tax reform and school finance, and the 1998 general election ballot
may include one or more questions related to these issues and the State's tax
structure generally. The outcomes of any legislative actions or election
issues of this nature may adversely affect State fund balances and fiscal
conditions.
Arizona has a diversified economic base that is not dependent on any
single industry. Principal economic sectors include services, manufacturing,
mining, tourism, and the military. Agriculture, which was at one time a major
sector, now plays a much smaller role in the State's economy. For several
decades, the population of the State has grown at a substantially higher rate
than the population of the United States. While the State's economy flourished
during the early 80's, a substantial amount of overbuilding occurred, adversely
affecting Arizona-based financial institutions, many of which were placed under
the control of the Resolution Trust Corporation. Spillover effects produced
further weakening in the State's economy. The Arizona economy has begun to grow
again, albeit at a slower pace than experienced before the real estate
collapse. The North American Free Trade Agreement is generally viewed as
beneficial to the State. However, current and proposed reductions in federal
military expenditures may adversely affect the Arizona economy.
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
31
<PAGE> 1043
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, 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 Investors
Service lowered its rating from "Aa" to "A1," Standard & Poor's Ratings Group
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 & Poors 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
32
<PAGE> 1044
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.
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 valorem 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
33
<PAGE> 1045
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 Funds may be obligations payable solely from lease payments on real or
personal property leased to the state, cities, counties or their various public
entities. California law provides that a lessor may not be required to make
payments during any period that it is denied use and occupancy of the property
in proportion to such loss. Moreover, the lessor only agrees to appropriate
funding for lease payments in its annual budget for each fiscal year. In case
of a default under the lease, the only remedy available against the lessor is
that of reletting the property; no acceleration of lease payments is permitted.
Each of these factors presents a risk that the lease financing obligations held
by a California Tax-Free Fund would not be paid in a timely manner.
Certain debt obligations held by the California Tax-Free Funds 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.
SPECIAL CONSIDERATIONS AFFECTING OREGON MUNICIPAL OBLIGATIONS
The concentration of the Oregon Tax-Free Fund in Oregon obligations
raises additional considerations for investors in that portfolio, as discussed
below.
34
<PAGE> 1046
State Bonds and Revenues
As of September 1, 1996, $3.64 billion in general obligation bonds
issued by the State of Oregon and its agencies and instrumentalities were
outstanding, including $125.1 million in general obligation bonds supported by
the budget for the State's general fund and $3.52 billion of self-supporting
general obligation bonds. The State's self- supporting general obligation bonds
include $2.90 billion of State veteran's bonds, which, in the event of poor
economic conditions resulting in an increased number of mortgage defaults,
could cease to be self-supporting. All of the existing and outstanding general
obligation bonds of the State have been issued under specific State
constitutional provisions that authorize the issuance of such bonds and provide
authority for ad valorem taxation to pay the principal of and interest on such
bonds. With the exception of the veteran's bonds, for which no more than two
mills on each dollar valuation may be levied to pay principal and interest, the
authority of the State to tax property for the payment of its general
obligation bonds is unlimited. Since at least 1950, the State has not imposed
ad valorem tax for the payment of any of its obligations because other
revenues, including those generated by the self-supporting bonds, have been
sufficient.
In addition to general obligation bonds, various State statutes
authorize the issuance of State revenue bonds and certificates of
participation. These limited obligations of the State or its agencies or
instrumentalities may be payable from a specific project or source, including
lease rentals. The State is not authorized to impose ad valorem taxes on
property for the payment of principal and interest on these bonds, so they are
more sensitive to changes in the economy. There can be no assurance that future
economic problems will not adversely affect the market value of Oregon
obligations held by the Fund or the ability of the respective obligors (both
private and governmental) to make required payments on such obligations.
Oregon does not have a sales tax. As a result, State tax revenues are
particularly sensitive to economic recessions. The principal sources of State
tax revenues are personal income and corporate income taxes. In the
legislatively adopted budget for the 1995-97 biennium, approximately 96.6% of
the State's revenues for the 1995-97 biennium were projected to come from
combined income taxes, insurance taxes, gift and inheritance taxes, and
cigarette and tobacco taxes. Since 1983 State revenues have improved
substantially, and in recent years the State has granted tax refunds because of
budget surpluses, as required by statute. The State's September 1, 1996
economic and revenue forecast predicts that State General Fund revenues for the
1995-97 biennium will exceed the legislatively approved budget forecast by
approximately $331.6 million (or 4.8%).
The Economy
Oregon's economy is projected to maintain a substantial portion of its
momentum through the end of 1997. Oregon remains one of the fastest growing
states in the country. High technology manufacturing and the service sector
are the primary engines driving the State economy. Despite the positive
overall tone at year end, there were definite signs of slowing in the
construction and the national/international semiconductor industry.
35
<PAGE> 1047
The Oregon economy appears to have ample momentum to continue growing
through 1997, though the pace is likely to be slower than the previous two-year
period. Expansion of the State's semiconductor industry and its suppliers will
likely remain the key engine driving growth in the State. Rising wages and a
continuing flow of new residents are expected to generate jobs in the State's
service and trade sectors. The primary factors likely to slow growth over the
next two years are dwindling supply of skilled labor and flattening of the
construction boom.
Oregon's income, employment and population are expected to increase
faster than the country as a whole over the 1995 to 2003 period as they have
since 1987. However, job growth is expected to slow in 1996 and 1997. The
State's population is projected to grow by 13.5 percent between 1995 and 2003,
a gain of 422,000 people.
Oregon has successfully restructured from an economy highly dependent
on the timber industry to one in which high technology manufacturing and
services also play a prominent role. The fundamentals appear to be in place
for the State to continue growing faster than the overall U.S. economy through
2001. Despite the generally favorable long-term outlook, rising housing and
labor costs are expected to begin pushing the State's growth rate back toward
the national average. Moreover, the State's growing dependence on the
semiconductor industry is likely to lead to some unstable conditions as the
industry expands and contracts in response to national and international
pressures.
Recent Environmental Developments
In 1991 and 1992, in response to concerns over diminishing salmon
runs, three populations of Snake River salmon were placed on the Endangered
Species list. More recently, the National Marine Fisheries Service and the U.S.
Fish and Wildlife Service have commenced status reviews of hundreds of
additional salmon and trout populations in the Columbia Basin and throughout
Western Oregon. The Snake River salmon listings have already had substantial
economic impacts, primarily through increased electricity rates and related
impacts on rate-sensitive industries such as the aluminum industry. Efforts to
protect salmon and steelhead populations may eventually affect a wide variety
of industrial, recreational and land use activities, with corresponding impacts
on long-term economic growth; however, the magnitude and extent of any future
environmental action is impossible to predict at this time. The State's
economic forecasts do not address the potential impact of endangered species
problems on Oregon's economy.
Recent Developments Affecting Government Revenues.
Ballot Measure 5. Article XI, section 11b of the Oregon Constitution,
adopted by Oregon's voters in November 1990 ("Ballot Measure 5"), imposes an
aggregate limit on the rate of property taxes, including ad valorem taxes, that
may be levied against any real or personal property. The limit is subject to
certain exceptions and is being phased in over a five-year period. Beginning
with the tax year that starts on July 1, 1996, the final year of the phase-in
period, not more than $15 per $1,000 of real market value can be levied against
any piece of property. Of this amount, $5 may be used for public education, and
the remaining $10 may be used for general governmental purposes.
36
<PAGE> 1048
The limitations of Ballot Measure 5 do not apply to taxes imposed to
pay the principal of and interest on bonded indebtedness authorized by a
specific provision of the State Constitution. Therefore, the ability of the
State to levy taxes to service its constitutionally authorized general
obligation bonds is not subject to the limit. In addition, because the State
currently receives its revenues from sources other than property taxes, Ballot
Measure 5 has not directly affected State revenues.
The tax limitations of Ballot Measure 5 do not apply to user fees,
licenses, excise or income taxes and incurred charges for local improvements.
Since 1990 local governments have begun to rely more heavily on such fees and
taxes to finance certain services and improvements.
Ballot Measure 5 has controlled the growth of local property tax
revenues since its adoption. Although the growth in local property valuations
during the period 1991 to 1995 has somewhat mitigated the potential impacts of
Ballot Measure 5, revenues of local government units in Oregon have generally
been adversely affected by the adoption of Ballot Measure 5. This appears to
be particularly true with respect to school districts operating revenues.
Ballot Measure 5 required the State to replace a substantial portion
of the lost revenues of local school districts through the end of fiscal year
1995-96. Although this obligation has now expired, the extent of revenue loss
perceived to have been incurred by local school districts indicates that the
State may continue to provide significant revenue relief to these governmental
units. In addition, the provisions of the initiative known as Ballot Measure
47, as defined and discussed below, is expected to also result in the State
making further financial assistance available to certain units of local
government as a result of further restrictions and limitations placed upon the
ability of units of local government to generate revenues through Oregon's
system of ad valorem property taxation.
Ballot Measure 47. At the November 5, 1996 general election, the
voters of the State of Oregon approved a constitutional amendment creating new
sections 11g, 11h, 11i and 11j within Article XI of the Oregon Constitution.
The initiative proposing these amendments was commonly referred to as "Ballot
Measure 47" or "Cut and Cap."
Ballot Measure 47 will generally reduce the revenues of local
governments available from ad valorem property taxes starting on July 1, 1997.
For fiscal year 1997-98, the amount of tax which may be collected from each
property subject to taxation is limited to the lesser of the amount due for
fiscal year 1995-96 reduced by ten percent (10%) or the amount due for fiscal
year 1994-95. Future increases in annual ad valorem property taxes which can
be collected from each property subject to taxation are limited to three
percent (3%) unless certain exceptions apply. Ballot Measure 47 also contains
provisions limiting local governments' ability to shift activities previously
funded in whole or in part from ad valorem property tax revenues to a user fee
or other form of non-ad valorem property tax basis. One of the exceptions is
for taxes levied to pay bonded indebtedness which has been approved by the
voters in accordance with certain specific and new guidelines contained in
Ballot Measure 47.
37
<PAGE> 1049
By its terms, Ballot Measure 47 does not affect the revenues of
governmental units which do not rely upon the collection of ad valorem property
taxes, such as the State, or governmental operations which are supported solely
from user fees and charges, such as many municipal utilities. However, its
revenue reducing provisions are expected to create new financial burdens on the
State revenue resources as well as on the revenue resources of units of
government which levy and collect ad valorem property taxes. Such burdens are
expected to arise, at least in part, from the potential need for the State to
assist units of local government adversely affected by the implementation of
Ballot Measure 47. Although the actual impact of Ballot Measure 47 on a
particular unit of local government cannot presently be determined because the
methodology for applying its provisions to individual properties has not yet
been established, it is anticipated that the general fund operations of many
local government units will be materially adversely affected by its revenue
reduction and revenue growth limiting provisions.
The Initiative Process. The Oregon Constitution reserves to the people
of the State initiative and referendum power pursuant to which measures
designed to amend the State Constitution or enact legislation, can be placed on
the statewide general election ballot for consideration by the voters.
"Referendum" generally means measures referred to the electors by a legislative
body such as the State Legislative Assembly or the governing body of a city,
county or other political subdivision, while "initiative" generally means a
measure placed before the voters as a result of a petition circulated by one or
more private citizens.
Any person may file a proposed initiative with the Oregon Secretary of
State's office. The Oregon Attorney General is required by law to draft a
proposed ballot title for the initiative, and interested parties may submit
comments on the legal sufficiency of the proposed ballot title and on whether
the proposed initiative complies with a "one subject only" rule for initiative
measures. After considering any public comments, the Attorney General must
either certify or revise the draft ballot title. In general, any elector who
timely submitted written comments on the draft ballot title may petition the
Oregon Supreme Court seeking a revision of the certified ballot title.
To have an initiative placed on a general election ballot, the
proponents of the proposed initiative must submit to the Secretary of State
initiative petitions signed by a number of qualified voters equal to a
specified percentage of the total number of votes cast for all candidates for
governor in the most recent gubernatorial election. The initiative petition
must be filed with the Secretary of State not less than four months prior to
the general election at which the proposed measure is to be voted. State law
permits persons circulating initiative petition to pay money to persons
obtaining signatures for the petition.
Over the past decade Oregon has witnessed increasing activity in the
number of initiative petitions that have qualified for the statewide general
election. As of December 1, 1996, no initiatives had qualified to be placed on
the November 1998 general election ballot. In recent years, a number of
initiatives involving the fiscal operations of the State were proposed and
placed on the ballot. Several of these initiatives have been approved by the
voters and have had or will have a significant impact on the fiscal operations
of the State and local governments. See "Recent Developments Affecting
Government Revenues - Ballot Measure 5 and Measure 47." Other
38
<PAGE> 1050
initiatives, had they been approved by the voters, also may have had
significant impacts on the fiscal operations of the State.
It is difficult to predict with certainty either the likelihood of a
proposed initiative measure obtaining the required number of valid initiative
petition signatures or the likelihood of an initiative that has acquired the
necessary number of valid signatures being approved by the voters. There can be
no assurance that additional initiatives that will have a material adverse
impact on the financial condition of the State or units of local government or
the State's or units of local government's ability to collect the revenues
required to repay their general obligation bonds, revenue bonds or other
obligations will not be proposed, placed on the ballot, or be approved by the
voters.
Judicial challenges seeking interpretations and clarifications of the
scope and application of Ballot Measure 5 continue to be filed. It is
anticipated that the passage of Measure 47 will also require substantial
judicial interpretation of its meaning and application. If it is judicially
determined that certain statutes adopted by the Oregon legislature to implement
Ballot Measure 5 or statutes expected to be adopted relating to Measure 47 do
not adequately implement the restrictions contained in that measure, local
governments may have to seek new funding sources for certain items which have
been traditionally financed in part through the issuance of voter approved ad
valorem tax supported indebtedness.
The Oregon Bond Market. There is a relatively small active market for
municipal bonds of Oregon issuers other than the general obligations of the
State itself, and the market price of such other bonds may therefore be
volatile. If the Oregon Tax-Free Fund were forced to sell a large volume of
Oregon Obligations owned by it for any reason, such as to meet redemption
requests for a large number of its shares, there is a risk that the large sale
itself would adversely affect the value of the Oregon Tax-Free Fund's
portfolio.
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "The Funds and
Management." The principal occupations during the past five years of the
Directors and principal executive Officer of the Company are listed below. The
address of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Directors deemed to be "interested persons" of the Company
for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 45 Director, Senior Vice President
</TABLE>
39
<PAGE> 1051
<TABLE>
<S> <C> <C>
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate
Professor of Finance
of the School of
Business and
Accounting at Wake Forest
University since 1983.
Joseph N. Hankin, 55 Director President, Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; President of Hartford
(appointed as of September 6, 1996) Junior College from 1967 to
1971; Adjunct Professor of
Columbia University
Teachers College since
1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
</TABLE>
40
<PAGE> 1052
<TABLE>
<S> <C> <C>
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 40 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
41
<PAGE> 1053
COMPENSATION TABLE
<TABLE>
<CAPTION>
Year Ended Period Ended
--------------------------------- ----------------------------------
December 31, 1995 September 30, 1996
--------------------------------- ----------------------------------
Total Total
Aggregate Compensation Aggregate Compensation
Compensation from Registrant Compensation from Registrant
from and Fund from and Fund
Name and Position Registrant Complex Registrant Complex
----------------- ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Jack S. Euphrat $10,188 $39,750 $9,750 $29,250
Director
*R. Greg Feltus $-0- $-0- $-0- $-0-
Director
Thomas S. Goho $10,188 $39,750 $9,750 $29,250
Director
Joseph N. Hankin N/A N/A $-0- $-0-
Director
*Zoe Ann Hines $-0- $-0- $-0- $-0-
Director
(resigned as of
September 6, 1996)
*W. Rodney Hughes $9,438 $37,000 $8,250 $24,750
Director
Robert M. Joses $9,938 $39,000 $9,750 $29,250
Director
*J. Tucker Morse $8,313 $33,250 $8,250 $24,750
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
42
<PAGE> 1054
Managed Series Investment Trust together form a separate fund complex (the
"BGFA Fund Complex"). Each of the Directors and Officers of the Company serves
in the identical capacity as directors and officers or as trustees and/or
officers of each registered open-end management investment company in both the
Wells Fargo and BGFA Fund Complexes, except for Joseph N. Hankin, who only
serves the aforementioned members of the Wells Fargo Fund Complex, and Zoe Ann
Hines who, after September 6, 1996, only serves the aforementioned members of
the BGFA Fund Complex. The Directors are compensated by other companies and
trusts within a fund complex for their services as directors/trustees to such
companies and trusts. Currently the Directors do not receive any retirement
benefits or deferred compensation from the Company or any other member of each
fund complex.
As of the date of this SAI, Directors and Officers of the Company as a
group beneficially owned less than 1% of the outstanding shares of the Company.
INVESTMENT ADVISER. The Funds are advised by Wells Fargo Bank
pursuant to an advisory contract for each Fund under which Wells Fargo Bank has
agreed to furnish investment guidance and policy direction in connection with
the daily portfolio management of the Fund. The Company's Board of Directors
approved advisory contracts with Wells Fargo Bank on behalf of each Fund.
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 rates indicated below, of the
average daily value of each Fund's net assets during the preceding month.
<TABLE>
<CAPTION>
Annual Rate
Fund Name (as percentage of net assets)
--------- -----------------------------
<S> <C> <C>
o Arizona Tax-Free 0.50%
o Balanced 0.60%
o California Tax-Free Bond 0.50%
o California Tax-Free Income 0.50%
o Equity Value 0.50%
o Government Money Market Mutual 0.25%
o Intermediate Bond 0.50%
o National Tax-Free 0.50%
o Oregon Tax-Free 0.50%
o Prime Money Market Mutual 0.25%
o Treasury Money Market Mutual 0.25%
</TABLE>
43
<PAGE> 1055
The advisory contracts continue in effect for more than two years
provided the continuance is approved annually (i) by the holders of a majority
of a Fund's outstanding voting securities or (ii) by the Company's Board of
Directors and by a majority of the Directors of the Company who are not parties
to the advisory contracts or "interested persons" (as defined in the 1940 Act)
of any such party. The advisory contracts may be terminated on 60 days'
written notice by either party and will terminate automatically if assigned.
For the period ended September 30, 1996, and the years ended December 31,
1995, 1994 and 1993, the California Funds paid to Wells Fargo Bank the advisory
fees indicated below and Wells Fargo Bank waived the indicated amounts:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995 December 31, 1994 December 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-Free $1,202,280 $-0- $1,542,893 -0- $368,134 $1,728,107 $2,157,487 -0-
Bond
California Tax-Free $ 281,991 $18,321 $ 236,632 $31,013 -0- $ 279,496 $ 38,402 $ 122,967
Income
</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 portfolios of
Pacifica. As of the date of the Reorganization, Wells Fargo Bank became the
adviser to the New Funds. For the fiscal year ended September 30, 1996 the
Funds 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.
Investment Advisory Fees
<TABLE>
<CAPTION>
Fiscal Year Ended September 30, 1996
------------------------------------
Fund Fees Paid Fees Waived
----- --------- -----------
<S> <C> <C>
o Arizona Tax-Free $ 22,457 $ 98,300
o Balanced $ 750,323 $ 4,608
o Equity Value $1,378,145 $-0-
o Government Money Market Mutual $ 274,640 $-0-
o Intermediate Bond $ 227,965 $ 39,513
o National Tax-Free $- 0- $ 67,463
o Oregon Tax-Free $ 173,249 $ 57,377
o Prime Money Market Mutual $1,845,269 $1,553,968
o Treasury Money Market Mutual $2,442,922 $2,073,426
</TABLE>
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 portfolios of the National Tax-Free Fund; First Interstate Bank of
Oregon, N.A. served as adviser to the predecessors of the Intermediate Bond
Fund and Oregon Tax-Free Fund; and First Interstate Bank of Arizona, N.A.
served as adviser to the predecessor of the Arizona Tax-Free Fund. For the
periods ended
44
<PAGE> 1056
September 30, 1995, May 31, 1995 and May 31, 1994, the prior advisers for these
Funds were entitled to receive advisory fees from the Funds at the same annual
rates as those that were in effect for WFIM. For these periods, the prior
advisers were entitled to receive the following amounts in advisory fees:
Investment Advisory Fees
<TABLE>
<CAPTION>
Period Ended Period Ended Period Ended
Fund Sept. 30, 1995* May 31, 1995 May 31,1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona Tax-Free $41,159 $124,904 $128,905
Intermediate Bond $94,698 $275,948 $318,000
National Tax-Free $24,173 $ 67,845 $ 57,059
Oregon Tax-Free $84,999 $256,430 $269,574
</TABLE>
* The Funds changed their fiscal year from May 31 to September 30.
For the periods ended September 30, 1995, May 31, 1995 and May 31,
1994, the prior advisers for the predecessors of the Arizona Tax-Free,
Intermediate Bond, National Tax-Free and Oregon Tax-Free Funds waived advisory
fees and reimbursed expenses in the following amounts:
Investment Advisory Fees Waived
and Expenses Reimbursed by Adviser
<TABLE>
<CAPTION>
Period Ended Period Ended Period Ended
Fund Sept. 30, 1995* May 31, 1995 May 31, 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona Tax-Free $66,373 $166,803 $172,383
Intermediate Bond $ 0 $ 0 $ 0
National Tax-Free $68,667 $145,244 $141,590
Oregon Tax-Free $43,995 $84,770 $104,948
</TABLE>
* The Funds changed their fiscal year from May 31 to September 30.
Prior to March 18, 1994, the adviser for the Balanced, Equity Value
and Government Money Market Mutual Funds was San Diego Financial Capital
Management, Inc. ("San Diego Financial"), which was a wholly owned subsidiary
of San Diego Trust & Savings Bank ("San Diego Trust"), which in turn was a
wholly owned subsidiary of San Diego Financial Corporation ("SDFC"). On that
date, SDFC merged into First Interstate Bancorp and San Diego Trust merged into
First Interstate Bank of California ("FICAL"). As a result of these
transactions, San Diego Financial became an indirect wholly-owned subsidiary of
FICAL. On January 12, 1995, San Diego Financial merged into First Interstate
Investment Services, Inc., a direct wholly-owned subsidiary of FICAL, which has
since changed its name to First Interstate Capital Management, Inc.
45
<PAGE> 1057
During the fiscal years ended September 30, 1995 and September 30,
1994, the adviser (and prior adviser, as the case may be) was entitled to
receive advisory fees from the Balanced, Equity Value and Government Money
Market Mutual Funds at the same annual rates as those currently in effect. For
such fiscal years, the adviser (and prior adviser, as the case may be) was
entitled to receive the following amounts in advisory fees:
Investment Advisory Fees
<TABLE>
<CAPTION>
Year Ended Year Ended
Fund Sept. 30, 1995 Sept. 30, 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Balanced $579,850 $683,626
Equity Value $992,870 $953,400
Government Money Market $383,269 $442,842
</TABLE>
During the fiscal years ended September 30, 1995 and September 30,
1994, the adviser (or prior adviser, as the case may be) waived advisory fees
and reimbursed expenses for the Balanced, Equity Value and Government Money
Market Mutual Funds in the following amounts:
Investment Advisory Fees Waived
and Expenses Reimbursed by Adviser
<TABLE>
<CAPTION>
Year Ended Year Ended
Fund Sept. 30, 1995 Sept. 30, 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Balanced $0 $0
Equity Value $0 $0
Government Money Market $0 $0
</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 to the adviser by the predecessor portfolios of the Prime Money
Market Mutual Fund and the Treasury Money Market Mutual Fund were as follows:
Investment Advisory Fees Paid*
<TABLE>
<CAPTION>
Year Ended Period Ended Year Ended
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>
*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 sub-investment advisors
during the periods indicated.
46
<PAGE> 1058
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 and each Fund, and the
Co- Administration Agreement among Wells Fargo, Stephens and each Fund, state
that Wells Fargo 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 public
accountants and legal counsel, regulatory compliance, including the compilation
of information for documents such as reports to, and filings with, the SEC and
state securities commissions; and preparation of proxy statements and
shareholder reports for the Fund; and (ii) general supervision relative to the
compilation of data required for the preparation of periodic reports
distributed to the Company's officers and Board of Directors. Wells Fargo Bank
and Stephens also furnish office space and certain facilities required for
conducting the business of 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.
For the period ended September 30, 1996, and the fiscal years ended
December 31, 1995, 1994 and 1993, the California Funds paid the following
dollar amounts of administrative fees to Stephens who, as sole administrator to
the Funds for these periods, was entitled to receive a fee, payable monthly, at
the annual rate of 0.03% of each Fund's average daily net assets:
Administration Fees
<TABLE>
<CAPTION>
Sept. 30, Dec. 31, Dec. 31, Dec. 31,
Fund 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
California Tax-Free Bond $73,687 $93,013 $126,570 $130,939
California Tax-Free Income $18,371 $16,793 $ 0 $ 9,912
</TABLE>
Prior to September 6, 1996, the administrator of the Pacifica
predecessor portfolios (Furman Selz LLC) provided management and administrative
services necessary for the operation of such Funds, pursuant to an
Administrative Services Contract. For these services, the former administrator
was entitled to receive a fee, payable monthly, at the annual rate of 0.15% of
the average daily net assets of the predecessors of all such Funds except the
Prime Money Market Mutual and Treasury Money Market Mutual Funds (which were
administered until April 22, and April 15, 1996, respectively, by the Dreyfus
Corporation), at the annual rate of 0.10% of each such Fund's average daily net
assets. The tables reflect the net amounts paid (after waivers) for
administrative services by the Funds to Stephens as sole administrator to the
Funds for the period begun September 6, 1996 and ended September 30, 1996,
during which Stephens was entitled to receive a fee, payable monthly, at the
annual rate of 0.05% of each Fund's average daily net assets. The table also
reflects the net administration fees paid to the respective former
administrators of the predecessor portfolios during the period begun October 1,
1995 and ended September 5, 1996.
47
<PAGE> 1059
Administration Fees
<TABLE>
<CAPTION>
Year Ended
Fund September 30, 1996
----- ------------------
<S> <C>
o Arizona Tax-Free $ 24,636
o Balanced $ 130,709
o Equity Value $ 240,273
o Government Money Market Mutual $ 120,179
o Intermediate Bond $ 55,482
o National Tax-Free $ 14,138
o Oregon Tax-Free $ 49,627
o Prime Money Market Mutual $ 1,230,872
o Treasury Money Market Mutual $ 1,745,759
</TABLE>
Prior to October 1, 1995, ALPS Mutual Funds Service, Inc. ("ALPS")
served as the administrator for the Arizona Tax-Free, Intermediate Bond,
National Tax-Free and Oregon Tax-Free Funds. For its administration services,
ALPS was entitled to receive the following amounts for the fiscal periods ended
September 30, 1995, May 31, 1995 and May 31, 1994:
Administration Fees
<TABLE>
<CAPTION>
Period Ended Year Ended Year Ended
FUND Sept. 30, 1995* May 31, 1995 May 31, 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona Tax-Free $4,116 $12,490 $12,890
Intermediate Bond $9,470 $27,595 $31,800
National Tax-Free $2,417 $ 6,785 $ 5,706
Oregon Tax-Free $8,500 $25,643 $26,957
</TABLE>
* The Funds changed their fiscal year from May 31 to September 30.
For the fiscal periods ended September 30, 1995, May 31, 1995 and May
31, 1994, ALPS waived administration fees for the Arizona Tax-Free,
Intermediate Bond, National Tax-Free and Oregon Tax-Free Funds in the following
amounts:
Administration Fees Waived
<TABLE>
<CAPTION>
Period Ended Year Ended Year Ended
FUND Sept. 30, 1995* May 31, 1995 May 31, 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona Tax-Free $0 $ 0 $ 0
Intermediate Bond $0 $ 0 $ 0
National Tax-Free $0 $2,018 $4,210
Oregon Tax-Free $0 $ 0 $ 0
</TABLE>
48
<PAGE> 1060
* The Funds changed their fiscal year from May 31 to September 30.
During the fiscal years ended September 30, 1995 and September 30,
1994, Furman Selz was entitled to receive administration services fees from the
Balanced, Equity Value, and Government Money Market Mutual Funds in the
following amounts:
Administration Fees
<TABLE>
<CAPTION>
Year Ended Year Ended
FUND Sept. 30, 1995 Sept. 30, 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Balanced $193,283 $227,896
Equity Value $330,957 $317,992
Government Money Market Mutual $255,512 $295,228
</TABLE>
For the fiscal years ended September 30, 1995 and September 30, 1994,
Furman Selz waived administration fees for the Balanced, Equity Value, and
Government Money Market Mutual Funds in the following amounts:
Administration Fees Waived
<TABLE>
<CAPTION>
Year Ended Year Ended
FUND Sept. 30, 1995 Sept. 30, 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Balanced $19,328 $22,808
Equity Value $33,096 $31,972
Government Money Market Mutual $25,550 $29,523
</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 the Dreyfus Corporation by the Prime Money Market Mutual Fund and
the Treasury Money Market Mutual Fund were as follows:
Administration Fees
<TABLE>
<CAPTION>
Year Ended Period Ended Year Ended
FUND Sept. 30, 1995 Sept. 30, 1994 Mar. 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 serves as each Fund's
sponsor and distributor.
49
<PAGE> 1061
SHAREHOLDER SERVICING AGENT. As discussed in each Fund's Prospectus
under the heading "Shareholder Servicing Agent," the Funds approved Servicing
Plans and have entered into related shareholder servicing agreements with
financial institutions, including Wells Fargo Bank. For providing these
services, a Servicing Agent is entitled to a fee from the applicable Fund, not
to exceed 0.25% (and with respect to the California Funds, not to exceed 30%),
on an annualized basis, of the average daily net assets of the class of shares
owned of record or beneficially by the customers of the Servicing Agent during
the period for which payment is being made. The Servicing Plans and related
shareholder servicing agreements were approved by the Company's Board of
Directors and provide that a Fund shall not be obligated to make any payments
under such Plans or related Agreements that exceed the maximum amounts payable
under Article III, Section 26 of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (NASD).
The dollar amounts of shareholder servicing fees paid by each
California Fund to Wells Fargo Bank or its affiliates for the fiscal year ended
December 31, 1995 and the period ended September 30, 1996 were as follows:
Shareholder Servicing Fees
<TABLE>
<CAPTION>
Fund Dec. 31, 1995 Sept. 30, 1996(1)
---- ------------- --------------
<S> <C> <C>
California Tax-Free Bond
Class A $59,642 $ 88,029
Class B $ 0 $ 11,130
California Tax-Free Income $ 0 $ 0
</TABLE>
- -----------
(1) After waivers and reimbursements.
For the period begun October 1, 1995 and ended September 5, 1996, and
under similar service agreements, payments were made to First Intestate Bancorp
for the following funds, except that for the same period, and under similar
service agreements with certain institutions, including affiliates of FICM,
payments were made to various institutions for the Prime Money Market Mutual
Fund and the Treasury Money Market Mutual Fund. For the period begun September
6, 1996 and ended September 30, 1996, shareholder servicing fees were paid to
Wells Fargo Bank or its affiliates. The indicated classes of each Fund paid
the following shareholder servicing fees for the year ended September 30, 1996:
<TABLE>
<CAPTION>
Shareholder Servicing Fees(1)
-----------------------------
Year Ended
Fund September 30, 1996
----- ------------------
<S> <C> <C>
Arizona Tax-Free Class A $ 429
Class B N/A
Balanced Class A $76,743
</TABLE>
50
<PAGE> 1062
<TABLE>
<S> <C> <C>
Class B N/A
Equity Value Class A $ 36,350
Class B N/A
Government Money Market Mutual $155,369
Intermediate Bond Class A $ 379
Class B N/A
National Tax-Free Class A $-0-
Class B N/A
Oregon Tax-Free Class A $ 49,136
Class B N/A
Prime Money Market Mutual Class A $801,388
Treasury Money Market Mutual Class A $153,899
</TABLE>
___________
(1) After waivers and reimbursements.
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.
For its services as transfer and dividend disbursing agent for the
Class A and B shares of the Funds, Wells Fargo Bank is entitled to receive
monthly payments at the annual rate of 0.07% of the average daily net assets of
each Fund. For the year ended December 31, 1995 and the period ended
September 30, 1996, the California Tax-Free Bond and California Tax-Free Income
Funds did not pay any custody or transfer and dividend disbursing agency fees
to Wells Fargo. 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.
51
<PAGE> 1063
FICAL, located at 707 Wilshire Blvd., Los Angeles, California 90017,
acted as custodian of the predecessor portfolios of Pacifica, but played no
role in making decisions as to the purchase or sale of portfolio securities for
the predecessor portfolios. FICAL was entitled to receive a fee from Pacifica,
computed daily and payable monthly, at the annual rate of 0.021% of the first
$5 billion in aggregate average daily net assets of the Funds; 0.0175% of the
next $5 billion in aggregate average daily net assets of the Funds; and 0.015%
of the aggregate average daily net assets of the Funds in excess of $10
billion.
For the period begun October 1, 1995 and ended September 5, 1996 the
custody fees for FICAL, and for the period begun September 6, 1996 and ended
September 30, 1996 the custody fees for Wells Fargo Bank, were paid as follows:
Custody Fees(1)
<TABLE>
<CAPTION>
Fiscal Year Ended
Fund September 30, 1996
----- ------------------
<S> <C> <C>
o Arizona Tax-Free -0-
o Balanced -0-
o Equity Value $ 40,035
o Government Money Market Mutual $ 18,315
o Intermediate Bond -0-
o National Tax-Free -0-
o Oregon Tax-Free -0-
o Prime Money Market Mutual $ 73,023
o Treasury Money Market Mutual $ 252,183
</TABLE>
- ---------
(1) After waivers and reimbursements.
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.
52
<PAGE> 1064
For the period begun October 1, 1995 and ended September 5, 1996 with
respect to the predecessor funds, the aggregate amount of underwriting
commissions on sales/redemptions of Pacifica's shares was $150,771. Pacifica
Funds Distributor Inc. ("PFD"), retained $18,139 and its registered
representatives retained $132,632 of such commissions.
DISTRIBUTION PLANS
Stephens (the "Distributor"), at 111 Center Street, Little Rock,
Arkansas 72201, serves as sponsor, co- administrator and distributor for the
Funds. The following information supplements and should be read in conjunction
with the Prospectus under "Distribution Plans." As indicated in each Fund's
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 Plans for the Class A shares and Class B shares of the Funds,
as the case may be, were 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 Plans or in any agreement related to the Plans (the
"Non-Interested Directors").
Under the Plans and pursuant to the Distribution Agreement, the Funds
may pay the Distributor as compensation for distribution-related activities
and services provided and related expenses incurred, a monthly fee at an annual
rate up to 0.05% of the average daily net assets of the Intermediate Bond Fund,
Tax-Free Funds and Money Market Funds and 0.10% of the average daily net assets
of the Balanced and Equity Value Funds, attributable to Class A shares; 0.75%
of the average daily net assets of the Arizona, National and Oregon Tax-Free
Funds, Intermediate Bond, Balanced and Equity Value Funds and 70% of the
average daily net assets of the California Tax-Free Bond Fund, attributable to
Class B shares.
The actual fee payable to the Distributor is determined, within such
limits, from time to time by mutual agreement between the Company and the
Distributor and will not exceed the maximum sales charges payable by mutual
funds sold by members of the 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 Non-Interested Directors of the Company. Agreements related
to the Plans also must be approved by such vote of the Directors and
Non-Interested 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
53
<PAGE> 1065
majority of the Non-Interested Directors on not more than 60 days' written
notice. Each Plan may not be amended to increase materially the amounts
payable thereunder without the approval of a majority of the outstanding voting
securities of the relevant class of a Fund, and no material amendment to the
Plans may be made except by a majority of both the Directors of the Company and
the Non-Interested Directors.
Each Plan requires 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 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 A and B shares pursuant to selling agreements with Stephens
authorized under the Plans. As a selling agent, Wells Fargo Bank has an
indirect financial interest in the operation of the Plans. The Board of
Directors has concluded that the Plans are reasonably likely to benefit the
Funds and their shareholders because the Plans 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 A and B 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.
For the nine-month period ended September 30, 1996, the California Funds'
distributor received the following amounts of 12b-1 fees for the specified
purposes set forth below under each Fund's Plan.
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Fund Total Prospectus Brochures Underwriters
---- ----- ---------- --------- ------------
<S> <C> <C> <C> <C>
California Tax-Free Bond
Class A $ 37,156 $ 1,810 $35,346 N/A
Class B $181,578 N/A N/A $181,578
California Tax-Free Income $ 11,584 $ 55 $11,528 N/A
</TABLE>
For the year ended December 31, 1995, the California Funds'
distributor received the following amounts of 12b-1 fees for the specified
purposes set forth below under each Fund's Plan.
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Fund Total Prospectus Brochures Underwriters
---- ----- ---------- --------- ------------
<S> <C> <C> <C> <C>
California Tax-Free Bond
Class A $110,033 $24,390 $85,643 N/A
Class B $ 82,030 N/A N/A $82,030
California Tax-Free Income $ 13,063 $10,246 $2,817 N/A
</TABLE>
54
<PAGE> 1066
For the year ended December 31, 1995 and the period ended September
30, 1996, WFSI and its registered representatives received no compensation
under each California Fund's Plans.
With regard to the New Funds, for the year ended September 30, 1996,
the distributor received the following amounts of 12b-1 fees for expense
reimbursement under each Fund's Plan for Class A shares.
<TABLE>
<CAPTION>
Fund Total
---- -----
<S> <C>
Arizona Tax-Free Class A $20,752
Balanced Class A $82,632
Equity Value Class A $58,241
Government Money Market Mutual Class A $29,161
Intermediate Bond Class A $ -0-
National Tax-Free Class A $ 146
Oregon Tax-Free Class A $ 1,013
Prime Money Market Mutual Class A $62,301
Treasury Money Market Mutual Class A $13,064
</TABLE>
For the period begun September 6, 1996 and ended September 30, 1996,
the distributor received compensation in the amount of $36 from the Arizona
Tax-Free Fund, and no compensation from the remaining New Funds with class B
shares, under each such Funds's Plan for Class B shares.
Prior to September 6, 1996, PFD, a subsidiary of Furman Selz, served
as principal underwriter for the shares of the predecessor portfolios pursuant
to a Distribution Contract as of October 1, 1995. The figures in the table
above reflect amounts paid to PFD through September 5, 1996 and amounts paid to
Stephens from September 6 to September 30, 1996. Prior to October 1, 1995,
ALPS served as the distributor to the predecessor portfolios of the
Intermediate Bond Fund and the Arizona, National and Oregon Tax-Free Funds.
ALPS was not entitled to any compensation for its services as distributor for
these portfolios.
Under a distribution plan adopted for the predecessor portfolios'
Investor shares, PFD was entitled to be paid directly or reimbursed monthly in
amounts described in the Prospectuses for costs and expenses of marketing the
Investor shares of the predecessor portfolios of the Equity Value, Intermediate
Bond and Arizona, National and Oregon Tax-Free Funds. Under a separate
distribution plan for the Money Market Funds, Pacifica, on behalf of the
predecessor portfolios paid
55
<PAGE> 1067
directly or reimbursed PFD monthly in amounts described in the Prospectus for
costs and expenses of marketing their shares.
During the fiscal year ended September 30, 1995, the predecessor
portfolios of the following Funds reimbursed PFD, pursuant to their predecessor
plans, in the following amounts:
<TABLE>
<CAPTION>
Equity Value Balanced Government
Distribution Plan Reimbursements Fund Fund Money Market Mutual Fund
- -------------------------------- ---- ---- ------------------------
<S> <C> <C> <C>
Advertising and Promotional Materials $ 10,769 $ 3,303 $74,215
Printing and mailing of financial statements
and Prospectus to other than current $ 7,068 $ 6,177 $ 6,448
shareholders
Compensation to underwriters 0 0 0
Compensation to broker/dealers 0 0 0
Compensation to sales personnel 0 0 0
Financing charges 0 0 0
Total $ 17,837 $ 9,480 $ 80,663
</TABLE>
SERVICING PLANS AND AGREEMENTS
The Company's Board of Directors adopted a shareholder servicing
agreement for each Fund and a servicing plan (collectively, with the
shareholder servicing agreement, the "Servicing Plans") with respect to each
class of New Fund shares and with respect to Class B shares for the California
Tax-Free Bond Fund. The Board of Directors included a majority of the
Directors who were not "interested persons" (as defined in the Act) of each
Fund and who had no direct or indirect financial interest in the operation of
the Servicing Plan or in any agreement related to the Servicing Plan (the
"Servicing Plan Non-Interested Directors").
Under the Servicing Plan and pursuant to the shareholder servicing
agreements for the Class A or B shares, a Fund may pay one or more servicing
agents, as compensation for performing certain services, a fee at an annual
rate of up to 0.25% of the average daily net assets of the New Funds' Class A
or B shares, and 0.30% of the average daily net assets of the California
Tax-Free Bond Fund's Class B shares, attributable to the servicing agent's
customers. The actual fee payable to servicing agents is determined, within
such limits, from time to time by mutual agreement between the Company and each
servicing agent and will not exceed the maximum service fees payable by mutual
funds sold by members of the NASD under the NASD Rules of Fair Practice.
Each Servicing Plan continues in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Servicing Plan Non-Interested Directors. Any form of servicing
agreement related to the Servicing Plan also must be approved by such vote of
the Directors and the Servicing Plan Non-Interested Directors. Servicing
agreements may be terminated at any time, without payment of any penalty, by
vote of a majority of the
56
<PAGE> 1068
Servicing Plan Non-Interested Directors. No material amendment to the
Servicing Plans may be made except by a majority of both the Directors of the
Company and the Servicing Plan Non-Interested Directors.
Each Servicing Plan requires that the administrator shall provide to
the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under the Servicing
Plan.
PERFORMANCE CALCULATIONS
The following information supplements and should be read in
conjunction with the sections in each Prospectus entitled "Determination of Net
Asset Value" and "Performance Data."
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 each Prospectus, each 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 total return information presented below and advertised by the New
Funds for the period prior to September 6, 1996, the date the Funds commenced
operations, is based upon the prior performance of the predecessor Funds. The
performance information is adjusted to reflect each class' current level of
operating expenses.
57
<PAGE> 1069
Average Annual Total Return - For The Applicable Period Ended September 30,
19961
<TABLE>
<CAPTION>
Inception(2) Inception(2) Five Year Five Year Three Year Three Year One Year One Year
With No With No With No With No
Fund Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
<S> <C> <C> <C> <C> <C> <C>
Arizona Tax-
Free(3)
Class A 5.17% 6.23% N/A N/A 2.24% 3.83% -1.02% 3.60%
Class B 5.06% 5.06% N/A N/A 2.31% 2.63% -0.90% 2.10%
Balanced(4)
Class A 9.77% 10.58% 9.31% 10.32% 6.09% 7.74% 5.52% 10.51%
Class B 6.62% 6.62% .30% 9.30% 6.29% 6.59% 5.59% 8.59%
California
Tax-Free
Bond
Class A 6.22% 7.25% N/A N/A 2.22% 3.80% 1.52% 6.28%
Class B 9.16% 10.23% N/A N/A N/A N/A 2.57% 5.56%
California
Tax-Free
Income
Class A 3.75% 4.57% N/A N/A 2.63% 3.68% 0.71% 3.86%
Equity
Value(4)
Class A 11.89% 12.71% 13.38% 14.42% 11.00% 12.71% 9.09% 14.27%
Class B 11.67% 11.67% 13.29% 3.29% 11.10% 11.37% 8.86% 11.86%
Government
Money Market
Mutual
Class A4 N/A 5.41% N/A 3.98% N/A 4.37% N/A 4.75%
Intermediate
Bond(3)
Class A 7.58% 8.18% 5.66% 6.64% 2.64% 4.24% -0.57% 4.15%
Class B 7.31% 7.31% 5.78% 5.78% 3.07% 3.38% 0.24% 3.24%
National Tax-
Free(3)
Class A 3.69% 5.00% N/A N/A 2.15% 3.73% -0.64% 4.03%
Class B 3.95% 4.19% N/A N/A 2.61% 2.93% 0.13% 3.13%
Oregon Tax-
Free(3)
Class A 6.48% 7.08% 5.37% 6.34% 1.99% 3.56% 0.31% 5.03%
Class B 6.33% 6.33% 5.61% 5.61% 2.53% 2.84% 1.30% 4.30%
Prime Money
Market
Mutual(5)
Class A N/A 5.09% N/A N/A N/A N/A N/A 5.09%
Treasury
Money Market
Mutual(5)
Class A N/A 4.95% N/A N/A N/A N/A N/A 4.95%
</TABLE>
58
<PAGE> 1070
(1) The term "Sales Charge" for the Class A shares of the California
Tax-Free Income Fund means a front-end sales load of 3.00%. For the
Class A shares of the California Tax-Free Bond Fund, the Arizona,
National and Oregon Tax-Frees Funds, the Equity Value, Balanced and
Intermediate Bond Funds, the term "Sales Charge" means a front- end
sales load of 4.50%. There are no sales charges for the Government,
Prime and Treasury Money Market Mutual Funds. For all Class B shares
the term "Sales Charge" means the maximum applicable contingent
deferred sales charge ("CDSC") as described in the respective Fund's
Prospectus.
(2) Each Fund or its predecessor commenced operations as follows:
California Tax-Free Income - November 18, 1992; California Tax- Free
Bond Class A - January 1, 1992, Class B - January 1, 1995; Arizona
Tax-Free - March 2, 1992; National Tax-Free - January 15, 1993;
Intermediate Bond and Oregon Tax-Free - June 1, 1988; Equity Value
and Balanced - July 2, 1990; Government Mone y Market Mutual - April
26, 1988; Prime Money Market Mutual and Treasury Money Market Mutual -
October 1, 1995.
(3) Historical performance for each class of the Arizona, National and
Oregon Tax-Free Funds and the Intermediate Bond Fund has been
calculated using returns produced by their predecessor funds of
Westcore and Pacifica for the applicable periods. Class A performance
reflects Pacifica Fund Class A and Westcore Fund performance. Class B
performance also reflects such performance but has been adjusted to
reflect Class B share expense levels as of the Class B shares'
inception date of September 6, 1996.
(4) Historical performance for each class of the Balanced, Equity Value
and Government Money Market Mutual Funds has been calculated using
returns produced by their respective predecessor funds of Pacifica.
Class A performance reflects Pacifica Fund Class A performance. Class
B performance also reflects such performance but has been adjusted to
reflect Class B share expense levels as of the inception date of
September 6, 1996.
(5) Historical performance for each class of the Prime and Treasury Money
Market Mutual Funds has been calculated using returns produced by
their respective predecessor funds of Pacifica. Class A performance
reflects Pacifica Fund Investor Class performance. Class B
performance also reflects such performance but has been adjusted to
reflect Class B share expense levels as of the inception date of
September 6, 1996.
CUMULATIVE TOTAL RETURN: Each Fund 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.
59
<PAGE> 1071
Cumulative Total Return - For The Applicable Period Ended September 30, 19961
<TABLE>
<CAPTION>
Inception(2) Inception(2) Five Year Five Year Three Year Three Year
With No With No With No
Sales Sales Sales Sales Sales Sales
Fund Charge Charge Charge Charge Charge Charge
<S> <C> <C> <C> <C> <C> <C>
Arizona
Tax-Free(3)
Class A 25.98% 31.90% N/A N/A 6.88% 11.94%
Class B 25.40% 25.40% N/A N/A 7.10% 8.10%
Balanced(4)
Class A 79.07% 87.49% 56.03% 63.40% 19.42% 25.06%
Class B 77.54% 77.54% 56.03% 56.03% 20.09% 21.09%
California
Tax-Free
Bond
Class A 33.20% 39.46% N/A N/A 6.82% 11.82%
Class B 16.59% 18.59% N/A N/A N/A N/A
California
Tax-Free
Income 15.34% 18.92% N/A N/A 8.10% 11.44%
Class A
Equity
Value(4)
Class A 101.81% 111.29% 87.34% 96.13% 36.76% 43.20%
Class B 99.35% 99.35% 86.64% 86.64% 37.15% 38.15%
Government(4)
Money
Market
Mutual
Class A N/A 56.01% N/A 21.54% N/A 13.70%
Intermediate
e Bond(3)
Class A 83.87% 92.57% 31.68% 37.89% 8.15% 13.27%
Class B 80.06% 80.06% 32.41% 32.41% 9.50% 10.50%
National
Tax-Free(3)
Class A 14.20% 19.60% N/A N/A 6.58% 11.60%
Class B 15.26% 16.26% N/A N/A 8.04% 9.04%
Oregon Tax-
Free(3)
Class A 68.80% 76.79% 29.87% 35.98% 6.09% 11.07%
Class B 66.83% 66.83% 31.35% 31.35% 7.77% 8.77%
Prime Money
Market
Mutual(5)
Class A N/A 5.09% N/A N/A N/A N/A
Treasury
Money
Market
Mutual(5)
Class A N/A 4.95% N/A N/A N/A N/A
</TABLE>
60
<PAGE> 1072
(1) For all periods ended September 30, 1996, the term "Sales Charges" for
shares of the California Tax-Free Income Fund means a front-end sales
load of 3.00%, and for the Class A shares of the California Tax-Free
Bond Fund, the Arizona, National and Oregon Tax-Frees Funds, the
Equity Value, Balanced and Intermediate Bond Funds, the term "Sales
Charge" means a front-end sales load of 4.50%. There are no sales
charges for the Government, Prime and Treasury Money Market Mutual
Funds. For all Class B shares the term "Sales Charge" means the
maximum applicable contingent deferred sales charge ("CDSC") as
described in the respective Fund's Prospectus.
(2) Each Fund or its predecessor commenced operations as follows:
California Tax-Free Income - November 18, 1992; California Tax- Free
Bond Class A - January 1, 1992, Class B - January 1, 1995; Arizona
Tax-Free - March 2, 1992; National Tax-Free - January 15, 1993;
Intermediate Bond and Oregon Tax-Free - June 1, 1988; Equity Value
and Balanced - July 2, 1990; Government Mone y Market Mutual - April
26, 1988; Prime Money Market Mutual and Treasury Money Market Mutual -
October 1, 1995.
(3) Historical performance for each class of the Arizona, National and
Oregon Tax-Free Funds and the Intermediate Bond Fund has been
calculated using returns produced by their predecessor funds of
Westcore and Pacifica for the applicable periods. Class A performance
reflects Pacifica Fund Class A and Westcore Fund performance. Class B
performance also reflects such performance but has been adjusted to
reflect Class B share expense levels as of the Class B shares'
inception date of September 6, 1996.
(4) Historical performance for each class of the Balanced, Equity Value
and Government Money Market Mutual Funds has been calculated using
returns produced by their respective predecessor funds of Pacfica.
Class A performance reflects Pacifica Fund Class A performance. Class
B performance also reflects such performance but has been adjusted to
reflect Class B share expense levels as of the inception date of
September 6, 1996.
(5) Historical performance for each class of the Prime and Treasury Money
Market Mutual Funds has been calculated using returns produced by
their respective predecessor funds of Pacifica. Class A performance
reflects Pacifica Fund Investor Class performance. Class B
performance also reflects such performance but has been adjusted to
reflect Class B share expense levels as of the inception date of
September 6, 1996.
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.
Quotations of yield for the Intermediate Bond Fund and the Tax-Free Funds is
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:
<TABLE>
<S> <C> <C>
(6)
YIELD - 2[(a - b + 1) -1]
-----
cd
</TABLE>
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 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
61
<PAGE> 1073
income. For purposes of sales literature, yield on each class of shares of the
Bond Fund also may be calculated on the basis of the net asset value per share
rather than the public offering price, provided that the yield data derived
pursuant to the calculation described above also are presented.
Quotations of tax-equivalent yield for a Tax-Free Fund are calculated according
to the following formula:
<TABLE>
<S> <C> <C>
TAX EQUIVALENT YIELD = ( E ) + t
-----
1 - p
</TABLE>
E = Tax-exempt yield
p = stated income tax rate
t = taxable yield
The tax-equivalent yield for the California Funds 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.
EFFECTIVE YIELD: Current yields for the Money Market Funds are based
on the change in the value of a hypothetical investment (exclusive of capital
changes) over a particular seven-day period, less a pro-rata share of each
Fund's expenses accrued over that period (the "base period"), and stated as a
percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized by multiplying by 365/7,
with the resulting yield figure carried to at least the nearest hundredth of
one percent. "Effective yield" for the Money Market Funds assumes that all
dividends received during an annual period have been reinvested. Calculation of
"effective yield" begins with the same "base period return" used in the
calculation of yield, which is then annualized to reflect weekly compounding
pursuant to the following formula:
Effective Yield = [(Base Period Return +1)365/7]-1.
Yield For The Applicable Period Ended September 30, 1996(1)
<TABLE>
<CAPTION>
Thirty-Day Tax- Seven-Day Seven-Day
Thirty-Day Yield Equivalent Yield(2) Yield Effective Yield
---------------- ---------------------- --------------- ---------------
After Before After Before
Fund Waiver Waiver Waiver Waiver No Sales Charge No Sales Charge
---- ------ ------ ------ ------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
California Tax-Free Bond
Class A 4.69% 4.35% 8.72% 8.09% N/A N/A
Class B 4.21% 3.87% 7.83% 7.20% N/A N/A
California Tax-Free Income
Class A 4.85% 3.90% 9.02% 7.25% N/A N/A
Intermediate Bond
Class A 7.36% N/A 13.69% N/A 5.81% N/A
Class B N/A N/A N/A N/A N/A
</TABLE>
62
<PAGE> 1074
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Arizona Tax-Free Fund
Class A 4.66% N/A 8.17% N/A 4.66% N/A
Class B N/A N/A N/A N/A 2.87% N/A
Oregon Tax-Free Fund
Class A 4.62% N/A 8.41% N/A 4.91% N/A
Class B N/A N/A N/A N/A N/A N/A
National Tax-Free Fund
Class A 4.82% N/A N/A N/A 4.33% N/A
Class B N/A N/A N/A N/A N/A N/A
Govt. Money Market Mutual
Class A 4.50% N/A 7.45% N/A 4.64% 5.45%
Prime Money Market Mutual
Class A 5.07% N/A 8.39% N/A 4.99% 5.11%
Treasury Money Market Mutual
Class A 4.82% N/A 7.98 N/A 4.80% 4.91%
</TABLE>
- -------------------
(1) "After Waiver" figures reflect any reimbursed expenses throughout the
period. The yield of the predecessor portfolios' shares through September 5,
1996 is also reflected.
(2) Based on a combined federal and state income tax rate of 46.24% for
each of the California Tax-Free Bond and Income Funds, and 45.04% and 42.98%
for the Oregon Tax-Free Fund and the Arizona Tax-Free Fund, respectively, and a
federal income tax rate of 28.00% for the National Tax-Free Fund and the
Intermediate Bond Fund.
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
63
<PAGE> 1075
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 (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.
64
<PAGE> 1076
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 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
65
<PAGE> 1077
through Electronic Channels. Advertising and other literature may disclose
that Wells Fargo Bank may maintain Web sites, pages or other information sites
accessible through Electronic Channels (an "Information Site") and may describe
the contents and features of the Information Site and instruct investors on how
to access the Information Site and open a Sweep Account. Advertising and other
literature may also disclose the procedures employed by Wells Fargo Bank to
secure information provided by investors, including disclosure and discussion
of the tools and services for accessing Electronic Channels. Such advertising
or other literature may include discussions of the advantages of establishing
and maintaining a Sweep Account through Electronic Channels and testimonials
from Wells Fargo Bank customers or employees and may also include descriptions
of locations where product demonstrations may occur. The Company may also
disclose the ranking of Wells Fargo Bank as one of the largest money managers
in the United States.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the Prospectus section under "Purchase of shares." Net asset
value per share or class of shares of a non-money market 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.
Net asset value per share or class of shares of a Money Market Fund is
determined as of 12:00 noon and 1:00 p.m. Pacific time on each Business Day as
described in the Prospectus.
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<PAGE> 1078
The Money Market 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 Money Market Fund would receive if it sold the
instrument. During periods of declining interest rates, the daily yield on
shares of a Money Market 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 Money Market
Fund resulted in a lower aggregate portfolio value on a particular day, a
prospective investor in a Money Market Fund would be able to obtain a somewhat
higher yield than would result from investment in a fund utilizing solely
market values and existing investors in a Money Market Fund would receive less
investment income. The converse would apply in a period of rising interest
rates.
The valuation of each Money Market 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 Money Market Fund must adhere to certain conditions. Each
Money Market Fund must maintain a dollar- weighted average maturity of 90 days
or less, purchase only instruments having remaining maturities of 397 days
(thirteen months) or less, and invest only in securities that are determined to
present minimal credit risks pursuant to guidelines adopted by the Directors or
the adviser under guidelines approved by the Directors. Instruments having
variable or floating interest rates or demand features may be deemed to have
remaining maturities as follows: (a) a government security with a variable rate
of interest readjusted no less frequently than every thirteen months may be
deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate; (b) an instrument with a variable rate of
interest, the principal amount of which is scheduled on the face of the
instrument to be paid in thirteen months or less, may be deemed to have a
maturity equal to the period remaining until the next readjustment of the
interest rate; (c) an instrument with a variable rate of interest that is
subject to a demand feature may be deemed to have a maturity equal to the
longer of the period remaining until the next readjustment of the interest rate
or the period remaining until the principal amount can be recovered through
demand; (d) an instrument with a floating rate of interest that is subject to a
demand feature may be deemed to have a maturity equal to the period remaining
until the principal amount can be recovered through demand; and (e) a
repurchase agreement may be deemed to have a maturity equal to the period
remaining until the date on which the repurchase of the underlying securities
is scheduled to occur or, where no date is specified but the agreement is
subject to demand, the notice period applicable to a demand for the repurchase
of the securities.
The Company's Board of Directors has established valuation procedures
designed to stabilize, to the extent reasonably possible, each Money Market
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
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<PAGE> 1079
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 Money Market 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 Non-Money Market 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, 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.
Shares of the Money Market Funds may be purchased on any day the Funds
are open for business, provided Wells Fargo Bank also is open for business (for
Money Market Funds, a "Business Day"). Currently, Wells Fargo Bank is closed on
New Year's Day, Presidents' Day, Martin Luther King's Birthday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas Day (for Money Market Funds, each, a "Holiday"). When any Holiday
falls on a weekend, the Fund 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 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
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<PAGE> 1080
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.
Except in the case of equity securities purchased by the Balanced
and Equity Value Funds, 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 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 Tax-Free 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.
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<PAGE> 1081
For the Balanced and Equity Value Funds, purchases and sales of
equity securities on a securities exchange are effected through brokers who
charge a negotiated commission for their services. Orders may be directed to
any broker including, to the extent and in the manner permitted by applicable
law, Stephens or Wells Fargo Securities Inc. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. No Fund will deal with Stephens, Wells Fargo Bank or
their affiliates in any transaction in which any of them acts as principal
without an exemptive order from the SEC or unless an exemption is otherwise
available.
In 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 Balanced and Equity Value Funds 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 Funds. The Board of Directors
will periodically review the commissions paid by the Funds to consider whether
the commissions paid over representative periods of time appear to be
reasonable in relation to the benefits inuring to the Funds. 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 Funds 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
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<PAGE> 1082
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 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 period ended September 30, 1996, the California Funds did not
pay any brokerage commissions on portfolio transactions. During the fiscal
periods ended September 30, 1996, September 30, 1995, May 31, 1995 and May 31,
1994, the predecessor portfolios of the Intermediate Bond Fund and the Arizona,
National and Oregon Tax-Free Funds did not pay any brokerage commissions,
because all of their portfolio transactions occurred in the over-the-counter
market.
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 Prime and Treasury Money Market
Mutual 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.
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<PAGE> 1083
During the years ended September 30, 1996, September 30, 1995 and
September 30, 1994, the predecessor portfolio of the Government Money Market
Mutual Fund did not pay any brokerage commissions, because all of its portfolio
transactions occurred in the over-the-counter market. During the same time
periods, the Equity Value and Balanced Funds paid the following amounts in
brokerage commissions:
Brokerage Commissions Paid
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
FUND Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity Value Fund $575,504 $619,124 $247,218
Balanced Fund $254,191 $197,751 $104,835
</TABLE>
During the time periods stated above, no brokerage commissions were
paid by the Funds to an affiliated broker.
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 owned securities of their "regular brokers or dealers" or their
parents as defined in the Act, as follows:
<TABLE>
<CAPTION>
Fund Amount Regular Broker/Dealer
- -------------------------------------------------------------------------------
<S> <C> <C>
o Arizona Tax-Free $-0- N/A
o Balanced $ 720,000 Goldman Sachs & Co.
o California Tax-Free Bond $-0- N/A
o California Tax-Free Income $-0- N/A
o Equity Value $ 5,800,000 Goldman Sachs & Co.
o Govt. Money Market Mutual $ 2,277,000 Goldman Sachs & Co.
o Intermediate Bond $ 984,000 Goldman Sachs & Co.
o National Tax-Free $-0- N/A
o Oregon Tax-Free $-0- N/A
o Prime Money Market Mutual $ 166,369,000 Goldman Sachs & Co.
o Treasury Money Market Mutual $ 225,975,000 Goldman Sachs & Co.
o Treasury Money Market Mutual $ 230,000,000 HSBC Securities
o Treasury Money Market Mutual $ 225,000,000 JP Morgan Securities
o Treasury Money Market Mutual $ 230,000,000 Morgan Stanley
</TABLE>
As of December 31, 1995, the California Funds did not own any
securities of their "regular brokers or dealers" or their parents, as defined
in the Act. Furman Selz, the administrator to the predecessor portfolios, did
not report in their N-SAR for the fiscal year ended September 30, 1995, that
any of the Funds held securities of their regular broker/dealers or of their
parents that derive more than 15% of gross revenues from securities-related
activities.
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<PAGE> 1084
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 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 a Fund's shares;
pricing services, and any extraordinary expenses. Expenses attributable to a
Fund are charged against a 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 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 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
73
<PAGE> 1085
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 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
74
<PAGE> 1086
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 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. With respect to the Money Market Funds, 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 a Money
Market 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 each Money
Market 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 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.
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<PAGE> 1087
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 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
76
<PAGE> 1088
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.
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 for the Tax-Free Funds. The Tax-Free 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
77
<PAGE> 1089
by a Tax Free 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 Tax-Free
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 Tax-Free 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 Tax-Free 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
shares in a Tax-Free Fund. Furthermore, shareholders will not be permitted to
deduct any of their share of a Tax-Free 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 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 a Tax-Free Fund would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and IRAs since such plans and accounts
are generally tax-exempt and, therefore, would not benefit from the exempt
status of dividends from 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
78
<PAGE> 1090
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 eleven 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 fourteen other 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 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
79
<PAGE> 1091
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.
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 a Fund or 5% or more of the voting securities of a Fund as a
whole. As of January 2, 1997, no shareholders were known by the Company to own
5% or more of the outstanding Class A or B shares of the California Funds.
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>
ARIZONA TAX- Stephens Inc. Class A; 16.43% 4.80%
FREE FUND 111 Center Street Benefically Owned
Little Rock , AR 72201
Stephens Inc. Class B 100.00% N/A
111 Center Street Beneficially Owned
Little Rock , AR 72201
BALANCED FUND Stephens Inc. Class A 61.71% 21.20%
111 Center Street Beneficially Owned
Little Rock , AR 72201
Stephens Inc. Class B 98.95% N/A
111 Center Street Beneficially Owned
Little Rock , AR 72201
EQUITY VALUE Stephens Inc. Class A 56.14% 4.90%
FUND 111 Center Street Beneficially Owned
Little Rock , AR 72201
Stephens Inc. Class B 9.51% N/A
P.O. Box 34127 Beneficially Owned
Little Rock , AR 72201 for Acct. 76809054
Stephens Inc. Class B 5.80% N/A
P.O. Box 34127 Beneficially Owned
Little Rock , AR 72201 for Acct. 76892939
Vladimir Sirota Class B 36.11% N/A
P.O. Box 46399 [Record Holder]
Los Angeles, CA 90046
Stephens Inc. Class B 5.45% N/A
P.O. Box 34127 Beneficially Owned
Little Rock , AR 72201 for Acct. 77190754
Stephens Inc. Class B 5.45% N/A
P.O. Box 34127 Beneficially Owned
Little Rock , AR 72201 for Acct. 77190768
</TABLE>
80
<PAGE> 1092
<TABLE>
<S> <C> <C> <C> <C>
Stephens Inc. Class B 10.97% N/A
P.O. Box 34127 Beneficially Owned
Little Rock , AR 72201 for Acct. 77539283
GOVERNMENT First Interstate Bank Class A 31.03% 31.03%
MONEY MARKET (Trustee) [Record Holder]
MUTUAL FUND Choicemaster
Attn: Mutual Funds
A88-4
P.O. Box 9800
Calabasas, CA 91372
First Interstate Bank Class A 51.26% 51.26%
of California [Record Holder]
Attn: Fund Accounting
ATM Desk
26610 W. Agoura Road
Calabasas, CA 91302
INTERMEDIATE Stephens Inc. Class A 55.11% N/A
BOND FUND 111 Center Street Beneficially Owned
Little Rock, AR
72201
D.S. Christopher / Class A 5.06% N/A
Ruth Christopher [Record Holder]
(Trustees) Inasmuch
Trust
7995 Willowcreek Dr.
Beaumont, TX 77707
Stephens Inc. Class B 9.41% N/A
P.O. Box 34127 Beneficially Owned
Little Rock, AR for Acct. 76888942
72203
Stephens Inc. Class B 9.35% N/A
P.O. Box 34127 Beneficially Owned
Little Rock, AR for
72203 Acct. 77085456
5.60% N/A
Stephens Inc. Class B
P.O. Box 34127 Beneficially Owned
Little Rock, AR for
72203 Acct. 77138803 75.16% N/A
Vladimir Sirota Class B
P.O. Box 46393 [Record Holder]
Los Angeles, CA
90046
NATIONAL TAX- Stephens Inc. Class A 14.95% 5.80%
FREE FUND 111 Center Street Beneficially Owned
Little Rock, AR
72203
Byrne Family Trust #2 Class A 7.47% N/A
9011 W. Little York [Record Holder]
Houston, TX 7704_
Stephens Inc. Class B 100.00% N/A
111 Center Street Beneficially Owned
Little Rock, AR
72201
OREGON TAX Stephens Inc. Class A 14.04% 11.30%
-FREE FUND 111 Center Street Beneficially Owned
Little Rock, AR
72201
Stephens Inc. Class B 28.70% N/A
P.O. Box 34127 Beneficially Owned
Little Rock, AR for Acct. 763442051
72203
</TABLE>
81
<PAGE> 1093
<TABLE>
<S> <C> <C> <C> <C>
Stephens Inc. Class B 57.07% N/A
P.O. Box 34127 Beneficially Owned
Little Rock, AR for Acct. 76291546
72203
Stephens Inc. Class B 14.15% N/A
P.O. Box 34127 Beneficially Owned
Little Rock, AR for Acct. 77565917
72203
PRIME Virg & Co Class A 96.65% 18.40%
MONEY MARKET Attn: MF Dept A88-4 [Record Holder]
MUTUAL FUND P.O. Box 9800
Calabasas, CA 91372
TREASURY Virg & Co. Class A 92.34% N/A
MONEY MARKET Attn: MF Dept. A88-4 [Record Holder]
MUTUAL FUND P.O. Box 9800
Calabasas, CA 91372
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through
one or more controlled companies more that 25% of the voting securities of a
fund is presumed to "control" such fund. 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 that 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
OTHER INFORMATION
This Registration Statement, including the Prospectus for each Fund,
the SAI and the exhibits filed therewith, may be examined at the office of the
SEC in Washington, D.C. Statements contained in a Prospectus or the SAI as to
the contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP serves 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.
82
<PAGE> 1094
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 Company's Annual Reports may be
obtained by calling 1-800-222-8222. The portfolio of investments, audited
financial statements and independent auditors' report are attached to all SAIs
delivered to current or prospective shareholders.
83
<PAGE> 1095
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> 1096
S&P: The "SP-1" rating reflects a "very strong or strong capacity to
pay principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate and municipal commercial
paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for
repayment of short-term promissory obligations." Issuers rated "P-2" (Prime-2)
"have a strong capacity for repayment of short-term promissory obligations,"
but earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate and municipal commercial paper
indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
2
<PAGE> 1097
STAGECOACH FUNDS, INC.
Telephone: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1997
MONEY MARKET TRUST
-------------------------------------------
Stagecoach Funds, Inc. (the "Company") is an open-end, series
investment company. This Statement of Additional Information ("SAI") contains
additional information about shares offered in one of the funds of the
Stagecoach Family of Funds -- MONEY MARKET TRUST (the "Fund"). The Fund offers
a single class of shares. The investment objective of the Fund is described in
its prospectus under "How the Fund Works -- Investment Objective and Policies."
This SAI is not a prospectus and should be read in conjunction with
the Fund's prospectus also dated February 1, 1997, as may be revised from time
to time (the "Prospectus"). All terms used in this SAI that are defined in the
Prospectus have the meanings assigned in the Prospectus. A copy of the
Prospectus may be obtained without charge by writing Stephens Inc.
("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> 1098
TABLE OF CONTENTS
Page
<TABLE>
<S> <C>
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . 1
Additional Permitted Investment Activities . . . . . . . . . . . 2
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Servicing Plans . . . . . . . . . . . . . . . . . . . . . . . . . 14
Performance Calculations . . . . . . . . . . . . . . . . . . . . 14
Determination of Net Asset Value . . . . . . . . . . . . . . . . 18
Additional Purchase and Redemption Information . . . . . . . . . 20
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . 21
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Federal Income Tax . . . . . . . . . . . . . . . . . . . . . . . 23
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Other Information . . . . . . . . . . . . . . . . . . . . . . . . 28
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . 28
Financial Information . . . . . . . . . . . . . . . . . . . . . . 28
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
i
<PAGE> 1099
GENERAL
Prior to the Reorganization (defined below), the Fund was an investment
portfolio (the "Predecessor Portfolio") of the predecessor company, Pacifica
Funds Trust ("Pacifica"), an open-end management investment company. Pacifica
was organized on July 17, 1984 under the name "Fund Source." Pacifica changed
its name to "Pacifica Funds Trust" on February 9, 1993. The Fund originally
commenced operations on September 17, 1990 as a separate investment portfolio
of Westcore Trust called the "Prime Money Market Fund." On October 1, 1995, the
Fund was reorganized as a portfolio of Pacifica.
On April 25, 1996, the Agreement and Plan of Reorganization and the
creation of the Predecessor Portfolio as a new fund of the Company were
approved by the Company's Board of Directors. On May 17, 1996, the
Reorganization was approved by Pacifica's Board of Trustees. The
Reorganization of Pacifica with Stagecoach became effective on September 6,
1996 (the "Reorganization"). The Predecessor Portfolio of Pacifica was
reorganized as the Company's Money Market Trust.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies. In addition to the investment limitations
disclosed in the Prospectus, the Fund is subject to the following investment
limitations which may be changed only by a vote of the holders of a majority of
the outstanding shares of the Fund (as defined in "Other Information").
The Fund may not:
1. Purchase securities of any one issuer, other than obligations
of the U.S. Government, its agencies or instrumentalities, if immediately after
such purchase more than 5% of the value of the Fund's total assets would be
invested in such issuer, except that up to 25% of the value of the Fund's total
assets may be invested without regard to such 5% limitation.
2. Purchase or sell real estate, except that the Fund may, to the
extent appropriate to its investment objective, purchase securities issued by
companies which invest in real estate or interests therein.
3. Purchase securities on margin, make short sales of securities
or maintain a short position.
4. Underwrite the securities of other issuers.
5. Purchase or sell commodity contracts (including futures
contracts), or invest in oil, gas or mineral exploration or
development programs.
1
<PAGE> 1100
6. Buy common stocks or voting securities, or state, municipal or
industrial revenue bonds.
7. Write or purchase put or call options.
In order to permit the sale of the Fund's shares in certain states, the
Company may make commitments with respect to the Fund that are more restrictive
than the investment policies listed above and in the Prospectus. Should the
Company determine that the commitments made to permit the sale of the Fund's
shares in any state are no longer in the best interests of the Fund, it will
revoke the commitment by terminating sales of the Fund's shares in the state
involved.
The Fund is not permitted to engage in securities lending in accordance
with a fundamental policy prohibiting loans as described in the prospectus. In
the event that this fundamental policy is changed, the Fund has a
nonfundamental operating policy to engage in securities lending only in
compliance with the requirements and limitations of the Securities and Exchange
Commission (the "SEC") and in compliance with blue sky regulations.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
the Fund's investments will not constitute a violation of such limitation,
however, the Fund will not at any time hold more than 10% of its net assets in
illiquid securities. Otherwise, the Fund may continue to hold a security even
though it causes the Fund to exceed a percentage limitation because of
fluctuation in the value of the Fund's assets.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
The Prospectus discusses the investment objective of the Fund and the
policies to be employed to achieve that objective. This section contains
supplemental information concerning certain types of securities and other
instruments in which the Fund may invest, the investment policies and portfolio
strategies that the Fund may utilize, and certain risks attendant to such
investments, policies and strategies.
General. The assets of the Fund consist only of obligations maturing
within thirteen months from the date of acquisition (as determined in
accordance with the regulations of the SEC), and the dollar-weighted average
maturity of the Fund may not exceed 90 days.
The securities in which the Fund may invest will not yield as high a level
of current income as may be achieved from securities with less liquidity and
less safety. There can be no assurance that the Fund's investment objective
will be realized as described in the Prospectus.
2
<PAGE> 1101
Subsequent to its purchase by the Fund, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Directors or the Adviser, pursuant to
guidelines established by the Board, will consider such an event in determining
whether the Fund should continue to hold the security in accordance with the
interests of the Fund and applicable regulations of the SEC.
Subject to the general supervision and approval of the Board of Directors,
the Adviser makes decisions with respect to and places orders for all purchases
and sales of securities for the Fund. Securities are generally purchased and
sold either directly from the issuer or from dealers who specialize in money
market instruments. Such purchases are usually effected as principal
transactions and therefore do not involve the payment of brokerage commissions.
Repurchase Agreements. The Fund may engage in a repurchase agreement
with respect to any security in which the Fund is authorized to invest,
including U.S. Treasury STRIPS, although the underlying security may mature in
more than thirteen months. The Fund may enter into repurchase agreements
wherein the seller of a security to the Fund agrees to repurchase that security
from the Fund at a mutually agreed-upon time and price which involve the
acquisition by the Fund of an underlying debt instrument, subject to the
seller's obligation to repurchase, and the Fund's obligation to resell, the
instrument at a fixed price usually not more than one week after its purchase.
The Fund's custodian has custody of, and holds in a segregated account,
securities acquired as collateral by the Fund under a repurchase agreement.
Repurchase agreements are considered by the staff of the Securities and
Exchange Commission to be loans by the Fund. The Fund may enter into
repurchase agreements only with respect to securities of the type in which the
Fund may invest, including government securities and mortgage-related
securities, regardless of their remaining maturities, and requires that
additional securities be deposited with the custodian if the value of the
securities purchased should decrease below resale price. Wells Fargo Bank
monitors on an ongoing basis the value of the collateral to assure that it
always equals or exceeds the repurchase price. Certain costs may be incurred
by the Fund in connection with the sale of the underlying securities if the
seller does not repurchase them in accordance with the repurchase agreement.
In addition, if bankruptcy proceedings are commenced with respect to the seller
of the securities, disposition of the securities by the Fund may be delayed or
limited. While it does not presently appear possible to eliminate all risks
from these transactions (particularly the possibility of a decline in the
market value of the underlying securities, as well as delay and costs to the
Fund in connection with insolvency proceedings), it is the policy of the Fund
to limit repurchase agreements to selected creditworthy securities dealers or
domestic banks or other recognized financial institutions. The Fund considers
on an ongoing basis the creditworthiness of the institutions with which it
enters into repurchase agreements. Repurchase agreements are considered to be
loans by the Fund under the Investment Company Act of 1940 (the "1940 Act").
Reverse Repurchase Agreements. The Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements with financial
institutions such as banks and
3
<PAGE> 1102
broker-dealers in accordance with the investment limitations described in the
Prospectus. Pursuant to such an agreement, the Fund would sell portfolio
securities and agree to repurchase them at a mutually agreed upon date and
price. The Fund intends to enter into reverse repurchase agreements to avoid
otherwise having to sell securities during unfavorable market conditions in
order to meet redemptions. At the time the Fund enters into a reverse
repurchase agreement, it will place in a segregated custodial account liquid
assets such as U.S. Government securities or other liquid high-quality debt
securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to
ensure that such equivalent value is maintained. Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Fund may
decline below the price of the securities the Fund is obligated to repurchase.
Reverse repurchase agreements are considered to be borrowings by the Fund under
the 1940 Act.
Floating and Variable-Rate Obligations. The Fund may purchase floating- and
variable-rate obligations as described in the prospectuses. The Fund may
purchase floating- and variable-rate demand notes and bonds, which are
obligations ordinarily having stated maturities in excess of thirteen months,
but which permit the holder to demand payment of principal at any time, or at
specified intervals not exceeding thirteen months. Variable rate demand notes
include master demand notes which are obligations that permit the Fund to
invest fluctuating amounts, which may change daily without penalty, pursuant to
direct arrangements between the Fund, as lender, and the borrower. The
interest rates on these notes fluctuate from time to time. The issuer of such
obligations ordinarily has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal amount of the obligations
plus accrued interest upon a specified number of days' notice to the holders of
such obligations. The interest rate on a floating-rate demand obligation is
based on a known lending rate, such as a bank's prime rate, and is adjusted
automatically each time such rate is adjusted. The interest rate on a
variable-rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there
generally is no established secondary market for these obligations, although
they are redeemable at face value. Accordingly, where these obligations are
not secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and each Fund may invest in obligations which are not so
rated only if Wells Fargo Bank determines that at the time of investment the
obligations are of comparable quality to the other obligations in which the
Fund may invest. Wells Fargo Bank, on behalf of the Fund, considers on an
ongoing basis the creditworthiness of the issuers of the floating- and
variable-rate demand obligations in such Fund's portfolio. The Fund will not
invest more than 10% of the value of its total net assets in floating- or
variable-rate demand obligations whose demand feature is not exercisable within
seven days. Such obligations may be treated as liquid, provided that an active
secondary market exists.
4
<PAGE> 1103
Forward Commitments, When-Issued Purchases and Delayed-Delivery
Transactions. The Fund may purchase securities on a when-issued or forward
commitment (sometimes called a delayed-delivery) basis, which means that the
price is fixed at the time of commitment, but delivery and payment ordinarily
take place a number of days after the date of the commitment to purchase. The
Fund will make commitments to purchase such securities only with the intention
of actually acquiring the securities, but the Fund may sell these securities
before the settlement date if it is deemed advisable. The Fund will not accrue
income in respect of a security purchased on a forward commitment basis prior
to its stated delivery date.
Securities purchased on a when-issued or forward commitment basis and
certain other securities held in the Fund's investment portfolio are subject to
changes in value (both generally changing in the same way, i.e., appreciating
when interest rates decline and depreciating when interest rates rise) based
upon the public's perception of the creditworthiness of the issuer and changes,
real or anticipated, in the level of interest rates. Securities purchased on a
when-issued or forward commitment basis may expose the relevant Fund to risk
because they may experience such fluctuations prior to their actual delivery.
Purchasing securities on a when-issued or forward commitment basis can involve
the additional risk that the yield available in the market when the delivery
takes place actually may be higher than that obtained in the transaction
itself. A segregated account of the Fund consisting of cash or U.S. Government
securities or other high quality liquid debt securities at least equal at all
times to the amount of the when-issued or forward commitments will be
established and maintained at the Fund's custodian bank. Purchasing securities
on a forward commitment basis when the Fund is fully or almost fully invested
may result in greater potential fluctuation in the value of the Fund's total
net assets and its net asset value per share. In addition, because the Fund
will set aside cash and other high quality liquid debt securities as described
above the liquidity of the Fund's investment portfolio may decrease as the
proportion of securities in the Fund's portfolio purchased on a when-issued or
forward commitment basis increases.
The value of the securities underlying a when-issued purchase or a forward
commitment to purchase securities, and any subsequent fluctuations in their
value, is taken into account when determining the Fund's net asset value
starting on the day the Fund agrees to purchase the securities. The Fund does
not earn interest on the securities it has committed to purchase until they are
paid for and delivered on the settlement date. When the Fund makes a forward
commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets, and fluctuations in the value of
the underlying securities are not reflected in the Fund's net asset value as
long as the commitment remains in effect.
Rule 144A. It is possible that unregistered securities purchased by the
Fund in reliance upon Rule 144A under the Securities Act of 1933, could have
the effect of increasing the level of the Fund's illiquidity to the extent that
qualified institutional buyers become, for a period, uninterested in purchasing
these securities.
5
<PAGE> 1104
MANAGEMENT
The following information supplements and should be read in conjunction
with the section in the prospectus entitled "The Fund and Management." The
principal occupations during the past five years of the Directors and principal
executive Officer of the Company are listed below. The address of each, unless
otherwise indicated, is 111 Center Street, Little Rock, Arkansas 72201.
Directors deemed to be "interested persons" of the Company for purposes of the
1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 45 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate Professor of Finance
of the School of Business and Accounting at
Wake Forest University since 1983.
</TABLE>
6
<PAGE> 1105
<TABLE>
<S> <C> <C>
Joseph N. Hankin, 55 Director President, Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; President of Hartford
Junior College from 1967 to
1971; Adjunct Professor of
Columbia University
Teachers College since
1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 40 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
7
<PAGE> 1106
COMPENSATION TABLE
<TABLE>
<CAPTION>
Year Ended Period Ended
---------- -------------
December 31, 1995 September 30, 1996
------------------ ------------------
Aggregate Total Compensation Aggregate Total Compensation
Compensation from Registrant Compensation from Registrant
Name and Position from Registrant and Fund Complex from Registrant and Fund Complex
- ----------------- --------------- ----------------- --------------- ------------------
<S> <C> <C> <C> <C>
Jack S. Euphrat $10,188 $39,750 $9,750 $29,250
Director
*R. Greg Feltus $-0- $-0- $-0- $-0-
Director
Thomas S. Goho $10,188 $39,750 $9,750 $29,250
Director
Joseph N. Hankin N/A N/A $-0- $-0-
Director
*Zoe Ann Hines $-0- $-0- $-0- $-0-
Director
(resigned as of
September 6, 1996)
*W. Rodney Hughes $9,438 $37,000 $8,250 $24,750
Director
Robert M. Joses $9,938 $39,000 $9,750 $29,250
Director
*J. Tucker Morse $8,313 $33,250 $8,250 $24,750
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
8
<PAGE> 1107
Trust together form a separate fund complex (the "BGFA Fund Complex"). Each of
the Directors and Officers of the Company serves in the identical capacity as
directors and officers or as trustees and/or officers of each registered
open-end management investment company in both the Wells Fargo and BGFA Fund
Complexes, except for Joseph N. Hankin, who only serves the aforementioned
members of the Wells Fargo Fund Complex, and Zoe Ann Hines who, after September
6, 1996, only serves the aforementioned members of the BGFA Fund Complex. The
Directors are compensated by other companies and trusts within a fund complex
for their services as directors/trustees to such companies and trusts.
Currently the Directors do not receive any retirement benefits or deferred
compensation from the Company or any other member of each fund complex.
As of the date of this SAI, Directors and Officers of the Company as a
group beneficially owned less than 1% of the outstanding shares of the Company.
INVESTMENT ADVISER. The Fund is advised by Wells Fargo Bank pursuant to an
advisory contract under which Wells Fargo Bank has agreed to furnish investment
guidance and policy direction in connection with the daily portfolio management
of the Fund. On behalf of the Fund, the Company's Board of Directors approved
the advisory contract with Wells Fargo Bank for an initial two-year period.
Pursuant to the advisory contract, Wells Fargo Bank also has agreed to furnish
to the Board of Directors periodic reports on the investment strategy and
performance of the Fund.
Wells Fargo Bank has agreed to provide to the Fund, among other things,
money market and fixed-income research, analysis and statistical and economic
data and information concerning interest-rate and security market trends,
portfolio composition, credit conditions and, average maturity of the Fund. As
compensation for its advisory services, Well Fargo Bank is entitled to receive
a monthly fee at the annual rate of 0.25%.
Prior to the Reorganization, Wells Fargo Investment Management, Inc.
("WFIM") and its predecessor, First Interstate Capital Management, Inc.
("FICM") served as adviser to the Predecessor Portfolios of Pacifica. As of
the date of the Reorganization (September 6, 1996), Wells Fargo Bank became the
adviser to the Fund. For the year ended September 30, 1996 the Fund paid to
FICM, WFIM and Wells Fargo Bank, the advisory fees indicated below and the
indicated amount was waived:
<TABLE>
<CAPTION>
Year Ended September 30, 19961
-----------------------------
Fees Paid Fees Waived
--------- -----------
<S> <C> <C> <C>
o Money Market Trust $151,546 $2,021,955
</TABLE>
(1) For the period begun October 1, 1995 and ended March 31, 1996 the
Predecessor Portfolio paid advisory fees to FICM, for the period begun April 1,
1996 and ended September 5, 1996 the Predecessor Portfolio paid advisory fees
to WFIM, and for the period begun September 6, 1996 and ended September 30,
1996 the Fund paid advisory fees to Wells Fargo Bank, and each such investment
adviser waived varying amounts of such fees. The advisory fees did not change
from investment adviser to investment adviser during the year ended September
30, 1996, and were as follows: computed daily and paid monthly, at an annual
rate of
9
<PAGE> 1108
0.30% of the first $500 million of the average daily net assets of the Fund,
0.25% of the next $500 million of the Fund's average daily net assets, and
0.20% of the Fund's average daily net assets in excess of $1 billion.
The advisory contract continues in effect for more than two years provided
the continuance is approved annually (i) by the holders of a majority of the
Fund's outstanding voting securities or (ii) by the Company's Board of
Directors and by a majority of the Directors of the Company who are not parties
to the advisory contracts or "interested persons" (as defined in the 1940 Act)
of any such party. The advisory contracts may be terminated on 60 days'
written notice by either party and will terminate automatically if assigned.
Prior to October 1, 1995, First Interstate of Oregon, N.A. (the
"Predecessor Adviser") served as the investment adviser to the Fund. For the
four-month period ended September 30, 1995, and fiscal years ended May 31,
1995, 1994 and 1993, the Predecessor Adviser was entitled to receive and waived
or reimbursed advisory fees paid by the Fund as follows:
Investment Advisory Fees
<TABLE>
<CAPTION>
Fees Waived and
Fiscal Period Fees Earned Expenses Reimbursed
- ------------- ------------ -------------------
<S> <C> <C>
Four-Month Period Ended
September 30, 1995 $662,983 $662,983
Year Ended May 31, 1995 $1,932,733 $2,120,794
Year Ended May 31, 1994 $1,193,856 $1,104,228
Year Ended May 31, 1993 $570,505 $387,505
</TABLE>
The advisory contracts and administration agreement for the Fund provide
that if, in any fiscal year, the total expenses of the Fund incurred by, or
allocated to, the Fund (excluding taxes, interest, brokerage commissions and
other portfolio transaction expenses, expenditures that are capitalized in
accordance with generally accepted accounting principles, extraordinary
expenses and amounts accrued or paid under the Plan but including the fees
provided for in the applicable advisory contract and the administration
agreement) exceed the most restrictive expense limitation applicable to the
Fund imposed by the securities laws or regulations of the states in which the
Fund's shares are registered for sale, Wells Fargo Bank and Stephens shall
waive their fees proportionately under the advisory contract and the
administration agreement, respectively, for the Fund for the fiscal year to the
extent of the excess or reimburse the excess, but only to the extent of their
respective fees. The advisory contracts and the administration agreement for
the Fund further provide that the Fund's total expenses shall be reviewed
monthly so that, to the extent the annualized expenses for such month exceed
the most restrictive applicable annual expense limitation, the monthly fees
under the contract and the agreement shall be reduced
10
<PAGE> 1109
as necessary. Currently, California is the only state imposing limitations on
Fund expenses. Those expense limitations are 2-1/2 percent of the first $30
million of a Fund's average net assets, 2 percent of the next $70 million and
1-1/2 percent of a Fund's remaining average net assets.
Expenses incurred in the organization and operation of the Fund, including
taxes, interest, penalties, brokerage and other fees and commissions, if any,
fees and expenses of Directors, SEC fees and related expenses, state Blue Sky
qualification fees, advisory fees, administration fees, charges of custodians,
costs of transfer and dividend disbursing agents, certain insurance premiums,
outside auditing and legal expenses, costs of maintenance of Company existence,
costs of independent pricing services, investor services, preparation and
printing of prospectuses for regulatory purposes and for distribution to
shareholders, shareholders' reports and shareholders' meetings, and
extraordinary expenses, are borne by the Fund.
Banking laws and regulations, including the Glass-Steagall Act as presently
interpreted by the Board of Governors of the Federal Reserve System, (a)
prohibit a bank holding company registered under the Federal Bank Holding
Company Act of 1956 (the "Holding Company Act") or any bank or non-bank
affiliate thereof from sponsoring, organizing, or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and prohibit banks generally from underwriting securities, but (b) do not
prohibit such a bank holding company or affiliate generally from acting as
investment adviser, transfer agent, or custodian to such an investment company,
or from purchasing shares of such a company as agent for and upon the order of
a customer. In some states, banks or other institutions through which
transactions in Fund shares are effected, may be required to register as
dealers pursuant to state law.
ADMINISTRATOR AND 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 Fund, and
the Co- Administration Agreement among Wells Fargo Bank, Stephens and the Fund,
state that Wells Fargo and Stephens shall provide as administrative services,
among other things: (i) general supervision of the operation of the Fund,
including coordination of the services performed by the Fund's investment
adviser, transfer agent, custodian, shareholder servicing agent(s), independent
public accountants and legal counsel, regulatory compliance, including the
compilation of information for documents such as reports to, and filings with,
the SEC and state securities commissions; and preparation of proxy statements
and shareholder reports for the Fund; and (ii) general supervision relative to
the compilation of data required for the preparation of periodic reports
distributed to the Company's officers and Board of Directors. Wells Fargo Bank
and Stephens also furnish office space and certain facilities required for
conducting the business of the Fund together with ordinary clerical and
bookkeeping services. Stephens pays the compensation of the Company's
Directors, officers and employees who are affiliated with Stephens. The
Administrator and Co-Administrator are entitled to receive a monthly fee of
0.04% and 0.02%, respectively, of the average daily net assets of the Fund.
11
<PAGE> 1110
Prior to September 6, 1996, the administrator of the Pacifica Predecessor
Portfolio (Furman Selz LLC) provided management and administrative services
necessary for the operation of such Funds, pursuant to an Administrative
Services Contract. For these services, the former administrator 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. For the period from September
6, 1996 to September 30, 1996, Stephens served as the Fund's sole administrator
and was entitled to receive a fee, payable monthly, at the annual rate of 0.05%
of the Fund's average daily net assets.
The net administrative fee (after waivers) paid to Furman Selz LLC and
Stephens during the year ended September 30, 1996, was $715,853.
Prior to October 1, 1995, ALPS Mutual Funds Services, Inc. ("ALPS") served
as the administrator to the Fund. For the four-month period ended September 30,
1995 and the fiscal years ended May 31, 1995 and 1994, ALPS received
administrative fees from the Fund as follows:
<TABLE>
<CAPTION>
Four-Month Period Ended Year Ended Year Ended
Sept. 30, 1995 May 31, 1995 May 31, 1994
-------------- ------------ ------------
<S> <C> <C>
$132,597 $387,803 $241,778
</TABLE>
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.
Prior to September 6, 1996, Pacifica had retained Pacifica Funds
Distributor, Inc., a subsidiary of Furman Selz, to serve as principal
underwriter for the shares of the Fund pursuant to a Distribution Contract. The
Distribution Contract provided that the distributor was not entitled to any
payments from the Fund for its distribution services.
Prior to October 1, 1995, ALPS served as distributor for the Fund. ALPS was
not entitled to any compensation for its services as distributor.
SHAREHOLDER SERVICING AGENT. As discussed in the Fund's prospectus under
the heading "Shareholder Servicing Agent," the Fund approved a Servicing Plan
and has entered into related shareholder servicing agreements with financial
institutions, including Wells Fargo Bank. For providing these services, a
Servicing Agent is entitled to receive a fee from the Fund, not to exceed 0.20%
on an annualized basis, of the average daily net assets of the shares owned of
record or beneficially by the customers of the Servicing Agent during the
period for which payment is being made. The Servicing Plan and related
shareholder servicing agreements were approved by the Company's Board of
Directors and provide that the Fund shall not be obligated to make any payments
under such Plan or related Agreements that exceed the maximum amounts payable
under Article III, Section 26 of the Conduct Rules of the National Association
of Securities Dealers, Inc. ("NASD Rules").
12
<PAGE> 1111
For the year ended September 30, 1996, the Fund paid no shareholder
servicing fees to First Interstate Bancorp or Wells Fargo Bank or its
affiliates pursuant to the 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, pursuant to a Custody Agreement and an Agency Agreement
with the Company on behalf of the Fund. The custodian, among other things,
maintains a custody account or accounts in the name of the Fund, receives and
delivers all assets for the Fund upon purchase and upon sale or maturity,
collects and receives all income and other payments and distributions on
account of the assets of the Fund and pays all expenses of the Fund. For its
services as custodian, Wells Fargo Bank is entitled to receive fees as follows:
a net asset charge at the 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.
Prior to April 1, 1996, FICAL acted as custodian of the Predecessor
Portfolio, but played no role in making decisions as to the purchase or sale of
portfolio securities for the Predecessor Portfolio. FICAL was entitled to
receive a fee from Pacifica, computed daily and payable monthly, at the annual
rate of 0.02% of the first $5 billion in aggregate average daily net assets of
the Fund; 0.0175% of the next $5 billion in aggregate average daily net assets
of the Fund; and 0.015% of the aggregate average daily net assets of the Fund
in excess of $10 billion, as well as certain transaction charges.
For the year ended September 30, 1996, the Fund paid no custody fees to
FICAL or Wells Fargo Bank.
For its services as transfer and dividend disbursing agent for the Fund,
Wells Fargo Bank is entitled to receive monthly payments at the annual rate of
0.07% of the Fund's average daily net assets. Prior to the Reorganization,
Furman Selz acted as transfer agent for the Predecessor Portfolio. Pacifica
compensated Furman Selz for providing personnel and facilities to perform
transfer agency related services for Pacifica at a rate intended to represent
the cost of providing such services. For the year ended September 30, 1996,
the Fund paid no transfer and dividend disbursing agency fees to Wells Fargo
Bank.
UNDERWRITING COMMISSIONS. The Fund does not charge any front-end sales
loads or contingent deferred sales charges in connection with the purchase and
redemption of its shares, and therefore pays no underwriting commissions to the
Distributor.
13
<PAGE> 1112
SERVICING PLANS
As indicated in the prospectus, the Company's Board of Directors, adopted a
Servicing Plan ("Servicing Plan") and related form of Shareholder Servicing
Agreements with respect to the Fund. The Board of Directors included a
majority of the Directors who were not "interested persons" (as defined in the
Act) of the Fund and who had no direct or indirect financial interest in the
operation of the Servicing Plan or in any agreement related to the Servicing
Plan (the "Servicing Plan Non-Interested Directors").
Under the Servicing Plan and pursuant to the shareholder servicing
agreements, the Fund may pay one or more servicing agents, as compensation for
performing certain services, a fee at an annual rate of up to 0.20% of the
average daily net assets of the Fund's shares attributable to the servicing
agent's customers. The actual fee payable to servicing agents is determined,
within such limits, from time to time by mutual agreement between the Company
and each servicing agent and will not exceed the maximum service fees payable
by mutual funds sold by members of the NASD under the NASD Rules.
The Servicing Plan continues in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Servicing Plan Non-Interested Directors. Any form of servicing
agreement related to the Servicing Plan also must be approved by such vote of
the Directors and the Servicing Plan Non-Interested Directors. Servicing
agreements may be terminated at any time, without payment of any penalty, by
vote of a majority of the Servicing Plan Non-Interested Directors. No material
amendment to the Servicing Plans may be made except by a majority of both the
Directors of the Company and the Servicing Plan Non-Interested Directors.
The Servicing Plan requires that the administrator shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Servicing Plan.
PERFORMANCE CALCULATIONS
The following information supplements and should be read in conjunction
with the sections in each prospectus entitled "Determination of Net Asset
Value" and "Performance Data."
The Fund may, from time to time, include its yield or effective yield in
advertisements or reports to shareholders or prospective investors.
"Yield" for the Fund will be based on the change in the value of a
hypothetical investment (exclusive of capital changes) over a particular
seven-day period, less a pro-rata share of the Fund's expenses accrued over
that period (the "base period"), and stated as a percentage of the investment
at the start of the base period (the "base period return"). The
14
<PAGE> 1113
base period return is then annualized by multiplying by 365/7, with the
resulting yield figure carried to at least the nearest hundredth of one
percent.
"Effective Yield" for the Fund assumes that all dividends received during
an annual period have been reinvested. Calculation of "effective yield" begins
with the same "base period return" used in the calculation of yield, which is
then annualized to reflect weekly compounding pursuant to the following
formula:
Effective Yield = [(Base Period Return +1)365/7]-1.
Yield For The Applicable Period Ended September 30, 19961
<TABLE>
<CAPTION>
Seven-Day Yield Seven-Day Effective Yield
--------------- -------------------------
<S> <C>
5.30% 5.44%
- ------------------------------------
</TABLE>
(1) The Fund does not assess sales charges.
Yield information may be useful in reviewing the Fund's performance and for
providing a basis for comparison with other investment alternatives. However,
yields fluctuate, unlike investments which pay a fixed yield for a stated
period of time. Yields for the Fund are calculated on the same basis as other
money market funds as required by applicable regulations. Investors should give
consideration to the quality and maturity of the portfolio securities of the
respective investment companies when comparing investment alternatives.
Quotations of yield reflect only the performance of a hypothetical
investment in the Fund during the particular time period shown. Yield varies
based on changes in market conditions and the level of a Fund's expenses, and
no reported performance figure should be considered an indication of
performance which may be expected in the future.
Investors should recognize that in periods of declining interest rates, the
Fund's yields will tend to be somewhat higher than prevailing market rates, and
in periods of rising interest rates, the Fund's yields will tend to be somewhat
lower. Also, when interest rates are falling, the inflow of net new money to
the Fund from the continuous sale of its shares will likely be invested in
instruments producing lower yields than the balance of the Fund, thereby
reducing the current yields of the Fund. In periods of rising interest rates,
the opposite can be expected to occur.
In connection with communicating its yields to current or prospective
shareholders, these figures may also be compared to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
From time to time and only to the extent the comparison is appropriate for
the Fund, the Company may quote performance or price-earning ratios in
advertising and other types of
15
<PAGE> 1114
literature as compared with the performance of the Lehman Brothers Municipal
Bond Index, 1-Year Treasury Bill Rate, S&P Index, the Dow Jones Industrial
Average, the Lehman Brothers 20+ Years Treasury Index, the Lehman Brothers 5-7
Year Treasury Index, IBC/Donoghue's Money Fund Averages, Real Estate Investment
Averages (as reported by the National Association of Real Estate Investment
Trusts), Gold Investment Averages (provided by the World Gold Council), Bank
Averages (which is calculated from figures supplied by the U.S. League of
Savings Institutions based on effective annual rates of interest on both
passbook and certificate accounts), average annualized certificate of deposit
rates (from the federal Reserve G-13 Statistical Releases or the Bank Rate
Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics), Ten Year U.S.
Government Bond Average, S&P's Corporate Bond Yield Averages, Schabacter
Investment Management Indices, Salomon Brothers High Grade Bond Index, Lehman
Brothers Long-Term High Quality Government/Corporate Bond Index, other managed
or unmanaged indices or performance data of bonds, stocks or government
securities (including data provided by Ibbotson Associates), or by other
services, companies, publications or persons who monitor mutual funds on
overall performance or other criteria. The S&P Index and the Dow Jones
Industrial Average are unmanaged indices of selected common stock prices.
The performance of the Fund also may be compared to the performance of
other mutual funds having similar objectives. This comparative performance
could be expressed as a ranking prepared by Lipper Analytical Services, Inc.,
CDA Investment Technologies, Inc., Bloomberg Financial Markets or Morningstar,
Inc., independent services that monitor the performance of mutual funds. Any
such comparisons may be useful to investors who wish to compare the Fund's past
performance with that of its competitors. Of course, past performance cannot
be a guarantee of future results. The Company also may include, from time to
time, a reference to certain marketing approaches of the Distributor,
including, for example, a reference to a potential shareholder being contacted
by a selected broker or dealer. General mutual fund statistics provided by the
Investment Company Institute may also be used.
In addition, the Company also may use, in advertisements and other types of
literature, information and statements showing that bank savings accounts offer
a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth. The Company also may include in advertising
and other types of literature information and other data from reports and
studies prepared by the Tax Foundation, including information regarding federal
and state tax levels and the related "Tax Freedom Day."
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate
for the Fund: (i) the Consumer Price Index may be used to assess the real rate
of return from an investment in the Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of the Fund or the general economic, business,
investment, or financial environment in which the Fund operates; (iii) the
effect of tax-deferred compounding on the investment returns of the Fund, or on
16
<PAGE> 1115
returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in the Fund or a class of shares (or returns in general) on a
tax-deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and (iv)
the sectors or industries in which the Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate the
historical performance of the Fund or current or potential value with respect
to the particular industry or sector.
The Company also may discuss in advertising and other types of literature
that the Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as S&P or Moody's. Such rating would
assess the creditworthiness of the investments held by the Fund. The assigned
rating would not be a recommendation to purchase, sell or hold any class of the
Fund's shares since the rating would not comment on the market price of the
Fund's shares or the suitability of the Fund for a particular investor. In
addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or unavailability of, information
relating to the Fund or its investments. The Company may compare the Fund's
performance with other investments that are assigned ratings by NRSROs. Any
such comparisons may be useful to investors who wish to compare the Fund's past
performance with other rated investments.
From time to time the Company may reprint, reference or otherwise use
material from magazines, newsletters, newspapers and books including, but not
limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.
The Company also may disclose in sales literature, the distribution rate on
the Fund's shares. Distribution rate, which may be annualized, is the amount
determined by dividing the dollar amount per share of the most recent dividend
by the most recent NAV or maximum offering price per share as of a date
specified in the sales literature. Distribution rate will be accompanied by
the standard 30-day yield as required by the SEC.
The Company also may disclose, in advertising 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
17
<PAGE> 1116
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.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the prospectus section under "Purchase of Shares."
Expenses and fees, including advisory fees, are accrued daily and are taken
into account for the purpose of determining the net asset value of a Fund's
shares.
Net asset value per share for the Fund is determined as of 12:00 noon
Pacific time on each Business Day as described in the prospectus.
The Fund's instruments are valued on the basis of amortized cost. This
technique involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than
the price a Fund would receive if it sold the instrument. During periods of
declining interest rates, the daily yield on Fund shares computed as described
above may tend to be higher than a like computation made by a fund with
identical investments utilizing a method of valuation based upon market prices
and estimates of market prices for
18
<PAGE> 1117
all of its instruments. Thus, if the use of amortized cost by the Fund resulted
in a lower aggregate portfolio value on a particular day, a prospective
investor in the Fund would be able to obtain a somewhat higher yield than would
result from investment in a fund utilizing solely market values and existing
investors in the Fund would receive less investment income. The converse would
apply in a period of rising interest rates.
The valuation of the Fund's instruments, based upon their amortized cost
and the concomitant maintenance by the Fund of a net asset value of $1.00, is
permitted in accordance with Rule 2a-7 under the Act, pursuant to which the
Fund must adhere to certain conditions. The Fund must maintain a
dollar-weighted average maturity of 90 days or less, purchase only instruments
having remaining maturities of 397 days (thirteen months) or less, and invest
only in securities that are determined to present minimal credit risks pursuant
to guidelines adopted by the Directors or the adviser under guidelines approved
by the Directors. Instruments having variable or floating interest rates or
demand features may be deemed to have remaining maturities as follows: (a) a
government security with a variable rate of interest readjusted no less
frequently than every thirteen months may be deemed to have a maturity equal to
the period remaining until the next readjustment of the interest rate; (b) an
instrument with a variable rate of interest, the principal amount of which is
scheduled on the face of the instrument to be paid in thirteen months or less,
may be deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate; (c) an instrument with a variable rate of
interest that is subject to a demand feature may be deemed to have a maturity
equal to the longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount can be
recovered through demand; (d) an instrument with a floating rate of interest
that is subject to a demand feature may be deemed to have a maturity equal to
the period remaining until the principal amount can be recovered through
demand; and (e) a repurchase agreement may be deemed to have a maturity equal
to the period remaining until the date on which the repurchase of the
underlying securities is scheduled to occur or, where no date is specified but
the agreement is subject to demand, the notice period applicable to a demand
for the repurchase of the securities.
The Company's Board of Directors has established valuation procedures
designed to stabilize, to the extent reasonably possible, the Fund's price per
share as computed for the purpose of sales and redemptions. Such procedures
include the determination, at such intervals as the Directors deem appropriate,
of the extent to which the Fund's NAV as calculated by using available market
quotations deviates from $1.00 per share, such deviation may result in material
dilution or other unfair results to existing shareholders or investors. In the
event the Directors determine that such a material deviation exists, they have
agreed to take such corrective action as they regard as necessary and
appropriate, which may include selling portfolio instruments prior to maturity
to realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends; redeeming shares in kind or without monetary or other
consideration; or establishing a net asset value per share by using available
market quotations. It is the intention of the Fund to maintain a per share net
asset value of $1.00, but there can be no assurance that the Fund will do so.
19
<PAGE> 1118
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Fund shares may be purchased on any day the Fund is open (a "Business
Day"). The Fund is open on any day that either the New York Stock Exchange or
Wells Fargo Bank is open. Currently the holidays observed by both the New York
Stock Exchange and Wells Fargo Bank are New Year's Day, Presidents' Day, Martin
Luther King's Birthday, 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.
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 the Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policies
established by the
20
<PAGE> 1119
Company's Board of Directors, Wells Fargo Bank is responsible for the Fund's
portfolio decisions and the placing of portfolio transactions. In placing
orders, it is the policy of the Company to obtain the best results taking into
account the dealer's general execution and operational facilities, the type of
transaction involved and other factors such as the dealer's risk in positioning
the securities involved. While Wells Fargo Bank generally seeks reasonably
competitive spreads or commissions, the Fund will not necessarily be paying the
lowest spread or commission available.
Purchase and sale orders of the securities held by the Fund may be combined
with those of other accounts that Wells Fargo Bank manages, and for which it
has brokerage placement authority, in the interest of seeking the most
favorable overall net results. When Wells Fargo Bank determines that a
particular security should be bought or sold for the Fund and other accounts
managed by Wells Fargo Bank, Wells Fargo Bank undertakes to allocate those
transactions among the participants equitably.
Purchases and sales of securities usually are principal transactions.
Portfolio securities normally are purchased or sold from or to dealers serving
as market makers for the securities at a net price. The Fund also purchases
portfolio securities in underwritten offerings and may purchase securities
directly from the issuer. Generally, municipal obligations and taxable money
market securities are traded on a net basis and do not involve brokerage
commissions. The cost of executing the Fund's portfolio securities
transactions consists primarily of dealer spreads and underwriting commissions.
Under the 1940 Act, persons affiliated with the Company are prohibited from
dealing with the Company as a principal in the purchase and sale of securities
unless an exemptive order allowing such transactions is obtained from the SEC
or an exemption is otherwise available.
The Fund may purchase certain obligations from underwriting syndicates of
which Stephens or Wells Fargo Bank is a member under certain conditions in
accordance with the provisions of a rule adopted under the 1940 Act and in
compliance with procedures adopted by the Board of Directors.
Wells Fargo Bank, as the Fund's investment adviser, may, in circumstances
in which two or more dealers are in a position to offer comparable results for
a Fund portfolio transaction, give preference to a dealer that has provided
statistical or other research services to Wells Fargo Bank. By allocating
transactions in this manner, Wells Fargo Bank is able to supplement its
research and analysis with the views and information of securities firms.
Information so received is in addition to, and not in lieu of, the services
required to be performed by Wells Fargo Bank under the advisory contracts, and
the expenses of Wells Fargo Bank are not necessarily reduced as a result of the
receipt of this supplemental research information. Furthermore, research
services furnished by dealers through which Wells Fargo Bank places securities
transactions for the Fund may be used by Wells Fargo Bank in servicing its
other accounts, and not all of these services may be used by Wells Fargo Bank
in connection with advising the Funds.
21
<PAGE> 1120
Consistent with the Rules of Fair Practice of the NASD, and subject to
seeking the most favorable price and execution available and such other
policies as the Directors may determine, the adviser may consider sales of Fund
shares as a factor in the selection of broker-dealers to execute portfolio
transactions for the Fund.
Brokerage Commissions. Subject to the general supervision and approval
of the Board of Directors, the adviser makes decisions with respect to and
places orders for all purchases and sales of securities for the Fund.
Securities are generally purchased and sold either directly from the issuer or
from dealers who specialize in money market instruments. Such purchases are
usually effected as principal transactions and therefore do not involve the
payment of brokerage commissions.
During the fiscal periods ended September 30 ,1996, September 30, 1995,
May 31, 1995, and May 31, 1994, the Fund and the Predecessor Portfolio did not
pay any brokerage commissions, because all of its portfolio transactions
occurred in the over-the-counter market.
Securities of Regular Broker Dealers. The Fund may from time to time
purchase securities issued by its regular broker/dealers. 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:
<TABLE>
<CAPTION>
AMOUNT REGULAR BROKER/DEALER
------ ---------------------
<S> <C>
$263,865,000 Goldman Sachs & Co.
</TABLE>
Prior to October 1, 1995, ALPS Mutual Funds Services, Inc. ("ALPS") served
as administrator/distributor for the Fund, and reported no holdings of
securities by the Fund of its regular broker/dealers or of their parents that
derive more than 15% of gross revenues from securities-related activities.
Portfolio Turnover Rate. The portfolio turnover rate is not a limiting
factor when Wells Fargo Bank deems portfolio changes appropriate. Because the
Fund's portfolio consists of securities with relatively short-term maturities,
it can expect to experience high portfolio turnovers. A high portfolio
turnover rate should not adversely affect the Fund, however, because portfolio
transactions ordinarily will be made directly with principals on a net basis
and, consequently, the Fund usually will not incur brokerage expenses.
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,
22
<PAGE> 1121
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 TAX
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
23
<PAGE> 1122
businesses. As a regulated investment company, the Fund will not be subject to
federal income tax on its net investment income and net capital gains
distributed to its shareholders, provided that it distributes to its
shareholders at least 90% of its net investment income, including net
tax-exempt income, earned in each year. The Fund intends to pay out
substantially all of its net investment income and net realized capital gains
(if any) for each year.
A 4% nondeductible excise tax will be imposed on the Fund (other than to the
extent of the Fund's tax-exempt income) to the extent it does not meet certain
minimum distribution requirements by the end of each calendar year. The Fund
will either actually or be deemed to distribute all of its net investment
income and net capital gains by the end of each calendar year and, thus,
expects not to be subject to the excise tax.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
individual tax rate applicable to ordinary income is 39.60% (marginal rates may
be higher for some individuals due to phase out of exemptions and elimination
of deductions); the maximum individual marginal tax rate applicable to net
capital gains is 28.00%; the maximum corporate tax rate applicable to ordinary
income and net capital gains is 35.00% (except that to eliminate the benefit of
lower marginal corporate income tax rates, corporations which have taxable
income in excess of $100,000 for a taxable year will be required to pay an
additional amount of income tax of up to $11,750 and corporations which have
taxable income in excess of $15,000,000 for a taxable year will be required to
pay an additional amount of tax of up to $100,000). Naturally, the amount of
tax payable by an individual or corporation will be affected by a combination
of tax laws covering, for example, deductions, credits, deferrals, exemptions,
sources of income and other matters.
Capital Gain Distributions. To the extent that the Fund recognizes
long-term capital gains, such gains will be distributed at least annually and
these distributions will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held Fund shares. Such distributions
will be designated as capital gain distributions in a written notice mailed by
the Fund to the shareholders not later than 60 days after the close of the
Fund's taxable year.
Other Distributions. Although dividends will be declared daily based on the
Fund's daily earnings, for federal income tax purposes, the Fund's earnings and
profits will be determined at the end of each taxable year and will be
allocated pro rata over the entire year. For federal income tax purposes, only
amounts paid out of earnings and profits will qualify as dividends. Thus, if
during a taxable year the Fund's declared dividends (as declared daily
throughout the year) exceed the Fund's net income (as determined at the end of
the year), only that portion of the year's distributions which equals the
year's earnings and profits will be deemed to have constituted a dividend. It
is expected that the Fund's net income, on an annual basis, will equal the
dividends declared during the year.
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
24
<PAGE> 1123
Fund share and such Fund share is held for six months or less, then (unless
otherwise disallowed) any loss on the sale or exchange of that Fund share will
be treated as a long-term capital loss to the extent of the designated capital
gain distribution. In addition, any loss realized by a shareholder upon the
sale or redemption of Fund shares held less than six months is disallowed to
the extent of any exempt-interest dividends received thereon by the
shareholder. These rules shall not apply, however, to losses incurred under a
periodic redemption plan.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or of a different regulated investment company,
the sales charge previously incurred acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are reacquired within the 61-day
period beginning 30 days before and ending 30 days after the shares are
disposed of.
Taxation of Fund Investments. Gains or losses on sales of portfolio
securities by the Fund will generally be long- term capital gains or losses if
the securities have been held by it for more than one year, except in certain
cases such as where the Fund acquires a put or writes a call thereon. Gains
recognized on the disposition of a debt obligation (including tax-exempt
obligations purchased after April 30, 1993) purchased by the Fund at a market
discount (generally at a price less than its principal amount) will be treated
as ordinary income to the extent of the portion of market discount which
accrued during the period of time the Fund held the debt obligation. Other
gains or losses on the sale of portfolio securities will be short-term capital
gains or losses.
Foreign Shareholders. Under the Code, distributions of net investment
income by the Fund to a nonresident alien individual, nonresident alien
fiduciary of a trust or estate, foreign corporation, or foreign partnership (a
"foreign shareholder") will be subject to U.S. withholding tax (at a rate of
30% or a lower treaty rate). Withholding will not apply if a dividend paid by
the Fund to a foreign shareholder is "effectively connected" with a U.S. trade
or business, in which case the reporting and withholding requirements
applicable to U.S. citizens, U.S. residents or domestic corporations will
apply. Distributions of net long-term capital gains are not subject to tax
withholding, but in the case of a foreign shareholder who is a nonresident
alien individual, such distributions ordinarily will be subject to U.S. income
tax at a rate of 30% if the individual is physically present in the U.S. for
more than 182 days during the taxable year.
Backup Withholding. The Company may be required to withhold, subject to
certain exemptions, at a rate of 31% ("backup withholding") on dividends,
capital gain distributions, and redemption proceeds (including proceeds from
exchanges) paid or
25
<PAGE> 1124
credited to an individual Fund shareholder, unless a shareholder certifies that
the Taxpayer Identification Number ("TIN") provided is correct and that the
shareholder is not subject to backup withholding, or the IRS notifies the
Company that the shareholder's TIN is incorrect or the shareholder is subject
to backup withholding. Such tax withheld does not constitute any additional
tax imposed on the shareholder, and may be claimed as a tax payment on the
shareholder's federal income tax return. An investor must provide a valid TIN
upon opening or reopening an account. Failure to furnish a valid TIN to the
Company could subject the investor to penalties imposed by the IRS.
Other Matters. Investors should be aware that the investments to be made by
the Fund may involve sophisticated tax rules that may result in income or gain
recognition by the Fund without corresponding current cash receipts. Although
the Fund will seek to avoid significant noncash income, such noncash income
could be recognized by the Fund, in which case the Fund may distribute cash
derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus address only
some of the federal tax considerations generally affecting investments in the
Fund. Each investor is urged to consult his or her tax advisor regarding
specific questions as to federal, state or local taxes and foreign taxes.
CAPITAL STOCK
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "The Funds and Management."
The Fund is one of the Stagecoach Family of funds. The Company was
organized as a Maryland corporation on September 9, 1991 and currently offers
shares of twenty-four other funds.
The Fund offers one class of shares. Most of the Company's funds are
authorized to issue multiple classes of shares, one class generally subject to
a front-end sales charge and, in some cases, a class subject to a contingent-
deferred sales charge, that are offered to retail investors. Certain of the
Company's funds also are authorized to issue other classes of shares, which are
sold primarily to institutional investors. Each class of shares in a fund
represents an equal, proportionate interest in a fund with other shares of the
same class. Shareholders of each class bear their pro rata portion of the
fund's operating expenses, except for certain class-specific expenses (e.g.,
any state securities registration fees, shareholder servicing fees or
distribution fees that may be paid under Rule 12b-1) that are allocated to a
particular class. Please contact Stagecoach Shareholder Services at
1-800-222-8222 if you would like additional information about other funds or
classes of shares offered.
26
<PAGE> 1125
Pacifica was a Massachusetts business trust established under a Declaration
of Trust dated July 17, 1984, consisting of series of separately managed
portfolios. The capitalization of Pacifica consisted solely of an unlimited
number of shares of beneficial interest with a par value of $0.001 each.
Voting. On any matter submitted to a vote of shareholders, all shares then
entitled to vote are voted separately by series unless otherwise required by
the Act, in which case all shares are voted in the aggregate. For example, a
change in a series' fundamental investment policy affects only one series and
are voted upon only by shareholders of the series and not by shareholders of
the Company's other series. Additionally, approval of an advisory contract is
a matter to be determined separately by each series. Approval by the
shareholders of one series is effective as to that series whether or not
sufficient votes are received from the shareholders of the other series to
approve the proposal as to those series. As used in the prospectus and in this
SAI, the term "majority" when referring to approvals to be obtained from
shareholders of the Fund, means the vote of the lesser of (i) 67% of the Fund
shares represented at a meeting if the holders of more than 50% of the
outstanding Fund shares are present in person or by proxy, or (ii) more than
50% of the outstanding shares of the Fund. The term "majority," when
referring to the approvals to be obtained from shareholders of the Company as a
whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held. The
Company may dispense with an annual meeting of shareholders in any year in
which it is not required to elect directors under the 1940 Act.
Each Fund share represents an equal proportional interest in the Fund with
each other share and is entitled to such dividends and distributions out of the
income earned on the assets belonging to the Fund as are declared in the
discretion of the Directors. In the event of the liquidation or dissolution of
the Company, shareholders of the Fund are entitled to receive the assets
attributable to the Fund that are available for distribution, and a
distribution of any general assets not attributable to a particular investment
portfolio that are available for distribution in such manner and on such basis
as the Directors in their sole discretion may determine.
Shares have no preemptive rights or subscription. All shares, when issued
for the consideration described in the prospectus, are fully paid and
non-assessable by the Company.
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.
27
<PAGE> 1126
5% OWNERSHIP AS OF JANUARY 2, 1997
<TABLE>
<CAPTION>
Percentage Percentage
Name and Address Class; Type of Ownership of Class of Fund
---------------- ------------------------ -------- -------
<S> <C> <C> <C>
Virg & Co. Record Holder 100% 100%
Attn: MF Dept. A88-4
P.O. Box 9800
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 or more than 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class.
OTHER
This Registration Statement, including the prospectus for each Fund, the
SAI and the exhibits filed therewith, may be examined at the office of the SEC
in Washington, D.C. Statements contained in a prospectus or the SAI as to the
contents of any contract or other document referred to herein or in the
prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditors for the
Company. KPMG Peat Marwick LLP provides audit services, tax return preparation
and assistance and consultation in connection with review of certain SEC
filings. KPMG Peat Marwick LLP's address is Three Embarcadero Center, San
Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and independent
auditors' reports for the Company's fiscal period ended September 30, 1996 are
hereby incorporated by reference to the Company's Annual Report as filed with
the SEC on or about December 9, 1996. The Company's annual report may be
obtained by calling 1-800-222-8222.
28
<PAGE> 1127
SAI APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate and Municipal Bonds
Moody's: The four highest ratings for corporate and municipal bonds are
"Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest amount of investment risk. Bonds rated "Aa"
are of "high quality by all standards," but margins of protection or other
elements make long-term risks appear somewhat greater than "Aaa" rated bonds.
Bonds rated "A" possess many favorable investment attributes and are considered
to be upper medium grade obligations. Bonds rated "Baa" are considered to be
medium grade obligations; interest payments and principal security appear
adequate for the present, but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds
have speculative characteristics as well. Moody's applies numerical modifiers:
1, 2 and 3 in each rating category from "Aa" through "Baa" in its rating
system. The modifier 1 indicates that the security ranks in the higher end of
its category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are "AAA,"
"AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned by
S&P and have an extremely strong capacity to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity to pay interest and repay
principal" and differ "from the highest rated issued only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having an "adequate capacity" to pay interest and
repay principal, but changes in economic conditions or other circumstances are
more likely to lead to a "weakened capacity" to make such repayments. The
ratings from "AA" to "BBB" may be modified by the addition of a plus or minus
sign to show relative standing within the category.
Municipal Notes
Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG
2" or "VMIG 2" are of "high quality," with margins of protections "ample
although not as large as in the preceding
A-1
<PAGE> 1128
group." Notes rated "MIG 3" or "VMIG 3" are of "favorable quality," with all
security elements accounted for, but lacking the strength of the preceding
grades.
S&P: The "SP-1" rating reflects a "very strong or strong capacity to pay
principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate and municipal commercial paper
is "P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for
repayment of short-term promissory obligations." Issuers rated "P-2" (Prime-2)
"have a strong capacity for repayment of short-term promissory obligations,"
but earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate and municipal commercial paper
indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
A-2
<PAGE> 1129
STAGECOACH FUNDS, INC.
Telephone: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1997
PRIME MONEY MARKET MUTUAL FUND
TREASURY MONEY MARKET MUTUAL FUND
SERVICE CLASS
--------------------------------------
Stagecoach Funds, Inc. (the "Company") is an open-end, series
investment company. This Statement of Additional Information ("SAI") contains
information about two of the funds in the Stagecoach Family of Funds -- the
PRIME MONEY MARKET MUTUAL FUND and the TREASURY MONEY MARKET MUTUAL FUND (each
a "Fund" and collectively, the "Funds"). The Funds offer three classes of
shares -- Class A, Institutional and Service shares. This SAI relates only to
the Service class of shares ("Service Class shares") of the Funds. The
investment objective of each Fund is described in its Prospectus under the
section entitled "How the Funds Work -- Investment Objectives and Policies."
This SAI is not a prospectus and should be read in conjunction
with each Fund's Prospectus dated February 1, 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> 1130
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . 1
Additional Permitted Investment Activities . . . . . . . . . . . . . . 5
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Servicing Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . . 16
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . 19
Additional Purchase and Redemption Information . . . . . . . . . . . . 20
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . 21
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Federal Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . 29
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . 29
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
i
<PAGE> 1131
GENERAL
Stagecoach Funds, Inc. (the "Company" and, at times, "Stagecoach") is
an open-end management investment company offering shares in separately managed
investment portfolios. The Prime Money Market Mutual Fund operated as Pacific
American Liquid Assets, Inc. from commencement of operations on April 30, 1981
until it was reorganized as a portfolio of Pacific American Fund on October 1,
1985; on October 1, 1994, it was reorganized as the Pacific American Money
Market Portfolio of Pacifica; and, in July of 1995, it was renamed the Pacifica
Prime Money Market Fund. Prior to August 1, 1990, the Treasury Money Market
Mutual Fund was known as the Short-Term Government Fund and invested in
obligations issued or guaranteed by agencies and instrumentalities of the U.S.
Government in accordance with fundamental policies that were then effective for
the Fund. The Fund operated as a portfolio of Pacific American Fund through
October 1, 1994, when it was reorganized as the Pacific American U.S. Treasury
Portfolio, a portfolio of Pacifica Funds Trust. In July 1995, the Fund was
renamed the Pacifica Treasury Money Market Fund.
On April 25, 1996, the Agreement and Plan of Reorganization of
Pacifica with Stagecoach, and the creation of each Fund as a new fund of
Stagecoach were approved by the Company's Board of Directors. On May 17, 1996,
the Agreement and Plan of Reorganization of Pacifica with Stagecoach was
approved by Pacifica's Board of Trustees. The Reorganization of Pacifica with
Stagecoach became effective on September 6, 1996 (the "Reorganization"). Each
of the following portfolios of Pacifica was reorganized as the specified
Stagecoach Fund:
PACIFICA FUNDS TRUST PORTFOLIO NAME STAGECOACH FUND NAME
- ----------------------------------- --------------------
Pacifica Prime Money Market Fund Prime Money Market Mutual Fund
Pacifica Treasury Money Market Fund Treasury Money Market Mutual Fund
INVESTMENT RESTRICTIONS
The Prospectuses summarize certain fundamental investment restrictions
that have been adopted for the Funds. All of the Funds' restrictions are
stated in full herein and cannot be changed with respect to a Fund without
approval by the holders of a majority, as defined in the 1940 Act, of the
Fund's outstanding voting shares.
Fundamental Investment Policies.
The Funds are subject to the following investment restrictions, all of
which are fundamental policies, unless expressly indicated otherwise.
1
<PAGE> 1132
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 up to one-third of the value of its total assets at the
time of such borrowing. Neither Fund will purchase securities while its
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding. As a matter of non-fundamental policy, each Fund
intends to limit its investments in reverse repurchase agreements to no more
than 20% of its total assets and will only engage in such transactions with
primary reporting dealers.
3. Mortgage, pledge, or hypothecate any assets, except in connection
with any such borrowing and in amounts not in excess of one-third of the value
of a Fund's total assets at the time of its borrowing. Securities held in
escrow or separate accounts in connection with a Fund's investment practices
are not deemed to be pledged for purposes of this investment restriction.
4. Purchase securities on margin, except for delayed delivery or
when-issued transactions or such short-term credits as are necessary for the
clearance of transactions; or make short sales of securities or, for the
Treasury Money Market Mutual Fund, maintain a short position.
5. Write put or call options.
6. Underwrite the securities of other issuers, except as a Fund may
be deemed to be an underwriter in connection with the purchase or sale of
portfolio instruments in accordance with its investment objective and portfolio
management policies.
7. Invest in companies for the purpose of exercising control.
8. Make loans, except that a Fund may purchase or hold debt
instruments in accordance with its investment objective and policies and may
enter into loans of portfolio securities and repurchase agreements.
9. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation, acquisition of assets or
where otherwise permitted by the 1940 Act.
10. Lend its portfolio securities in excess of one-third of the
value of its total assets.
As a non-fundamental policy, any loans of portfolio securities will be
made according to guidelines established by the SEC and the Company's Board of
Directors, including maintenance of
2
<PAGE> 1133
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 even though it
causes the Fund to exceed a percentage limitation because of fluctuation in the
value of the Fund's assets.
3
<PAGE> 1134
In addition, in accordance with current SEC regulations, the Funds
intend, as a non-fundamental policy, to limit their respective investments in
the securities of any single issuer (other than securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and repurchase
agreements collateralized by such securities) to not more than 5% of the value
of their respective total assets at the time of purchase, except for 25% of the
value of their respective total assets which may be invested in any one issuer
for a period of up to three business days.
The Company may make commitments more restrictive than the
restrictions listed above so as to permit the sale of Fund shares in certain
states. Should the Company determine that such a commitment is no longer in the
best interests of the Fund involved and its shareholders, the Company reserves
the right to revoke the commitment by terminating the sale of Fund shares in
the state involved.
Pursuant to state securities regulations, the Treasury Money Market
Mutual Fund has undertaken the following non-fundamental investment limitation:
the Fund will not purchase warrants, valued at the lower of cost or market, in
excess of 5% of the value of its net assets (included within that amount, but
not to exceed 2% of the value of the Fund's net assets, may be warrants that
are not listed on the New York or American Stock Exchanges) except that
warrants acquired by the Fund at any time in units or attached to securities
are not subject to this limitation. Investors should note, however, that
neither Fund currently intends to purchase any warrants whatsoever, or to
acquire any put option that may be sold, transferred or assigned separately
from the underlying security.
As a non-fundamental investment policy: each Fund currently intends to
limit its investments in securities issued by other investment companies so
that, as determined immediately after a purchase of such securities is made:
(i) not more than 5% of the value of the Fund's total assets will be invested
in the securities of any one investment company; (ii) not more than 10% of the
value of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (iii) not more than 3% of the outstanding
voting securities of any one investment company will be owned by a Fund or by
the Company as a whole.
For purposes of determining industry classifications of issuers,
wholly-owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents, and utilities will be classified according to their
services (for example, gas, gas transmission, electric and gas, and electric
and telephone each will be considered a separate industry). In accordance with
the current views of the staff of the SEC and as a matter of nonfundamental
policy that may be changed without a vote of shareholders, a Fund will treat
all supranational organizations as a single industry and each foreign
government (and all of its agencies) as a separate industry.
4
<PAGE> 1135
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
A description of the securities in which each of the Funds may invest
is set forth in their Prospectuses, to which reference is hereby made.
Additional information about these instruments follows.
Loans of Portfolio Securities. The Prime Money Market Mutual Fund may
lend its securities to brokers, dealers and financial institutions, provided
(1) the loan is secured continuously by collateral consisting of cash, U.S.
Treasury securities, or other U.S. Government securities or a letter of credit
which is marked to market daily to ensure that each loan is fully
collateralized at all times; (2) the Fund may at any time call the loan and
obtain the return of the securities loaned within five business days; (3) the
Fund will receive any interest or dividends paid on the securities loaned; and
(4) the aggregate market value of securities loaned will not at any time exceed
one-third of the total assets of the Fund. The Fund may earn income in
connection with securities loans either through the reinvestment of the cash
collateral or the payment of fees by the borrower. The Treasury Money Market
Mutual Fund does not currently intend to lend its portfolio securities.
Repurchase Agreements. Each Fund may engage in a repurchase agreement
with respect to any security in which that Fund is authorized to invest,
including U.S. Treasury STRIPS, although the underlying security may mature in
more than thirteen months. Each Fund may enter into repurchase agreements
wherein the seller of a security to the Fund agrees to repurchase that security
from the Fund at a mutually agreed-upon time and price that involves the
acquisition by a Fund of an underlying debt instrument, subject to the seller's
obligation to repurchase, and such Fund's obligation to resell, the instrument
at a fixed price usually not more than one week after its purchase. The Fund's
custodian has custody of, and holds in a segregated account, securities
acquired as collateral by a Fund under a repurchase agreement. Repurchase
agreements are considered by the staff of the SEC to be loans by the Fund. The
Funds may enter into repurchase agreements only with respect to securities of
the type in which such Fund may invest, including government securities and
mortgage-related securities, regardless of their remaining maturities, and
requires that additional securities be deposited with the custodian if the
value of the securities purchased should decrease below resale price. Wells
Fargo Bank monitors on an ongoing basis the value of the collateral to assure
that it always equals or exceeds the repurchase price. Certain costs may be
incurred by a Fund in connection with the sale of the underlying securities if
the seller does not repurchase them in accordance with the repurchase
agreement. In addition, if bankruptcy proceedings are commenced with respect
to the seller of the securities, disposition of the securities by a Fund may be
delayed or limited. While it does not presently appear possible to eliminate
all risks from these transactions (particularly the possibility of a decline in
the market value of the underlying securities, as well as delay and costs to a
Fund in connection with insolvency proceedings), it is the policy of each Fund
to limit repurchase agreements to selected creditworthy securities dealers or
domestic banks or other recognized financial institutions. Each Fund considers
on an ongoing basis the creditworthiness of the institutions with which it
enters into repurchase agreements. Repurchase agreements are considered to be
loans by a Fund under the Investment Company Act of 1940 (the "1940 Act").
5
<PAGE> 1136
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 Fund will not accrue
income in respect of a security purchased on a forward commitment basis prior
to its stated delivery date.
Securities purchased on a when-issued or forward commitment basis and
certain other securities held in a Fund's investment portfolio are subject to
changes in value (both generally changing in the same way, i.e., appreciating
when interest rates decline and depreciating when interest rates rise) based
upon the public's perception of the creditworthiness of the issuer and changes,
real or anticipated, in the level of interest rates. Securities purchased on a
when-issued or forward commitment basis may expose the relevant Fund to risk
because they may experience
6
<PAGE> 1137
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 the Funds' Prospectuses.
Subsequent to its purchase by a Fund, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Directors or the Adviser, pursuant to
guidelines established by the Board, will consider such an event in determining
whether the Fund involved should continue to hold the security in accordance
with the interests of the Fund and applicable regulations of the SEC.
7
<PAGE> 1138
MANAGEMENT
The following information supplements and should be read in conjunction
with the section in the prospectus entitled "The Funds and Management." The
principal occupations during the past five years of the Directors and principal
executive Officer of the Company are listed below. The address of each, unless
otherwise indicated, is 111 Center Street, Little Rock, Arkansas 72201.
Directors deemed to be "interested persons" of the Company for purposes of the
1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 45 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate Professor of Finance
of the School of Business and Accounting at
Wake Forest University since 1983.
</TABLE>
8
<PAGE> 1139
<TABLE>
<S> <C> <C>
Joseph N. Hankin, 55 Director President, Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; President of Hartford
(appointed as of Junior College from 1967 to
September 6, 1996) 1971; Adjunct Professor of
Columbia University
Teachers College since
1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 40 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
9
<PAGE> 1140
COMPENSATION TABLE
<TABLE>
<CAPTION>
Year Ended Period Ended
---------- -------------
December 31, 1995 September 30, 1996
------------------ ------------------
Total
Aggregate Total Compensation Aggregate Compensation from
Compensation from Registrant Compensation Registrant
Name and Position from Registrant and Fund Complex from Registrant and Fund Complex
----------------- --------------- ------------------ --------------- -----------------
<S> <C> <C> <C> <C>
Jack S. Euphrat $10,188 $39,750 $9,750 $29,250
Director
*R. Greg Feltus $-0- $-0- $-0- $-0-
Director
Thomas S. Goho $10,188 $39,750 $9,750 $29,250
Director
Joseph N. Hankin N/A N/A $-0- $-0-
Director
*Zoe Ann Hines $-0- $-0- $-0- $-0-
Director
(resigned as of
September 6, 1996)
*W. Rodney Hughes $ 9,438 $37,000 $8,250 $24,750
Director
Robert M. Joses $ 9,938 $39,000 $9,750 $29,250
Director
*J. Tucker Morse $8,313 $33,250 $8,250 $24,750
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").
10
<PAGE> 1141
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 Funds are advised by Wells Fargo Bank pursuant
to an advisory contract for each Fund under which Wells Fargo Bank has agreed
to furnish investment guidance and policy direction in connection with the
daily portfolio management of the Fund. On behalf of each Fund, the Company's
Board of Directors approved the advisory contracts with Wells Fargo Bank on
April 25, 1996, for an initial two-year period. Pursuant to the advisory
contracts, Wells Fargo Bank also has agreed to furnish to the Board of
Directors periodic reports on the investment strategy and performance of each
Fund.
Wells Fargo Bank has agreed to provide to the Funds, among other
things, money market and fixed-income research, analysis and statistical and
economic data and information concerning interest-rate and security market
trends, portfolio composition, credit conditions and, average maturities of each
Fund. As compensation for its advisory services, Well Fargo Bank is entitled to
receive a monthly fee at the annual rates of 0.25% of the average daily value of
each Fund's net assets during the preceding month.
The advisory contracts continue in effect for more than two years
provided the continuance is approved annually (i) by the holders of a majority
of a Fund's outstanding voting securities or (ii) by the Company's Board of
Directors and by a majority of the Directors of the Company who are not parties
to the advisory contracts or "interested persons" (as defined in the 1940 Act)
of any such party. The advisory contracts may be terminated on 60 days'
written notice by either party and will terminate automatically if assigned.
Prior to the Reorganization 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
portfolios of Pacifica. As of the date of the Reorganization, Wells Fargo Bank
became the adviser to the Funds. For the period begun April 1, 1996 and ended
September 5, 1996 the predecessor portfolios paid to WFIM, and for the period
begun September 6, 1996 and ended September 30, 1996 the Funds paid to Wells
Fargo Bank, the advisory fees indicated below and the indicated amounts were
waived:
11
<PAGE> 1142
Investment Advisory Fees
<TABLE>
<CAPTION>
Fiscal Year Ended
September 30, 1996
-------------------
Fund Fees Paid Fees Waived
---- --------- -----------
<S> <C> <C> <C>
o Prime Money Market Mutual $1,845,269 $1,553,968
o 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 to the former adviser by the predecessor portfolios of the Prime
Money Market Mutual Fund and the Treasury Money Market Mutual Fund were as
follows:
Investment Advisory Fees Paid*
<TABLE>
<CAPTION>
Year Ended Period Ended Year Ended
FUND Sept. 30, 1995 Sept. 30, 1994 Mar. 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>
*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.
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 and each Fund, and the
Co- Administration Agreement among Wells Fargo, Stephens and each Fund, state
that Wells Fargo 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 public
accountants and legal counsel, regulatory compliance, including the compilation
of information for documents such as reports to, and filings with, the SEC and
state securities commissions; and preparation of proxy statements and
shareholder reports for 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.
12
<PAGE> 1143
From April to September 5, 1996, the administrator of the Pacifica
predecessor portfolios (Furman Selz LLC) provided management and administrative
services necessary for the operation of such Funds, pursuant to an
Administrative Services Contract. For these services, Furman Selz LLC was
entitled to receive a fee, payable monthly, at the annual rate of 0.15% of the
average daily net assets of the Predecessor Funds. The predecessor portfolios
of the Prime Money Market Mutual and Treasury Money Market Mutual Funds were
administered through April 21, and April 14, 1996, respectively, by the Dreyfus
Corporation, 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 such 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>
Administration Fees
-------------------
Fiscal Year Ended
Fund September 30, 1996
----- ------------------
<S> <C> <C>
o Prime Money Market Mutual $1,230,872
o 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 predecessors of the Prime Money Market Mutual Fund
and the Treasury Money Market Mutual Fund were as follows:
<TABLE>
<CAPTION>
Administration Fees
-------------------
Year Ended Period Ended Year Ended
FUND Sept. 30, 1995 Sept. 30, 1994 Mar. 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 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 approved Servicing
Plans and have entered into related Shareholder Servicing Agreements with
financial institutions, including Wells Fargo Bank. For providing these
services, a Servicing Agent is entitled to a fee from the applicable Fund, not
to exceed 0.20%, on an annualized basis, of the average daily net assets of the
Service Class shares owned of record or beneficially by the customers of the
Servicing Agent during the period for which payment is being made. The
Servicing Plans and related form of shareholder servicing
13
<PAGE> 1144
agreement were approved by the Company's Board of Directors on April 25, 1996
and provide that a Fund shall not be obligated to make any payments under such
Plans or related Agreements that exceed the maximum amounts payable under
Article III, Section 26 of the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD Rules").
For the period begun October 1, 1995 and ended September 5, 1996, under
similar service agreements with certain institutions, including affiliates of
FICM, shareholder servicing fees have been paid to various institutions for the
Funds as indicated below. For the period begun September 6, 1996 and ended
September 30, 1996, such fees were paid to Wells Fargo Bank or its affiliates.
The Service Class shares of the Funds paid shareholder servicing fees (after
waivers) for the fiscal year ended September 30, 1996 as indicated below:
<TABLE>
<CAPTION>
Shareholder Servicing Fees--
Service Class
----------------------------
Fiscal Year Ended
Fund September 30, 1996
----- ------------------
<S> <C> <C>
o Prime Money Market Mutual $1,355,940
o Treasury Money Market Mutual $2,490,845
</TABLE>
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank
has been retained to act as custodian and transfer and dividend disbursing
agent for the 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 Pacifica, but played no
role in making decisions as to the purchase or sale of portfolio securities for
the predecessor portfolios. FICAL was entitled to receive a fee from Pacifica,
computed daily and payable monthly, at the annual rate of 0.021% of the first
$5 billion in aggregate average daily net assets of the Funds; 0.0175% of the
next $5 billion in aggregate average daily net assets of the Funds; and 0.015%
of the aggregate average daily net assets of the Funds in excess of $10
billion.
14
<PAGE> 1145
For the period begun October 1, 1995 and ended September 5, 1996 the
custody fees paid to FICAL, and for the period begun September 6, 1996 and
ended September 30, 1996 the custody fees paid to Wells Fargo Bank are both
reflected in the following table:
<TABLE>
<CAPTION>
Custody Fees
------------
Fiscal Year Ended
Fund September 30, 1996
---- ------------------
<S> <C> <C>
o Prime Money Market Mutual $ 73,023(1)
o Treasury Money Market Mutual $252,183
</TABLE>
- ---------------------------------------
(1) This amount reflects fee waivers.
For its services as transfer and dividend disbursing agent for the
Funds, Wells Fargo Bank is entitled to receive monthly payments at the annual
rate of 0.07% of the average daily net assets of each Fund. 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 Service Class of each Fund does not
charge any front-end sales loads or contingent deferred sales charges in
connection with the purchase and redemption of its shares, and therefore pays no
underwriting commissions to the Distributor.
SERVICING PLANS
As indicated in each Fund's Prospectus, the Company's Board of
Directors, on behalf of each Fund, adopted a Servicing Plan ("Servicing Plan")
on April 25, 1996, with respect to each class of the Funds' shares. The Board
of Directors included a majority of the Directors who were not "interested
persons" (as defined in the Act) of each Fund and who had no direct or indirect
financial interest in the operation of the Servicing Plan or in any agreement
related to the Servicing Plan (the "Servicing Plan Non-Interested Directors").
Under the Servicing Plan and pursuant to the shareholder servicing
agreements for the Service Class shares, each Fund may pay one or more
servicing agents, as compensation for performing certain services, a fee at an
annual rate of up to 0.20% of the average daily net assets of the Fund's
Service Class shares attributable to the servicing agent's customers. The
actual fee payable to servicing agents is determined, within such limits, from
time to time by mutual agreement between the Company and each servicing agent
and will not exceed the maximum service fees payable by mutual funds sold by
members of the NASD under the NASD Rules.
Each Servicing Plan continues in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Servicing Plan Non-Interested
15
<PAGE> 1146
Directors. Any form of servicing agreement related to the Servicing Plan also
must be approved by such vote of the Directors and the Servicing Plan
Non-Interested Directors. Servicing agreements may be terminated at any time,
without payment of any penalty, by vote of a majority of the Servicing Plan
Non-Interested Directors. No material amendment to the Servicing Plans may be
made except by a majority of both the Directors of the Company and the
Servicing Plan Non-Interested Directors.
Each Servicing Plan requires that the administrator shall provide to
the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under the Servicing Plan.
PERFORMANCE CALCULATIONS
The following information supplements and should be read in conjunction
with the sections in each Prospectus entitled "Determination of Net Asset
Value" and "Performance Data."
The "yields" and "effective yields" of each Fund described in the
Prospectuses are calculated according to formulas prescribed by the SEC. The
standardized seven-day yields for the respective classes of shares of a Fund
are computed separately for each class by determining the net change, exclusive
of capital changes, in the value of a hypothetical pre-existing account in the
Fund having a balance of one share at the beginning of the period, dividing the
net change in account value by the value of the account at the beginning of the
base period to obtain the base period return, and multiplying the base period
return by (365/7). The net change in the value of an account in each Fund
includes the value of additional shares purchased with dividends from the
original share, and dividends declared on both the original share and any such
additional shares, and all fees, other than non-recurring account or sales
charges, that are charged to all shareholder accounts in proportion to the
length of the base period and the Fund's average account size. The capital
changes to be excluded from the calculation of the net change in account value
are realized gains and losses from the sale of securities and unrealized
appreciation and depreciation. The effective annualized yields for a Fund are
also computed separately for each class by compounding the unannualized base
period return (calculated as above) by adding 1 to the base period return,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from
the result. The fees which may be imposed by Banks for cash management services
in connection with investments in shares of the Funds are not reflected in the
Funds' yields, and any such fees, if charged, will reduce the actual return
received by Customers for their investments.
16
<PAGE> 1147
<TABLE>
<CAPTION>
Yield For The Applicable Period Ended September 30, 1996
Fund Seven-Day Yield Seven-Day Effective Yield
---- --------------- --------------------------
<S> <C> <C>
Prime Money Market Mutual 5.09% 5.22%
Treasury Money Market Mutual 4.90% 5.02%
</TABLE>
Yield information may be useful in reviewing the Funds' performance and
for providing a basis for comparison with other investment alternatives.
However, yields fluctuate, unlike investments which pay a fixed yield for a
stated period of time. Yields for the Funds are calculated on the same basis as
other money market funds as required by applicable regulations. Investors
should give consideration to the quality and maturity of the portfolio
securities of the respective investment companies when comparing investment
alternatives.
Investors should recognize that in periods of declining interest rates,
the Funds' yields will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates, the Funds' yields will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net new
money to the Funds from the continuous sale of their shares will likely be
invested in instruments producing lower yields than the balance of the Funds,
thereby reducing the current yields of the Funds. In periods of rising interest
rates, the opposite can be expected to occur.
From time to time and only to the extent the comparison is appropriate
for a Fund or a class of shares, the Company may quote performance or
price-earning ratios in advertising and other types of literature as compared
with the performance of the Lehman Brothers Municipal Bond Index, 1-Year
Treasury Bill Rate, S&P Index, the Dow Jones Industrial Average, the Lehman
Brothers 20+ Years Treasury Index, the Lehman Brothers 5-7 Year Treasury Index,
IBC/Donoghue's Money Fund Averages, Real Estate Investment Averages (as
reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by the World Gold Council), Bank Averages (which
is calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), Ten Year U.S. Government Bond Average, S&P's
Corporate Bond Yield Averages, Schabacter Investment Management Indices,
Salomon Brothers High Grade Bond Index, Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, other managed or unmanaged indices or
performance data of 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.,
17
<PAGE> 1148
Bloomberg Financial Markets or Morningstar, Inc., independent services that
monitor the performance of mutual funds. Any such comparisons may be useful to
investors who wish to compare a Fund's past performance with that of its
competitors. Of course, past performance cannot be a guarantee of future
results. The Company also may include, from time to time, a reference to
certain marketing approaches of the Distributor, including, for example, a
reference to a potential shareholder being contacted by a selected broker or
dealer. General mutual fund statistics provided by the Investment Company
Institute may also be used.
In addition, the Company also may use, in advertisements and other
types of literature, information and statements showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth. The Company also may include in
advertising and other types of literature information and other data from
reports and studies prepared by the Tax Foundation, including information
regarding federal and state tax levels and the related "Tax Freedom Day."
The Company also may use the following information in advertisements
and other types of literature, only to the extent the information is appropriate
for a class of shares of a Fund: (i) the Consumer Price Index may be used to
assess the real rate of return from an investment in a class of shares of a
Fund; (ii) other government statistics, including, but not limited to, The
Survey of Current Business, may be used to illustrate investment attributes of a
Fund or a class of shares or the general economic, business, investment, or
financial environment in which the Fund operates; (iii) the effect of
tax-deferred compounding on the investment returns of a Fund or a class of
shares, or on returns in general, may be illustrated by graphs, charts, etc.,
where such graphs or charts would compare, at various points in time, the return
from an investment in a Fund or a class of shares (or returns in general) on a
tax-deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and (iv) the
sectors or industries in which a Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate the
historical performance of the Fund or a class or current or potential value with
respect to the particular industry or sector.
The Company also may discuss in advertising and other types of
literature that a Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as S&P or Moody's. Such rating
would assess the creditworthiness of the investments held by a Fund. The
assigned rating would not be a recommendation to purchase, sell or hold any
class of a Fund's shares since the rating would not comment on the market price
of a Fund's shares or the suitability of a Fund for a particular investor. In
addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or unavailability of, information relating
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
18
<PAGE> 1149
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 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.
19
<PAGE> 1150
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the Prospectus section under "Purchase of Shares."
Expenses and fees, including advisory fees, are accrued daily and are
taken into account for the purpose of determining the net asset value of a
Fund's shares.
Net asset value per share for a class of shares is determined as of
12:00 noon Pacific time and 1:00 p.m. Pacific time on each Business Day as
described in the Prospectus.
The Funds' instruments are valued on the basis of amortized cost. This
technique involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than
the price a Fund would receive if it sold the instrument. During periods of
declining interest rates, the daily yield on shares of a Fund computed as
described above may tend to be higher than a like computation made by a fund
with identical investments utilizing a method of valuation based upon market
prices and estimates of market prices for all of its instruments. Thus, if the
use of amortized cost by a Fund resulted in a lower aggregate portfolio value
on a particular day, a prospective investor in a Fund would be able to obtain a
somewhat higher yield than would result from investment in a fund utilizing
solely market values and existing investors in a Fund would receive less
investment income. The converse would apply in a period of rising interest
rates.
The valuation of each Funds' instruments, based upon their amortized
cost and the concomitant maintenance by each Fund of a net asset value of $1.00,
is permitted in accordance with Rule 2a-7 under the Act, pursuant to which a
Fund must adhere to certain conditions. Each Fund must maintain a
dollar-weighted average maturity of 90 days or less, purchase only instruments
having remaining maturities of 397 days (thirteen months) or less, and invest
only in securities that are determined to present minimal credit risks pursuant
to guidelines adopted by the Directors or the adviser under guidelines approved
by the Directors. Instruments having variable or floating interest rates or
demand features may be deemed to have remaining maturities as follows: (a) a
government security with a variable rate of interest readjusted no less
frequently than every thirteen months may be deemed to have a maturity equal to
the period remaining until the next readjustment of the interest rate; (b) an
instrument with a variable rate of interest, the principal amount of which is
scheduled on the face of the instrument to be paid in thirteen months or less,
may be deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate; (c) an instrument with a variable rate of
interest that is subject to a demand feature may be deemed to have a maturity
equal to the longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount can be
recovered through demand; (d) an instrument with a floating rate of interest
that is subject to a demand feature may be deemed to have a maturity equal to
the period remaining until the principal amount can be recovered through demand;
and (e) a repurchase agreement may be deemed to have a maturity equal to the
period remaining until the date on which the repurchase of the underlying
securities is
20
<PAGE> 1151
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 Money
Market 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
Service Class 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 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 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
21
<PAGE> 1152
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
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.
22
<PAGE> 1153
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 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:
<TABLE>
<CAPTION>
Fund Amount Regular Broker/Dealer
---- ------ ---------------------
<S> <C> <C> <C>
o Prime Money Market Mutual $166,369,000 Goldman Sachs & Co.
o Treasury Money Market Mutual $225,975,000 Goldman Sachs & Co.
o Treasury Money Market Mutual $230,000,000 HSBC Securities
o Treasury Money Market Mutual $225,000,000 JP Morgan Securities
o 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.
23
<PAGE> 1154
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 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 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.
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 the Funds 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
24
<PAGE> 1155
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 $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
25
<PAGE> 1156
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 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.
26
<PAGE> 1157
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.
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 twenty-three other funds.
Each Fund offers three classes of shares. Most of the Company's
funds are authorized to issue multiple classes of shares, one class generally
subject to a front-end sales charge and, in some cases, a class subject to a
contingent-deferred sales charge, that are offered to retail investors.
Certain of the Company's funds also are authorized to issue other classes of
shares, which are sold primarily to institutional investors. Each class of
shares in a fund represents an equal, proportionate interest in a fund with
other shares of the same class. Shareholders of each class bear their pro rata
portion of the fund's operating expenses, except for certain class-specific
expenses (e.g., any state securities registration fees, shareholder servicing
fees or distribution fees that may be paid under Rule 12b-1) that are allocated
to a particular class. Please contact Stagecoach Shareholder Services at
1-800-222-8222 if you would like additional information about other funds or
classes of shares offered.
27
<PAGE> 1158
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.
Each share of a class of a Fund represents an equal proportional
interest in the Fund with each other share in the same class and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to the Fund as are declared in the discretion of the Directors. In
the event of the liquidation or dissolution of the Company, shareholders of a
Fund or class are entitled to receive the assets attributable to the Fund or
class that are available for distribution, and a distribution of any general
assets not attributable to a particular investment portfolio that are available
for distribution in such manner and on such basis as the Directors in their
sole discretion may determine.
Shares have no preemptive rights or subscription. All shares, when
issued for the consideration described in the Prospectus, are fully paid and
non-assessable by the Company.
Pacifica was a Massachusetts business trust established under a
Declaration of Trust dated July 17, 1984, consisting of series of separately
managed portfolios which are described in this SAI. Prior to February 9, 1993
the name of Pacifica was Fund Source. This SAI relates only to the Service
Class shares of two of those portfolios -- the Prime Money Market Mutual Fund
and the Treasury Money Market Mutual Fund. The capitalization of Pacifica
consisted solely of an unlimited number of shares of beneficial interest with a
par value of $0.001 each.
Set forth below is the name, address and share ownership of each person
known by the Company to have as of December 31, 1996 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
28
<PAGE> 1159
5% OWNERSHIP AS OF JANUARY 2, 1997
<TABLE>
<CAPTION>
CLASS; TYPE OF PERCENTAGE PERCENTAGE OF
FUND NAME AND ADDRESS OWNERSHIP OF CLASS PORTFOLIO
- ---- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PRIME MONEY Virg & Co. Service Class 99.48% 49.10%
MARKET FUND Attn: MF Dept. A88-4 [Record Holder]
P.O. Box 9800
Calabasas, CA 91372
TREASURY MONEY Virg & Co. Service Class 98.91% 65.90%
MARKET FUND Attn: MF Dept. A88-4 [Record Holder]
P.O. Box 9800
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
This Registration Statement, including the Prospectus for each Fund,
the SAI and the exhibits filed therewith, may be examined at the office of the
SEC in Washington, D.C. Statements contained in a Prospectus or the SAI as to
the contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditors
for the Company. KPMG Peat Marwick LLP provides audit services, tax return
preparation and assistance and consultation in connection with review of
certain SEC filings. KPMG Peat Marwick LLP's address is Three Embarcadero
Center, San Francisco, California 94111.
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
29
<PAGE> 1160
Annual Report as filed with the SEC on December 9, 1996. The Company's Annual
Report may be obtained by calling 1-800- 222-8222. The portfolio of
investments, audited financial statements and independent auditors' report are
attached to all SAIs delivered to current or prospective shareholders.
30
<PAGE> 1161
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> 1162
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> 1163
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1997
MONEY MARKET MUTUAL FUND - CLASS S
---------------------------
Stagecoach Funds, Inc. (the "Company") is an open-end, series
investment company. This Statement of Additional Information ("SAI") contains
information about CLASS S SHARES of the MONEY MARKET MUTUAL FUND. The Money
Market Mutual Fund also offers Class A and Institutional Class shares. The
investment objective of the Fund is described in its Prospectus under the
section entitled "How the Fund Works -- Investment Objectives and Policies."
Class S shares are available only to qualified business investors
who purchase such shares through a Managed Sweep Account offered by Wells Fargo
Bank, N.A. ("Wells Fargo Bank"). A Managed Sweep Account combines a non-
interest bearing Wells Fargo Bank deposit account with a daily sweep of
transaction account balances to or from the Fund.
This SAI is not a prospectus and should be read in conjunction
with the Fund's current Prospectus dated February 1, 1997. All terms used in
this SAI that are defined in the Prospectus for the Fund will have the meanings
assigned in the Prospectus. A copy of the Prospectus for the Fund may be
obtained without charge by writing Stephens Inc., the Company's sponsor,
administrator and distributor, at 111 Center Street, Little Rock, Arkansas
72201 or by calling the Transfer Agent at the telephone number indicated above.
---------------------------
<PAGE> 1164
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities . . . . . . . . . . 5
Management . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . 12
Performance Calculations . . . . . . . . . . . . . . . . . . . 13
Determination of Net Asset Value . . . . . . . . . . . . . . . 16
Additional Purchase and Redemption Information . . . . . . . . 17
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . 18
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 20
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . 20
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . 23
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Independent Auditors . . . . . . . . . . . . . . . . . . . . . 25
Financial Information . . . . . . . . . . . . . . . . . . . . . 25
SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
2
<PAGE> 1165
INVESTMENT RESTRICTIONS
The Fund is subject to the following investment restrictions, all
of which are fundamental policies.
The Fund may not:
(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and
as a result thereof, the value of the Fund's investments in that industry would
be 25% or more of the current value of the Fund's total assets, provided that
there is no limitation with respect to investments in (i) obligations of the
United States Government, its agencies or instrumentalities, and (ii)
obligations of domestic banks (for the purpose of this restriction, domestic
bank obligations do not include obligations of U.S. branches of foreign banks
or obligations of foreign branches of U.S. banks);
(2) purchase or sell real estate or real estate limited
partnerships (other than money market securities or 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) 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, and write, purchase or sell warrants, except that all
Funds may purchase securities with put rights in order to maintain liquidity.
In addition, the Money Market Mutual Fund may not make loans of
portfolio securities or other assets, except that loans for purposes of this
restriction will not include the
3
<PAGE> 1166
purchase of fixed time deposits, repurchase agreements, commercial paper and
other short-term obligations, and other types of debt instruments commonly sold
in public or private offerings.
The Fund is subject to the following non-fundamental policies:
(1) The Fund may not purchase or retain securities of any issuer
if the officers or directors of the Company or the investment adviser owning
beneficially more than one-half of one percent (0.5%) of the securities of the
issuer together 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 or sell real estate limited
partnership interests.
(4) 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.
(5) 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 such 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 securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale and
fixed time deposits that are subject to withdrawal penalties and that have
maturities of more than seven days.
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. 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.
In addition, as provided in Rule 2a-7 under the 1940 Act, the
Money Market Mutual Fund may only purchase "Eligible Securities" (as defined in
Rule 2a-7) and only if, immediately after such purchase: the Fund would have no
more than 5% of its total assets in "First Tier Securities" (as defined in Rule
2a-7) of any one issuer, excluding government securities and except as
otherwise permitted for temporary purposes and for certain guarantees and
unconditional puts; the Fund would own no more than 10% of the voting
securities of any one
4
<PAGE> 1167
issuer; the Fund would have no more than 5% of its total assets in "Second Tier
Securities" (as defined in Rule 2a-7); and the Fund would have no more than the
greater of $1 million or 1% of its total assets in Second Tier Securities of
any one issuer.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Unrated Investments. The Fund may purchase instruments that are
not rated if, in the opinion of Wells Fargo Bank, such obligations are of
comparable quality to other rated investments that are permitted to be
purchased by the Fund. The Fund may purchase unrated instruments only if they
are purchased in accordance with the 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. Neither event will
require a sale of such security by the Fund, provided that, when a security
ceases to be rated, the Company's Board of Directors determines that such
security presents minimal credit risks and, provided further that, when a
security rating is downgraded below the eligible quality for investment or no
longer presents minimal credit risks, the Board finds that the sale of such
security would not be in the Funds' best interest. To the extent the ratings
given by Moody's or S&P may change as a result of changes in such organizations
or their rating systems, the Fund will attempt to use comparable ratings as
standards for investments in accordance with the investment policies contained
in the 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 Funds may purchase may be backed by an
unconditional and irrevocable letter of credit of a bank, savings and loan
association or insurance company which assumes the obligation for payment of
principal and interest in the event of default by the issuer. Only banks,
savings and loan associations and insurance companies which, in the opinion of
Wells Fargo Bank, are of comparable quality to issuers of other permitted
investments of the Fund may be used for letter of credit-backed investments.
Foreign Obligations. Investments in foreign obligations involve
certain considerations that are not typically associated with investing in
domestic obligations. There may be less publicly available information about a
foreign issuer than about a domestic issuer. Foreign issuers also are not
generally subject to uniform accounting, auditing and financial reporting
standards or governmental supervision comparable to those applicable to
domestic issuers. In addition, with respect to certain foreign countries,
taxes may be withheld at the source under foreign income tax laws, and there is
a possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect investments
in, the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries. The Fund may
invest up to 25% of its assets in foreign obligations.
5
<PAGE> 1168
Municipal Bonds. The Money Market Mutual Fund may invest in
municipal bonds. As discussed in the Prospectus, the two principal
classifications of municipal bonds are "general obligation" and "revenue"
bonds. Municipal bonds are debt obligations issued to obtain funds for various
public purposes, including the construction of a wide range of public
facilities such as bridges, highways, housing, hospitals, mass transportation,
schools, streets, and water and sewer works. Other purposes for which
municipal bonds may be issued include the refunding of outstanding obligations
and obtaining funds for general operating expenses or to loan to other public
institutions and facilities. Industrial development bonds are a specific type
of revenue bond backed by the credit and security of a private user. Certain
types of industrial development bonds are issued by or on behalf of public
authorities to obtain funds to provide privately-operated housing facilities,
sports facilities, convention or trade show facilities, airport, mass transit,
port or parking facilities, air or water pollution control facilities and
certain local facilities for water supply, gas, electricity, or sewage or solid
waste disposal. Assessment bonds, wherein a specially created district or
project area levies a tax (generally on its taxable property) to pay for an
improvement or project may be considered a variant of either category. There
are, of course, other variations in the types of municipal bonds, both within a
particular classification and between classifications, depending on numerous
factors.
Municipal Notes. Municipal notes include, but are not limited to,
tax anticipation notes ("TANs"), bond anticipation notes ("BANs"), revenue
anticipation notes ("RANs") and construction loan notes. Notes sold as interim
financing in anticipation of collection of taxes, a bond sale or receipt of
other revenues are usually general obligations of the issuer.
TANs. An uncertainty in a municipal issuer's capacity to raise
taxes as a result of such things as a decline in its tax base or a rise in
delinquencies could adversely affect the issuer's ability to meet its
obligations on outstanding TANs. Furthermore, some municipal issuers mix
various tax proceeds into a general fund that is used to meet obligations other
than those of the outstanding TANs. Use of such a general fund to meet various
obligations could affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations
on its BANs is primarily dependent on the issuer's adequate access to the
longer term municipal bond market and the likelihood that the proceeds of such
bond sales will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as
anticipated revenues from another level of government, could adversely affect
an issuer's ability to meet its obligations on outstanding RANs. In addition,
the possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
The values of outstanding municipal securities will vary as a
result of changing market evaluations of the ability of their issuers to meet
the interest and principal payments (i.e., credit risk). Such values also will
change in response to changes in the interest rates payable on new issues of
municipal securities (i.e., market risk). Should such interest rates rise, the
values
6
<PAGE> 1169
of outstanding securities, including those held in the Fund's portfolio, will
decline and (if purchased at par value) sell at a discount. If interests rates
fall, the values of outstanding securities will generally increase and (if
purchased at par value) sell at a premium. Changes in the value of municipal
securities held in the Fund's portfolio arising from these or other factors
will cause changes in the net asset value per share of the Fund.
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the prospectus entitled "The Funds and
Management." The principal occupations during the past five years of the
Directors and principal executive Officer of the Company are listed below. The
address of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Directors deemed to be "interested persons" of the Company
for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 45 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate
Professor of Finance of the
School of Business and
Accounting at Wake Forest
University since 1983.
</TABLE>
7
<PAGE> 1170
<TABLE>
<S> <C> <C>
Joseph N. Hankin, 55 Director President, Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; President of Hartford
(appointed as of September 6, 1996) Junior College from 1967 to
1971; Adjunct Professor of
Columbia University
Teachers College since
1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 40 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
8
<PAGE> 1171
COMPENSATION TABLE
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, 1995 September 30, 1996
----------------------------- ---------------------------------
Total Total
Aggregate Compensation Aggregate Compensation
Compensation from Registrant Compensation from Registrant
from and Fund from and Fund
Name and Position Registrant Complex Registrant Complex
----------------- ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Jack S. Euphrat $10,188 $39,750 $9,750 $29,250
Director
*R. Greg Feltus $-0- $-0- $-0- $-0-
Director
Thomas S. Goho $10,188 $39,750 $9,750 $29,250
Director
Joseph N. Hankin N/A N/A $-0- $-0-
Director
*Zoe Ann Hines $-0- $-0- $-0- $-0-
Director
(resigned as of
September 6, 1996)
*W. Rodney Hughes $9,438 $37,000 $8,250 $24,750
Director
Robert M. Joses $9,938 $39,000 $9,750 $29,250
Director
*J. Tucker Morse $8,313 $33,250 $8,250 $24,750
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
9
<PAGE> 1172
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 approved by the Board of Directors on October
22, 1991, and by the initial shareholder of the Fund on December 2, 1991. The
Advisory Contract for the Fund provides that Wells Fargo Bank shall furnish to
the Fund investment guidance and policy direction in connection with the daily
portfolio management of the Fund. Pursuant to the Advisory Contract, Wells
Fargo Bank furnishes to the Company's Board of Directors periodic reports on
the investment strategy and performance of the Fund.
Wells Fargo Bank has agreed to provide the Fund with, among other
things, money market security and fixed- income research, analysis and
statistical and economic data and information concerning interest rate and
security market trends, portfolio composition, credit conditions and average
maturities of the Fund's portfolio.
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 Contracts 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 for the
period ended September 30, 1996, the Fund paid advisory fees to Wells Fargo
Bank as indicated below and Wells Fargo Bank waived the indicated amounts:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1994 December 31, 1995 September 30, 1996
----------------- ----------------- ----------------- ------------------
Fees Fees Fees Fees Fees Fees Fees Fees
Paid Waived Paid Waived Paid Waived Paid Waived
---- ------ ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
$1,285,690 $0 $2,073,686 $2,008,946 $12,729,506 $0 $11,593,678 $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 and the Fund, and
the Co-Administration
10
<PAGE> 1173
Agreement among Wells Fargo, Stephens and the Fund, state that Wells Fargo and
Stephens shall provide as administrative services, among other things: (i)
general supervision of the operation of the Fund, including coordination of the
services performed by the Fund's investment adviser, transfer agent, custodian,
shareholder servicing agent(s), independent public accountants and legal
counsel, regulatory compliance, including the compilation of information for
documents such as reports to, and filings with, the SEC and state securities
commissions; and preparation of proxy statements and shareholder reports for
the Fund; and (ii) general supervision relative to the compilation of data
required for the preparation of periodic reports distributed to the Company's
officers and Board of Directors. Wells Fargo Bank and Stephens also furnish
office space and certain facilities required for conducting the business of the
Fund together with ordinary clerical and bookkeeping services. Stephens pays
the compensation of the Company's Directors, officers and employees who are
affiliated with Stephens. The Administrator and Co-Administrator are entitled
to receive a monthly fee of 0.04% and 0.02% respectively, of the average daily
net assets of the Fund.
For the years ended December 31, 1993, 1994 and 1995, and the
period ended September 30, 1996, the Fund paid administrative fees to Stephens,
the sole administrator during these periods, the following dollar amounts,
based on a monthly fee at the annual rate of 0.03% of the Fund's average daily
net assets:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1994 December 31, 1995 September 30, 1996
----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C>
$96,535 $306,209 $954,713 $872,577
</TABLE>
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," Wells Fargo Bank
acts as the shareholder servicing agent ("Agent") for Class S shares of the
Fund pursuant to a Shareholder Services Agreement (the "Agreement") and the
related Servicing Plan. Wells Fargo Bank, as agent, has agreed to perform
certain shareholder liaison services such as answering shareholder inquiries
regarding account status and history, and the manner in which purchases,
exchanges and redemptions of Fund shares may be made. For services provided
pursuant to the Servicing Plan, the Company may pay each Shareholder Servicing
Agent a monthly fee at the annual rate of up to 0.25% of the average daily
value of Class S shares of the Fund beneficially owned by customers of the
Shareholder Servicing Agent.
The dollar amount of shareholder servicing fees paid by the Fund
to Wells Fargo Bank or its affiliates for the year ended December 31, 1995 and
the period ended September 30, 1996, were as follows:
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996(1)
----------------- ---------------------
<S> <C>
$8,542,616 $7,594,481
</TABLE>
- ---------
(1) This amount includes shareholder servicing fees paid by other classes of
the Fund and reflects fee waivers.
11
<PAGE> 1174
CUSTODIAN AND TRANSFER AND DIVIDEND AGENT. Wells Fargo Bank has
been retained to act as custodian and transfer and dividend disbursing agent
for the Fund. The custodian, among other things, maintains a custody account
or accounts in the name of the Fund; receives and delivers all assets for the
Fund upon purchase and upon sale or maturity; collects and receives all income
and other payments and distributions on account of the assets of the Fund and
pays all expenses of the Fund. For its services as custodian, Wells Fargo Bank
receives an asset-based fee and transaction charges; and for its services as
transfer and dividend disbursing agent, it receives a base fee and per-account
fees. For its services as transfer and dividend disbursing agent for the Fund,
Wells Fargo Bank is entitled to receive monthly payments at the annual rate of
0.07% of the Fund's average daily net assets.
For the year ended December 31, 1995 and the period ended
September 30, 1996, the Fund did not pay any custody fees or transfer or
dividend disbursing agency fees to Wells Fargo Bank.
UNDERWRITING COMMISSIONS. The Fund's Class S does not charge any
front-end sales loads or contingent deferred sales charges in connection with
the purchase and redemption of its shares, and therefore pays no underwriting
commissions to the Distributor.
DISTRIBUTION PLAN
The Fund has adopted distribution plans (a "Plan") under Section
12(b) of the 1940 Act and Rule 12b-1 thereunder as described in the Prospectus.
The Plan for the Class S shares of the Money Market Mutual Fund was adopted by
the Company's Board of Directors, including a majority of the Directors who
were not "interested persons" (as defined in the 1940 Act) of the Fund and who
had no direct or indirect financial interest in the operation of the Plan or in
any agreement related to the Plan (the "Qualified Directors") on May 2, 1995.
Under the Plan for the Class S Shares of the Money Market Mutual
Fund, the Fund may defray all or part of the cost of preparing and printing
prospectuses and other promotional materials and of delivering prospectuses and
those materials to prospective Fund shareholders by paying on an annual basis
up to 0.75% of the average daily net assets of the Class S Shares. The Class S
Plan provides for reimbursement of actual expenses and payment of compensation
to the Distributor and Selling Agents for sales support services. In addition,
the Plan contemplates that to the extent any fees payable pursuant to a
Shareholder Servicing Agreement are deemed to be for distribution-related
services, rather than shareholder services, such payments are approved and
payable pursuant to such Plan.
The Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Qualified Directors. Any Agreements related to the Plan also must be
approved by the Majority vote of the Directors and the Qualified Directors.
Such agreements may be terminated at any time without penalty by a vote of a
majority of the outstanding voting securities of the Class S shares of the
Fund. The Plan may not be amended to increase materially the amounts payable
thereunder without the
12
<PAGE> 1175
approval of a majority of the outstanding securities of the Class S shares of
the Fund. No material amendment to the Plan may be made except by the approval
of a majority of both the Directors of the Company and the Qualified Directors.
The Plan requires that the Treasurer of the Company shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Plan. The Rule also
requires that the selection and nomination of Directors who are not "interested
persons" of the Company be made by such disinterested Directors.
For the year ended December 31, 1995, and the period ended
September 30, 1996, the Fund's distributor received the following amounts of
12b-1 fees for the specified purposes set forth below under the Fund's Plan for
Class S shares.
<TABLE>
<CAPTION>
Printing &
Money Market Mutual Fund Mailing Marketing Compensation to
Class S Total Prospectus Brochures Underwriters
------- ----- ---------- --------- ------------
<S> <C> <C> <C> <C>
December 31, 1995 $2,215,338 N/A N/A $2,215,338
September 30, 1996 $3,587,118 N/A N/A $3,587,118
</TABLE>
For the year ended December 31, 1995, and the period ended
September 30, 1996, WFSI and its registered representatives received no
compensation under the Fund's Plan.
PERFORMANCE CALCULATIONS
YIELD: As indicated in its Prospectuses, the Money Market Mutual
Fund may advertise certain yield information with respect to each Class of
shares. Current yield with respect to each Class of shares of the Money Market
Mutual Fund will be calculated based on the net changes, exclusive of capital
changes, over a seven-day period, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7) with the resulting yield figure
carried to at least the nearest hundredth of one percent.
Effective Yield: Current yield for the Fund is based on the
change in the value of a hypothetical investment (exclusive of capital changes)
over a particular seven-day period, less a pro-rata share of the Fund's
expenses accrued over that period (the "base period"), and stated as a
percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized by multiplying by 365/7,
with the resulting yield figure carried to at least the nearest hundredth of
one percent. "Effective yield" for the Fund assumes that all dividends received
during an annual period have been reinvested. Calculation of "effective yield"
begins with the same "base period return" used in the calculation of yield,
which is then annualized to reflect weekly compounding pursuant to the
following formula:
13
<PAGE> 1176
Effective Yield = [(Base Period Return +1)365/7]-1.
Yield for the period ended September 30, 1996
<TABLE>
<CAPTION>
Money Market Mutual Fund Seven-Day Yield Seven-Day Effective Yield
------------------------ --------------- --------------------------
<S> <C> <C>
Class S 4.18% 4.27%
</TABLE>
The yield for the Class S shares of the Money Market Mutual Fund
will fluctuate from time to time, unlike bank deposits or other investments
that pay a fixed yield for a stated period of time, and does not provide a
basis for determining future yields since it is based on historical data.
Yield is a function of portfolio quality, composition, maturity and market
conditions as well as the expenses allocated to the Fund.
Yield information for Class S shares of the Fund may be useful in
reviewing the performance of the Fund and for providing a basis for comparison
with investment alternatives. The yield of Class S shares 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.
In addition, investors should recognize that changes in net asset
value of Class S shares of the Money Market Mutual Fund will affect the yield
for any specified period, and such changes should be considered together with
the yield in ascertaining the total return to shareholders for the period.
Yield information for the Fund may be useful in reviewing the performance of
the Fund and for providing a basis for comparison with investment alternatives.
The yield of the Fund, however, may not be comparable to the yields from
investment alternatives because of differences in the foregoing variables and
differences in the methods used to value portfolio securities, compute expenses
and calculate yield.
From time to time and only to the extent the comparison is
appropriate for the Fund or a Class of shares of the Fund, the Company may
quote the performance or price-earning ratio of the Fund or Class of shares of
the Fund in advertising and other types of literature as compared to the
performance of the S&P Index, the Dow Jones Industrial Average, the Lehman
Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year Treasury Index,
Donoghue's Money Fund Averages, Real Estate Investment Averages (as reported by
the National Association of Real Estate Investment Trusts), Gold Investment
Averages (provided by World Gold Council), Bank Averages (which are calculated
from figures supplied by the U.S. League of Savings Institutions based on
effective annual rates of interest on both passbook and certificate accounts),
average annualized certificate of deposit rates (from the Federal Reserve G-13
Statistical Releases or the Bank Rate Monitor), the Salomon One Year Treasury
Benchmark Index, the Consumer Price Index (as published by the U.S. Bureau of
Labor Statistics), other managed or unmanaged indices or performance data of
bonds, municipal securities, stocks or government securities (including data
provided by Ibbotson Associates), or by other services, companies,
14
<PAGE> 1177
publications or persons who monitor mutual funds on overall performance or
other criteria. The S&P Index and the Dow Jones Industrial Average are
unmanaged indices of selected common stock prices. The performance of the
Money Market Mutual 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 Money
Market Mutual Fund's performance will be calculated by relating net asset value
per share at the beginning of a stated period to the net asset value of the
investment, assuming reinvestment of all gains distributions and dividends
paid, at the end of the period. The Money Market Mutual Fund's comparative
performance will be based on a comparison of yields, as described above, or
total return, as reported by Lipper, Survey Publications, Donoghue or
Morningstar, Inc.
Any such comparisons may be useful to investors who wish to
compare past performance of each Class of the Money Market Mutual Fund with
that of competitors. Of course, past performance cannot be a guarantee of
future results. The Company also may include, from time to time, a reference
to certain marketing approaches of the Distributor, including, for example, a
reference to a potential shareholder being contacted by a selected broker or
dealer. General mutual fund statistics provided by the Investment Company
Institute may also be used.
The Company also may use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for the Fund: (i) the Consumer Price Index may be
used to assess the real rate of return from an investment in the Fund; (ii)
other government statistics, including, but not limited to, The Survey of
Current Business, may be used to illustrate investment attributes of the Fund
or the general economic, business, investment, or financial environment in
which the Fund operates; (iii) the effect of tax-deferred compounding on the
investment returns of the Fund, or on returns in general, may be illustrated by
graphs, charts, etc., where such graphs or charts would compare, at various
points in time, the return from an investment in the Fund (or returns in
general) on a tax-deferred basis (assuming reinvestment of capital gains and
dividends and assuming one or more tax rates) with the return on a taxable
basis; and (iv) the sectors or industries in which the Fund invests may be
compared to relevant indices of stocks or surveys (e.g., S&P Industry Surveys)
to evaluate the Fund's historical performance or current or potential value
with respect to the particular industry or sector.
In addition, the Company also may use, in advertisements and other
types of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo Bank,
and its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Company also may include in advertising and other types of literature
information and other data from reports and studies prepared by the Tax
Foundation, including information regarding federal and state tax levels and
the related "Tax Freedom Day."
15
<PAGE> 1178
The Company also may discuss in advertising and other types of
literature that the Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to
purchase, sell or hold the Fund's shares since the rating would not comment on
the market price of the Fund's shares or the suitability of the Fund for a
particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. The Company may
compare the Fund's performance with other investments which are assigned
ratings by NRSROs. Any such comparisons may be useful to investors who wish to
compare the Fund's past performance with other rated investments.
From time to time, the Fund may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for Stagecoach Funds, provides
various services to its customers that are also shareholders of the Fund.
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 ("WIFM"), 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 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 December 31, 1996, Wells Fargo Bank and its affiliates provided investment
advisory services for approximately $54 billion of assets of individual, trusts,
estates and institutions and $20 billion of mutual fund assets.
The Company also may discuss in advertising and other types of
literature the features, terms and conditions of Wells Fargo Bank accounts
through which investments in the Money Market Mutual Fund may be made via a
"sweep" arrangement, including, without limitation, the Managed Sweep Account,
Money Market Checking Account and 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 Money Market Mutual 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 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.
16
<PAGE> 1179
DETERMINATION OF NET ASSET VALUE
Net asset value per Class S share for the Fund is determined by
the Custodian on each Business Day, as described in the Prospectus.
As indicated under "Investing In The Fund -- Share Value" in the
Prospectus the Fund uses the amortized cost method to determine the value of
its portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The
amortized cost method involves valuing a security at its cost and amortizing
any discount or premium over the period until maturity, regardless of the
impact of fluctuating interest rates on the market value of the security.
While this method provides certainty in valuation, it may result in periods
during which the value, as determined by amortized cost, is higher or lower
than the price that the Fund would receive if the security were sold. During
these periods the yield to a shareholder may differ somewhat from that which
could be obtained from a similar fund that uses a method of valuation based
upon market prices. Thus, during periods of declining interest rates, if the
use of the amortized cost method resulted in a lower value of the Fund's
portfolio on a particular day, a prospective investor in the Fund would be able
to obtain a somewhat higher yield than would result from investment in a fund
using solely market values, and existing Fund shareholders would receive
correspondingly less income. The converse would apply during periods of rising
interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, a fund must maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase securities having remaining maturities
(as defined in Rule 2a-7) of thirteen months or less and invest only in those
high-quality securities that are determined by the Board of Directors to
present minimal credit risks. The maturity of an instrument is generally
deemed to be the period remaining until the date when the principal amount
thereof is due or the date on which the instrument is to be redeemed. However,
Rule 2a-7 provides that the maturity of an instrument may be deemed shorter in
the case of certain instruments, including certain variable and floating rate
instruments subject to demand features. Pursuant to the Rule, the Board of
Directors is required to establish procedures designed to stabilize, to the
extent reasonably possible, the Fund's price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures include review of
the Fund's portfolio holdings by the Board of Directors, at such intervals as
it may deem appropriate, to determine whether the Fund's net asset value
calculated by using available market quotations deviates from $1.00 per share
based on amortized cost. The extent of any deviation will be examined by the
Board of Directors. If such deviation exceeds 1/2 of 1%, the Board will
promptly consider what action, if any, will be initiated. In the event the
Board determines that a deviation exists that may result in material dilution
or other unfair results to investors or existing shareholders, the Board will
take such corrective action as it regards as necessary and appropriate,
including the sale of portfolio instruments prior to maturity to realize
capital gains or losses or to shorten average portfolio maturity, withholding
dividends or establishing a net asset value per share by using available market
quotations.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund may be purchased on any day the Fund is open (a
"Business Day"). The Fund is open on any day that either the New York Stock
Exchange or Wells Fargo Bank is open. Currently, the holidays observed by both
the New York Stock Exchange and Wells Fargo
17
<PAGE> 1180
Bank are New Year's Day, Presidents' Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day (each, a "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.
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
The Company has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors, Wells Fargo Bank is
responsible for the Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company to obtain the
best results taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. While Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions, the Fund will
not necessarily be paying the lowest spread or commission available.
Purchase and sale orders of the securities held by the Fund may be
combined with those of other accounts that Wells Fargo Bank manages, and for
which it has brokerage placement authority, in the interest of seeking the most
favorable overall net results. When Wells Fargo Bank determines that a
particular security should be bought or sold for the Fund and other
18
<PAGE> 1181
accounts managed by Wells Fargo Bank, Wells Fargo Bank undertakes to allocate
those transactions among the participants equitably.
Purchases and sales of securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or
to dealers serving as market makers for the securities at a net price. The
Fund also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, municipal obligations
and taxable money market securities are traded on a net basis and do not
involve brokerage commissions. The cost of executing the Fund's portfolio
securities transactions will consist primarily of dealer spreads and
underwriting commissions. Under the 1940 Act, persons affiliated with the
Company are prohibited from dealing with the Company as a principal in the
purchase and sale of securities unless an exemptive order allowing such
transactions is obtained from the SEC or an exemption is otherwise available.
The Fund may purchase municipal obligations from underwriting
syndicates of which Stephens or Wells Fargo Bank is a member under certain
conditions in accordance with the provisions of a rule adopted under the 1940
Act and in compliance with procedures adopted by the Board of Directors.
Wells Fargo Bank, as investment adviser of the Fund, may, in
circumstances in which two or more dealers are in a position to offer
comparable results for a portfolio transaction, give preference to a dealer
that has provided statistical or other research services to Wells Fargo Bank.
By allocating transactions in this manner, Wells Fargo Bank is able to
supplement its research and analysis with the views and information of
securities firms. Information so received will be in addition to, and not in
lieu of, the services required to be performed by Wells Fargo Bank under the
Advisory Contract, and the expenses of Wells Fargo Bank will not necessarily be
reduced as a result of the receipt of this supplemental research information.
Furthermore, research services furnished by dealers through which Wells Fargo
Bank places securities transactions for the Fund may be used by Wells Fargo
Bank in servicing its other accounts, and not all of these services may be used
by Wells Fargo Bank in connection with advising the Fund.
Brokerage Commission. For the year ended December 31, 1995 and
period ended September 30, 1996, the Fund did not pay any brokerage commissions
on portfolio transactions.
Securities of Regular Broker/Dealers. As of December 31, 1995,
the Money Market Mutual Fund owned securities of its "regular brokers or
dealers", or their parents, as defined in the Act, as follows: $125,955,000 of
Goldman Sachs & Co. debt securities. 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:
<TABLE>
<CAPTION>
Amount Regular Broker/Dealer
------ ---------------------
<S> <C>
$202,778,000 Goldman Sachs & Co.
</TABLE>
Portfolio Turnover. The portfolio turnover rate is not a limiting
factor when Wells Fargo Bank deems portfolio changes appropriate. Because the
portfolio of the Money Market Mutual Fund consist of securities with relatively
short-term maturities, the Fund can expect to
19
<PAGE> 1182
experience high portfolio turnovers. A high portfolio turnover rate should not
adversely affect the Fund, however, because portfolio transactions ordinarily
will be made directly with principals on a net basis and, consequently, the
Fund usually will not incur brokerage expenses.
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 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
Money Market Mutual Fund are charged against the Fund's assets. General
expenses of the Company are allocated among all of the funds of the Company,
including the Fund, in a manner proportionate to the net assets of each Fund,
on a transactional basis, or on such other basis as the Company's Board of
Directors deems equitable.
FEDERAL INCOME TAXES
The Prospectus describes generally the tax treatment of
distributions by the Fund. This section of the SAI includes additional
information concerning federal income taxes.
Qualification as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, (the "Code") requires, among other
things, that (a) at least 90% of the Fund's annual gross income be derived from
interest, payments with respect to securities loans, dividends and gains from
the sale or other disposition of securities or options thereon; (b) the Fund
derives less than 30% of its gross income from gains from the sale or other
disposition of securities or options thereon held for less than three months;
and (c) the Fund diversifies its holdings so that, at the end of each quarter
of the taxable year, (i) at least 50% of the market value of the Fund's assets
is represented by cash, government securities and other securities limited in
respect of any one issuer to an amount not greater than 5% of the Fund's assets
and 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. Government securities and the securities of other
regulated investment companies), or of two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades
or businesses
20
<PAGE> 1183
or related trades or businesses. As a regulated investment company, the Money
Market Mutual Fund will not be subject to federal income tax on its net
investment income and net capital gains distributed to its shareholders,
provided that it distributes to its stockholders at least 90% of its net
investment income and tax-exempt income earned in each year.
Generally, dividends and distributions of capital gains are
taxable to shareholders when they are received. However, dividends and
distributions of capital gains declared payable as of a record date in October,
November or December of any calendar year are deemed under the Code to have
been received by the shareholders on December 31 of that calendar year if the
dividend is actually paid in the following January. Such dividends will,
accordingly, be taxable to the recipient shareholders in the year in which the
record date falls. In addition, a 4% nondeductible excise tax will be imposed
on the Money Market Mutual Fund to the extent it does not meet certain minimum
distribution requirements by the end of each calendar year. The Fund will
either distribute, or be deemed to distribute, all of its net investment income
and net capital gains by the end of the 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. Because not more than 50% of the value of the
total assets of the Fund is expected to consist of securities of foreign
issuers, the Fund will not be eligible to elect to "pass through" foreign tax
credits to shareholders. Gains or losses on sales of portfolio securities by
the Fund will generally be long-term capital gains or losses if the securities
sold have been held by it for more than one year, except in certain cases where
the Fund acquires a put thereon. Gain recognized on the disposition of a debt
obligation (including tax-exempt obligations purchased after April 30, 1993)
purchased by the Fund at a market discount (generally, at a price less than its
principal amount) will be treated as ordinary income to the extent of the
portion of the market discount which accrued during the period of time the Fund
held the debt obligation. Other gains or losses on the sale of securities will
be short-term capital gains or losses. To the extent that the Fund recognizes
long-term capital gains, such gains will be distributed at least annually.
Such distributions will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held Fund shares. Such distributions
will be designated as a 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.
If a shareholder receives such a designated capital gain
distribution (to be treated by the shareholder as a long-term capital gain)
with respect to any Fund share and such Fund share is held for six months or
less, then (unless otherwise disallowed) any loss on the sale or exchange of
that Fund share will be treated as a long-term capital loss to the extent of
the designated and 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.
21
<PAGE> 1184
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 the phase-out of exemptions and elimination of
deductions), the maximum individual rate applicable to net realized capital
gains is 28.00%; and the maximum corporate tax rate applicable to ordinary
income and net realized capital gains is 35.00%. However, to eliminate the
benefit of lower marginal corporate income tax rates, corporations which have
taxable income in excess of $100,000 for a taxable year will be required to pay
an additional amount of tax of up to $11,750 and corporations which have
taxable income in excess of $15,000,000 for a taxable year will be required to
pay an additional amount of income tax of up to $100,000.
If a shareholder exchanges or otherwise disposes of shares of the
Money Market Mutual Fund within 90 days of having acquired such shares, and if,
as a result of having acquired those shares, the shareholder subsequently pays
a reduced sales charge for shares of the Fund, or of a different fund, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
reduction in sales charges) for the purpose of determining the amount of gain
or loss on the exchange, but will be treated as having been incurred in the
acquisition of such other shares.
Also, any loss realized on a redemption or exchange of Fund shares
will be disallowed to the extent that substantially identical shares are
reacquired within the 61-day period beginning 30 days before and ending 30 days
after the shares are disposed of.
If, in the opinion of the Fund, ownership of its shares has or may
become concentrated to an extent that could cause the Fund to be deemed a
personal holding company within the meaning of the Code, the Fund may require
the redemption of shares or reject any order for the purchase of shares in an
effort to prevent such concentration.
Foreign Shareholders. Under the Code, distributions of net
investment income by the Money Market Mutual Fund to a nonresident alien
individual, nonresident alien fiduciary of a trust or estate, foreign
corporation, or foreign partnership (a "foreign shareholder") will be subject
to U.S. withholding tax (at a rate of 30% or a lower treaty rate). Withholding
will not apply if a dividend paid by the Fund to a foreign shareholder is
"effectively connected" with a U.S. trade or business, in which case the
reporting and withholding requirements applicable to U.S. citizens, U.S.
residents or domestic corporations will apply. Distributions of net long-term
capital gains are not subject to tax withholding, but in the case of a foreign
shareholder who is a nonresident alien individual, such distributions
ordinarily will be subject to U.S. income tax at a rate of 30% if the
individual is physically present in the U.S. for more than 182 days during the
taxable year.
Other Matters. It is expected that the net income of the Money
Market Mutual Fund will be a positive amount at the time of each determination
thereof. If, however, the net income of the Fund determined at any time is a
negative amount (which could occur, for instance, upon nonpayment of interest
and/or principal by an issuer of a security held by the Fund), the Fund would,
pursuant to SEC rules, first offset the negative amount with respect to each
shareholder account from the dividends declared during the month with respect
to each such account. If, and
22
<PAGE> 1185
to the extent that, such negative amount exceeds such declared dividends at the
end of the month, the Fund will reduce the number of its outstanding shares by
treating each shareholder as having contributed to the capital of the Fund that
number of full and fractional shares in the account of such shareholder which
represents the shareholder's proportion of the amount of such excess. Each
shareholder will be deemed to have agreed to such contribution in these
circumstances by investing in the Money Market Mutual Fund.
Although dividends will be declared daily with respect to the Fund
based on the Fund's daily earnings, for federal income tax purposes, the Fund's
earnings and profits will be determined at the end of each taxable year and
will be allocated pro rata over the entire year. For federal income tax
purposes, only amounts paid out of earnings and profits will qualify as
dividends. Thus, if during a taxable year the Fund's declared dividends (as
declared daily throughout the year) exceed the Fund's net income (as determined
at the end of the year), only that portion of the year's distributions which
equals the year's earnings and profits will be deemed to have constituted a
dividend. If during the year, the Fund had reduced the number of shares, as
described above, due to such a shortfall, shareholders who had redeemed shares
prior to such reduction could be deemed to have realized a capital gain to the
extent of the reduction, while shareholders redeeming shares after the
reduction could be deemed to have realized a capital loss to the extent of the
reduction. It is expected that the Fund's net income, on an annual basis, will
equal the dividends declared during the year.
CAPITAL STOCK
The Fund is one of the funds of the Stagecoach Family of Funds.
The Company was organized as a Maryland corporation on September 9, 1991 and
currently offers shares of twenty-four 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 Money Market Mutual Fund is comprised of three classes of
shares, Class A, Class S and Institutional Class shares. With respect to
matters affecting one Class, but not another, shareholders of each of the Fund
vote as a Class. For example, approval of a distribution plan is voted on only
by members of the Class affected by the plan. Subject to the foregoing, all
shares of the Fund have equal voting rights. In situations where voting by
series is required by law or where the matter involved only affects one series,
shares of the Fund will be
23
<PAGE> 1186
voted by series. For example, a change in a Fund's fundamental investment
policy would be voted upon only by shareholders of the Fund involved.
Additionally, approval of an advisory contract is a matter to be determined
separately by Fund. Approval by the shareholders of one Fund is effective as
to that Fund whether or not sufficient votes are received from the shareholders
of the other investment portfolios to approve the proposal as to those
investment portfolios. As used in the Prospectus of the Money Market Mutual
Fund, and in this SAI, the term "majority," when referring to approvals to be
obtained from shareholders of a Class of shares of the Fund means the vote of
the lesser of (i) 67% of the shares of the respective 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. As used in
the Prospectus of the Fund and in this SAI, the term "majority," when referring
to approvals to be obtained from shareholders of the Fund, means the vote of
the lesser of (i) 67% of the shares of a 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 a Fund.
The term "majority," when referring to the approvals to be obtained from
shareholders of the Company as a whole, means the vote of the lesser of (i) 67%
of the Company's shares represented at a meeting if the holders of more than
50% of the Company's outstanding shares are present in person or by proxy, or
(ii) more than 50% of the Company's outstanding shares. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held.
The Company may dispense with an annual meeting of shareholders in
any year in which it is not required to elect Directors under the 1940 Act.
However, the Company has undertaken to hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a Director
or Directors if requested in writing by the holders of at least 10% of the
Company's outstanding voting securities, and to assist in communicating with
other shareholders as required by Section 16(c) of the 1940 Act.
Each 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.
Set forth below 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.
24
<PAGE> 1187
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>
MONEY MARKET MUTUAL Wells Fargo Bank Class S 100.00% 14.60%
P.O. Box 7066 Beneficially Owned
San Francisco, CA
94120
</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 Registration Statement, including the Prospectus of the Fund,
the SAI and the exhibits filed therewith, may be examined at the office of the
SEC in Washington, D.C. Statements contained in the Prospectus or the SAI of
each Fund as to the contents of any contract or other document are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditor
for the Company. KPMG Peat Marwick LLP provides audit services, tax return
preparation and assistance and consultation in connection with review of
certain SEC filings. KPMG Peat Marwick LLP's address is Three Embarcadero
Center, San Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and
independent auditors' report for the Money Market Mutual Fund contained in the
Company's Annual Report for the period ended September 30, 1996, as filed with
the SEC on December 9, 1996, are hereby incorporated by reference into this
SAI. The portfolio of investments, audited financial statements and
independent auditors' report for the Fund is attached to all SAIs delivered to
current or prospective shareholders.
25
<PAGE> 1188
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
A-1
<PAGE> 1189
"VMIG 3" are of "favorable quality," with all security elements accounted for,
but lacking the strength of the preceding grades.
S&P: The "SP-1" rating reflects a "very strong or strong capacity
to pay principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate and municipal
commercial paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior
capacity for repayment of short-term promissory obligations." Issuers rated
"P-2" (Prime- 2) "have a strong capacity for repayment of short-term promissory
obligations," but earnings trends, while sound, will be subject to more
variation.
S&P: The "A-1" rating for corporate and municipal commercial
paper indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
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> 1190
STAGECOACH FUNDS, INC.
Telephone: (800) 260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1997
SMALL CAP FUND
INSTITUTIONAL CLASS
----------------------------------
Stagecoach Funds, Inc. (the "Company") is an open-end, series
investment company. This Statement of Additional Information ("SAI") contains
information about one of the Company's series -- the SMALL CAP FUND (the
"Fund"). This SAI relates only to the Institutional Class Shares offered by
the Fund. The investment objective of the Fund is described in the Prospectus
under the heading "Investment Objective and Policies." The Fund seeks to
achieve its investment objective by investing all of its assets in the Small
Cap Master Portfolio (at times, the "Master Portfolio") of Master Investment
Trust ("MIT"), which has the same investment objective as the Fund. The Fund
may withdraw its investment in the Small Cap Master Portfolio at any time.
This SAI is not a Prospectus and should be read in conjunction
with the Fund's Prospectus, dated February 1, 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 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> 1191
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Servicing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Determination of Net Asset Value.... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Additional Purchase and Redemption Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Fund Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Federal Income Tax... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Other.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
i
<PAGE> 1192
INVESTMENT RESTRICTIONS
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Investment Objective
and Policies."
Fundamental Investment Policies. The Fund and Master Portfolio
are subject to the following investment restrictions, all of which are
fundamental policies. These restrictions cannot be changed, as to either the
Fund or the Master Portfolio, without approval by the holders of a majority (as
defined by the 1940 Act) of the outstanding voting securities of the Fund or
the Master Portfolio, as appropriate. Whenever the Fund is requested to vote
on a fundamental policy of the Master Portfolio, the Fund will hold a meeting
of Fund shareholders and it will cast its votes as instructed by such
shareholders.
The Fund and the Master Portfolio 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 passthrough
securities), commodities or commodity contracts or interests in oil, gas, or
other mineral exploration or development programs;
(3) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions) or make short sales of
securities;
(4) underwrite securities of other issuers, except to the
extent that the purchase of permitted investments directly from the issuer
thereof or from an underwriter for an issuer and the later disposition of such
securities in accordance with the Fund's investment program may be deemed to be
an underwriting; and provided further, that the purchase by the Fund of
securities issued by a diversified, open-end management investment company, or
a series thereof, with substantially the same investment objective, policies
and restrictions as such Fund shall not constitute an underwriting for purposes
of this paragraph (4);
(5) make investments for the purpose of exercising control or
management; provided that the Fund may invest all its assets in a diversified,
open-end management company, or a series thereof, with substantially the same
investment objective, policies and restrictions as such Fund, without regard to
the limitations set forth in this paragraph (5);
1
<PAGE> 1193
(6) issue senior securities, except that the Fund may borrow
from banks up to 10% of the current value of its net assets for temporary
purposes only in order to meet redemptions, and these borrowings may be secured
by the pledge of up to 10% of the current value of its net assets (but
investments may not be purchased while any such outstanding borrowings exceed
5% of its net assets);
(7) make loans of portfolio securities having a value that
exceeds 33 1/3% of the current value of its total assets, provided that, this
restriction does not apply to the purchase of fixed time deposits, repurchase
agreements, commercial paper and other types of debt instruments commonly sold
in a public or private offering; nor
(8) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if, as
a result, with respect to 75% of its total assets, more than 5% of the value of
its total assets would be invested in the securities of any one issuer or, with
respect to 100% of its total assets, the Fund's ownership would be more than
10% of the outstanding voting securities of such issuer, provided that the Fund
may invest all its assets in a diversified, open-end management investment
company, or a series thereof, with substantially the same investment objective,
policies and restrictions as such Fund, without regard to the limitations set
forth in this paragraph (8).
Non-Fundamental Investment Policies. The Fund and the Master
Portfolio are subject to the following investment restrictions, all of which
are non-fundamental policies. These restrictions may be changed by a vote of a
majority of the Directors of the Company or the Trustees of MIT, as the case
may be, at any time.
The Fund and the Master Portfolio 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;
2
<PAGE> 1194
(5) invest more than 15% of the Fund's net assets in illiquid
securities. For this purpose, illiquid securities include, among others, (a)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (b) fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, and (c) repurchase agreements not terminable within seven days;
(6) In addition, as a matter of non-fundamental policy, the
Fund may invest in shares of other open-end, management investment companies,
subject to the limitations of Section 12(d)(1) of the Act, provided that any
such purchases will be limited to temporary investments in shares of
unaffiliated investment companies and the Investment Adviser will waive its
advisory fees for that portion of the Fund's assets so invested, except when
such purchase is part of a plan of merger, consolidation, reorganization or
acquisition; nor
(7) Invest more than 25% of their respective net assets in
securities of foreign governmental and foreign private issues that are
denominated in and pay interest in U.S. dollars.
Notwithstanding any other investment policy or limitation (whether
or not fundamental), the Fund may invest all of its assets in the securities of
a single open-end management investment company with substantially the same
fundamental investment objective, policies and limitations as the Fund. A
decision to so invest all of its assets may, depending on the circumstances
applicable at the time, require approval of shareholders.
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "The Funds and
Management." The principal occupations during the past five years of the
Directors and principal executive Officer of the Company are listed below. The
address of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Directors deemed to be "interested persons" of the Company
for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 45 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
</TABLE>
3
<PAGE> 1195
<TABLE>
<S> <C> <C>
Thomas S. Goho, 54 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate Professor of Finance
of the School of Business and Accounting at
Wake Forest University since 1983.
Joseph N. Hankin, 55 Director President, Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; President of Hartford
(appointed as of September 16, 1996) Junior College from 1967 to
1971; Adjunct Professor of
Columbia University
Teachers College since
1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
</TABLE>
4
<PAGE> 1196
<TABLE>
<S> <C> <C>
Richard H. Blank, Jr., 40 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
5
<PAGE> 1197
COMPENSATION TABLE
<TABLE>
<CAPTION>
Year Ended Period Ended
---------- -------------
December 31, 1995 September 30, 1996
------------------ ------------------
Aggregate Total Compensation Aggregate Total Compensation
Compensation from Registrant Compensation from Registrant
Name and Position from Registrant and Fund Complex from Registrant and Fund Complex
- ----------------- --------------- ------------------ --------------- -------------------
<S> <C> <C> <C> <C>
Jack S. Euphrat $10,188 $39,750 $9,750 $29,250
Director
*R. Greg Feltus $-0- $-0- $-0- $-0-
Director
Thomas S. Goho $10,188 $39,750 $9,750 $29,250
Director
Joseph N. Hankin N/A N/A $-0- $-0-
Director
*Zoe Ann Hines $-0- $-0- $-0- $-0-
Director
(resigned as of
September 6, 1996)
*W. Rodney Hughes $9,438 $37,000 $8,250 $24,750
Director
Robert M. Joses $9,938 $39,000 $9,750 $29,250
Director
*J. Tucker Morse $8,313 $33,250 $8,250 $24,750
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
6
<PAGE> 1198
Managed Series Investment Trust together form a separate fund complex (the
"BGFA Fund Complex"). Each of the Directors and Officers of the Company serves
in the identical capacity as directors and officers or as Trustees and/or
officers of each registered open-end management investment company in both the
Wells Fargo and BGFA Fund Complexes, except for Joseph N. Hankin, who only
serves the aforementioned members of the Wells Fargo Fund Complex, and Zoe Ann
Hines who, after September 6, 1996, only serves the aforementioned members of
the BGFA Fund Complex. The Directors are compensated by other companies and
Trusts within a fund complex for their services as directors/Trustees to such
companies and Trusts. Currently the Directors do not receive any retirement
benefits or deferred compensation from the Company or any other member of each
fund complex.
As of the date of this SAI, Directors and Officers of the Company
as a group beneficially owned less than 1% of the outstanding shares of the
Company.
MASTER/FEEDER STRUCTURE. The Fund seeks to achieve its investment
objective by investing all of its assets in the Small Cap Master Portfolio of
MIT. 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. See "Management and Servicing Fees" for additional
description of the Fund's and Master Portfolio's expenses and management.
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 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.
7
<PAGE> 1199
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 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. The Advisory Contract provides that Wells Fargo Bank shall furnish to
the Master Portfolio investment guidance and policy direction in connection
with the daily portfolio management of the Master Portfolio. Pursuant to the
Advisory Contract, Wells Fargo Bank furnishes to the Board of Trustees 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 begun September 16, 1996 (commencement of
operations) and ended September 30, 1996, the Master Portfolio paid $6,129
in advisory fees to Wells Fargo Bank. 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. In addition, MIT has retained Wells Fargo Bank as Administrator and
Stephens as Co-Administrator on
8
<PAGE> 1200
behalf of the Master Portfolio. Under the respective Administration and
Co-Administration Agreements among Wells Fargo Bank, Stephens and the Company
and MIT, Wells Fargo Bank, Stephens shall provide as administrative services,
among other things: (i) general supervision of the Fund's and the Master
Portfolio's operations, including coordination of the services performed by the
investment adviser (in the case of the Master Portfolio), 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 the Master Portfolio; and (ii) general supervision relative to the
compilation of data required for the preparation of periodic reports
distributed to the Company's and MIT's Officers, Directors and Trustees. Wells
Fargo Bank and Stephens also furnish office space and certain facilities
required for conducting the Fund's and the Master Portfolio's business together
with ordinary clerical and bookkeeping services. Stephens pays the
compensation of MIT's and the Company's Directors/Trustees, 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 begun September 16, 1996 and ended September 30,
1996, Stephens served as sole administrator to the Fund, and received $492 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.
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
entered into a shareholder servicing agreement with Wells Fargo Bank. The
Institutional Class shares of the Fund paid $2,460 in shareholder servicing
fees to Wells Fargo Bank or its affiliates for the period ended September 30,
1996.
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 and the Master Portfolio. The custodian, among other
things, maintains a custody account or accounts in the name of the Fund and the
Master Portfolio, receives and delivers all assets for the Fund and the Master
Portfolio upon purchase and upon sale or maturity, collects and receives all
income and other payments and distributions on account of the assets of the
Fund and the Master Portfolio and pays all expenses of the Fund and the Master
Portfolio. For its services as custodian, Wells Fargo 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.
9
<PAGE> 1201
For the period begun 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
Fund, Wells Fargo Bank is entitled to receive monthly payments at the annual
rate of 0.07% of the Fund's average daily net assets. For the period begun
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. The Institutional Class of the Fund
does not charge any front-end sales loads or contingent deferred sales charges
in connection with the purchase and redemption of its shares, and therefore
pays no underwriting commissions to the Distributor.
COLLECTIVE INVESTMENT FUND MANAGEMENT FEES. Prior to September
16, 1996, Wells Fargo provided management and administrative services to the
Collective Investment Fund. For these services Wells Fargo charged fees at an
annual rate of 0.75% of the Collective Investment Fund's average net assets.
Wells Fargo was also entitled to be reimbursed by the Collective Investment
Fund for expenses incurred on its behalf, excluding costs incurred in
establishing and organizing the Fund. The Collective Investment Fund was
entitled to pay up to 0.10% of its net assets for "Audit Expenses." There
were no sales charges. The Collective Investment Fund paid all brokerage
commissions incurred on its portfolio transactions.
SERVICING PLAN
The Company's Board of Directors, on behalf of the Fund, adopted a
Servicing Plan ("Servicing Plan") on August 28th and 29th, 1996, with respect
to each class of the Fund's shares. The Servicing Plan was approved by a
majority of the Directors who were not "interested persons" (as defined in the
Act) of the Fund and who had no direct or indirect financial interest in the
operation of the Servicing Plan or in any agreement related to the Servicing
Plan (the "Servicing Plan Non-Interested Directors").
Under the Servicing Plan and pursuant to the shareholder servicing
agreements for the Institutional Class Shares, the Fund may pay one or more
servicing agents, as compensation for performing certain services, a fee at an
annual rate of up to 0.25% of the average daily net assets of the Fund's
Institutional Class Shares attributable to the servicing agent's customers.
The actual fee payable to servicing agents is determined, within such limits,
from time to time by mutual agreement between the Company and each servicing
agent and will not exceed the maximum service fees payable by mutual funds sold
by members of the NASD under the NASD Rules of Fair Practice.
Each Servicing Plan continues in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Servicing Plan Non-Interested Directors. Any form of servicing
agreement related to the Servicing Plan also must be approved by such vote of
the Directors and the Servicing Plan Non- Interested Directors. Servicing
agreements may be terminated at any time, without payment of any penalty, by
vote of a majority
10
<PAGE> 1202
of the Servicing Plan Non-Interested Directors. No material amendment to the
Servicing Plans may be made except by a majority of both the Directors of the
Company and the Servicing Plan Non-Interested Directors.
Each Servicing Plan requires that the administrator shall provide
to the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under the Servicing
Plan.
PERFORMANCE CALCULATIONS
The following information supplements and should be read in
conjunction with the sections in the Prospectus entitled "Investing in the Fund
- -- Share Value" and "How the Fund Works -- Performance."
As indicated in the Prospectus, the Fund may advertise certain
total return information for a class of shares, computed in the manner
described in the Prospectus. As and to the extent required by the Commission,
an average annual compound rate of return ("T") will be computed by using the
redeemable value at the end of a specified period ("ERV") of a hypothetical
initial investment in a class of shares ("P") over a period of years ("n")
according to the following formula: P(1+T)n = ERV. In addition, as indicated
in the Prospectus, the Fund also may, at times, calculate total return for a
class of shares based on net asset value per share (rather than the public
offering price), in which case the figures would not reflect the effect of any
sales charges that would have been paid by an investor, or would be based on
the assumption that a sales charge other than the maximum sales charge
(reflecting a Volume Discount) was assessed, provided that total return data
derived pursuant to the calculation described above also are presented.
In addition to the above performance information, the Fund may
also advertise the cumulative total return of a class. The cumulative total
return for such periods is based on the overall percentage change in value of a
hypothetical investment in a class of shares, assuming all dividends and
capital gain distributions are reinvested in shares of that class, without
reflecting the effect of any sales charge that would be paid by an investor,
and is not annualized.
Performance information may be advertised for non-standardized
periods, including year-to-date and other periods less than a year.
The total return information for the Institutional Class Shares
presented below and advertised by the Fund for the period prior to September
16, 1996, the date the Fund commenced operations, is based upon the prior
performance of the Collective Investment Fund. The performance information is
adjusted to reflect the current level of operating expenses applicable to the
Institutional Class shares. There are no front-end or contingent deferred
sales charges on the Fund's Institutional Class shares.
11
<PAGE> 1203
For the Applicable Period Ended September 30, 1996
<TABLE>
<CAPTION>
Average Annual Total Return Cumulative Total Return
---------------------------- -----------------------
Class Inception(1) One Year Inception
----- ---------- -------- ----------
<S> <C> <C> <C>
I 52.49% 39.01% 119.09%
- ------------------------------
</TABLE>
(1) The Small Cap Fund commenced operations on September 16, 1996, as the
successor to the Small Capitalization Growth Fund for BRP Employment
Retirement Plans, an unregistered bank collective investment fund (the
"Predecessor Fund") which, in turn, commenced operations on November 2,
1994.
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.
12
<PAGE> 1204
In addition, the Company also may use, in advertisements and other
types of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Wells Fargo, and its
affiliates and predecessors, as one of the first investment managers to advise
investment accounts using asset allocation and index strategies. The Company
also may include in advertising and other types of literature information and
other data from reports and studies prepared by the Tax Foundation, including
information regarding federal and state tax levels and the related "Tax Freedom
Day."
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
13
<PAGE> 1205
investments. The Company may compare the performance of the Fund with other
investments that are assigned ratings by the NRSROs. Any such comparisons may
be useful to investors who wish to compare the Fund's past performance with
other rated investments.
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Fargo Investment Management
("WIFM"), 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 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
individual, Trusts, estates and institutions and $20 billion of mutual fund
assets.
The Company may disclose in advertising and other types of
literature that investors can open and maintain Sweep Accounts over the
Internet or through other electronic channels (collectively, "Electronic
Channels"). Such advertising and other literature may discuss the investment
options available to investors, including the types of accounts and any
applicable fees. Such advertising and other literature may disclose that Wells
Fargo Bank is the first major bank to offer an on-line application for a mutual
fund account that can be filled out completely through Electronic Channels.
Advertising and other literature may disclose that Wells Fargo Bank may
maintain Web sites, pages or other information sites accessible through
Electronic Channels (an "Information Site") and may describe the contents and
features of the Information Site and instruct investors on how to access the
Information Site and open a Sweep Account. Advertising and other literature
may also disclose the procedures employed by Wells Fargo Bank to secure
information provided by investors, including disclosure and discussion of the
tools and services for accessing Electronic Channels. Such advertising or
other literature may include discussions of the advantages of establishing and
maintaining a Sweep Account through Electronic Channels and testimonials from
Wells Fargo Bank customers or employees and may also include descriptions of
locations where product demonstrations may occur. The Company may also
disclose the ranking of Wells Fargo Bank as one of the largest money managers
in the United States.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in
conjunction with the Prospectus section entitled "Investing in the Fund." Net
asset value per share for each class of the Fund and net asset value per unit
of the Master Portfolio are each determined by Wells Fargo on each day the
Exchange is open for trading as of the close of regular trading on the
Exchange, which is currently 1:00 p.m. Pacific time.
Securities of the Master Portfolio for which market quotations are
available are valued at latest prices. Any security for which the primary
market is an exchange is valued at the last sale price on such exchange on the
day of valuation or, if there was no sale on such day, the
14
<PAGE> 1206
latest bid price quoted on such day. In the case of other securities,
including U.S. Government securities but excluding money market instruments
maturing in 60 days or less, the valuations are based on latest quoted bid
prices. Money market instruments maturing in 60 days or less are valued at
amortized cost. The assets of the Master Portfolio other than money market
instruments maturing in 60 days or less are valued at latest quoted bid prices.
Prices may be furnished by a reputable independent pricing service approved by
the Board of Trustees. Prices provided by an independent pricing service may
be determined without exclusive reliance on quoted prices and may take into
account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data. All other securities and other
assets of the Master Portfolio for which current market quotations are not
readily available are valued at fair value as determined in good faith by 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
Institutional Class 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, 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.
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
15
<PAGE> 1207
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 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 is responsible for the
Master Portfolio 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 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
16
<PAGE> 1208
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 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
17
<PAGE> 1209
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 owned no 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 Master Portfolio, 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 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.
FEDERAL INCOME TAX
In General. The following information supplements and should be
read in conjunction with the Prospectus sections entitled "Dividend and Capital
Gain Distributions" and
18
<PAGE> 1210
"Taxes." The Prospectus of the Fund describes generally the tax treatment of
distributions by the Master Portfolio and the Fund. This section of the SAI
includes additional information concerning federal income taxes.
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.
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
19
<PAGE> 1211
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.
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
20
<PAGE> 1212
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 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 computed separately and treated as
ordinary income or losses. The Funds will attempt to monitor Section 988
transactions to avoid an adverse tax impact.
21
<PAGE> 1213
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.
Backup Withholding. The Company may be required to withhold,
subject to certain exemptions, at a rate of 31% ("backup withholding") on
dividends, capital gain distributions, and redemption proceeds (including
proceeds from exchanges) paid or credited to an individual Fund
22
<PAGE> 1214
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, the Master
Portfolio 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 twenty-four 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 Shares,
Class B Shares and Institutional Class shares. With respect to matters that
affect one class but not another, shareholders vote as a class; for example,
the approval of a Plan. Subject to the foregoing, on any matter submitted to a
vote of shareholders, all shares then entitled to vote will be voted
23
<PAGE> 1215
separately by portfolio unless otherwise required by the Act, in which case all
shares will be voted in the aggregate. For example, a change in the Fund's
fundamental investment policies would be voted upon only by shareholders of the
Fund and not shareholders of the Company's other investment portfolios.
Additionally, approval of an advisory contract is a matter to be determined
separately by the Fund. Approval by the shareholders of one portfolio is
effective as to that portfolio whether or not sufficient votes are received
from the shareholders of the other portfolios to approve the proposal as to
those portfolios. As used in the Prospectus and in this Statement of
Additional Information, the term "majority," when referring to approvals to be
obtained from shareholders of a class of the Fund, means the vote of the lesser
of (i) 67% of the shares of such class of the Fund represented at a meeting if
the holders of more than 50% of the outstanding shares of such class of the
Fund are present in person or by proxy, or (ii) more than 50% of the
outstanding shares of such class of the Fund. The term "majority," when
referring to the approvals to be obtained from shareholders of the Company as a
whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held.
The Company may dispense with annual meetings of shareholders in
any year in which it is not required to elect directors under the Act.
However, the Company undertakes to hold a special meeting of its shareholders
for the purpose of voting on the question of removal of a director or directors
if requested in writing of the holders of at least 10% of the Company's
outstanding voting securities, and to assist in communicating with other
shareholders as required by Section 16(c) of the Act.
Each share of a class of the Fund represents an equal proportional
interest in the Fund with each other share of the same class and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to the Fund as are declared in the discretion of the Directors. In
the event of the liquidation or dissolution of the Company, shareholders of the
Fund are entitled to receive the assets attributable to the Fund that are
available for distribution, and a distribution of any general assets not
attributable to the Fund that are available for distribution in such manner and
on such basis as the Directors in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.
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
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
24
<PAGE> 1216
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 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 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 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 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.
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 93.49% 86.30%
420 Montgomery Street Class
San Francisco, CA 94104 [Record
Holder]
Wells Fargo Bank 48.93% N/A
P.O. Box 63015
San Francisco, CA 94163 Class A
Benefically
Stephens Inc. Owned 33.62% N/A
111 Center Street
Little Rock, AR 72201
Class A
Stephens Inc. Benefically 5.90% N/A
P.O. Box 34127 Owned
Little Rock, AR 72203
Stephens Inc. Class B 11.71% N/A
P.O. Box 34127 Benefically
Little Rock, AR 72203 Owned
Acct. 77586707
Class B
Benefically
Owned
Acct. 77478661
</TABLE>
25
<PAGE> 1217
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 Registration Statements of MIT and the Company, including the
Fund's Prospectus, the SAI and the exhibits filed therewith, may be examined at
the office of the Commission in Washington, D.C. Statements contained in the
Prospectus or the SAI as to the contents of any contract or other document
referred to herein or in the Prospectus are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent
auditors 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 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 are attached
to all SAIs delivered to current or prospective shareholders.
The portfolio of investments, audited financial statements and
independent auditors' report for the fiscal period ended September 30, 1996 for
the Small Cap Master Portfolio of Master Investment Trust are hereby
incorporated by reference to the Company's Annual Reports as filed with the
SEC on December 9, 1996.
26
<PAGE> 1218
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> 1219
STAGECOACH FUNDS, INC.
Telephone: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1997
CALIFORNIA TAX-FREE BOND FUND
CALIFORNIA TAX-FREE INCOME FUND
GINNIE MAE FUND
GROWTH AND INCOME FUND
MONEY MARKET MUTUAL FUND
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME 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 in six funds of the Stagecoach
Family of Funds -- the CALIFORNIA TAX-FREE BOND FUND (the "Bond Fund"), the
CALIFORNIA TAX-FREE INCOME FUND (the "Income Fund"), the GINNIE MAE FUND, the
GROWTH AND INCOME FUND (the "Growth Fund"), the MONEY MARKET MUTUAL FUND and
the SHORT- INTERMEDIATE U.S. GOVERNMENT INCOME FUND (the "Government Income
Fund") (each a "Fund" and collectively, the "Funds"). The investment objective
of each Fund is described in its respective Prospectus under "How the Fund(s)
Work(s) -- Investment Objective(s) and Policies."
This SAI is not a prospectus and should be read in conjunction
with each Fund's Prospectus dated February 1, 1997. All terms used in this SAI
that are defined in the Funds' Prospectuses have the meanings assigned in the
respective Prospectus. A copy of the Funds' Prospectuses may be obtained free
of 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.
----------------------------------
1
<PAGE> 1220
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities . . . . . . . . . . . . . . . 7
Special Considerations Affecting
California Municipal Obligations . . . . . . . . . . . . . . . . . . . 13
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . . . 22
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . 27
Additional Purchase and Redemption Information . . . . . . . . . . . . . 29
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 30
Fund Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
2
<PAGE> 1221
INVESTMENT RESTRICTIONS
Fundamental Investment Policies: The Funds are subject to the
following investment restrictions, all of which are fundamental policies.
The Funds 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 a 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) obligations of the
U.S. Government, its agencies or instrumentalities ("U.S. Government
obligations"), and (ii) with respect only to the Bond and Income Funds,
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 (iii) with respect to the Money Market Mutual
Fund, the obligations of domestic banks (for the purpose of this restriction,
domestic bank obligations do not include obligations of U.S. branches of
foreign banks or obligations of foreign branches of U.S. banks);
(2) underwrite securities of other issuers, except to the extent
that the purchase of permitted investments (which includes municipal securities
for the Bond and Income Fund) directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with a Fund's investment program may be deemed to be an
underwriting; and
(3) make investments for the purpose of exercising control or
management.
The Ginnie Mae, Government Income and Growth Funds may not:
(1) purchase interests, leases, or limited partnership interests
in oil, gas, or other mineral exploration or development programs;
(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 Funds may purchase securities of an issuer which
invests or deals in commodities or commodity contracts;
(4) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions and, with respect to the Ginnie Mae
and Growth Funds, except for
3
<PAGE> 1222
margin payments in connection with options, futures and options on futures) or
make short sales of securities; and
(5) purchase securities of any issuer (except U.S. Government
obligations) if, with respect to 100% of the Ginnie Mae and Growth Funds' total
assets, and only 75% of the Government Income Fund's total assets, as a result,
more than 5% of the value of a Fund's total assets would be invested in the
securities of any one issuer or with respect to 100% of each Fund's total
assets the Fund's ownership would be more than 10% of the outstanding voting
securities of such issuer.
The Bond, Income and Money Market Mutual Funds may not:
(1) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions, except with regard to the Bond
Fund, for margin payments in connection with options, futures and options on
futures) or make short sales of securities;
(2) write, purchase or sell puts, calls, options or any
combination thereof, and with regard to the Money Market Mutual Fund write,
purchase or sell warrants, except that all Funds may purchase securities with
put rights in order to maintain liquidity;
(3) issue senior securities, except that a 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 the Fund's net assets (but
investments may not be purchased while any such outstanding borrowings exceed
5% of its net assets); and
(4) purchase or sell real estate or real estate limited
partnerships (other than municipal obligations with respect to the Bond Fund
and the Income Fund, or other than money market securities with respect to the
Money Market Mutual Fund, or with respect to each Fund 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);
The Ginnie Mae and Growth Funds may not:
(1) write, purchase or sell puts, calls, straddles, spreads,
warrants, options or any combination thereof, and except that the Growth Fund
may purchase securities with put rights in order to maintain liquidity, and may
invest up to 5% of its net assets in warrants in accordance with its investment
policies as stated below; and
(2) issue senior securities, except that the Growth 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 the Fund's net
assets (but investments may not be purchased while any such outstanding
borrowings exceed 5% of its net assets), and except that the Ginnie Mae Fund
may borrow up to
4
<PAGE> 1223
20% of the current value of the Fund's 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).
The Government Income Fund may not:
(1) write, purchase or sell straddles, spreads, warrants, or any
combination thereof;
(2) borrow money or issue senior securities as defined in the
Investment Company Act of 1940 (the "1940 Act"), except that the Fund may
borrow from banks up to 10% of the current value of its net assets for
temporary purposes only in order to meet redemptions, and these borrowings may
be secured by the pledge of up to 10% of the current value of the Fund's net
assets (but investments may not be purchased while any such outstanding
borrowings exceed 5% of its net assets), except that the Fund may issue
multiple classes of shares in accordance with applicable laws, rules,
regulations or orders; and
(3) make loans, except that the Fund may purchase or hold debt
instruments or lend its portfolio securities in accordance with its investment
policies, and may enter into repurchase agreements.
The Income and Money Market Mutual Funds may not:
(1) make loans of portfolio securities, (with regard to the Income
Fund, having a value that exceeds 50% of the current value of its total
assets), or other assets with regard to the Money Market Mutual Fund, provided
that, for purposes of this restriction, loans will not include the purchase of
fixed time deposits, repurchase agreements, commercial paper and other
short-term obligations, and other types of debt instruments commonly sold in
public or private offerings.
With respect to loans of portfolio securities, the Funds do not
intend to engage in securities loans during the current year. If a Fund were
to engage in securities loans, the Fund would do so in compliance with SEC
guidelines applicable to these transactions, including limiting all loans to a
value not exceeding one third of the current value of its total assets.
Non-Fundamental Investment Policies: The Funds are subject to
the following non-fundamental policies; that is, they may be changed by a
majority vote of the Board of Directors without shareholder approval:
The Funds 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; and
5
<PAGE> 1224
(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.
The Bond, Money Market Mutual, Income, Ginnie Mae and Growth Funds
may not:
(1) purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, and
equity securities of issuers which are not readily marketable if by reason
thereof the value of such Fund's aggregate investment in such classes of
securities will exceed 5% of its total assets.
The Bond, Money Market Mutual and Income Funds may not:
(1) purchase interests, leases, or limited partnership interests
in oil, gas, or other mineral exploration or development programs; and
(2) 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), with respect to the Bond Fund.
The Money Market Mutual Fund may not invest more than 10% of the current value
of its net assets that are illiquid by virtue of the absence of a readily
available market or legal or contractual restriction on resale and fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days. The Income Fund may not invest more than 15% of its net
assets in illiquid securities. For this purpose, illiquid securities include,
among others (a) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale, (b)
fixed time deposits that are subject to withdrawal penalties and that have
maturities of more than seven days, (c) repurchase agreements not terminable
within seven days.
The Income Fund may not:
(1) 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; and
(2) invest more than 5% of its assets at the time of purchase in
warrants and not more than 2% of its net assets in warrants that are not listed
on the New York or American Stock Exchange.
6
<PAGE> 1225
In addition, the Government Income Fund reserves the right to
invest up to 15% of the current value of its net assets in fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, repurchase agreements maturing in more than seven days or other
illiquid securities. However, as long as the Fund's shares are registered for
sale in a state that imposes a lower limit on the percentage of a fund's assets
that may be so invested, the Fund will comply with such lower limit. The fund
presently is limited to investing 10% of its net assets in such securities due
to limits applicable in several states.
The Money Market Mutual Fund may not purchase or sell real estate
limited partnership interests.
The Growth and Ginnie Mae 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, as provided in Rule 2a-7 under the 1940 Act, the
Money Market Mutual Fund may only purchase "Eligible Securities" (as defined in
Rule 2a-7) and only if, immediately after such purchase: the Money Market
Mutual Fund would have no more than 5% of its total assets in "First Tier
Securities" (as defined in Rule 2a-7) of any one issuer, excluding government
securities and except as otherwise permitted for temporary purposes and for
certain guarantees and unconditional puts; the Money Market Mutual Fund would
own no more than 10% of the voting securities of any one issuer; the Money
Market Mutual Fund would have no more than 5% of its total assets in "Second
Tier Securities" (as defined in Rule 2a-7); and the Money Market Mutual Fund
would have no more than the greater of $1 million or 1% of its total assets in
Second Tier Securities of any one issuer.
Further, all of the Funds may invest in shares of other open-end,
management investment companies, subject to the limitations of Section 12(d)(1)
of the 1940 Act, provided that any such purchases will be limited to temporary
investments in shares of unaffiliated investment companies that have a
fundamental investment policy of investing at least 80% of their net assets in
obligations that are exempt from federal income taxes and are not subject to
the federal alternative minimum tax. The Funds' investment adviser will waive
its advisory fees, however, for that portion of the Funds' assets so invested,
except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition.
Notwithstanding any other investment policy or limitation (whether
or not fundamental), the Income Fund may invest all of its assets in the
securities of a single, open-end management investment company with
substantially the same fundamental investment objective, policies and
limitations as the Fund.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Unrated Investments. The Bond, Growth, Income, Ginnie Mae and
Money Market Mutual Funds may purchase instruments that are not rated if, in
the opinion of Wells Fargo
7
<PAGE> 1226
Bank, such obligations are of comparable quality to other rated investments
that are permitted to be purchased by the Funds, provided that the Money Market
Mutual Fund may do so subject to the provisions and restrictions of Rule 2a-7
under the 1940 Act. After purchase by a Fund, a security may cease to be rated
or its rating may be reduced below the minimum required for purchase by such
Fund. Neither event will require an immediate sale of such security by the
Fund, provided that with respect to the Money Market Mutual Fund, when a
security ceases to be rated, the Company's Board of Directors determines that
such security presents minimal credit risks and provided further that, when a
security is downgraded below the eligible quality for investment or no longer
presents minimal credit risks, the Board finds that the sale of such security
would not be in the Fund's best interests. To the extent the ratings given by
Moody's or S&P may change as a result of changes in such organizations or their
rating systems, each Fund will attempt to use comparable ratings as standards
for investments in accordance with the investment policies contained in the
Funds' Prospectuses and in this SAI. The ratings of Moody's and S&P are more
fully described in the SAI Appendix.
Letters of Credit. For the Bond, Income, Ginnie Mae, Growth and
Money Market Mutual Funds, certain of the debt obligations (including municipal
securities, certificates of participation, commercial paper and other
short-term obligations) that the Funds may purchase may be backed by an
unconditional and irrevocable letter of credit of a bank, savings and loan
association or insurance company that 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 that, in the opinion of
Wells Fargo Bank, are of comparable quality to issuers of other permitted
investments of each Fund may be used for letter of credit-backed investments.
Pass-Through Obligations. The Bond, Ginnie Mae, Government
Income, and Income Funds may purchase 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 a Fund.
Furthermore, as with any debt obligation, fluctuations in interest rates will
inversely affect the market value of pass-through obligations. Each Fund may
invest in pass-through obligations that are supported by the full faith and
credit of the U.S. Government (such as those issued by the Government National
Mortgage Association) or those that are guaranteed by an agency or
instrumentality of the U.S. Government (such as the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation) or bonds
collateralized by any of the foregoing.
When-Issued Securities. The Bond, Government Income, Ginnie Mae,
Growth, and Income Funds may invest in securities that are purchased on a
when-issued basis, in which case delivery and payment normally take place
within 45 days after the date of the commitment to purchase (120 days for the
Growth Fund and the Ginnie Mae Fund). The Bond, Growth and Government Income
Funds do not intend to invest more than 5% of their net assets in such
8
<PAGE> 1227
securities during the coming year. Each Fund currently will only make
commitments to purchase securities on a when- issued basis with the intention
of actually acquiring the securities but may sell them before the settlement
date if it is deemed advisable.
When-issued securities are subject to market fluctuation, and no
income accrues to the purchaser during the period prior to issuance. The
purchase price and the interest rate that will be received on debt securities
are fixed at the time the purchaser enters into the commitment. Purchasing a
security on a when-issued basis can involve a risk that the market price at the
time of delivery may be lower than the agreed-upon purchase price, in which
case there could be an unrealized loss at the time of delivery.
Each Fund will establish a segregated account in which it will
maintain cash, U.S. Government Obligations, or other high-quality debt
instruments in an amount at least equal in value to its commitments to purchase
when-issued securities. If the value of these assets declines, a Fund will
place additional liquid assets in the account on a daily basis so that the
value of the assets in the account is equal to the amount of such commitments.
Loans of Portfolio Securities. The Ginnie Mae and Growth Funds
may lend securities from its 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 a
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 one
third of the current value of its total assets. Loans of securities by the
Fund 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 Ginnie Mae
Fund currently intends to limit the practice of lending portfolio securities to
no more than 5% of its net assets during the coming year.
9
<PAGE> 1228
Foreign Obligations. For the Ginnie Mae and Growth Funds,
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. While the Growth Fund currently does not intend to invest more than
10% of its assets in foreign obligations, it may invest 25% or more of its
assets in foreign obligations. The Ginnie Mae Fund does not intend to invest
in foreign obligations during the coming year.
Convertible Securities (Lower Rated Securities) Subject to the
limitations described in its Prospectus, the Ginnie Mae and Growth Funds may
invest in convertible securities that are not rated in one of the four highest
rating categories by a nationally recognized statistical rating organization
(NRSRO). The yields on such lower rated securities, which include securities
also known as junk bonds, generally are higher than the yields available on
higher- rated securities. However, investments in lower rated securities and
comparable unrated securities generally involve greater volatility of price and
risk of loss of income and principal, including the probability of default by
or bankruptcy of the issuers of such securities. Lower rated securities and
comparable unrated securities (a) will likely have some quality and protective
characteristics that, in the judgment of the rating organization, are
outweighed by large uncertainties or major risk exposures to adverse conditions
and (b) are predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligation. Accordingly, it is possible that these types of factors could, in
certain instances, reduce the value of securities held in the Fund's portfolio,
with a commensurate effect on the value of the Fund's shares. Therefore, an
investment in the Fund should not be considered as a complete investment
program and may not be appropriate for all investors.
10
<PAGE> 1229
While the market values of lower rated securities and comparable unrated
securities tend to react less to fluctuations in interest rate levels than the
market values of higher-rated securities, the market values of certain lower
rated securities and comparable unrated securities also tend to be more
sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, lower rated securities
and comparable unrated securities generally present a higher degree of credit
risk. Issuers of lower rated securities and comparable unrated securities
often are highly leveraged and may not have more traditional methods of
financing available to them so that their ability to service their debt
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such
issuers is significantly greater because lower rated securities and comparable
unrated securities generally are unsecured and frequently are subordinated to
the prior payment of senior indebtedness. The Fund may incur additional
expenses to the extent that it is required to seek recovery upon a default in
the payment of principal or interest on its portfolio holdings. The existence
of limited markets for lower rated securities and comparable unrated securities
may diminish the Fund's ability to (a) obtain accurate market quotations for
purposes of valuing such securities and calculating net asset value and (b)
sell the securities at fair value either to meet redemption requests or to
respond to changes in the economy or in financial markets.
Certain lower rated debt securities and comparable unrated
securities frequently have call or buy-back features that permit their issuers
to call or repurchase the securities from their holders, such as the Fund. If
an issuer exercises these rights during periods of declining interest rates,
the Fund may have to replace the security with a lower yielding security, thus
resulting in a decreased return to the Fund.
The market for certain lower rated securities and comparable
unrated securities is relatively new and has not weathered a major economic
recession. The effect that such a recession might have on such securities is
not known. Any such recession, however, could disrupt severely the market for
such securities and adversely affect the value of such securities. Any such
economic downturn also could adversely affect the ability of the issuers of
such securities to repay principal and pay interest thereon.
Privately Issued Securities (Rule 144A). The Growth Fund may
invest in privately issued securities which may be resold only in accordance
with Rule 144A under the Securities Act of 1933 ("Rule 144A Securities"). Rule
144A Securities are restricted securities and will not be publicly traded.
Accordingly, the liquidity of the market for specific Rule 144A Securities may
vary. The Company's investment adviser, pursuant to guidelines established by
the Board of Directors of the Company will evaluate the liquidity
characteristics of each Rule 144A Security proposed for purchase by the Fund on
a case-by-case basis and will consider the following factors, among others, in
their evaluation: (1) the frequency of trades and quotes for the Rule 144A
Security; (2) the number of dealers willing to purchase or sell the Rule 144A
Security and the number of other potential purchasers; (3) dealer undertakings
to make a market in the Rule 144A Security; and (4) the nature of the Rule 144A
Security and the nature of the marketplace trades (e.g., the time needed to
dispose of the Rule 144A Security, the method of
11
<PAGE> 1230
soliciting offers and the mechanics of transfer). The Fund does not intend to
invest more than 5% of its net assets in Rule 144A Securities during the coming
year.
Municipal Bonds. The Bond and Income Funds may invest in
municipal bonds. As discussed in the Prospectus, the two principal
classifications of municipal bonds are "general obligation" and "revenue"
bonds. Municipal bonds are debt obligations issued to obtain funds for various
public purposes, including the construction of a wide range of public
facilities such as bridges, highways, housing, hospitals, mass transportation,
schools, streets, and water and sewer works. Other purposes for which
municipal bonds may be issued include the refunding of outstanding obligations
and obtaining funds for general operating expenses or to loan to other public
institutions and facilities. Industrial development bonds are a specific type
of revenue bond backed by the credit and security of a private user. Certain
types of industrial development bonds are issued by or on behalf of public
authorities to obtain funds to provide privately-operated housing facilities,
sports facilities, convention or trade show facilities, airport, mass transit,
port or parking facilities, air or water pollution control facilities and
certain local facilities for water supply, gas, electricity, or sewage or solid
waste disposal. Neither Fund may invest 25% or more of its assets in
industrial development bonds. Assessment bonds, wherein a specially created
district or project area levies a tax (generally on its taxable property) to
pay for an improvement or project may be considered a variant of either
category. There are, of course, other variations in the types of municipal
bonds, both within a particular classification and between classifications,
depending on numerous factors. Some of these bonds may be considered private
activity bonds for federal income tax purposes.
Municipal Notes. The Bond and Income Funds may invest in
municipal notes which include, but are not limited to, tax anticipation notes
("TANs"), bond anticipation notes ("BANs"), revenue anticipation notes ("RANs")
and construction loan notes. Notes sold as interim financing in anticipation
of collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuer.
TANs. An uncertainty in a municipal issuer's capacity to raise
taxes as a result of such things as a decline in its tax base or a rise in
delinquencies could adversely affect the issuer's ability to meet its
obligations on outstanding TANs. Furthermore, some municipal issuers mix
various tax proceeds into a general fund that is used to meet obligations other
than those of the outstanding TANs. Use of such a general fund to meet various
obligations could affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations
on its BANs is primarily dependent on the issuer's adequate access to the
longer term municipal bond market and the likelihood that the proceeds of such
bond sales will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as
anticipated revenues from another level of government, could adversely affect
an issuer's ability to meet its obligations on outstanding RANs. In addition,
the possibility that the revenues would, when received, be used
12
<PAGE> 1231
to meet other obligations could affect the ability of the issuer to pay the
principal of, and interest on, RANs.
The values of outstanding municipal securities will vary as a
result of changing market evaluations of the ability of their issuers to meet
the interest and principal payments (i.e., credit risk). Such values also will
change in response to changes in the interest rates payable on new issues of
municipal securities (i.e., market risk). Should such interest rates rise, the
values of outstanding securities, including those held in a Fund's portfolio,
will decline and (if purchased at par value) 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 they have no present intention
to do so, the Bond, Income and Growth Funds may each invest up to 5% of their
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. Each Fund may only
purchase warrants on securities in which the Fund may invest directly.
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.
13
<PAGE> 1232
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, 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 Investors Service lowered its rating from "Aa" to "A1," Standard &
Poor's Ratings Group 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 & Poors 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
14
<PAGE> 1233
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 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.
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 valorem 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
15
<PAGE> 1234
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 Funds may
be obligations payable solely from lease payments on real or personal property
leased to the state, cities, counties or their various public entities.
California law provides that a lessor may not be required to make payments
during any period that it is denied use and occupancy of the property in
proportion to such loss. Moreover, the lessor only agrees to appropriate
funding for lease payments in its annual budget for each fiscal year. In case
of a default under the lease, the only remedy available against the lessor is
that of reletting the property; no acceleration of lease payments is permitted.
Each of these factors presents a risk that the lease financing obligations held
by a Fund would not be paid in a timely manner.
Certain debt obligations held by the Funds 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
16
<PAGE> 1235
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.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 45 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate Professor of Finance
of the School of Business and Accounting at
Wake Forest University since 1983.
</TABLE>
17
<PAGE> 1236
<TABLE>
<S> <C> <C>
Joseph N. Hankin, 55 Director President, Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; President of Hartford
(appointed as of Junior College from 1967 to
September 6, 1996) 1971; Adjunct Professor of
Columbia University
Teachers College since
1976.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 40 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
18
<PAGE> 1237
COMPENSATION TABLE
<TABLE>
<CAPTION>
Year Ended Period Ended
---------- -------------
December 31, 1995 September 30, 1996
------------------ ------------------
Total
Aggregate Total Compensation Aggregate Compensation from
Compensation from Registrant Compensation Registrant
Name and Position from Registrant and Fund Complex from Registrant and Fund Complex
- ----------------- --------------- ------------------ --------------- -----------------
<S> <C> <C> <C> <C>
Jack S. Euphrat $10,188 $39,750 $9,750 $29,250
Director
*R. Greg Feltus $-0- $-0- $-0- $-0-
Director
Thomas S. Goho $10,188 $39,750 $9,750 $29,250
Director
Joseph N. Hankin N/A N/A $-0- $-0-
Director
*Zoe Ann Hines $-0- $-0- $-0- $-0-
Director
(resigned as of
September 6, 1996)
*W. Rodney Hughes $9,438 $37,000 $8,250 $24,750
Director
Robert M. Joses $9,938 $39,000 $9,750 $29,250
Director
*J. Tucker Morse $8,313 $33,250 $8,250 $24,750
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
19
<PAGE> 1238
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 Funds are advised by Wells Fargo Bank
pursuant to Advisory Contracts that provide for Wells Fargo Bank to furnish to
the Funds investment guidance and policy direction in connection with the daily
portfolio management of the Funds. Pursuant to the Advisory Contracts, Wells
Fargo Bank furnishes to the Company's Board of Directors periodic reports on
the investment strategy and performance of each Fund.
Wells Fargo Bank has agreed to provide to each Fund with, 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's portfolio.
Each Advisory Contract will continue in effect for more than two
years provided the continuance is approved annually (i) by the holders of a
majority of the respective Fund's outstanding voting securities or by the
Company's Board of Directors and (ii) by a majority of the Directors of the
Company who are not parties to the Advisory Contract or "interested persons"
(as defined in the 1940 Act) of any such party. The Advisory Contracts 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 Funds paid to Wells Fargo Bank the
advisory fees indicated below and Wells Fargo Bank waived the indicated
amounts:
20
<PAGE> 1239
<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>
California Tax- $2,157,487 $0 $ 368,134 $1,728,107 $ 1,542,893 $0 $ 1,202,280 $0
Free Bond Fund
California Tax- $ 38,402 $122,967 $0 $ 279,496 $ 236,632 $31,013 $ 281,991 $18,321
Free Income
Ginnie Mae $ 888,174 $437,110 $1,185,036 $0 $ 840,112 $0 $679,123 $0
Growth and $ 443,874 $0 $ 587,977 $0 $ 754,149 $0 $799,899 $0
Income
Money Market $1,285,690 $0 $2,073,686 $2,008,946 $12,729,506 $0 $11,593,678 $0
Mutual
Short-Intermediate $0 $ 3,704 $0 $ 58,270 $ 56,387 $60,241 $ 213,467 $0
U.S. Government
Income
</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 and each Fund, and
the Co-Administration Agreement among Wells Fargo, Stephens and each Fund,
state that Wells Fargo and Stephens shall provide as administrative services,
among other things: (i) general supervision of the operation of a Fund,
including coordination of the services performed by each Fund's investment
adviser, transfer agent, custodian, shareholder servicing agent(s), independent
public accountants and legal counsel, regulatory compliance, including the
compilation of information for documents such as reports to, and filings with,
the SEC and state securities commissions; and preparation of proxy statements
and shareholder reports for a Fund; and (ii) general supervision relative to
the compilation of data required for the preparation of periodic reports
distributed to the Company's officers and Board of Directors. 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.
For the fiscal years ended December 31, 1993, 1994 and 1995, and
the fiscal period ended September 30 ,1996, the net amounts paid by the Funds
for administrative fees to Stephens, as sole administrator during these
periods, were as indicated below. Stephens was entitled to receive a fee,
payable monthly, at the annual rate of 0.03% of each Fund's average daily net
assets.
<TABLE>
<CAPTION>
Dec. 31, Dec. 31, Dec. 31, Sept. 30,
Fund 1993 1994 1995 1996
---- ----- ---- ---- ----
<S> <C> <C> <C> <C>
California Tax-Free Bond $130,939 $126,570 $ 93,013 $ 73,687
California Tax-Free Income $ 9,912 -0- $ 16,793 $ 18,371
</TABLE>
21
<PAGE> 1240
<TABLE>
<S> <C> <C> <C> <C>
Ginnie Mae $ 81,058 $ 71,842 $ 50,407 $ 40,747
Growth and Income $ 26,644 $ 35,279 $ 45,249 $ 51,193
Money Market Mutual $ 96,535 $ 306,209 $ 954,713 $ 872,577
Short-Intermediate U.S. Govt. Income $ 3,522 $ 3,522 $ 6,998 $ 12,808
</TABLE>
SPONSOR AND DISTRIBUTOR. As discussed in each Fund's prospectus
under the heading "Management and Servicing Fees," Stephens serves as each
Fund's sponsor and distributor.
SHAREHOLDER SERVICING AGENT. As discussed in the Funds'
prospectuses under the heading "Shareholder Servicing Agent," the Company may
enter into shareholder servicing agreements on behalf of each Fund's
Institutional Class shares with Wells Fargo Bank. The Company does not
currently intend to pay fees to Shareholder Servicing Agents during the
upcoming fiscal year.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo
Bank has been retained to act as custodian and transfer and dividend disbursing
agent for each Fund. The custodian, among other things, maintains a custody
account or accounts in the name of each Fund; receives and delivers all assets
for each Fund upon purchase and upon sale or maturity; collects and receives
all income and other payments and distributions on account of the assets of
each Fund and pays all expenses of each Fund. For its services as custodian,
Wells Fargo Bank receives an asset-based fee and transaction charges from each
Fund; and for its services as transfer and dividend disbursing agent, it
receives a base fee and per-account fees from each Fund.
For the year ended December 31, 1995 and the fiscal period ended
September 30, 1996, the Growth and Income Fund paid $ 15,578 and $17,963,
respectively, in custody fees and $ 160,168 and $ 217,737, respectively, in
transfer and dividend disbursing agency fees to Wells Fargo Bank. The
remaining Funds waived such fees entirely.
UNDERWRITING COMMISSIONS. The Institutional Class of each Fund
does not charge any front-end sales loads or contingent deferred sales charges
in connection with the purchase and redemption of its shares, and therefore
pays no underwriting commissions to the Distributor.
PERFORMANCE CALCULATIONS
As indicated in the Prospectuses, performance information for the
Funds' Institutional Class shares may be presented from time to time.
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 in a Class of shares ("P") over a period of years ("n")
according to the following formula: P(1+T)n = ERV.
22
<PAGE> 1241
Average Annual Total Return for the Applicable Period Ended September 30,
1996(1)
<TABLE>
<CAPTION>
Fund Inception(2) Five Year Three Year One Year
---- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
California Tax-Free Bond 7.25% N/A 3.80% 6.28%
California Tax-Free Income 4.58% N/A 3.68% 3.87%
Ginnie Mae 7.20% 6.46% 4.67% 4.12%
Growth and Income 14.29% 13.92% 14.35% 14.47%
Short-Intermediate U.S. Govt. Income 4.28% N/A N/A 4.45%
</TABLE>
- -----------------------------------
(1) Performance figures for the Institutional Class Shares reflect the
performance of the Class A Shares for periods prior to September 6,
1996. The Institutional Class shares assess no sales charges.
(2) Each Fund's Institutional Class Shares commenced operations on September
6, 1996. Class A Shares commenced operations as follows: California
Tax-Free Bond - January 2, 1992; California Tax-Free Income - November
18, 1992; Ginnie Mae - January 3, 1991; Growth and Income - August 2,
1990; and Short-Intermediate U.S. Government Income - October 27, 1993.
CUMULATIVE TOTAL RETURNS on each Fund's Institutional Class shares
may also be presented from time to time. Cumulative total return 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 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.
Cumulative Total Return for the Applicable Period Ended September 30, 1996(1)
<TABLE>
<CAPTION>
Fund Inception(2) Five Year Three Year
---- ------------ --------- ----------
<S> <C> <C> <C>
California Tax-Free Bond 39.47% N/A 11.82%
California Tax-Free Income 18.93% N/A 11.46%
Ginnie Mae 49.17% 36.73% 14.69%
Growth and Income 127.90% 91.84% 49.54%
Short-Intermediate U.S. 13.01% N/A N/A
Govt. Income
</TABLE>
- -------------
23
<PAGE> 1242
(1) Performance figures for the Institutional Class Shares reflect the
performance of the Class A Shares for periods prior to September 6,
1996. The Institutional Class Shares have no sales charges.
(2) Each Fund's Institutional Class Shares commenced operations on September
6, 1996. Class A Shares commenced operations as follows: California
Tax-Free Bond - January 2, 1992; California Tax-Free Income - November
18, 1992; Ginnie Mae - January 3, 1991; Growth and Income - August 2,
1990; and Short-Intermediate U.S. Government Income - October 27, 1993.
YIELD: As indicated in their Prospectuses, the yield of each
Fund's Institutional Class shares may also be presented from time to time.
Yield is calculated based on a 30-day (or one month) period, by dividing the
net investment income per share of the Institutional Class shares of a Fund
earned during the period by the net asset value price per share of such Class
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's Institutional Class
shares 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 net investment income. Tax-equivalent yield for each Fund is
computed by dividing that portion of the yield of the Fund that 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. For purposes of sales
literature, a distribution rate of the Institutional Class shares also may be
presented provided that the yield data derived pursuant to the calculation
described above also are presented.
Effective yield for each 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 30, and subtracting one from the result.
Fund performance information 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, total return and other
performance calculations are a function of portfolio quality, composition,
maturity and market conditions as well as the expenses allocated to a Fund and
its Institutional Class shares.
Yield and total return information for a Fund or Class of shares
in a Fund may be useful in reviewing the performance of such Fund or Class of
shares and for providing a basis for comparison with investment alternatives.
The yields and total returns, however, may not be comparable to the yields or
total returns from investment alternatives because of differences in the
foregoing variables and differences in the methods used to value portfolio
securities, compute
24
<PAGE> 1243
expenses and calculate yield. In addition, investors should recognize that
changes in the net asset value of shares of a Class of the Funds will affect
the yield of each such Class for any specified period, and such changes should
be considered together with the yield in ascertaining the total return to
shareholders of a Class of shares for the period.
Yield for the Applicable Period Ended September 30, 1996(1)
<TABLE>
<CAPTION>
Thirty-Day Yield Thirty-Day Tax-Equivalent Yield(2)
---------------- -------------------------------
Fund After Waiver Before Waiver After Waiver Before Waiver
---- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
California Tax-Free Bond 5.36% 4.81% 9.97% 8.95%
California Tax-Free Income 4.13% 3.84% 7.68% 7.14%
Ginnie Mae 7.38% 6.82% 13.73% 12.69%
Short-Intermediate U.S. 5.11% 4.91% 9.51% 9.13%
Government Income
</TABLE>
<TABLE>
<CAPTION>
Fund Seven-Day Yield Seven-Day Effective Yield
---- --------------- -------------------------
<S> <C> <C>
Money Market Mutual 4.88% 5.00%
</TABLE>
____________________________________
(1) "After Waivers" figures reflect any reimbursed expenses throughout the
period. The yield of the predecessor portfolios' shares through
September 5, 1996 is also reflected.
(2) Based on a combined federal and state income tax rate of 46.24% for
each of the California Tax-Free Bond and Income Funds, and a federal
income tax rate of 28.00% for the Ginnie Mae and Short-Intermediate
U.S. Government Income Fund.
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 the
performance or price-earning ratio of a Fund or Class in advertising and other
types of literature as compared to the performance of the S&P Index, the Dow
Jones Industrial Average, the Lehman Brothers 20+ Treasury Index, the Lehman
Brothers 5-7 Year Treasury Index, Donoghue's Money Fund Averages, Real Estate
Investment Averages (as reported by the National Association of Real Estate
Investment Trusts), Gold Investment Averages (provided by World Gold Council),
Bank Averages (which are calculated from figures supplied by the U.S. League of
Savings Institutions based on effective annual rates of interest on both
passbook and certificate accounts), average annualized certificate of deposit
rates (from the Federal Reserve G-13 Statistical Releases or the Bank Rate
Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics), other managed or
unmanaged indices or performance data of bonds, municipal securities, stocks or
government securities (including data provided by Ibbotson Associates), or by
other services, companies, publications or persons who monitor mutual funds on
overall performance or other criteria. The S&P Index and the Dow Jones
25
<PAGE> 1244
Industrial Average are unmanaged indices of selected common stock prices. The
performance of a Class 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.
Any such comparisons may be useful to investors who wish to
compare past performance of the Funds with that of competitors. Of course,
past performance cannot be a guarantee of future results. The Company also may
include, from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
The Company also may disclose in sales literature, the
distribution rate on the shares of a class of the Funds. Distribution rate,
which may be annualized, is the amount determined by dividing the dollar amount
per share of each class 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 use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for the Fund: (i) the Consumer Price Index may be
used to assess the real rate of return from an investment in 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 Fund, or on returns in general, may be illustrated by graphs,
charts, etc., where such graphs or charts would compare, at various points in
time, the return from an investment in a Fund (or returns in general) on a
tax-deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and (iv)
the sectors or industries in which a Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate a Fund's
historical performance or current or potential value with respect to the
particular industry or sector.
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.
From time to time, the Funds may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Stagecoach Funds, provides
various services to its customers that are also shareholders of the Funds.
These services may include access to Stagecoach Funds' account information
through Automated Teller Machines (ATMs), the placement of purchase and
26
<PAGE> 1245
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 may also disclose in advertising and other types of sales literature the
assets and categories of assets under management by its investment adviser or
sub-adviser and the total amount of assets and mutual fund assets managed by
Wells Fargo Bank. As of December 31, 1996, Wells Fargo Bank and its affiliates
provided investment Advisory services for approximately $54 billion of assets of
individual, trusts, estates and institutions and $20 billion of mutual fund
assets.
The Company may disclose in advertising and other types of
literature that investors can open and maintain Sweep Accounts over the
Internet or through other electronic channels (collectively, "Electronic
Channels"). Such advertising and other literature may discuss the investment
options available to investors, including the types of accounts and any
applicable fees. Such advertising and other literature may disclose that Wells
Fargo Bank is the first major bank to offer an on-line application for a mutual
fund account that can be filled out completely through Electronic Channels.
Advertising and other literature may disclose that Wells Fargo Bank may
maintain Web sites, pages or other information sites accessible through
Electronic Channels (an "Information Site") and may describe the contents and
features of the Information Site and instruct investors on how to access the
Information Site and open a Sweep Account. Advertising and other literature
may also disclose the procedures employed by Wells Fargo Bank to secure
information provided by investors, including disclosure and discussion of the
tools and services for accessing Electronic Channels. Such advertising or
other literature may include discussions of the advantages of establishing and
maintaining a Sweep Account through Electronic Channels and testimonials from
Wells Fargo Bank customers or employees and may also include descriptions of
locations where product demonstrations may occur. The Company may also
disclose the ranking of Wells Fargo Bank as one of the largest money managers
in the United States.
DETERMINATION OF NET ASSET VALUE
The assets of the Bond Fund, other than debt securities maturing
in 60 days or less, are valued at latest quoted bid prices. Debt securities
maturing in 60 days or less are valued at amortized cost. 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 Bond Fund for which current market quotations are not readily
available are valued at fair value as determined in good faith by the Company's
Directors and in accordance with procedures adopted by the Directors.
For the Government Income and Growth Funds, securities for which
market quotations are available are valued at latest prices. Securities of a
Fund for which the primary market is a national securities exchange or the
National Association of Securities Dealers Automated Quotations National Market
System are valued at last sale prices. In the absence of
27
<PAGE> 1246
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 Funds for which current market quotations are not readily available are
valued at fair value as determined in good faith by the Company's Directors and
in accordance with procedures adopted by the Directors.
As indicated under "Investing In The Funds -- Share Price" in the
Prospectus, the Money Market Mutual Fund uses the amortized cost method to
determine the value of its portfolio securities pursuant to Rule 2a-7 under the
1940 Act. The amortized cost method involves valuing a security at its cost
and 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 Money Market Mutual Fund would receive if the
security were sold. During these periods the yield to a shareholder may differ
somewhat from that which could be obtained from a similar fund that uses a
method of valuation based upon market prices. Thus, during periods of declining
interest rates, if the use of the amortized cost method resulted in a lower
value of the Funds' portfolio on a particular day, a prospective investor in the
Funds would be able to obtain a somewhat higher yield than would result from
investment in a fund using solely market values, and existing Fund shareholders
would receive correspondingly less income. The converse would apply during
periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, the Money Market Mutual Fund must maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase
securities having remaining maturities (as defined in Rule 2a-7) of thirteen
months or less and invest only in those high-quality securities that are
determined by the Board of Directors to present minimal credit risks. The
maturity of an instrument is generally deemed to be the period remaining until
the date when the principal amount thereof is due or the date on which the
instrument is to be redeemed. However, Rule 2a-7 provides that the maturity of
an instrument may be deemed shorter in the case of certain instruments,
including certain variable and floating rate instruments subject to demand
features. Pursuant to the Rule, the Board is required to establish procedures
designed to stabilize, to the
28
<PAGE> 1247
extent reasonably possible, the Money Market Mutual Fund's price per share as
computed for the purpose of sales and redemptions at $1.00. Such procedures
include review of the Fund's portfolio holdings by the Board of Directors, at
such intervals as it may deem appropriate, to determine whether the Fund's net
asset value calculated by using available market quotations deviates from $1.00
per share based on amortized cost. The extent of any deviation will be examined
by the Board of Directors. If such deviation exceeds 1/2 of 1%, the Board will
promptly consider what action, if any, will be initiated. In the event the
Board determines that a deviation exists that may result in material dilution or
other unfair results to investors or existing shareholders, the Board will take
such corrective action as it regards as necessary and appropriate, including the
sale of portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity, withholding dividends or
establishing a net asset value per share by using available market quotations.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Institutional Class shares of the Non-Money Market Funds may be
purchased on any day the Funds are open. The Funds are open for business each
day the New York Stock Exchange ("NYSE") is open for trading (a "Business
Day"). Currently, the NYSE is closed on New Year's Day, 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.
Institutional Class shares of the Money Market Mutual Fund may be
purchased on any day the Fund is open for business, provided Wells Fargo Bank
also is open for business (for the Money Market Mutual Fund, a "Business Day").
Currently, Wells Fargo Bank is closed on New Year's Day, Presidents' Day, Martin
Luther King's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans Day, Thanksgiving Day and Christmas Day (for the Money Market Mutual
Fund, 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 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
29
<PAGE> 1248
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.
Except in the case of equity securities purchased by the Growth
Fund, 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 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.
30
<PAGE> 1249
The Bond and Income 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.
For the Growth Fund, purchases and sales of equity securities on a
securities exchange are effected through brokers who charge a negotiated
commission for their services. Orders may be directed to any broker including,
to the extent and in the manner permitted by applicable law, Stephens or Wells
Fargo Securities Inc. In the over-the-counter market, securities are generally
traded on a "net" basis with dealers acting as principal for their own accounts
without a stated commission, although the price of the security usually
includes a profit to the dealer. In underwritten offerings, securities are
purchased at a fixed price that includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
No Fund will deal with Stephens, Wells Fargo Bank or their affiliates in any
transaction in which any of them acts as principal without an exemptive order
from the SEC or unless an exemption is otherwise available.
In 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 Growth Fund to pay a broker/dealer which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker/dealer for effecting the same transaction,
provided that Wells Fargo Bank determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker/dealer, viewed in terms of either the particular
transaction or the overall responsibilities of Wells Fargo Bank. Such
brokerage and research services might consist of reports and statistics relating
to specific companies or industries, general summaries of groups of stocks or
bonds and their comparative earnings and yields, or broad overviews of the
stock, bond, and government securities markets and the economy.
Supplementary research information so received is in addition to,
and not in lieu of, services required to be performed by Wells Fargo Bank and
does not reduce the advisory fees payable by the Fund. The Board of Directors
will periodically review the commissions paid by the Fund to consider whether
the commissions paid over representative periods of time appear to be
reasonable in relation to the benefits inuring to the Fund. It is possible
that certain of the supplementary research or other services received will
primarily benefit one or more other investment companies or other accounts for
which investment discretion is exercised. Conversely, the Fund may be the
primary beneficiary of the research or services received as a result of
portfolio transactions effected for such other account or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an
adviser shall not be "deemed to have acted unlawfully or to have breached its
fiduciary duty" solely because under certain circumstances it has caused the
account to pay a higher commission than the lowest
31
<PAGE> 1250
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 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. For the years ended December 31, 1993,
1994 and 1995, and the fiscal period ended September 30, 1996, only the Growth
and Income Fund paid brokerage commissions as follows:
<TABLE>
<CAPTION>
Dec. 31, Dec. 31, Dec. 31, Sept. 30,
Fund 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Growth and Income Fund $ 347,779 $ 407,643 $ 607,442 $531,052
</TABLE>
32
<PAGE> 1251
Securities of Regular Broker/Dealers. As of September 30, 1996, each Fund
owned securities of its "regular brokers or dealers" or their parents as
defined in the Act, as follows:
<TABLE>
<CAPTION>
Fund Amount Regular Broker/Dealer
- ---- ------ ---------------------
<S> <C> <C>
California Tax-Free Income Fund N/A N/A
California Tax-Free Bond Fund N/A N/A
Short-Intermediate U.S.
Government Income Fund $ 2,170,000 Goldman Sachs & Co.
Growth and Income Fund $ 6,438,000 Goldman Sachs & Co.
Money Market Mutual Fund $ 202,778,000 Goldman Sachs & Co.
Ginnie Mae Fund $ 4,475,000 Goldman Sachs & Co.
</TABLE>
As of December 31, 1995 each Fund owned securities of its
"regular brokers or dealers" or their parents as defined in the Act, as
follows:
<TABLE>
<CAPTION>
Fund Amount Regular Broker/Dealer
- ---- ------ ---------------------
<S> <C> <C>
California Tax-Free Income Fund $0 N/A
California Tax-Free Bond Fund $0 N/A
Short-Intermediate U.S.
Government Income Fund $1,119,000 Goldman Sachs & Co.
Growth and Income Fund $1,998,000 Goldman Sachs & Co.
Money Market Mutual Fund $0 N/A
</TABLE>
33
<PAGE> 1252
Portfolio Turnover. For the Government Income Fund, portfolio
turnover generally involves some expenses to the Fund, including brokerage
commissions or dealer mark-ups and other transaction costs on the sale of
securities and the reinvestment in other securities. Portfolio turnover can
generate short-term capital gain tax consequences. The portfolio turnover rate
for the Fund generally is not expected to exceed 100%. For the Bond Fund and
the Income Fund, the portfolio turnover rate for the Funds generally is not
expected to exceed 300%. For the Money Market Mutual Fund, because the
portfolios of the Fund consist of securities with relatively short-term
maturities, the Fund can expect to experience high portfolio turnover rates.
The higher portfolio rates of the Ginnie Mae Fund should not adversely affect
it because portfolio transactions are made directly with principals on a net
basis and, consequently, the Fund usually does not incur brokerage expenses.
For the Funds, the 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 Funds bear 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 and administration fees; 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), 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 the Fund's
assets, and expenses of a class (such as shareholder servicing fees or expenses
paid pursuant to a Plan) are charged against the assets of the class. General
expenses of the Company are allocated among all of the funds of the Company,
including each 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.
FEDERAL INCOME TAXES
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 Fund's
34
<PAGE> 1253
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 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 tax rate applicable to ordinary income is 39.60% (marginal
rates may be higher for some
35
<PAGE> 1254
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 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. With respect to the Money Market Mutual
Fund, 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 Money Market Mutual 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 Money Market Mutual 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
36
<PAGE> 1255
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 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
37
<PAGE> 1256
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.
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.
38
<PAGE> 1257
Special Tax Considerations for the Income Fund and the Bond Fund
Federal -- The Income Fund and the Bond Fund 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 the Fund
with respect to any taxable year that constitutes exempt-interest dividends
will be the same for all shareholders receiving dividends during such year.
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, the
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 the 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 the 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
shares in a Tax-Free Fund. Furthermore, shareholders will not be permitted to
deduct any of their share of the 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 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 Income Fund and the Bond Fund would not be suitable
for tax-exempt institutions and may not be suitable for retirement plans
qualified under Section 401 of the Code, H.R. 10 plans and IRAs since such
plans and accounts are generally tax-exempt and, therefore,
39
<PAGE> 1258
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.
California -- The Income Fund and the Bond Fund expect to be
exempt from tax in California on the same basis as under Subchapter M of the
Code as described above. Moreover, if at the close of each quarter of the each
such Fund's taxable year, at least 50% of the value of its total assets
consists of obligations the interest on which, if such obligations were held by
an individual, would be exempt from California personal income tax (under
either the laws of California or of the United States), the Fund will be
entitled to pay dividends to its shareholders which will be exempt from
California personal income tax (referred to herein as "California
exempt-interest dividends"). Under normal market conditions, each Fund will
invest primarily in municipal securities of the State of California, its
cities, municipalities and other political authorities so that it can pay
California exempt-interest dividends.
Not later than 60 days after the close of its taxable year, the
Fund will notify its shareholders of the portion of the dividends paid which
constitutes California exempt-interest dividends with respect to such taxable
year. The total amount of California exempt-interest dividends paid by the
Fund to all of its shareholders with respect to any taxable year cannot exceed
the amount of interest received by the Fund during such year on California
municipal securities and other obligations the interest on which is tax exempt,
less any expenses or expenditures (including any expenditures attributable to
the acquisition of securities of other investment companies). Dividends paid
by the Fund in excess of this limitation will be treated as ordinary dividends
subject to California personal income tax at ordinary rates.
Long-term and/or short-term capital gain distributions will not
constitute California exempt-interest dividends and will be taxed as capital
gains and ordinary income dividends, respectively. Moreover, interest on
indebtedness incurred by a shareholder to purchase or carry shares of the Fund
is not deductible for California personal income tax purposes to the extent the
shareholder receives California exempt-interest dividends during his or her
taxable year. Exempt-interest dividends will be tax exempt for purposes of the
California personal income tax. For corporate shareholders, dividends will be
subject to the corporate franchise taxes in California.
Other Matters. Investors should be aware that the investments to
be made by the 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.
40
<PAGE> 1259
CAPITAL STOCK
The Funds are six 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 nineteen 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 Funds are authorized to issue other classes of shares, subject to a
front-end sales charge and, in some cases, subject to a contingent deferred
sales charge, that are offered to retail investors, and another class that is
offered to qualified business investors who purchase such shares through certain
non-interest bearing transaction accounts offered by Wells Fargo Bank. The
Bond, Ginnie Mae, Growth and Money Market Mutual Funds are comprised of three
classes of shares and the Government Income and Income Funds are comprised of
two classes of shares. 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 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. With respect to matters
affecting one class, but not another, shareholders of each Fund vote as a class.
For example, approval of a distribution plan is voted on only by members of the
class affected by the plan. Subject to the foregoing, all shares of a Fund have
equal voting rights. In situations where voting by series (fund) is required by
law or where the matter involved affects only one series, shares of each Fund
vote by series. For example, a change in a Fund's fundamental investment policy
would be voted upon by only shareholders of the Fund involved. Additionally,
approval of an advisory contract is a matter to be determined separately by a
Fund. Approval by the shareholders of one Fund is effective as to that Fund
whether or not sufficient votes are received from the shareholders of other
series to approve the proposal as to those series. As used in the Prospectuses
and in this SAI, the term "majority", when referring to approvals to be obtained
from shareholders means the vote of the lesser of (i) 67% of the shares of the
Fund, or the respective class of the Fund, depending on the context, represented
at a meeting if the holders of more than 50% of the outstanding shares of the
Fund, or of such class of the Fund, are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of such Fund, or of the respective class
of the Fund. Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held.
41
<PAGE> 1260
The Company is not required to hold annual meetings of
shareholders and may dispense with a special meeting of shareholders in any
year in which it is not required to elect Directors under the 1940 Act.
Each Fund share represents an equal proportional interest in the
Fund with every other share and is entitled to such dividends and distributions
out of the income earned on the assets belonging to the Fund as are declared in
the discretion of the Directors. In the event of the liquidation or
dissolution of the Company, shareholders of a Fund are entitled to receive the
assets attributable to the Fund that are available for distribution, and a
distribution of any general assets not attributable to a particular investment
portfolio that are available for distribution in such manner and on such basis
as the Directors in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All
shares, when issued for the consideration described in the applicable
Prospectus, will be fully paid and non-assessable by the Company.
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 a Fund or 5% or more of the voting securities of a Fund as a
whole.
5% OWNERSHIP AS OF JANUARY 2, 1996
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
FUND ADDRESS OF OWNERSHIP OF CLASS OF FUND
---- ------- ------------ -------- -------
<S> <C> <C> <C> <C>
CALIFORNIA TAX-FREE BOND Dim & Co. Institutional 81.74% 19.10%
Attn: MF Dept. A88-4 Class
P.O. Box 9800 Record Holder
Calabasas, CA 91372
Hep & Co 6.70% N/A
Attn: MF Dept. A88-4 Institutional
P.O. Box 9800 MAC 9139- Class
027 Record Holder
Calabasas, CA 91372
CALIFORNIA TAX-FREE Dim & Co. Institutional 76.84% 7.20%
INCOME Attn: MF Dept. A88-4 Class
P.O. Box 9800 Record Holder
Calabasas, CA 91372
Hep & Co 19.01% N/A
Attn: MF Dept. A88-4 Institutional
P.O. Box 9800 MAC 9139- Class
027 Record Holder
Calabasas, CA 91372
SHORT-INTERMEDIATE U.S. First Interstate Bank Institutional 9.49% 6.20%
GOVERNMENT INCOME (Trustee) Class
Choicemaster Record holder
Attn: Mutual Funds
P.O. Box 9800
Calabasas, CA 91372
Dim & Co. Institutional 48.10% 31.20%
Attn: MF Dept. A88-4 Class
P.O. Box 9800 Record Holder
Calabasas, CA 91372
</TABLE>
42
<PAGE> 1261
<TABLE>
<S> <C> <C> <C> <C>
Virg & Co
Attn: MF Dept. A88-4 Institutional 20.85% 13.50%
P.O. Box 9800 Class
Calabasas, CA 91372 Record Holder
Hep & Co
Attn: MF Dept. A88-4
P.O. Box 9800 MAC 9139- Institutional 18.47% 12.00%
027 Class
Calabasas, CA 91372 Record Holder
GINNIE MAE Stephens Inc. Institutional 6.54% N/A
111 Center Street Class
Little Rock, AR 72201 Benefically Owned
Dim & Co. 20.98% N/A
Attn: MF Dept. A88-4 Institutional
P.O. Box 9800 Class
Calabasas, CA 91372 Record Holder
Virg & Co 33.40% N/A
Attn: MF Dept. A88-4
P.O. Box 9800 Institutional
Calabasas, CA 91372 Class
Record Holder
Hep & Co 11.20% N/A
Attn: MF Dept. A88-4
P.O. Box 9800 MAC 9139-
027 Institutional
Calabasas, CA 91372 Class
Record Holder 7.33% N/A
Wells Fargo Bank
(for Donald L. Hill MD
Managed IRA)
420 Montgomery Street Institutional
5th Floor Class
San Francisco, CA 94163 Beneficially Owned
GROWTH AND INCOME Virg & Co Institutional 33.60% N/A
Attn: MF Dept. A88-4 Class
P.O. Box 9800 Record Holder
Calabasas, CA 91372
Hep & Co 59.47% N/A
Attn: MF Dept. A88-4 Institutional
P.O. Box 9800 MAC 9139- Class
027 Record Holder
Calabasas, CA 91372
MONEY MARKET MUTUAL Hep & Co Institutional 97.99% N/A
Attn: MF Dept. A88-4 Class
P.O. Box 9800 MAC 9139- Record Holder
027
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).
43
<PAGE> 1262
OTHER INFORMATION
The Registration Statement, including the Prospectuses, the SAI
and the exhibits filed therewith, may be examined at the office of the SEC in
Washington, D.C. Statements contained in the Prospectuses or the SAI as to the
contents of any contract or other document are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP 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.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and
independent auditors' report for the Funds for the fiscal period ended
September 30, 1996 are hereby incorporated by reference to the Company's Annual
Report as filed with the SEC on December 9, 1996. The portfolio of
investments, audited financial statements and independent auditors' report for
the Funds are attached to all SAIs delivered to current or prospective
shareholders. The Company's annual report may be obtained by calling
1-800-222-8222.
44
<PAGE> 1263
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
A-1
<PAGE> 1264
"VMIG 3" are of "favorable quality," with all security elements accounted for,
but lacking the strength of the preceding grades.
S&P: The "SP-1" rating reflects a "very strong or strong capacity
to pay principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate and municipal
commercial paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior
capacity for repayment of short-term promissory obligations." Issuers rated
"P-2" (Prime-2) "have a strong capacity for repayment of short-term promissory
obligations," but earnings trends, while sound, will be subject to more
variation.
S&P: The "A-1" rating for corporate and municipal commercial
paper indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
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> 1265
STAGECOACH FUNDS(R), INC.
Telephone: 1-800-260-5969
STATEMENT OF ADDITIONAL INFORMATION
Dated February 1, 1997
ARIZONA TAX-FREE FUND
BALANCED FUND
EQUITY VALUE FUND
INTERMEDIATE BOND FUND
NATIONAL TAX-FREE FUND
OREGON TAX-FREE FUND
PRIME MONEY MARKET MUTUAL FUND
TREASURY 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 additional
information about one class of shares offered in eight funds of the Stagecoach
Family of Funds (each, a "Fund" and collectively, the "Funds"): the ARIZONA
TAX-FREE FUND, NATIONAL TAX-FREE FUND and OREGON TAX-FREE FUND (collectively,
the "Tax-Free Funds"), the PRIME MONEY MARKET MUTUAL FUND and TREASURY MONEY
MARKET MUTUAL FUND (each, a "Money Market Fund" and collectively, the "Money
Market Funds") and the BALANCED FUND, EQUITY VALUE FUND and INTERMEDIATE BOND
FUND. This SAI relates only to the Institutional Class shares offered by the
Funds. The investment objective of each Fund is described in the applicable
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 applicable to each Fund, dated February 1, 1997. All terms used in
this SAI that are defined in the prospectus for each Fund have the meanings
assigned in that Fund's prospectus. A copy of the prospectus for each Fund may
be obtained without charge by writing Stephens Inc., the Company's sponsor,
administrator and distributor, at 111 Center Street, Little Rock, Arkansas
72201 or calling the Company's Transfer Agent at the telephone number indicated
above.
--------------------------------
<PAGE> 1266
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Additional Permitted Investment Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Special Considerations Affecting Arizona Municipal Obligations . . . . . . . . . . . . . . . . . . 24
Special Considerations Affecting Oregon Municipal Obligations . . . . . . . . . . . . . . . . . . . 26
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Servicing Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Additional Purchase and Redemption Information . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
All Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Tax-Free Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
i
<PAGE> 1267
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 Arizona Tax-Free, Intermediate Bond, National
Tax-Free and Oregon Tax-Free Funds were originally organized as investment
portfolios of Westcore Trust under the following names: Arizona Intermediate
Tax-Free, Bonds Plus, Quality Tax-Exempt Income, and Oregon Tax-Exempt Funds,
respectively. On October 1, 1995, each Fund was reorganized as an investment
portfolio of Pacifica Funds Trust ("Pacifica" or the "predecessor Company").
The Balanced Fund and Equity Value Fund were originally organized as investment
portfolios of Pacifica under the same names. The Prime Money Market Mutual
Fund operated as Pacific American Liquid Assets, Inc. from its commencement of
operations on April 30, 1981 until it was reorganized as a portfolio of Pacific
American Fund on October 1, 1985; on October 1, 1994, it was reorganized as the
Pacific American Money Market Portfolio of Pacifica; and, in July of 1995, it
was renamed the Pacifica Prime Money Market Fund. Prior to August 1, 1990, the
Treasury Money Market Mutual Fund was known as the Short-Term Government Fund
and invested in obligations issued or guaranteed by agencies and
instrumentalities of the U.S. Government in accordance with fundamental
policies that were then effective for the Fund. The Fund operated as a
portfolio of Pacific American Fund through October 1, 1994, when it was
reorganized as the Pacific American U.S. Treasury Portfolio, a portfolio of
Pacifica Funds Trust. In July 1995, the Fund was renamed the Pacifica Treasury
Money Market Fund.
On April 25, 1996, the Agreement and Plan of Reorganization of
Pacifica with Stagecoach and the creation of each Fund as a new fund of
Stagecoach were approved by the Company's Board of Directors. On May 17, 1996,
the Agreement and Plan of Reorganization of Pacifica with the Company was
approved by Pacifica's Board of Trustees. The reorganization of Pacifica with
Stagecoach 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 FUNDS TRUST PORTFOLIO NAME STAGECOACH FUND NAME
----------------------------------- --------------------
<S> <C>
Pacifica Arizona Tax-Exempt Fund Arizona Tax-Free Fund
Pacifica Balanced Fund Balanced Fund
Pacifica Equity Value Equity Value Fund
Pacifica Intermediate Bond Fund Intermediate Bond Fund
Pacifica National Tax-Exempt Fund National Tax-Free Fund
Pacifica Oregon Tax-Exempt Fund Oregon Tax-Free Fund
Pacifica Prime Money Market Fund Prime Money Market Mutual Fund
Pacifica Treasury Money Market Fund Treasury Money Market Mutual Fund
</TABLE>
1
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INVESTMENT RESTRICTIONS
The Funds are subject to the investment limitations enumerated below
which may be changed with respect to a particular Fund only by a vote of a
majority of the holders of such Fund's outstanding shares (see "Capital Stock"
below).
The Intermediate Bond Fund and the Tax-Free Funds may not:
1. Purchase or sell commodity contracts (including futures contracts
with respect to the Arizona Tax-Free and National Tax-Free Funds), or invest in
oil, gas or mineral exploration or development programs, except that each 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,
and provided that the Intermediate Bond and Oregon Tax-Free Funds may enter
into futures contracts and related options.
2. Purchase or sell real estate, except that each 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 a Fund might 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
a Fund's investment objective, policies and limitations may be deemed to be
underwriting.
6. Write or sell put options, call options, straddles, spreads, or
any combination thereof, except that the Oregon Tax-Free Fund may enter into
transactions in futures contracts and related options, and except that the
Intermediate Bond Fund may enter into transactions in options on securities,
futures contracts and options on futures contracts.
7. Borrow money or issue senior securities, except that each Fund may
borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts 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 a Fund's total assets at
the time of such borrowing. None of these Funds will purchase securities while
its 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 a Fund's investment practices described in this SAI or in its
prospectus are not deemed to be pledged for purposes of this limitation.
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<PAGE> 1269
The Intermediate Bond Fund may not:
1. Purchase securities of any one issuer (other than securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities)
if, immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in the securities of such issuer, or more than
10% of the issuer's outstanding voting securities would be owned by the Fund or
the Company, except that up to 25% of the value of the Fund's total assets may
be invested without regard to these limitations.
2. Purchase any securities that would cause 25% or more of the 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 (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; (b) 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 (c) utilities will be divided
according to their services, for example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry.
3. 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 and may lend portfolio securities in an
amount not exceeding 30% of its total assets.
4. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation shall not
apply to the Fund's transactions in futures contracts and related options, and
(b) the Fund may obtain short-term credit as may be necessary for the clearance
of purchases and sales of portfolio securities.
As a matter of non-fundamental policy (which may be changed without
shareholder vote) the Intermediate Bond Fund may not (i) invest in mineral
leases and (ii) purchase, hold or deal in real estate limited partnerships.
The Tax-Free Funds may not:
1. Purchase securities on margin, make short sales of securities or
maintain a short position, except that the Funds may obtain short-term credit
as may be necessary for the clearance of purchases and sales of portfolio
securities, and except that this limitation shall not apply to the Oregon
Tax-Free Fund's transactions in futures contracts and related options.
2. 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.
3. Make loans, except that each Fund may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies.
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<PAGE> 1270
The Oregon Tax-Free Fund may not:
1. 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, except that (a) up to 50% of the
value of the Fund's total assets may be invested without regard to this 5%
limitation 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) this 5%
limitation does not apply to securities issued or guaranteed by the U.S.
Government, its agencies, authorities, instrumentalities or political
subdivisions. For purposes of this limitation, 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.
2. Purchase any securities, except securities issued (as defined in
the preceding Investment Limitation) 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, which would cause 25% or more of the value of the Fund's total
assets at the time of purchase to be invested in the securities of issuers
conducting their principal business activities in the same industry.
The Arizona Tax-Free Fund may not:
1. 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.
2. Purchase any securities, except securities issued (as defined in
the preceding Investment Limitation) 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
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<PAGE> 1271
subdivisions, which would cause 25% or more of the value of the Fund's total
assets at the time of purchase to be invested in the securities of issuers
conducting their principal business activities in the same industry.
The National Tax-Free Fund may not:
1. 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.
2. 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 by the U.S.
Government, the District of Columbia, and their respective agencies,
authorities, instrumentalities or political subdivisions.
The Balanced Fund and Equity Value Fund, except as indicated, may
not:
1. Borrow money or pledge or mortgage its assets, except that a Fund
may borrow from banks up to 10% of the current value of its total net assets
for temporary or emergency purposes and those borrowings may be secured by the
pledge of not more than 15% of the current value of its total net assets (but
investments may not be purchased by a Fund while any such borrowings exist).
2. Make loans, except loans of portfolio securities and except that a
Fund may enter into repurchase agreements with respect to its portfolio
securities and may purchase the types of debt instruments described in the
prospectuses or the SAI.
3. Invest in companies for the purpose of exercising control or
management.
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<PAGE> 1272
4. Knowingly purchase securities of other investment companies,
except (i) in connection with a merger, consolidation, acquisition, or
reorganization; and (ii) may invest up to 10% of their net assets in shares of
other investment companies.
5. Invest in real property (including limited partnership interests),
commodities, commodity contracts, or oil, gas and other mineral resource,
exploration, development, lease or arbitrage transactions.
6. Acquire securities subject to restrictions on disposition imposed
by the Securities Act of 1933, if, immediately after and as a result of such
acquisition, the value of such restricted securities and all other illiquid
securities held by a Fund would exceed 10% of the value of the Fund's total
assets.
7. Engage in the business of underwriting securities of other
issuers, except to the extent that the disposal of an investment position may
technically cause it to be considered an underwriter as that term is defined
under the Securities Act of 1933.
8. Make loans, except that the Funds may purchase readily marketable
debt securities and invest in repurchase agreements and make loans of portfolio
securities. No Fund will invest in repurchase agreements maturing in more than
seven days (unless subject to a demand feature) if any such investment,
together with any illiquid securities (including securities which are subject
to legal or contractual restrictions on resale) held by a Fund, exceeds 10% of
the value of its total assets.
9. Sell securities short, except to the extent that a Fund
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short.
10. Purchase securities on margin, except that a Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities.
11. Mortgage, pledge, or hypothecate any of its assets, except as
described in Investment Restriction No. 1.
12. Purchase or retain the securities of any issuer, if those
individual officers and Directors of the Company, its adviser, the sponsor, or
the distributor, each owning beneficially more than 1/2 of 1% of the securities
of such issuer, together own more than 5% of the securities of such issuer.
13. Invest more than 5% of its net assets in warrants which are
unattached to securities, included within that amount, no more than 2% of the
value of a Fund's net assets, may be warrants that are not listed on the New
York or American Stock Exchanges.
14. Write, purchase or sell puts, calls or combinations thereof,
except that the Funds may purchase or sell puts and calls as otherwise
described in the prospectus or SAI; however, no Fund will invest more than 5%
of its total assets in these classes of securities.
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<PAGE> 1273
15. Invest more than 5% of the current value of its total assets in
the securities of companies that, including predecessors, have a record of less
than three years' continuous operation.
The Prime Money Market Mutual and the Treasury Money Market Mutual
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 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.
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.
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<PAGE> 1274
As a non-fundamental policy (which may be changed without shareholder
vote), any loans of portfolio securities will be made according to guidelines
established by the SEC and the Company's Board of Directors, and the Fund will
maintain 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
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<PAGE> 1275
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.
In addition, in accordance with current SEC regulations, the Money
Market 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 the Prime Money Market Mutual Fund nor the Treasury Money Market
Mutual 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.
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 prospectuses discuss 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
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<PAGE> 1276
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. For the Money Market Funds, such obligations must
have remaining maturities of up to one year. 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 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. 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 which involve 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 Securities and Exchange
Commission 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,
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<PAGE> 1277
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.
The Prime and Treasury Money Market Mutual Funds may engage in a
repurchase agreement with respect to any security in which they are authorized
to invest, including U.S. Treasury STRIPS, although the underlying security may
mature in more than thirteen months.
Bank Obligations. Each 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, a 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 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 a 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
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<PAGE> 1278
the instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations, bearing fixed, floating- or variable-interest
rates.
Commercial Paper. The Funds 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.
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. For the
Money Market Funds, these obligations ordinarily have stated maturities in
excess of thirteen months, but permit the holder to demand payment of principal
at any time, or at specified intervals not exceeding thirteen months.
Variable-rate demand notes include master demand notes which are obligations
that permit 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, the Funds' 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
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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.
Floating and variable-rate demand instruments acquired by the Tax-Free
Funds may include participations in municipal obligations purchased from and
owned by financial institutions, primarily banks. Participation interests
provide these Funds 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 these Funds. 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. The Funds may lend their portfolio
securities to brokers, dealers and financial institutions (but not
individuals), 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 Funds may at any time
call the loan and obtain the return of the securities loaned within five
business days; (3) the Funds 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 particular Fund. The
Treasury Money Market Mutual Fund does not currently intend to lend its
portfolio securities.
The Funds will earn income for lending their securities because cash
collateral pursuant to these loans will be invested in short-term money market
instruments. In connection with lending securities, the Funds 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, a Fund could experience
delays in recovering securities or collateral or could lose all or part of the
value of the loaned securities. When a 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. 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 a 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
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<PAGE> 1280
actually acquiring the securities, but the Fund may sell these securities
before the settlement date if it is deemed advisable. The Fund will not accrue
income in respect of a security purchased on a forward commitment basis prior
to its stated delivery date.
Securities purchased on a when-issued or forward commitment basis and
certain other securities held in a Fund's investment portfolio are subject to
changes in value (both generally changing in the same way, i.e., appreciating
when interest rates decline and depreciating when interest rates rise) based
upon the public's perception of the creditworthiness of the issuer and changes,
real or anticipated, in the level of interest rates. Securities purchased on a
when-issued or forward commitment basis may expose the relevant Fund to risk
because they may experience such fluctuations prior to their actual delivery.
Purchasing securities on a when-issued or 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.
Mortgage-Backed Securities. As stated in the prospectuses, certain
Funds may invest in mortgage-backed securities, including those representing an
undivided ownership interest in a pool of mortgages, such as certificates of
the Government National Mortgage Association ("GNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). These certificates are in most cases
pass-through instruments, through which the holder receives a share of all
interest and principal payments from the mortgages underlying the certificate,
net of certain fees. The average life of a mortgage- backed security varies
with the underlying mortgage instruments, which generally have maximum
maturities of 40 years. The average life is likely to be substantially less
than the original maturity of the mortgage pools underlying the securities as
the result of prepayments, mortgage refinancings or foreclosure. Mortgage
prepayment rates are affected by factors including the level of interest rates,
general economic conditions, the location and age of the mortgage and other
social and demographic conditions. Such prepayments are passed through to
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<PAGE> 1281
the registered holder with the regular monthly payments of principal and
interest and have the effect of reducing future payments.
There are risks inherent in the purchase of mortgage-backed
securities. For example, these securities are subject to a risk that default in
payment will occur on the underlying mortgages. In addition to default risk,
these securities are subject to the risk that prepayment on the underlying
mortgages will occur earlier or later or at a lessor or greater rate than
expected. To the extent that adviser's assumptions about prepayments are
inaccurate, these securities may expose the Funds, to significantly greater
market risks than expected.
Asset-Backed Securities. To the extent described in the prospectuses,
the Funds may purchase asset-backed securities, which are securities backed by
installment contracts, credit-card receivables or other assets. Asset-backed
securities represent interests in "pools" of assets in which payments of both
interest and principal on the securities are made monthly, thus in effect
"passing through" monthly payments made by the individual borrowers on the
assets that underlie the securities, net of any fees paid to the issuer or
guarantor of the securities. The average life of asset- backed securities
varies with the maturities of the underlying instruments and is likely to be
substantially less than the original maturity of the assets underlying
the-securities as a result of prepayments. For this and other reasons, an
asset-backed security's stated maturity may be shortened, and the security's
total return may be difficult to predict precisely.
Municipal Obligations. Municipal obligations 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 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
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<PAGE> 1282
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. 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 paid thereon is exempt from federal
income tax, but nevertheless, subject to federal alternative minimum tax.
The Tax-Free 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.
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 prospectuses, the adviser, under the supervision of
the Board, 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
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<PAGE> 1283
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 Oregon obligations and Arizona obligations, the Funds 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 Oregon obligations and Arizona obligations,
specifically, for investment by a Fund and the liquidity and value of the
Fund's portfolio. In such an event, the Fund involved 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 of issuance. Neither the Funds
nor Wells Fargo Bank will review the proceedings relating to the issuance of
municipal obligations or the bases 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
Tax-Free Funds may, from time to time, invest more than 25% of their assets in
municipal obligations covered by insurance policies.
As stated in the prospectus, the Intermediate Bond Fund may, when
deemed appropriate by the adviser in light of the Fund's investment objective,
invest in obligations issued by state and local governmental issuers. Dividends
paid by the Intermediate Bond Fund that are derived from interest of municipal
obligations would be taxable to the Fund's shareholders for federal income tax
purposes.
Stand-By Commitments. Each Tax-Free Fund may acquire stand-by
commitments with respect to municipal obligations held by it. Under a stand-by
commitment, a dealer or bank agrees to purchase from a Fund, at the Fund's
option, specified municipal obligations at a specified price. The amount
payable to a 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
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<PAGE> 1284
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 a Fund only with the underlying instrument.
Each Fund expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a 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 a 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.
Each 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. Each 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.
Each 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 Funds. 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.
The Equity Value and Balanced Funds may enter into foreign currency
exchange contracts in order to protect against uncertainty in the level of
future foreign exchange rates. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are entered into the interbank market conducted between currency
traders (usually large commercial banks) and their customers.
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<PAGE> 1285
Forward foreign currency exchange contracts may be bought or sold to protect a
Fund against a possible loss resulting from an adverse change in the
relationship between foreign currencies and the U.S. dollar, or between foreign
currencies. Although such contracts are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time, they
tend to limit any potential gain which might result should the value of such
currency increase.
The Equity Value and Balanced Funds may also invest in American
Depositary Receipts ("ADRs"). ADRs are receipts issued by an American bank or
trust company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs may be listed on a national securities exchange or may trade in
the over-the-counter market. ADR prices are denominated in U.S. dollars,
although the underlying security may be denominated in a foreign currency. The
underlying security may be subject to foreign government taxes which could
reduce the yield on such securities. Some institutions issuing ADRs may not be
sponsored by the issuer. A non-sponsored depository may not provide the same
shareholder information that a sponsored depository may be required to provide
under its contractual arrangement with the issuer.
Investments in foreign securities also involve certain inherent risks,
such as political or economic instability of the issuer or the country of
issue, the difficulty of predicting international trade patterns and the
possibility of imposition of exchange controls. Such securities may also be
subject to greater fluctuations in price than securities of domestic
corporations. In addition, there may be less publicly available information
about a foreign company than about a domestic company. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to domestic companies. With
respect to certain foreign countries, there is a possibility of expropriation
or confiscatory taxation, or diplomatic developments which could affect
investments in those countries. Further, income received from sources within
foreign countries may be subject to withholding and other taxes imposed by such
countries.
Options Trading. Certain Funds may buy put and call options and write
covered call and secured put options. Options trading is a highly specialized
activity which entails greater than ordinary investment risk. Options may be
more volatile than the underlying instruments, and therefore, on a percentage
basis, an investment in options may be subject to greater fluctuation than an
investment in the underlying instruments themselves. The Intermediate Bond
Fund may purchase put and call options listed on a national securities exchange
and issued by the Options Clearing Corporation in an amount not exceeding 5% of
its net assets. Purchasing options is a specialized investment technique that
entails a substantial risk of a complete loss of the amounts paid as premiums
to the writer of the option.
The Funds may also write covered call and secured put options
from time to time as the adviser deems appropriate. By writing a covered call
option, a Fund forgoes the opportunity to profit from an increase in the market
of the underlying security above the exercise price except insofar as the
premium represents such a profit, and it is not able to sell the underlying
security until the option expires or is exercised or the Fund effects a closing
purchase transaction by purchasing an option of the same series. 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
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<PAGE> 1286
exercise price of the option. The aggregate value of the securities subject to
options written by the Intermediate Bond Fund will not exceed 25% of the value
of its net assets. The use of covered call options and securities put options
will not be a primary investment technique of the Intermediate Bond Fund, 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,
the Fund would be in a worse position than it would have been had the foregoing
investment techniques not been used.
A call option for a particular security gives the purchaser of the
option the right to buy, and a writer the obligation to sell, the underlying
security at the stated exercise price at any time prior to the expiration of
the option, regardless of the market price of the security. The premium paid to
the writer is in consideration for undertaking the obligation under the option
contract. A put option for a particular security gives the purchaser the right
to sell the security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security.
Options on indices provide the holder with the right to make or receive a cash
settlement upon exercise of the option. With respect to options on indices, the
amount of the settlement equals the difference between the closing price of the
index at the time of exercise and the exercise price of the option expressed in
dollars, times a specified multiple.
The Funds will write call options only if they are "covered." In the
case of a call option on a security or currency, the option is "covered" if a
Fund owns the instrument underlying the call or has an absolute and immediate
right to acquire that instrument without additional cash consideration (or, if
additional cash consideration is required, cash, U.S. Government securities or
other liquid high grade debt obligations, in such amount are held in a
segregated account by the Fund's custodian) upon conversion or exchange of
other securities held by it. For a call option on an index, the option is
covered if a Fund maintains with its custodian a diversified portfolio of
securities comprising the index or liquid assets equal to the contract value. A
call option is also covered if a Fund holds a call on the same instrument or
index as the call written where the exercise price of the call held is (i)
equal to or less than the exercise price of the call written, or (ii) greater
than the exercise price of the call written provided the difference is
maintained by the Fund in liquid assets in a segregated account with its
custodian. The Funds will write put options only if they are "secured" by
liquid assets maintained in a segregated account by the Funds, custodian in an
amount not less than the exercise price of the option at all times during the
option period.
A Fund's obligation to sell an instrument subject to a covered call
option written by it, or to purchase an instrument subject to a secured put
option written by it, may be terminated prior to the expiration date of the
option by the Fund's execution of a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (i.e., same
underlying instrument, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction is ordinarily effected to realize a
profit on an outstanding option, to prevent an underlying instrument from being
called, to permit the sale of the underlying instrument or to permit the
writing of a new option containing different terms on such underlying
instrument. The cost of such a liquidation purchase plus transaction costs may
be greater than the premium received upon the original option, in which event
the Fund will have incurred a loss in the transaction. There is no assurance
that a liquid secondary
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<PAGE> 1287
market will exist for any particular option. An option writer, unable to effect
a closing purchase transaction, will not be able to sell the underlying
instrument (in the case of a covered call option) or liquidate the segregated
account (in the case of a secured put option) until the option expires or the
optioned instrument or currency is delivered upon exercise with the result that
the writer in such circumstances will be subject to the risk of market decline
or appreciation in the instrument during such period.
When a Fund purchases an option, the premium paid by it is recorded as
an asset of the Fund. When a Fund writes an option, an amount equal to the net
premium (the premium less the commission) received by a Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this asset or deferred credit will be
subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the current bid price. If an option
purchased by a Fund expires unexercised the Fund realizes a loss equal to the
premium paid. If a Fund enters into a closing sale transaction on an option
purchased by it, the Fund realizes a gain if the premium received by the Fund
on the closing transaction is more than the premium paid to purchase the
option, or a loss if it is less. If an option written by a Fund expires on the
stipulated expiration date or if a Fund enters into a closing purchase
transaction, it realizes a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option is eliminated. If an option written by a
Fund is exercised, the proceeds of the sale are increased by the net premium
originally received and the Fund realizes a gain or loss.
There are several risks associated with transactions in options. For
example, there are significant differences between the securities, currency and
options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. In
addition, a liquid secondary market for particular options, whether traded
over-the-counter or on an exchange, may be absent for reasons that include the
following: there may be insufficient trading interest in certain options;
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; trading halts, suspensions or other restrictions may be
imposed with respect to particular classes or series of options or underlying
securities or currencies; unusual or unforeseen circumstances may interrupt
normal operations on an exchange; the facilities of an exchange or the Options
Clearing Corporation may not be adequate at all times to handle current
trading value; or one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of
options (or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of options) would
cease to exist, although outstanding options that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. A Fund is likely to
be unable to control losses by closing its position where a liquid secondary
market does not exist. A decision as to whether, when and how to use options
involves the exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market behavior or
unexpected events.
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Stock Index Futures Contracts and Options on Stock Index Futures
Contracts. The Equity Value and Balanced Funds may participate in stock index
futures contracts and options on stock index futures contracts. A futures
transaction involves a firm agreement to buy or sell a commodity or financial
instrument at a particular price on a specified future date, while an option
transaction generally involves a right, which may or may not be exercised, to
buy or sell a commodity of financial instrument at a particular price on a
specified future date. Futures contracts and options are standardized and
exchange-traded, where the exchange serves as the ultimate counterparty for all
contracts. Consequently, the only credit risk on futures contracts is the
creditworthiness of the exchange. Futures contracts, however, are subject to
market risk (i.e., exposure to adverse price changes).
A stock index futures contract is an agreement in which one party
agrees to deliver to the other an amount of cash equal to a specific dollar
amount multiplied by the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. As the aggregate market value of the stocks in the index
changes, the value of the index also changes. In the event that the index level
rises above the level at which the stock index futures contract was sold, the
seller of the stock index futures contract realizes a loss determined by the
difference between the two index levels at the time of expiration of the stock
index futures contract, and the purchaser realizes a gain in that amount. In
the event the index level falls below the level at which the stock index
futures contract was sold, the seller recognizes a gain determined by the
difference between the two index levels at the expiration of the stock index
futures contract, and the purchaser realizes a loss. Stock index futures
contracts expire on a fixed date, currently one to seven months from the date
of the contract, and are settled upon expiration of the contract.
Stock index futures contracts may be purchased to protect a Fund
against an increase in the prices of stocks that the Fund intends to purchase.
If the Fund is unable to invest its cash (or cash equivalents) in stock in an
orderly fashion, the Fund may purchase a stock index futures contract to offset
any increase in the price of the stock. However, it is possible that the market
may decline instead, resulting in a loss on the stock index futures contract.
If the Fund then concludes not to invest in stock at that time, or if the price
of the securities to be purchased remains constant or increases, the Fund
realizes a loss on the stock index futures contract that is not offset by a
reduction in the price of securities purchased. The Funds also may buy or sell
stock index futures contracts to close out existing futures positions.
The Equity Value and Balanced Funds may also purchase put options on
stock index futures contracts. Sales of such options may also be made to close
out an open option position. The Funds may, for example, purchase a put option
on a particular stock index futures contract or stock index to protect against
a decline in the value of the common stocks it holds. If the stocks in the
index decline in value, the put should become more valuable and the Funds could
sell it to offset losses in the value of the common stocks. In this way, put
options may be used to achieve the same goals the Funds seek in selling futures
contracts. A put option on a stock index future gives the purchaser the right,
in return for a premium paid, to assume a short (i.e., the right to sell stock
index futures) position in a stock index futures contract at a specified
exercise price ("strike price") at any time during the period of the option. If
the option is exercised by the holder before the last trading
22
<PAGE> 1289
date during the option period, the holder receives the futures position, as
well as any balance in the futures margin account. If an option is exercised on
the last trading day prior to the expiration date of the option, the settlement
is made entirely in cash in an amount equal to the difference between the
strike price and the closing level of the relevant index on the expiration
date.
Wells Fargo Bank expects that an increase or decrease in the index in
relation to the strike price level would normally correlate to an increase or
decrease (but not necessarily to the same extent) in the value of a Fund's
common stock portfolio against which the option was written. Thus, any loss in
the option transaction may be offset by an increase in the value of the common
stock portfolio to the extent changes in the index correlate to changes in the
value of that portfolio. The Funds may liquidate the put options they have
purchased by effecting a closing sale transactions rather than exercising the
option. This is accomplished by selling an option of the same series as the
option previously purchased. There is no guarantee that the Funds will be able
to effect the closing sale transaction. The Funds realize a gain from a closing
sale transaction if the price at which the transaction is effected exceeds the
premium paid to purchase the option and, if less, the Funds realize a loss.
Investments in Warrants. Although they have no present intention to
do so, the Balanced and Equity Value Funds may each 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 Funds may only
purchase warrants on securities in which the Funds may invest directly.
Borrowing and Reverse Repurchase Agreements. Each Fund intends to
limit its borrowings (including reverse repurchase agreements) during the
current fiscal year to not more than 10% of its net assets. At the time a Fund
enters into a reverse repurchase agreement (an agreement under which the Fund
sells portfolio securities and agrees to repurchase them at an agreed-upon date
and price), it will place in a segregated custodial account liquid assets such
as U.S. Government securities or other liquid high-grade debt securities having
a value equal to or greater than the repurchase price (including accrued
interest) and will subsequently monitor the account to ensure that such value
is maintained. Reverse repurchase agreements involve the risk that the market
value of the securities sold by a Fund may decline below the price at which the
Fund is obligated to repurchase the securities. Reverse repurchase agreements
are considered to be borrowings under the 1940 Act.
Nationally Recognized Statistical Ratings Organizations. The ratings
of Moody's Investors Service, Inc., Standard & Poor's Ratings Group, Division
of McGraw Hill, 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
23
<PAGE> 1290
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 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.
Rule 144A. It is possible that unregistered securities, purchased by
the Prime Money Market 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.
SPECIAL CONSIDERATIONS AFFECTING ARIZONA MUNICIPAL OBLIGATIONS
The concentration of the Arizona Tax-Free Fund in securities issued by
governmental units of only one state exposes the Fund to risks greater than
those of a more diversified portfolio holding securities issued by governmental
units of different states and different regions of the country.
Under its constitution, the State of Arizona is not permitted to issue
general obligation bonds secured by the full faith and credit of the State.
However, certain agencies and instrumentalities of the State are authorized to
issue bonds secured by revenues from specific projects and activities. The
State enters into certain lease transactions that are subject to annual renewal
at the option of the State. Local governmental units in the State are also
authorized to incur indebtedness. The major source of financing for such local
government indebtedness is an ad valorem property tax. In addition, in order
to finance public projects, local governments in the State can issue revenue
bonds payable from the revenues of a utility or enterprise or from the proceeds
of an excise tax, or assessment bonds payable from special assessments. Arizona
local governments have also financed public projects through leases which are
subject to annual appropriation at the option of the local government.
There is a statutory restriction on the amount of annual increases in
taxes that can be levied by the various taxing jurisdictions in the State
without voter approval. This restriction does not apply to taxes levied to pay
general obligation debt.
24
<PAGE> 1291
There are periodic attempts in the form of voter initiatives and
legislative proposals to further limit the amount of annual increases in taxes
that can be levied by the various taxing jurisdictions without voter approval,
or to restructure the State's revenue mix among sales, income, property and
other taxes. It is possible that if any such proposals were enacted, there
would be an adverse impact on State or local government financing. It is not
possible to predict whether any such proposals will be enacted in the future or
what would be their possible impact on state or local government financing.
Arizona is required by law to maintain a balanced budget. To achieve
this objective, the State has, at various times in the past, utilized a
combination of spending reductions or reductions in the rate of growth in
spending, and tax increases. In recent years, the State's fiscal situation has
improved even while tax reduction measures have been enacted each year since
1992. In 1992, Arizona voters passed a measure that requires a two-thirds vote
of the legislature to increase State revenue. Accordingly, it will be more
difficult to reverse tax reductions, which may adversely affect State fund
balances and fiscal conditions over time.
Arizona state government general fund revenue growth in fiscal year
1996 is forecast to increase 4.1%, although growth would be projected at 10.9%
but for legislative changes, principally an income tax reduction measure
enacted in 1995. The 6.8% projected increase in sales tax revenue, adjusted
for reductions resulting from legislative changes, reflects continued strong
economic growth in the state. With revenue growth outpacing increased
expenditures, the state general fund is projected to end fiscal year 1996 with
a total general fund balance of approximately $579 million. The amount of this
balance is approximately 12.5% of total general fund expenditures for fiscal
year 1996. Included in the total balance is a general fund ending balance of
approximately $347 million, and a budget stabilization ("rainy day") fund
balance of approximately $232 million.
The fiscal year 1997 budget adopted by the legislature assumes that
the total general fund balance carried forward from fiscal year 1996 will be
drawn down by approximately $230 million during the course of fiscal year 1997.
Based on this assumption, the total general fund balance at the end of fiscal
year 1997 should be lower than for fiscal year 1996.
Additionally, the 1995 legislature enacted a $200 million income tax
reduction package, and the 1996 legislature enacted a $200 million property tax
reduction package. There may be additional legislative activity during 1997 in
the area of tax reform and school finance, and the 1998 general election ballot
may include one or more questions related to these issues and the State's tax
structure generally. The outcomes of any legislative actions or election
issues of this nature may adversely affect State fund balances and fiscal
conditions.
Arizona has a diversified economic base that is not dependent on any
single industry. Principal economic sectors include services, manufacturing,
mining, tourism, and the military. Agriculture, which was at one time a major
sector, now plays a much smaller role in the State's economy. For several
decades, the population of the State has grown at a substantially higher rate
than the population of the United States. While the State's economy flourished
during the early 80's, a substantial amount of overbuilding occurred, adversely
affecting Arizona-based financial
25
<PAGE> 1292
institutions, many of which were placed under the control of the Resolution
Trust Corporation. Spillover effects produced further weakening in the State's
economy. The Arizona economy has begun to grow again, albeit at a slower pace
than experienced before the real estate collapse. The North American Free
Trade Agreement is generally viewed as beneficial to the State. However,
current and proposed reductions in federal military expenditures may adversely
affect the Arizona economy.
SPECIAL CONSIDERATIONS AFFECTING OREGON MUNICIPAL OBLIGATIONS
The concentration of the Oregon Tax-Free Fund in Oregon Obligations
raises additional considerations for investors in that portfolio, as discussed
below.
State Bonds and Revenues
As of September 1, 1996, $3.64 billion in general obligation bonds
issued by the State of Oregon and its agencies and instrumentalities were
outstanding, including $125.1 million in general obligation bonds supported by
the budget for the State's general fund and $3.52 billion of self-supporting
general obligation bonds. The State's self- supporting general obligation bonds
include $2.90 billion of State veteran's bonds, which, in the event of poor
economic conditions resulting in an increased number of mortgage defaults,
could cease to be self-supporting. All of the existing and outstanding general
obligation bonds of the State have been issued under specific State
constitutional provisions that authorize the issuance of such bonds and provide
authority for ad valorem taxation to pay the principal of and interest on such
bonds. With the exception of the veteran's bonds, for which no more than two
mills on each dollar valuation may be levied to pay principal and interest, the
authority of the State to tax property for the payment of its general
obligation bonds is unlimited. Since at least 1950, the State has not imposed
ad valorem tax for the payment of any of its obligations because other
revenues, including those generated by the self-supporting bonds, have been
sufficient.
In addition to general obligation bonds, various State statutes
authorize the issuance of State revenue bonds and certificates of
participation. These limited obligations of the State or its agencies or
instrumentalities may be payable from a specific project or source, including
lease rentals. The State is not authorized to impose ad valorem taxes on
property for the payment of principal and interest on these bonds, so they are
more sensitive to changes in the economy. There can be no assurance that future
economic problems will not adversely affect the market value of Oregon
obligations held by the Fund or the ability of the respective obligors (both
private and governmental) to make required payments on such obligations.
Oregon does not have a sales tax. As a result, State tax revenues are
particularly sensitive to economic recessions. The principal sources of State
tax revenues are personal income and corporate income taxes. In the
legislatively adopted budget for the 1995-97 biennium, approximately 96.6% of
the State's revenues for the 1995-97 biennium were projected to come from
combined income taxes, insurance taxes, gift and inheritance taxes, and
cigarette and tobacco taxes. Since 1983 State revenues have improved
substantially, and in recent years the State has granted tax refunds because of
budget surpluses, as required by statute. The State's September 1, 1996
economic and revenue
26
<PAGE> 1293
forecast predicts that State General Fund revenues for the 1995-97 biennium
will exceed the legislatively approved budget forecast by approximately $331.6
million (or 4.8%).
The Economy
Oregon's economy is projected to maintain a substantial portion of its
momentum through the end of 1997. Oregon remains one of the fastest growing
states in the country. High technology manufacturing and the service sector
are the primary engines driving the State economy. Despite the positive
overall tone at year end, there were definite signs of slowing in the
construction and the national/international semiconductor industry.
The Oregon economy appears to have ample momentum to continue growing
through 1997, though the pace is likely to be slower than the previous two-year
period. Expansion of the State's semiconductor industry and its suppliers will
likely remain the key engine driving growth in the State. Rising wages and a
continuing flow of new residents are expected to generate jobs in the State's
service and trade sectors. The primary factors likely to slow growth over the
next two years are dwindling supply of skilled labor and flattening of the
construction boom.
Oregon's income, employment and population are expected to increase
faster than the country as a whole over the 1995 to 2003 period as they have
since 1987. However, job growth is expected to slow in 1996 and 1997. The
State's population is projected to grow by 13.5 percent between 1995 and 2003,
a gain of 422,000 people.
Oregon has successfully restructured from an economy highly dependent
on the timber industry to one in which high technology manufacturing and
services also play a prominent role. The fundamentals appear to be in place
for the State to continue growing faster than the overall U.S. economy through
2001. Despite the generally favorable long-term outlook, rising housing and
labor costs are expected to begin pushing the State's growth rate back toward
the national average. Moreover, the State's growing dependence on the
semiconductor industry is likely to lead to some unstable conditions as the
industry expands and contracts in response to national and international
pressures.
Recent Environmental Developments
In 1991 and 1992, in response to concerns over diminishing salmon
runs, three populations of Snake River salmon were placed on the Endangered
Species list. More recently, the National Marine Fisheries Service and the U.S.
Fish and Wildlife Service have commenced status reviews of hundreds of
additional salmon and trout populations in the Columbia Basin and throughout
Western Oregon. The Snake River salmon listings have already had substantial
economic impacts, primarily through increased electricity rates and related
impacts on rate-sensitive industries such as the aluminum industry. Efforts to
protect salmon and steelhead populations may eventually affect a wide variety
of industrial, recreational and land use activities, with corresponding impacts
on long-term economic growth; however, the magnitude and extent of any future
environmental action is impossible to predict at this time. The State's
economic forecasts do not address the potential impact of endangered species
problems on Oregon's economy.
27
<PAGE> 1294
Recent Developments Affecting Government Revenues.
Ballot Measure 5. Article XI, section 11b of the Oregon Constitution,
adopted by Oregon's voters in November 1990 ("Ballot Measure 5"), imposes an
aggregate limit on the rate of property taxes, including ad valorem taxes, that
may be levied against any real or personal property. The limit is subject to
certain exceptions and is being phased in over a five-year period. Beginning
with the tax year that starts on July 1, 1996, the final year of the phase-in
period, not more than $15 per $1,000 of real market value can be levied against
any piece of property. Of this amount, $5 may be used for public education, and
the remaining $10 may be used for general governmental purposes.
The limitations of Ballot Measure 5 do not apply to taxes imposed to
pay the principal of and interest on bonded indebtedness authorized by a
specific provision of the State Constitution. Therefore, the ability of the
State to levy taxes to service its constitutionally authorized general
obligation bonds is not subject to the limit. In addition, because the State
currently receives its revenues from sources other than property taxes, Ballot
Measure 5 has not directly affected State revenues.
The tax limitations of Ballot Measure 5 do not apply to user fees,
licenses, excise or income taxes and incurred charges for local improvements.
Since 1990 local governments have begun to rely more heavily on such fees and
taxes to finance certain services and improvements.
Ballot Measure 5 has controlled the growth of local property tax
revenues since its adoption. Although the growth in local property valuations
during the period 1991 to 1995 has somewhat mitigated the potential impacts of
Ballot Measure 5, revenues of local government units in Oregon have generally
been adversely affected by the adoption of Ballot Measure 5. This appears to
be particularly true with respect to school districts operating revenues.
Ballot Measure 5 required the State to replace a substantial portion
of the lost revenues of local school districts through the end of fiscal year
1995-96. Although this obligation has now expired, the extent of revenue loss
perceived to have been incurred by local school districts indicates that the
State may continue to provide significant revenue relief to these governmental
units. In addition, the provisions of the initiative known as Ballot Measure
47, as defined and discussed below, is expected to also result in the State
making further financial assistance available to certain units of local
government as a result of further restrictions and limitations placed upon the
ability of units of local government to generate revenues through Oregon's
system of ad valorem property taxation.
Ballot Measure 47. At the November 5, 1996 general election, the
voters of the State of Oregon approved a constitutional amendment creating new
sections 11g, 11h, 11i and 11j within Article XI of the Oregon Constitution.
The initiative proposing these amendments was commonly referred to as "Ballot
Measure 47" or "Cut and Cap."
Ballot Measure 47 will generally reduce the revenues of local
governments available from ad valorem property taxes starting on July 1, 1997.
For fiscal year 1997-98, the amount of tax
28
<PAGE> 1295
which may be collected from each property subject to taxation is limited to the
lesser of the amount due for fiscal year 1995-96 reduced by ten percent (10%)
or the amount due for fiscal year 1994-95. Future increases in annual ad
valorem property taxes which can be collected from each property subject to
taxation are limited to three percent (3%) unless certain exceptions apply.
Ballot Measure 47 also contains provisions limiting local governments' ability
to shift activities previously funded in whole or in part from ad valorem
property tax revenues to a user fee or other form of non-ad valorem property
tax basis. One of the exceptions is for taxes levied to pay bonded
indebtedness which has been approved by the voters in accordance with certain
specific and new guidelines contained in Ballot Measure 47.
By its terms, Ballot Measure 47 does not affect the revenues of
governmental units which do not rely upon the collection of ad valorem property
taxes, such as the State, or governmental operations which are supported solely
from user fees and charges, such as many municipal utilities. However, its
revenue reducing provisions are expected to create new financial burdens on the
State revenue resources as well as on the revenue resources of units of
government which levy and collect ad valorem property taxes. Such burdens are
expected to arise, at least in part, from the potential need for the State to
assist units of local government adversely affected by the implementation of
Ballot Measure 47. Although the actual impact of Ballot Measure 47 on a
particular unit of local government cannot presently be determined because the
methodology for applying its provisions to individual properties has not yet
been established, it is anticipated that the general fund operations of many
local government units will be materially adversely affected by its revenue
reduction and revenue growth limiting provisions.
The Initiative Process. The Oregon Constitution reserves to the people
of the State initiative and referendum power pursuant to which measures
designed to amend the State Constitution or enact legislation, can be placed on
the statewide general election ballot for consideration by the voters.
"Referendum" generally means measures referred to the electors by a legislative
body such as the State Legislative Assembly or the governing body of a city,
county or other political subdivision, while "initiative" generally means a
measure placed before the voters as a result of a petition circulated by one or
more private citizens.
Any person may file a proposed initiative with the Oregon Secretary of
State's office. The Oregon Attorney General is required by law to draft a
proposed ballot title for the initiative, and interested parties may submit
comments on the legal sufficiency of the proposed ballot title and on whether
the proposed initiative complies with a "one subject only" rule for initiative
measures. After considering any public comments, the Attorney General must
either certify or revise the draft ballot title. In general, any elector who
timely submitted written comments on the draft ballot title may petition the
Oregon Supreme Court seeking a revision of the certified ballot title.
To have an initiative placed on a general election ballot, the
proponents of the proposed initiative must submit to the Secretary of State
initiative petitions signed by a number of qualified voters equal to a
specified percentage of the total number of votes cast for all candidates for
governor in the most recent gubernatorial election. The initiative petition
must be filed with the Secretary of State not less than four months prior to
the general election at which the proposed
29
<PAGE> 1296
measure is to be voted. State law permits persons circulating initiative
petition to pay money to persons obtaining signatures for the petition.
Over the past decade Oregon has witnessed increasing activity in the
number of initiative petitions that have qualified for the statewide general
election. As of December 1, 1996, no initiatives had qualified to be placed on
the November 1998 general election ballot. In recent years, a number of
initiatives involving the fiscal operations of the State were proposed and
placed on the ballot. Several of these initiatives have been approved by the
voters and have had or will have a significant impact on the fiscal operations
of the State and local governments. See "Recent Developments Affecting
Government Revenues - Ballot Measure 5 and Measure 47." Other initiatives, had
they been approved by the voters, also may have had significant impacts on the
fiscal operations of the State.
It is difficult to predict with certainty either the likelihood of a
proposed initiative measure obtaining the required number of valid initiative
petition signatures or the likelihood of an initiative that has acquired the
necessary number of valid signatures being approved by the voters. There can be
no assurance that additional initiatives that will have a material adverse
impact on the financial condition of the State or units of local government or
the State's or units of local government's ability to collect the revenues
required to repay their general obligation bonds, revenue bonds or other
obligations will not be proposed, placed on the ballot, or be approved by the
voters.
Judicial challenges seeking interpretations and clarifications of the
scope and application of Ballot Measure 5 continue to be filed. It is
anticipated that the passage of Measure 47 will also require substantial
judicial interpretation of its meaning and application. If it is judicially
determined that certain statutes adopted by the Oregon legislature to implement
Ballot Measure 5 or statutes expected to be adopted relating to Measure 47 do
not adequately implement the restrictions contained in that measure, local
governments may have to seek new funding sources for certain items which have
been traditionally financed in part through the issuance of voter approved ad
valorem tax supported indebtedness.
The Oregon Bond Market. There is a relatively small active market for
municipal bonds of Oregon issuers other than the general obligations of the
State itself, and the market price of such other bonds may therefore be
volatile. If the Oregon Tax-Free Fund were forced to sell a large volume of
Oregon Obligations owned by it for any reason, such as to meet redemption
requests for a large number of its shares, there is a risk that the large sale
itself would adversely affect the value of the Oregon Tax-Free Fund's
portfolio.
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,
30
<PAGE> 1297
Arkansas 72201. Directors deemed to be "interested persons" of the Company
for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 45 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate
Professor of Finance
of the School
of Business and
Accounting at
Wake Forest University
since 1983.
Joseph N. Hankin, 55 Director President, Westchester
75 Grasslands Road Community College since
Valhalla, N.Y. 10595 1971; President of Hartford
(appointed as of September 6, 1996) Junior College from 1967 to
1971; Adjunct Professor of
Columbia University
Teachers College since
1976.
</TABLE>
31
<PAGE> 1298
<TABLE>
<S> <C> <C>
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 40 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
32
<PAGE> 1299
COMPENSATION TABLE
<TABLE>
<CAPTION>
Year Ended Period Ended
---------- -------------
December 31, 1995 September 30, 1996
------------------ ------------------
Total
Aggregate Total Aggregate Compensation from
Compensation Compensation Compensation Registrant
from from Registrant from and
Name and Position Registrant and Fund Complex Registrant Fund Complex
- ----------------- ------------ ------------------ ------------ -----------------
<S> <C> <C> <C> <C>
Jack S. Euphrat $10,188 $39,750 $9,750 $29,250
Director
*R. Greg Feltus $-0- $-0- $-0- $-0-
Director
Thomas S. Goho $10,188 $39,750 $9,750 $29,250
Director
Joseph N. Hankin N/A N/A $-0- $-0-
Director
*Zoe Ann Hines $-0- $-0- $-0- $-0-
Director
(resigned as of
September 6, 1996)
*W. Rodney Hughes $9,438 $37,000 $8,250 $24,750
Director
Robert M. Joses $9,938 $39,000 $9,750 $29,250
Director
*J. Tucker Morse $8,313 $33,250 $8,250 $24,750
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
33
<PAGE> 1300
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 Funds are advised by Wells Fargo Bank
pursuant to an advisory contract for each Fund under which Wells Fargo Bank has
agreed to furnish investment guidance and policy direction in connection with
the daily portfolio management of the Fund. On behalf of each Fund, the
Company's Board of Directors approved the advisory contracts with Wells Fargo
Bank on April 25, 1996, for an initial two-year period. Pursuant to the
advisory contracts, Wells Fargo Bank also has agreed to furnish to the Board of
Directors periodic reports on the investment strategy and performance of each
Fund.
Wells Fargo Bank has agreed to provide to the Funds, among other
things, money market and fixed-income research, analysis and statistical and
economic data and information concerning interest-rate and security market
trends, portfolio composition, credit conditions and, average maturities of
each Fund. As compensation for its advisory services, Well Fargo Bank is
entitled to receive a monthly fee at the annual rates indicated below, of the
average daily value of each Fund's net assets during the preceding month.
<TABLE>
<CAPTION>
Annual Rate
Fund Name (as percentage of net assets)
--------- -----------------------------
<S> <C>
o Arizona Tax-Free 0.50%
o Balanced 0.60%
o Equity Value 0.50%
o Intermediate Bond 0.50%
o National Tax-Free 0.50%
o Oregon Tax-Free 0.50%
o Prime Money Market Mutual 0.25%
o Treasury Money Market Mutual 0.25%
</TABLE>
The advisory contracts continue in effect for more than two years
provided the continuance is approved annually (i) by the holders of a majority
of a Fund's outstanding voting securities or (ii) by the Company's Board of
Directors and by a majority of the Directors of the Company who are not parties
to the advisory contracts or "interested persons" (as defined in the
34
<PAGE> 1301
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 adviser to the predecessor portfolios of
Pacifica. As of the date of the Reorganization, Wells Fargo Bank became the
adviser to the New Funds. For the fiscal year ended September 30, 1996 the
Funds 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.
Investment Advisory Fees
<TABLE>
<CAPTION>
Fiscal Year Ended September 30, 1996
------------------------------------
Fund Fees Paid Fees Waived
----- --------- -----------
<S> <C> <C> <C>
o Arizona Tax-Free $ 22,457 $ 98,300
o Balanced $ 750,323 $ 4,608
o Equity Value $ 1,378,145 $ -0-
o Intermediate Bond $ 227,965 $ 39,513
o National Tax-Free $ - 0- $ 67,463
o Oregon Tax-Free $ 173,249 $ 57,377
o Prime Money Market Mutual $ 1,845,269 $1,553,968
o Treasury Money Market Mutual $ 2,442,922 $2,073,426
</TABLE>
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 portfolios of the National Tax-Free Fund; First Interstate Bank of
Oregon, N.A. served as adviser to the predecessors of the Intermediate Bond
Fund and Oregon Tax-Free Fund; and First Interstate Bank of Arizona, N.A.
served as adviser to the predecessor of the Arizona Tax-Free Fund. For the
periods ended September 30, 1995, May 31, 1995 and May 31, 1994, the prior
advisers for these Funds were entitled to receive advisory fees from the Funds
at the same annual rates as those that were in effect for WFIM. For these
periods, the prior advisers was entitled to receive the following amounts in
advisory fees:
Investment Advisory Fees
<TABLE>
<CAPTION>
Period Ended Period Ended Period Ended
Fund Sept. 30, 1995* May 31, 1995 May 31, 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona Tax-Free $41,159 $124,904 $128,905
Intermediate Bond $94,698 $275,948 $318,000
National Tax-Free $24,173 $ 67,845 $ 57,059
Oregon Tax-Free $84,999 $256,430 $269,574
</TABLE>
* The Funds changed their fiscal year from May 31 to September 30.
35
<PAGE> 1302
For the periods ended September 30, 1995, May 31, 1995 and May 31,
1994, the prior advisers for the predecessors of the Arizona Tax-Free,
Intermediate Bond, National Tax-Free and Oregon Tax-Free Funds waived advisory
fees and reimbursed expenses in the following amounts:
Investment Advisory Fees Waived
and Expenses Reimbursed by Adviser
<TABLE>
<CAPTION>
Period Ended
September 30, Period Ended Period Ended
Fund 1995* May 31, 1995 May 31, 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona Tax-Free $66,373 $166,803 $172,383
Intermediate Bond $ 0 $ 0 $ 0
National Tax-Free $68,667 $145,244 $141,590
Oregon Tax-Free $43,995 $ 84,770 $104,948
</TABLE>
* The Funds changed their fiscal year from May 31 to September 30.
Prior to March 18, 1994, the adviser for the Balanced, Equity Value
and Government Money Market Mutual Funds was San Diego Financial Capital
Management, Inc. ("San Diego Financial"), which was a wholly owned subsidiary
of San Diego Trust & Savings Bank ("San Diego Trust"), which in turn was a
wholly owned subsidiary of San Diego Financial Corporation ("SDFC"). On that
date, SDFC merged into First Interstate Bancorp and San Diego Trust merged into
First Interstate Bank of California ("FICAL"). As a result of these
transactions, San Diego Financial became an indirect wholly-owned subsidiary of
FICAL. On January 12, 1995, San Diego Financial merged into First Interstate
Investment Services, Inc., a direct wholly-owned subsidiary of FICAL, which has
since changed its name to First Interstate Capital Management, Inc.
During the fiscal years ended September 30, 1995 and 1994, the adviser
(and prior adviser, as the case may be) was entitled to receive advisory fees
from the Balanced and Equity Value Funds at the same annual rates as those
currently in effect. For such fiscal years, the adviser (and prior adviser, as
the case may be) was entitled to receive the following amounts in advisory
fees:
Investment Advisory Fees
<TABLE>
<CAPTION>
Year Ended Year Ended
Fund Sept. 30, 1995 Sept. 30, 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Balanced $579,850 $683,626
Equity Value $992,870 $953,400
</TABLE>
36
<PAGE> 1303
During the fiscal years ended September 30, 1995 and 1994, the adviser
(or prior adviser, as the case may be) waived advisory fees and reimbursed
expenses for the Balanced and Equity Value Funds in the following amounts:
Investment Advisory Fees Waived
and Expenses Reimbursed by Adviser
<TABLE>
<CAPTION>
Year Ended Year Ended
Fund Sept. 30, 1995 Sept. 30, 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Balanced $0 $0
Equity Value $0 $0
</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 to the adviser by the predecessor portfolios of the Prime Money
Market Mutual Fund and the Treasury Money Market Mutual Fund were as follows:
Investment Advisory Fees Paid*
<TABLE>
<CAPTION>
Year Ended Period Ended Year Ended
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>
*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 sub-investment advisors
during the periods indicated.
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 each Fund, and
the Co-Administration Agreements among Wells Fargo, Stephens and each Fund,
state that Wells Fargo 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
public accountants and legal counsel, regulatory compliance, including the
compilation of information for documents such as reports to, and filings with,
the SEC and state securities commissions; and preparation of proxy statements
and shareholder reports for 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 Funds together with ordinary clerical and
bookkeeping services. Stephens pays the compensation of the Company's
Directors, officers
37
<PAGE> 1304
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 Pacifica
predecessor portfolios (Furman Selz LLC) provided management and administrative
services necessary for the operation of such Funds, pursuant to an
Administrative Services Contract. For these services, the former administrator
was entitled to receive a fee, payable monthly, at the annual rate of 0.15% of
the average daily net assets of the predecessors of all such Funds except the
Prime Money Market Mutual and Treasury Money Market Mutual Funds (which were
administered until April 22, and April 15, 1996, respectively, by the Dreyfus
Corporation), at the annual rate of 0.10% of each such Fund's average daily net
assets. The tables reflect the net amounts paid (after waivers) for
administrative services by the Funds to Stephens who, as sole administrator to
the Funds for the period begun September 6, 1996 and ended September 30, 1996,
was entitled to receive a fee, payable monthly, at the annual rate of 0.05% of
each Fund's average daily net assets. The tables also reflect the net
administration fees paid to the respective former administrators of the
predecessor portfolios during the period begun October 1, 1995 and ended
September 5, 1996.
Administration Fees
<TABLE>
<CAPTION>
Year Ended
Fund September 30, 1996
----- ------------------
<S> <C> <C>
o Arizona Tax-Free $ 24,636
o Balanced $ 130,709
o Equity Value $ 240,273
o Intermediate Bond $ 55,482
o National Tax-Free $ 14,138
o Oregon Tax-Free $ 49,627
o Prime Money Market Mutual $ 1,230,872
o Treasury Money Market Mutual $ 1,745,759
</TABLE>
Prior to October 1, 1995, ALPS Mutual Funds Service, Inc. ("ALPS")
served as the administrator for the Arizona Tax-Free, Intermediate Bond,
National Tax-Free and Oregon Tax-Free Funds. For its administration services,
ALPS was entitled to receive the following amounts for the fiscal periods ended
September 30, 1995, May 31, 1995 and May 31, 1994:
Administration Fees
<TABLE>
<CAPTION>
Period Ended Year Ended Year Ended
FUND Sept. 30, 1995* May 31, 1995 May 31, 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona Tax-Free $4,116 $12,490 $12,890
Intermediate Bond $9,470 $27,595 $31,800
National Tax-Free $2,417 $ 6,785 $ 5,706
</TABLE>
38
<PAGE> 1305
<TABLE>
<S> <C> <C> <C>
Oregon Tax-Free $8,500 $25,643 $26,957
</TABLE>
* The Funds changed their fiscal year from May 31 to September 30.
For the fiscal periods ended September 30, 1995, May 31, 1995 and May
31, 1994, ALPS waived administration fees for the Arizona Tax-Free,
Intermediate Bond, National Tax-Free and Oregon Tax-Free Funds in the following
amounts:
Administration Fees Waived
<TABLE>
<CAPTION>
Period Ended Year Ended Year Ended
FUND Sept. 30, 1995* May 31, 1995 May 31, 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona Tax-Free $0 $0 $0
Intermediate Bond $0 $0 $0
National Tax-Free $0 $2,018 $4,210
Oregon Tax-Free $0 $0 $0
</TABLE>
* The Funds changed their fiscal year from May 31 to September 30.
During the fiscal years ended September 30, 1995 and 1994, Furman Selz
was entitled to receive administration services fees from the Balanced and
Equity Value Funds in the following amounts:
Administration Fees
<TABLE>
<CAPTION>
Year Ended Year Ended
FUND Sept. 30, 1995 Sept. 30, 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Balanced $193,283 $227,896
Equity Value $330,957 $317,992
</TABLE>
For the fiscal years ended September 30, 1995 and 1994, Furman Selz
waived administration fees for the Balanced and Equity Value Funds in the
following amounts:
Administration Fees Waived
<TABLE>
<CAPTION>
Year Ended Year Ended
FUND Sept. 30, 1995 Sept. 30, 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Balanced $19,328 $22,808
Equity Value $33,096 $31,972
</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 the Dreyfus
39
<PAGE> 1306
Corporation by the Prime Money Market Mutual Fund and the Treasury Money Market
Mutual Fund were as follows: Administration Fees Paid
<TABLE>
<CAPTION>
Year Ended Period Ended Year Ended
FUND Sept. 30, 1995 Sept. 30, 1994 Mar. 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 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 approved Servicing
Plans and have entered into related shareholder servicing agreements with
financial institutions, including Wells Fargo Bank. For providing these
services, a Servicing Agent is entitled to a fee from the applicable Fund, not
to exceed 0.25%, on an annualized basis, of the average daily net assets of the
class of shares owned of record or beneficially by the customers of the
Servicing Agent during the period for which payment is being made. The
Servicing Plans and related shareholder servicing agreements were approved by
the Company's Board of Directors and provide that a Fund shall not be
obligated to make any payments under such Plans or related Agreements that
exceed the maximum amounts payable under Article III, Section 26 of the Rules
of Fair Practice of the National Association of Securities Dealers, Inc.
(NASD).
For the period begun October 1, 1995 and ended September 5, 1996, and
under a similar service agreement, payments were made to First Interstate
Bancorp for the following funds, except, and under similar service agreements
with certain institutions, including affiliates of FICM, payments were made to
various institutions for the Prime Money Market Mutual Fund and Treasury Money
Market Mutual Fund, as indicated below. For the period begun September 6, 1996
and ended September 30, 1996, shareholder servicing fees were paid to Wells
Fargo Bank or its affiliates as indicated below:
Shareholder Servicing Fees - Institutional Class Shares(1)
<TABLE>
<CAPTION>
Fiscal Year Ended
Fund September 30, 1996
----- ------------------
<S> <C> <C>
o Arizona Tax-Free -0-
o Balanced $ 11,728
o Equity Value $ 31,181
o Intermediate Bond -0-
o National Tax-Free -0-
o Oregon Tax-Free $ 1,295
o Prime Money Market Mutual -0-
o Treasury Money Market Mutual -0-
</TABLE>
- --------------------
(1) After waivers and reimbursements.
40
<PAGE> 1307
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.
For its services as transfer and dividend disbursing agent for the
Funds, Wells Fargo Bank is entitled to receive monthly payments at the annual
rate of 0.07% of the average daily net assets of each Fund. 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.
FICAL, located at 707 Wilshire Blvd., Los Angeles, California 90017,
acted as custodian of the predecessor portfolios of Pacifica, but played no
role in making decisions as to the purchase or sale of portfolio securities for
the predecessor portfolios. FICAL was entitled to receive a fee from Pacifica,
computed daily and payable monthly, at the annual rate of 0.021% of the first
$5 billion in aggregate average daily net assets of the Funds; 0.0175% of the
next $5 billion in aggregate average daily net assets of the Funds; and 0.015%
of the aggregate average daily net assets of the Funds in excess of $10
billion.
For the fiscal year ended September 30, 1996, the Funds paid custody
fees as indicated below. For the period prior to September 6, 1996, these
amounts include fees paid by the Funds to FICAL.
Custody Fees(1)
<TABLE>
<CAPTION>
Fiscal Year Ended
Fund September 30, 1996
----- ------------------
<S> <C> <C>
o Arizona Tax-Free -0-
o Balanced -0-
o Equity Value $ 40,035
o Intermediate Bond -0-
o National Tax-Free -0-
o Oregon Tax-Free -0-
o Prime Money Market Mutual $ 73,023
o Treasury Money Market Mutual $252,183
</TABLE>
- ---------------
(1) After waivers and reimbursements.
41
<PAGE> 1308
UNDERWRITING COMMISSIONS. The Institutional Class of each Fund does
not charge any front-end sales loads or contingent deferred sales charges in
connection with the purchase and redemption of its shares, and therefore pays
no underwriting commissions to the Distributor.
SERVICING PLANS
As indicated in each Fund's prospectus, the Company's Board of
Directors, on behalf of each Fund (except for the Prime and Treasury Money
Market Mutual Funds), adopted a Servicing Plan ("Servicing Plan") and related
forms of Shareholder Servicing Agreements on April 25, 1996, with respect to
each class of the Funds' shares. The Board of Directors included a majority of
the Directors who were not "interested persons" (as defined in the Act) of each
Fund and who had no direct or indirect financial interest in the operation of
the Servicing Plan or in any agreement related to the Servicing Plan (the
"Servicing Plan Non-Interested Directors").
Under the Servicing Plan and pursuant to the shareholder servicing
agreements for the Institutional Class shares, each Fund may pay one or more
servicing agents, as compensation for performing certain services, a fee at an
annual rate of up to 0.25% of the average daily net assets of the Fund's
Institutional Class shares attributable to the servicing agent's customers.
The actual fee payable to servicing agents is determined, within such limits,
from time to time by mutual agreement between the Company and each servicing
agent and will not exceed the maximum service fees payable by mutual funds sold
by members of the NASD under the NASD Rules of Fair Practice.
Each Servicing Plan continues in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Servicing Plan Non-Interested Directors. Any form of servicing
agreement related to the Servicing Plan also must be approved by such vote of
the Directors and the Servicing Plan Non-Interested Directors. Servicing
agreements may be terminated at any time, without payment of any penalty, by
vote of a majority of the Servicing Plan Non-Interested Directors. No material
amendment to the Servicing Plans may be made except by a majority of both the
Directors of the Company and the Servicing Plan Non-Interested Directors.
Each Servicing Plan requires that the administrator shall provide to
the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under the Servicing
Plan.
PERFORMANCE CALCULATIONS
The following information supplements and should be read in
conjunction with the sections in each prospectus entitled "Determination of Net
Asset Value" and "Performance Data."
42
<PAGE> 1309
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 each prospectus, each 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 total return information presented below and advertised by the New
Funds for the period prior to September 6, 1996, the date the Funds commenced
operations, is based upon the prior performance of the predecessor Funds. The
performance information is adjusted to reflect The current level of operating
expenses of the Institutional Class Shares of the Funds.
<TABLE>
<CAPTION>
Average Annual Total Return - For The Applicable Period Ended September 30, 1996
--------------------------------------------------------------------------------
Institutional Class Shares(1) Inception(2) Five Year Three Year One Year
-------------------------- --------- - ---------- ----------- ---------
<S> <C> <C> <C> <C>
Arizona Tax-Free 6.26% N/A 3.88% 3.74%
Balanced 10.63% 10.38% 7.83% 10.80%
Equity Value 12.76% 14.48% 12.82% 14.58%
Intermediate Bond 8.19% 6.64% 4.25% 4.19%
National Tax-Free 5.01% N/A 3.73% 4.04%
Oregon Tax-Free 7.09% 6.63% 3.60% 5.13%
Prime Money Market Mutual 5.31% N/A N/A 5.39%
Treasury Money Market Mutual 5.30% N/A N/A 5.26%
</TABLE>
- --------------------
(1) For periods prior to September 6, 1996, performance for each of the
Funds reflects the performance of the predecessor portfolio's
Institutional Class. Institutional Class shares have no sales
charges.
(2) Each predecessor portfolio's Institutional Class shares commenced
operations as follows: Arizona Tax-Free - March 2, 1992; National
Tax-Free - January 15, 1993; Intermediate Bond and Oregon Tax-Free -
June 1, 1988; Equity Value and Balanced - July 2, 1990; Prime Money
Market Mutual and Treasury Money Market Mutual - August 11, 1995.
43
<PAGE> 1310
CUMULATIVE TOTAL RETURN: Each Fund 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.
Cumulative Total Return - For the Applicable Period Ended September 30, 1996
<TABLE>
<CAPTION>
Institutional Class Shares(1) Inception(2) Five Year Three Year
----------------------------- ------------ --------- ----------
<S> <C> <C> <C>
Arizona Tax-Free 32.09% N/A 12.10%
Balanced 87.97% 63.82% 25.38%
Equity Value 111.86% 96.66% 43.59%
Intermediate Bond 92.64% 37.94% 13.31%
National Tax-Free 19.62% N/A 11.61%
Oregon Tax-Free 76.95% 36.11% 11.18%
Prime Money Market Mutual 6.23% N/A N/A
Treasury Money Market Mutual 6.07% N/A N/A
</TABLE>
- --------------------
(1) For periods prior to September 6, 1996, performance for each of the
Funds reflects the performance of the predecessor portfolio's
Institutional Class. Institutional Class shares have no sales
charges.
(2) Each predecessor portfolio's Institutional Class shares commenced
operations as follows: Arizona Tax-Free - March 2, 1992; National
Tax-Free - January 15, 1993; Intermediate Bond and Oregon Tax-Free -
June 1, 1988; Equity Value and Balanced - July 2, 1990; Prime Money
Market Mutual and Treasury Money Market Mutual - August 11, 1995.
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.
Quotations of yield for the Intermediate Bond Fund and the Tax-Free Funds is
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:
44
<PAGE> 1311
(6)
YIELD - 2[(a - b + 1) -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 the last day
of the period. Quotations of tax-equivalent yield for a Tax-Free Fund 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
EFFECTIVE YIELD: Current yields for the Money Market Funds are based
on the change in the value of a hypothetical investment (exclusive of capital
changes) over a particular seven-day period, less a pro-rata share of each
Fund's expenses accrued over that period (the "base period"), and stated as a
percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized by multiplying by 365/7,
with the resulting yield figure carried to at least the nearest hundredth of
one percent. "Effective yield" for the Money Market Funds assumes that all
dividends received during an annual period have been reinvested. Calculation of
"effective yield" begins with the same "base period return" used in the
calculation of yield, which is then annualized to reflect weekly compounding
pursuant to the following formula:
Effective Yield = [(Base Period Return +1)365/7]-1.
Institutional Class Yield For The Applicable Period Ended September 30, 1996(1)
<TABLE>
<CAPTION>
Thirty-Day Tax- Seven-Day
Fund Thirty-Day Yield Equivalent Yield2 Seven-Day Yield Effective Yield
---- ----------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Intermediate Bond 6.15% N/A 5.83% N/A
Arizona Tax-Free Fund 4.88% 8.56% 4.92% N/A
Oregon Tax-Free Fund 4.77% 8.68% 5.14% N/A
National Tax-Free Fund 4.82% N/A 4.54% N/A
</TABLE>
45
<PAGE> 1312
<TABLE>
<S> <C> <C> <C> <C>
Prime Money Market Mutual 5.33% 8.82% 5.29% 5.43%
Treasury Money Market Mutual 5.09% 8.43% 5.10% 5.23%
</TABLE>
- ---------------
(1) These figures reflect any reimbursed expenses throughout the period. The
yield of the predecessor portfolios' Institutional Class shares through
September 5, 1996 is also reflected.
(2) Based on a combined federal and state income tax rate of 45.94% and
42.98% for the Oregon Tax-Free Fund and the Arizona Tax-Free Fund,
respectively, and a federal income tax rate of 28.00% for the Money Market
Funds.
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 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.
46
<PAGE> 1313
The performance of a Fund or a class of shares also may be compared to
the performance of other mutual funds having similar objectives. This
comparative performance could be expressed as a ranking prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Bloomberg
Financial Markets or Morningstar, Inc., independent services that monitor the
performance of mutual funds. Any such comparisons may be useful to investors
who wish to compare a Fund's past performance with that of its competitors. Of
course, past performance cannot be a guarantee of future results. The Company
also may include, from time to time, a reference to certain marketing
approaches of the Distributor, including, for example, a reference to a
potential shareholder being contacted by a selected broker or dealer. General
mutual fund statistics provided by the Investment Company Institute may also be
used.
In addition, the Company also may use, in advertisements and other
types of literature, information and statements showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth. The Company also may include in
advertising and other types of literature information and other data from
reports and studies prepared by the Tax Foundation, including information
regarding federal and state tax levels and the related "Tax Freedom Day."
The Company also may use the following information in advertisements
and other types of literature, only to the extent the information is
appropriate for a class of shares of a Fund: (i) the Consumer Price Index may
be used to assess the real rate of return from an investment in a class of
shares of a Fund; (ii) other government statistics, including, but not limited
to, The Survey of Current Business, may be used to illustrate investment
attributes of a Fund or a class of shares or the general economic, business,
investment, or financial environment in which the Fund operates; (iii) the
effect of tax-deferred compounding on the investment returns of a Fund or a
class of shares, or on returns in general, may be illustrated by graphs,
charts, etc., where such graphs or charts would compare, at various points in
time, the return from an investment in a Fund or a class of shares (or returns
in general) on a tax-deferred basis (assuming reinvestment of capital gains and
dividends and assuming one or more tax rates) with the return on a taxable
basis; and (iv) the sectors or industries in which a Fund invests may be
compared to relevant indices of stocks or surveys (e.g., S&P Industry Surveys)
to evaluate the historical performance of the Fund or a class or current or
potential value with respect to the particular industry or sector.
The Company also may discuss in advertising and other types of
literature that a Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as S&P or Moody's. Such rating
would assess the creditworthiness of the investments held by a Fund. The
assigned rating would not be a recommendation to purchase, sell or hold any
class of a Fund's shares since the rating would not comment on the market price
of a Fund's shares or the suitability of a Fund for a particular investor. In
addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or unavailability of, information
relating 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.
47
<PAGE> 1314
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 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.
48
<PAGE> 1315
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 share for a Fund or a class of shares of a non-money market 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 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.
Net asset value per share for a Fund or a class of shares of a Money
Market Fund is determined as of 12:00 noon and 1:00 p.m. Pacific time on each
Business Day as described in the prospectus.
The Money Market 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 Money Market Fund would receive if it sold the
instrument. During periods of declining interest rates, the daily yield on
shares of a Money Market 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 Money Market
Fund resulted in a lower aggregate portfolio value on a particular day, a
prospective investor in a Money Market Fund would be able to obtain a somewhat
higher yield than would result from investment in a fund utilizing solely
market values
49
<PAGE> 1316
and existing investors in a Money Market Fund would receive less investment
income. The converse would apply in a period of rising interest rates.
The valuation of each Money Market 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 Money Market Fund must adhere to certain conditions. Each
Money Market Fund must maintain a dollar- weighted average maturity of 90 days
or less, purchase only instruments having remaining maturities of 397 days
(thirteen months) or less, and invest only in securities that are determined to
present minimal credit risks pursuant to guidelines adopted by the Directors or
the adviser under guidelines approved by the Directors. Instruments having
variable or floating interest rates or demand features may be deemed to have
remaining maturities as follows: (a) a government security with a variable rate
of interest readjusted no less frequently than every thirteen months may be
deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate; (b) an instrument with a variable rate of
interest, the principal amount of which is scheduled on the face of the
instrument to be paid in thirteen months or less, may be deemed to have a
maturity equal to the period remaining until the next readjustment of the
interest rate; (c) an instrument with a variable rate of interest that is
subject to a demand feature may be deemed to have a maturity equal to the
longer of the period remaining until the next readjustment of the interest rate
or the period remaining until the principal amount can be recovered through
demand; (d) an instrument with a floating rate of interest that is subject to a
demand feature may be deemed to have a maturity equal to the period remaining
until the principal amount can be recovered through demand; and (e) a
repurchase agreement may be deemed to have a maturity equal to the period
remaining until the date on which the repurchase of the underlying securities
is scheduled to occur or, where no date is specified but the agreement is
subject to demand, the notice period applicable to a demand for the repurchase
of the securities.
The Company's Board of Directors has established valuation procedures
designed to stabilize, to the extent reasonably possible, each Money Market
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 Money
Market 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
Institutional Class shares of the Non-Money Market Funds may be
purchased on any day the Funds are open. The Funds are open for business each
day the New York Stock Exchange
50
<PAGE> 1317
("NYSE") is open for trading (a "Business Day"). Currently, the NYSE is closed
on New Year's 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.
Institutional Class shares of the Money Market Funds may be purchased
on any day the Funds are open for business, provided Wells Fargo Bank also is
open for business (for Money Market Funds, a "Business Day"). Currently, Wells
Fargo Bank is closed on New Year's Day, Presidents' Day, Martin Luther King's
Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans
Day, Thanksgiving Day and Christmas Day (for Money Market Funds, 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 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
51
<PAGE> 1318
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.
Except in the case of equity securities purchased by the Balanced and
Equity Value Funds, 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 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 Arizona, National and Oregon Tax-Free 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.
For the Balanced and Equity Value Funds, purchases and sales of equity
securities on a securities exchange are effected through brokers who charge a
negotiated commission for their services. Orders may be directed to any broker
including, to the extent and in the manner permitted by applicable law,
Stephens or Wells Fargo Securities Inc. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. No Fund will deal with Stephens, Wells Fargo Bank or
their affiliates in any transaction in which any of them acts as principal
without an exemptive order from the SEC or unless an exemption is otherwise
available.
52
<PAGE> 1319
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 Balanced and Equity Value Funds 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 Funds. The Board of Directors will
periodically review the commissions paid by the Funds to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Funds. 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 Funds 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 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;
53
<PAGE> 1320
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 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 fiscal periods ended September 30,
1996, September 30, 1995, May 31, 1995 and May 31, 1994, the predecessor
portfolios of the Intermediate Bond Fund and the Arizona, National and Oregon
Tax-Free Funds did not pay any brokerage commissions, because all of their
portfolio transactions occurred in the over-the- counter market.
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 Prime and Treasury Money Market
Mutual 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.
During the fiscal years ended September 30, 1996, 1995 and 1994, the
predecessor portfolios of the Equity Value and Balanced Funds paid the
following amounts in brokerage commissions:
Brokerage Commissions Paid
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
FUND Sept. 30, 1996(1) Sept. 30, 1995 Sept. 30, 1994
- ------------------------------------------------------ -------------------------------------------
<S> <C> <C> <C>
Equity Value Fund $575,504 $619,124 $247,218
Balanced Fund $254,191 $197,751 $104,835
</TABLE>
- -------------------------
(1) For the period begun September 6, and ended September 30, 1996, such
commissions were paid by the Funds, not their predecessor portfolios.
54
<PAGE> 1321
During the time periods stated above, no brokerage commissions were
paid by the Funds to an affiliated broker.
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 owned securities of their "regular brokers or dealers" or
their parents as defined in the Act, as follows:
<TABLE>
<CAPTION>
Fund Amount Regular Broker/Dealer
---- -------- ---------------------
<S> <C> <C> <C>
o Arizona Tax-Free $ -0- N/A
o Balanced $ 720,000 Goldman Sachs & Co.
o Equity Value $ 5,800,000 Goldman Sachs & Co.
o Intermediate Bond $ 984,000 Goldman Sachs & Co.
o National Tax-Free $ -0- N/A
o Oregon Tax-Free $ -0- N/A
o Prime Money Market Mutual $166,369,000 Goldman Sachs & Co.
o Treasury Money Market Mutual $225,975,000 Goldman Sachs & Co.
o Treasury Money Market Mutual $230,000,000 HSBC Securities
o Treasury Money Market Mutual $225,000,000 JP Morgan Securities
o Treasury Money Market Mutual $230,000,000 Morgan Stanley
</TABLE>
Furman Selz, the administrator to the predecessor portfolios, did not
report in their N-SAR for the fiscal year ended September 30, 1995, that any
of the Funds held securities of their regular broker/dealers or of their
parents that derive more than 15% of gross revenues from securities-related
activities.
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.
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
55
<PAGE> 1322
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 a 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 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 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 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.
56
<PAGE> 1323
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 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. With respect to the Money Market Funds, 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 a Money
Market Fund's declared dividends (as declared daily throughout the year) exceed
the Fund's net income (as determined at
57
<PAGE> 1324
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 each Money Market 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 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.
58
<PAGE> 1325
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 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
59
<PAGE> 1326
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 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 for the Tax-Free Funds. The Tax-Free 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 Tax Free 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 Tax-Free
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 Tax-Free 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.
60
<PAGE> 1327
Among the tax preference items is tax-exempt interest from "private activity
bonds" issued after August 7, 1986. To the extent that a Tax-Free 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 shares in a Tax-Free Fund. Furthermore, shareholders will not be
permitted to deduct any of their share of a Tax-Free 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 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 a Tax-Free Fund would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and IRAs since such plans and accounts
are generally tax-exempt and, therefore, would not benefit from the exempt
status of dividends from 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 eight 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 seventeen other funds.
Each Fund offers three classes of shares. Most of the Company's
funds are authorized to issue multiple classes of shares, one class generally
subject to a front-end sales charge and, in some
61
<PAGE> 1328
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 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.
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.
62
<PAGE> 1329
Set forth below 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 a Fund or 5% or more of the voting securities of a 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>
ARIZONA TAX- Virg. & Co. Institutional Class 98.28% 69.70%
FREE FUND Attn: MF Dept A88-4 [Record Holder]
P.O. Box 9800
Calabasas, CA 91372
BALANCED FUND Hep & Co. Institutional Class 44.65% 29.30%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
MAC 9139-027
Calabasas, CA 91372
Dim & Co. Institutional Class 6.40% N/A
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
MAC 9139-027
Calabasas, CA 91372
First Interstate Bank Institutional Class 39.14% 25.70%
(Trustee) Record Holder
ChoiceMaster
Attn: Mutual Funds
A88-4
P.O. Box 9800
Calabasas, CA 91372
EQUITY VALUE Virg. & Co. Institutional Class 7.54% 6.90%
FUND Attn: MF Dept A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372
Hep & Co. Institutional Class 26.49% 24.10%
Attn: MF Dept A88-4 Record Holder
P.O. Box 9800
MAC 9139-027
Calabasas, CA 91372
Dim & Co. Institutional Class 42.48% 38.70%
Attn: MF Dept A88-4 Record Holder
P.O. Box 9800
MAC 9139-027
Calabasas, CA 91372
First Interstate Bank Institutional 17.91% 16.30%
(Trustee) Class
ChoiceMaster Record Holder
Attn: Mutual Funds
A88-4
P.O. Box 9800
Calabasas, CA 91372
INTERMEDIATE Virg. & Co. Institutional 41.09% 39.00%
BOND FUND Attn: MF Dept A88-4 Class Record Holder
</TABLE>
63
<PAGE> 1330
<TABLE>
<S> <C> <C> <C> <C>
P.O. Box 9800
Calabasas, CA 91372
Hep & Co. 56.43% 53.50%
Attn: MF Dept A88-4 Institutional
P.O. Box 9800 Class
MAC 9139-027 Record Holder
Calabasas, CA 91372
NATIONAL TAX- Virg. & Co. Institutional Class 65.08% 40.00%
FREE FUND Attn: MF Dept A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372
Hep & Co. Institutional Class 34.92% 21.50%
Attn: MF Dept A88-4 Benefically Owned
P.O. Box 9800
MAC 9139-027
Calabasas, CA 91372
OREGON TAX Dim & Co. Institutional Class 6.50% N/A
-FREE FUND Attn: MF Dept. A88-4 Benefically Owned
P.O. Box 9800
Calabasas, CA 91372
Virg. & Co. Institutional Class 72.30% 14.10%
Attn: MF Dept A88-4 Benefically Owned
P.O. Box 9800
Calabasas, CA 91372
Hep & Co. Institutional Class 21.20% N/A
Attn: MF Dept A88-4 Record Holder
P.O. Box 9800
MAC 9139-027
Calabasas, CA 91372
PRIME Virg. & Co. Institutional Class 81.84% 25.90%
MONEY MARKET Attn: MF Dept A88-4 Record Holder
MUTUAL FUND P.O. Box 9800
Calabasas, CA 91372
TREASURY The Peterson Liv Tr Institutional Class 21.37% 6.50%
MONEY MARKET 640 Wilshire Blvd., Record Holder
MUTUAL FUND 12th Fl.
Los Angeles, CA
90048 Institutional Class 10.19% N/A
Record Holder
First Interstate Bank
of Oregon, N.A.
Attn: Investment
Sweep
1300 S.W. Fifth Institutional Class 62.40% 19.00%
Avenue Record Holder
Portland, OR 97201-
5688
Virg. & Co.
Attn: MF Dept. A88-4
P.O. Box 9800
Calabasas, CA 91372-
0800
</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
fund is presumed to "control" such fund. Accordingly, to the extent that a
shareholder identified in the foregoing table is defined as the beneficial
holder of more than 25% of a class (or Fund), or is identified as the holder of
64
<PAGE> 1331
record of more that 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
OTHER INFORMATION
This Registration Statement, including the prospectus for each Fund,
the SAI and the exhibits filed therewith, may be examined at the office of the
SEC in Washington, D.C. Statements contained in a prospectus or the SAI as to
the contents of any contract or other document referred to herein or in the
prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP serves 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 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 Company's Annual Reports may be obtained by
calling 1-800-222-8222. The portfolio of investments, audited financial
statements and independent auditors' report are attached to all SAIs delivered
to current or prospective shareholders.
65
<PAGE> 1332
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> 1333
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> 1334
STAGECOACH FUNDS, INC.
SEC REGISTRATION NOS. 33-42927; 811-6419
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
The portfolio of investments, audited financial statements and
independent auditors' report for the fiscal period ended September
30, 1996 for 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 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 fiscal period ended September
30, 1996 for the Asset Allocation, Capital Appreciation, Corporate
Stock, Small Cap, Tax-Free Money Market and U.S. Government
Allocation Master Portfolios of Master Investment Trust are hereby
incorporated by reference to the Company's Annual Reports as filed
with the SEC on December 9, 1996.
(b) Exhibits:
Exhibit
Number Description
1 - Amended and Restated Articles of Incorporation
dated November 22, 1995, incorporated by
reference to Post-Effective Amendment No. 17 to
the Registration Statement, filed November 29,
1995.
2 - By-Laws, incorporated by reference to the
Initial Registration Statement, filed September
30, 1991.
3 - Not Applicable
4 - Not Applicable
5(a)(i) - 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 BZW Barclays Global
Fund Advisors on behalf of the Asset Allocation
Fund, incorporated by reference to
Post-Effective Amendment No. 21 to the
Registration Statement, filed February 29,
1996.
C-1
<PAGE> 1335
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 BZW Barclays Global
Fund Advisors on behalf of the U.S. Government
Allocation Fund, incorporated by reference to
Post-Effective Amendment No. 21 to the
Registration Statement, filed February 29,
1996.
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 BZW Barclays Global
Fund Advisors on behalf of the Corporate Stock
Fund, incorporated by reference to
Post-Effective Amendment No. 21 to the
Registration Statement, filed February 29,
1996.
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.
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, filed
herewith.
5(l) - Advisory Contract with Wells Fargo Bank, N.A.
on behalf of the Balanced Fund, filed herewith.
5(m) - Advisory Contract with Wells Fargo Bank, N.A.
on behalf of the Equity Value Fund, filed
herewith.
C-2
<PAGE> 1336
5(n) - Advisory Contract with Wells Fargo Bank, N.A.
on behalf of the Government Money Market Mutual
Fund, filed herewith.
5(o) - Advisory Contract with Wells Fargo Bank, N.A.
on behalf of the Intermediate Bond Fund, filed
herewith.
5(p) - Advisory Contract with Wells Fargo Bank, N.A.
on behalf of the Money Market Trust Fund, filed
herewith.
5(q) - Advisory Contract with Wells Fargo Bank, N.A.
on behalf of the National Tax-Free Fund, filed
herewith.
5(r) - Advisory Contract with Wells Fargo Bank, N.A.
on behalf of the Oregon Tax-Free Fund, filed
herewith.
5(s) - Advisory Contract with Wells Fargo Bank, N.A.
on behalf of the Prime Money Market Mutual
Fund, filed herewith.
5(t) - Advisory Contract with Wells Fargo Bank, N.A.
on behalf of the Treasury Money Market Mutual
Fund, filed herewith.
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.
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.
C-3
<PAGE> 1337
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.
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 Stephens Inc. on
behalf of the Asset Allocation Fund,
incorporated by reference to Post-Effective
Amendment No. 2 to the Registration Statement,
filed April 17, 1992.
9(a)(ii) - Administration Agreement with Stephens Inc. on
behalf of the U.S. Government Allocation Fund,
incorporated by reference to Post-Effective
Amendment No. 2 to the Registration Statement,
filed April 17, 1992.
C-4
<PAGE> 1338
9(a)(iii) - Administration Agreement with Stephens Inc. on
behalf of the California Tax-Free Bond Fund,
incorporated by reference to Post-Effective
Amendment No. 2 to the Registration Statement,
filed April 17, 1992.
9(a)(iv) - Administration Agreement with Stephens Inc. on
behalf of the California Tax-Free Money Market
Mutual Fund, incorporated by reference to
Post-Effective Amendment No. 2 to the
Registration Statement, filed April 17, 1992.
9(a)(v) - Administration Agreement with Stephens Inc. on
behalf of the Ginnie Mae Fund, incorporated by
reference to Post-Effective Amendment No. 2 to
the Registration Statement, filed April 17,
1992.
9(a)(vi) - Administration Agreement with Stephens Inc. on
behalf of the Growth and Income Fund,
incorporated by reference to Post-Effective
Amendment No. 2 to the Registration Statement,
filed April 17, 1992.
9(a)(vii) - Administration Agreement with Stephens Inc. on
behalf of the Corporate Stock Fund,
incorporated by reference to Post-Effective
Amendment No. 2 to the Registration Statement,
filed April 17, 1992.
9(a)(viii) - Administration Agreement with Stephens Inc. on
behalf of the Money Market Mutual Fund,
incorporated by reference to Post-Effective
Amendment No. 3 to the Registration Statement,
filed May 1, 1992.
9(a)(ix) - Administration Agreement with Stephens Inc. on
behalf of the California Tax-Free Income Fund,
incorporated by reference to Post-Effective
Amendment No. 4 to the Registration Statement,
filed September 10, 1992.
9(a)(x) - Administration Agreement with Stephens Inc. on
behalf of the Diversified Income Fund,
incorporated by reference to Post-Effective
Amendment No. 4 to the Registration Statement,
filed September 10, 1992.
9(a)(xi) - Administration Agreement with Stephens Inc. on
behalf of the Short-Intermediate U.S.
Government Income Fund, incorporated by
reference to Post-Effective Amendment No. 8 to
the Registration Statement, filed February 10,
1994.
9(a)(xii) - Administration Agreement with Stephens Inc. on
behalf of the National Tax-Free Money Market
Mutual Fund, incorporated by reference to
Post-Effective Amendment No. 19 to the
Registration Statement, filed December 18,
1995.
9(a)(xiii) - Administration Agreement with Stephens Inc. on
behalf of the Aggressive Growth Fund,
incorporated by reference to Post-Effective
Amendment No. 19 to the Registration Statement,
filed December 18, 1995.
9(a)(xiv) - Administration Agreement with Stephens Inc. on
behalf of the Arizona Tax-Free, Balanced,
California Tax-Free Money Market Trust, 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,
filed herewith.
9(b)(i) - Agency Agreement with Wells Fargo Bank, N.A. on
behalf of the Funds, incorporated by reference
to Post-Effective Amendment No. 2 to the
Registration Statement, filed April 17, 1992.
C-5
<PAGE> 1339
9(b)(ii) - Agency 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(b)(iii) - Form of Agency Agreement with Wells Fargo Bank,
N.A. on behalf of the Aggressive Growth Fund,
incorporated by reference to Post-Effective
Amendment No. 19 to the Registration Statement,
filed December 18, 1995.
9(b)(iv) - Form of Amended Agency Agreement with Wells
Fargo Bank, NA 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(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.
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.
C-6
<PAGE> 1340
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 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.
C-7
<PAGE> 1341
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.
9(d)(x) - 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, 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(d)(xi) - 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, National Tax-
Free and Oregon Tax-Free Funds, incorporated by
reference to Post-Effective Amendment No. 25 to
the Registration Statement, filed June 17,
1996.
9(d)(xii) - Servicing Plan and Form of Shareholder
Servicing Agreement on behalf of the
Institutional Class Shares of the Arizona
Tax-Free, Balanced, California Tax-Free Bond,
California Tax-Free Income, Equity Value,
Ginnie Mae, Growth and Income, Intermediate
Bond, Money Market Mutual, National Tax-Free,
Oregon
C-8
<PAGE> 1342
Tax-Free, Prime Money Market Mutual,
Short-Intermediate Government and Treasury
Money Market Mutual Funds, incorporated by
reference to Post-Effective Amendment No. 25 to
the Registration Statement, filed June 17,
1996.
9(d)(xiii) - 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(d)(xiv) - 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(d)(xv) - 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) - 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 - Auditors Consent - KPMG Peat Marwick, filed
herewith.
12 - Not Applicable
13 - Investment letter, incorporated by reference to
Item 24(b) of Pre-Effective Amendment No. 1 to
the Registration Statement, filed November 29,
1991.
14 - Not Applicable
15(a)(i) - Distribution Plan on behalf of the California
Tax-Free Money Market Mutual Fund, incorporated
by reference to Post-Effective Amendment No. 2
to the Registration Statement, filed April 17,
1992.
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.
C-9
<PAGE> 1343
15(a)(vi) - Distribution Plan on behalf of the National
Tax-Free Money Market Mutual Fund, incorporated
by reference to Post-Effective Amendment No. 17
to the Registration Statement, filed November
29, 1995.
15(a)(vii) - 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(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, National
Tax-Free and Oregon Tax-Free Funds,
incorporated by reference to Post-Effective
Amendment No. 25 to the Registration Statement,
filed June 17, 1996.
15(c)(i) - Amended Distribution Plan on behalf of the
Class A Shares of the Asset Allocation Fund,
incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
15(c)(ii) - Amended Distribution Plan on behalf of the
Class A Shares of the California Tax-Free Bond
Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the
Registration Statement, filed May 1, 1995.
15(c)(iii) - Amended Distribution Plan on behalf of the
Class A Shares of the Diversified Income Fund,
incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
C-10
<PAGE> 1344
15(c)(iv) - Amended Distribution Plan on behalf of the
Class A Shares of the Ginnie Mae Fund,
incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
15(c)(v) - Amended Distribution Plan on behalf of the
Class A Shares of the Growth and Income Fund,
incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
15(c)(vi) - Amended Distribution Plan on behalf of the
Class A Shares of the U.S. Government
Allocation Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the
Registration Statement, filed May 1, 1995.
15(c)(vii) - Distribution Plan on behalf of the Class A
Shares of the Aggressive Growth Fund,
incorporated by reference to Post-Effective
Amendment No. 19 to the Registration Statement,
filed December 18, 1995.
15(c)(viii) - Distribution Plan on behalf of the Class A
Shares of the Arizona Tax-Free, Balanced,
Equity Value, Government Money Market Mutual,
Intermediate Bond, National Tax-Free and Oregon
Tax-Free Funds, incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement, filed June 17, 1996.
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.
16(a) - Schedules for Computation of Performance Data,
incorporated by reference to Post-Effective
Amendment No. 2, filed April 17, 1992.
16(b) - Schedules for Computation of Performance Data,
incorporated by reference to Post-Effective
Amendment No. 15, filed May 1, 1995.
17 - Powers of Attorney, incorporated by reference
to Initial Registration Statement, filed
September 30, 1991.
18 - Rule 18f-3 Multi-Class Plan, filed herewith.
27 - Financial Data Schedules for 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, incorporated by reference to
the Form N-SAR, as filed with the SEC on
December 9, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant
As of January 3, 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 January 3, 1997, the Aggressive Growth,
National Tax-Free Money Market Mutual and Small Cap Funds owned approximately
22%, 16% and 87% 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.
C-11
<PAGE> 1345
Item 26. Number of Holders of Securities
As of December 1, 1996, the number of record holders of each
class of Securities of the Registrant was as follows:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
Class A* Class B Institutional Class
------- ------- -------------------
<S> <C> <C> <C>
Aggressive Growth Fund 1,115 1,435 N/A
Arizona Tax-Free Fund 335 2 9
Asset Allocation Fund 21,467 3,977 N/A
Balanced Fund 2,054 5 290
California Tax-Free Bond Fund 11,732 1,107 71
California Tax-Free Income Fund 4,342 N/A 8
California Tax-Free Money Market Mutual Fund 17,235 N/A N/A
Corporate Stock Fund 1,068 N/A N/A
Diversified Income Fund 11,962 1,386 N/A
Equity Value Fund 1,437 13 297
Ginnie Mae Fund 7,722 722 190
Government Money Market Mutual Fund 240 N/A N/A
Growth and Income Fund 12,793 1,258 40
Intermediate Bond Fund 247 4 13
Money Market Mutual Fund 17,752 2** 11
Money Market Trust 12 N/A N/A
National Tax-Free Fund 176 1 9
National Tax-Free Money Market 11 N/A N/A
Mutual Fund
Oregon Tax-Free Fund 978 3 6
</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.
C-12
<PAGE> 1346
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
Class A* Class B Institutional Class
------- ------- -------------------
<S> <C> <C> <C>
Prime Money Market Mutual 518 7*** 49
Short-Intermediate U.S. Government 6,686 N/A 146
Income Fund
Small Cap Fund 49 43 6
Treasury Money Market Mutual Fund 125 7*** 418
U.S. Government Allocation Fund 8,620 267 N/A
</TABLE>
*** Designates the number of Service Class recordholders.
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
C-13
<PAGE> 1347
Corporation against any liability to which such Director or officer would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct
of his office. No amendment, modification or repeal of this Article VIII
shall adversely affect any right or protection of a Director or officer
that exists at the time of such amendment, modification or repeal.
Item 28. Business and Other Connections of Investment Adviser.
Wells Fargo Bank, N.A. ("Wells Fargo Bank"), a wholly owned
subsidiary of Wells Fargo & Company, currently serves as investment adviser to
several of the Registrant's investment portfolios and to certain other
registered open-end management investment companies. Wells Fargo Bank's
business is that of a national banking association with respect to which it
conducts a variety of commercial banking and trust activities.
To the knowledge of Registrant, none of the directors or
executive officers of Wells Fargo Bank, except those set forth below, is or has
been at any time during the past two fiscal years engaged in any other
business, profession, vocation or employment of a substantial nature, except
that certain executive officers also hold various positions with and engage in
business for Wells Fargo & Company. Set forth below are the names and principal
businesses of the directors and executive officers of Wells Fargo Bank who are
or during the past two fiscal years have been engaged in any other business,
profession, vocation or employment of a substantial nature for their own
account or in the capacity of director, officer, employee, partner or trustee.
All the directors of Wells Fargo Bank also serve as directors of Wells Fargo &
Company.
Name and Position Principal Business(es) and Address(es)
at Wells Fargo Bank During at Least the Last Two Fiscal Years
- ------------------- ------------------------------------------
H. Jesse Arnelle Senior Partner of Arnelle & Hastie
Director 455 Market Street
San Francisco, CA 94105
Director of FPL Group, Inc.
700 Universe Blvd.
P.O. Box 14000
North Palm Beach, FL 33408
William R. Breuner General Partner in Breuner Associates, Breuner
Director Properties and Breuner-Pavarnick Real Estate
Developers. Retired Chairman of the Board of
Directors of John Breuner Co.
2300 Clayton Road, Suite 1570
Concord, CA 94520
Vice Chairman of the California State Railroad
Museum Foundation.
111 I Street
Old Sacramento, CA 95814
C-14
<PAGE> 1348
Name and Position Principal Business(es) and Address(es)
at Wells Fargo Bank During at Least the Last Two Fiscal Years
- ------------------- ------------------------------------------
William S. Davila President and Director of The Vons Companies, Inc.
Director 618 Michillinda Avenue
Arcadia, CA 91007
Officer of Western Association of Food Chains
825 Colorado Blvd. #203
Los Angeles, CA 90041
Rayburn S. Dezember Director of CalMat Co.
Director 3200 San Fernando Road
Los Angeles, CA 90065
Director of Tejon Ranch Co.
P.O. Box 1000
Lebec, CA 93243
Director of Turner Casting Corp.
P.O. Box 1099
Cudahy, CA 90201
Director of The Bakersfield Californian
P.O. Box 440
1707 I Street
Bakersfield, CA 93302
Director of Kern County Economic Development Corp.
P.O. Box 1229
2700 M Street, Suite 225
Bakersfield, CA 93301
Chairman of the Board of Trustees of
Whittier College
13406 East Philadelphia Avenue
P.O. Box 634
Whittier, CA 90608
Paul Hazen Chairman of the Board of Directors of
Chairman of the Wells Fargo & Company
Board of Directors 420 Montgomery Street
San Francisco, CA 94105
Director of Pacific Telesis Group
130 Kearny Street
San Francisco, CA 94108
Director of Phelps Dodge Corp.
2600 North Central Avenue
Phoenix, AZ 85004
Director of Safeway Inc.
Fourth and Jackson Streets
Oakland, CA 94660
C-15
<PAGE> 1349
Name and Position Principal Business(es) and Address(es)
at Wells Fargo Bank During at Least the Last Two Fiscal Years
- ------------------- ------------------------------------------
Robert K. Jaedicke Accounting Professor and Dean Emeritus of
Director Graduate School of Business, Stanford University
MBA Admissions Office
Stanford, CA 94305
Director of Homestake Mining Co.
650 California Street
San Francisco, CA 94108
Director of California Water Service Company
1720 North First Street
San Jose, CA 95112
Director of Boise Cascade Corp.
1111 West Jefferson Street
P.O. Box 50
Boise, ID 83728
Director of Enron Corp.
1400 Smith Street
Houston, TX 77002
Director of GenCorp, Inc.
175 Ghent Road
Fairlawn, OH 44333
Paul A. Miller Chairman of Executive Committee and Director of
Director Pacific Enterprises
633 West Fifth Street
Los Angeles, CA 90071
Trustee of Mutual Life Insurance Company of New
York
1740 Broadway New York, NY 10019
Director of Newhall Management Corporation
23823 Valencia Blvd.
Valencia, CA 91355
Trustee of University of Southern California
University Park TGF 200
665 Exposition Blvd.
Los Angeles, CA 90089
Ellen M. Newman President of Ellen Newman Associates
Director 323 Geary Street, Suite 507
San Francisco, CA 94102
Chair of Board of Trustees of University of
California at San Francisco Foundation
250 Executive Park Blvd., Suite 2000
San Francisco, CA 94143
Director of American Conservatory Theater
30 Grant Avenue
San Francisco, CA 94108
Director of California Chamber of Commerce
1201 K Street, 12th Floor
Sacramento, CA 95814
C-16
<PAGE> 1350
Philip J. Quigley Chairman, Chief Executive Officer and
Director Director of Pacific Telesis Group
130 Kearney Street, Rm. 3700
San Francisco, CA 94108
Director of Varian Associates
3050 Hansen Way
P.O. Box 10800
Palo Alto, CA 94303
Carl E. Reichardt Chairman and Chief Executive Officer of the
Director Board of Directors of Wells Fargo & Company
420 Montgomery Street
San Francisco, CA 94105
Director of Ford Motor Company
The American Road
Dearborn, MI 48121
Director of Hospital Corporation of America,
HCA-Hospital Corp. of America
One Park Plaza
Nashville, TN 37203
Director of Pacific Gas and Electric Company
77 Beale Street
San Francisco, CA 94105
Director of Newhall Management Corporation
23823 Valencia Blvd.
Valencia, CA 91355
Donald B. Rice President, Chief Operating Officer and Director of
Director Teledyne, Inc.
2049 Century Park East
Los Angeles, CA 90067
Director of Vulcan Materials Company
One Metroplex Drive
Birmingham, AL 35209
Retired Secretary of the Air Force
Susan G. Swenson President and Chief Executive Officer of Cellular
Director One
651 Gateway Blvd.
San Francisco, CA 94080
C-17
<PAGE> 1351
Name and Position Principal Business(es) and Address(es)
at Wells Fargo Bank During at Least the Last Two Fiscal Years
- ------------------- ------------------------------------------
Chang-Lin Tien Chancellor of University of California at Berkeley
Director UC at Berkeley
Berkeley, CA 94720
John A. Young President, Director and Chief Executive Officer of
Director Hewlett-Packard Company
3000 Hanover Street
Palo Alto, CA 94304
Director of Chevron Corporation
225 Bush Street
San Francisco, CA 94104
William F. Zuendt Director of 3Com Corp.
President 5400 Bayfront Plaza
P.O. Box 58145
Santa Clara, CA 95052
Director of MasterCard International
888 Seventh Avenue
New York, NY 10106
Trustee of Golden Gate University
536 Mission Street
San Francisco, CA 94163
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 the sub-adviser to the
Asset Allocation, Corporate Stock and U.S. Government Allocation Funds of the
Company and to certain other open-end management investment companies. As of
May 1, 1996, BGFA 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.
The directors and officers of BGFA consist primarily of persons
who during the past two years have been active in the investment management
business of the former sub-adviser to the Registrant, Wells Fargo Nikko
Investment Advisors ("WFNIA") and, in some cases, the service business of BGI.
With the exception of Irving Cohen, each of the directors and executive
officers of BGFA will also have substantial responsibilities as directors
and/or officers of BGI. To the knowledge of the Registrant, except as set
forth below, none of the directors or executive officers of BGFA is or has been
at any time during the past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature.
C-18
<PAGE> 1352
Name and Position Principal Business(es) During at
at BGFA Least the Last Two Fiscal Years
- --------------------- --------------------------------
Frederick L.A. Grauer Chairman and Director of WFNIA and WFITC
Chairman, Director 45 Fremont Street, San Francisco, CA 94105
Donald L. Luskin Chief Executive Officer of WFNIA's Defined
Vice Chairman & Director Contribution Group 45 Fremont Street,
San Francisco, CA 94105
Irving Cohen Chief Financial Officer and Chief Operating
Director Officer of Barclays Bank
PLC, New York Branch and Chief Operating
Officer of Barclays Group, Inc.
(USA); previously, Chief Financial Officer
of Barclays de Zoete Wedd Securities Inc.
(1994) 222 Broadway, New York, NY 10038
Andrea M. Zolberti Chief Financial Officer of WFNIA and WFITC
Chief Financial Officer 45 Fremont Street, San Francisco, CA 94105
Vincent J. Bencivenga Previously Vice President at State Street
Chief Fiduciary Officer Bank & Trust Company
One Financial Center, Boston, MA 02111
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 Funds, Inc., Nations Fund Portfolio, Inc. and Nations Institutional
Reserves, 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 registered open-end management investment
companies, and has acted as principal underwriter for the Liberty Term Trust,
Inc., Nations Government Income Term Trust 2003, Inc., and Nations Government
Income Term Trust 2004, Inc., and Managed Balanced Target Maturity Fund, Inc.,
which are closed-end management investment companies and Nations Fund Trust,
Nations Funds, Inc., Nations Fund Portfolios, Inc. and Nations Institutional
Reserves (formerly, The Capitol Mutual Funds), which are open-end management
investment companies.
C-19
<PAGE> 1353
(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 Funds and
Management" in the Prospectuses constituting Part A of this Registration
Statement and "Management" in the Statements of Additional Information
constituting Part B of this Registration Statement, the Registrant is not a
party to any management-related service contract.
Item 32. Undertakings.
(a) Not Applicable.
(b) Not Applicable.
(c) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant
to the provisions set forth above in response to Item 27,
or otherwise, the registrant has been advised that in the
opinion of the Securities and
C-20
<PAGE> 1354
Exchange Commission such indemnification is against public
policy as expressed in such Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant
in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed
by the final adjudication of such issue
(d) Not Applicable.
(e) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of its most current
annual report to shareholders, upon request and without
charge.
C-21
<PAGE> 1355
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and 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 30th day of January, 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:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director, Chairman and President
------------------------ (Principal Executive Officer)
(R. Greg Feltus)
/s/Richard H. Blank, Jr. Secretary and Treasurer 1/30/97
------------------------ (Principal Financial Officer) -------
(Richard H. Blank, Jr.)
*
------------------------ 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
January 30, 1997
</TABLE>
<PAGE> 1356
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to the Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Little Rock, State of
Arkansas, on the 30th day of January, 1997.
MASTER INVESTMENT TRUST
By: /s/Richard H. Blank, Jr.
------------------------
Richard H. Blank, Jr.
Secretary and Treasurer
(Principal Financial Officer)
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman, President (Principal
- --------------------------------- Executive Officer) and Trustee
(R. Greg Feltus)
/s/Richard H. Blank, Jr. Chief Operating Officer, 1/30/97
- --------------------------------- Secretary and Treasurer
(Richard H. Blank, Jr.) (Principal Financial Officer)
* 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
January 30, 1997
</TABLE>
<PAGE> 1357
STAGECOACH FUNDS, INC.
FILE NOS. 33-42927; 811-6419
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<S> <C>
o EX-99.B5(k) o Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Arizona Tax-Free Fund
o EX-99.B5(l) o Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Balanced Fund
o EX-99.B5(m) o Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Equity Value Fund
o EX-99.B5(n) o Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Government Money Market Mutual Fund
o EX-99.B5(o) o Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Intermediate Bond Fund
o EX-99.B5(p) o Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Money Market Trust
o EX-99.B5(q) o Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the National Tax-Free Fund
o EX-99.B5(r) o Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Oregon Tax-Free Fund
o EX-99.B5(s) o Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Prime Money Market Mutual Fund
o EX-99.B5(t) o Advisory Contract with Wells Fargo Bank, N.A. on behalf of
the Treasury Money Market Mutual Fund
o EX-99.B9(a)(xiv) o Administration Agreement with Stephens Inc. on behalf of the
Arizona Tax-Free, Balanced, California Tax-Free Money Market
Trust, 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
o EX-99.B10 o Opinion and Consent of Counsel
o EX-99.B11 o Auditors Consent - KPMG Peat Marwick
o EX-99.B18 o Rule 18f-3 Multi-Class Plan
</TABLE>
<PAGE> 1
EXHIBIT 99.B5(k)
ADVISORY CONTRACT
ARIZONA TAX-FREE FUND
a portfolio of
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
September 6, 1996
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company"), on behalf of the Arizona Tax- Free Fund (the "Fund"), and Wells
Fargo Bank, N.A. (the "Adviser") as follows:
1. The Company is a registered open-end management
investment company currently consisting of a number of investment portfolios,
but which may from time to time consist of a greater or lesser number of
investment portfolios (the "Funds"). The Company proposes to engage in the
business of investing and reinvesting the assets of the Fund in the manner and
in accordance with the investment objective and restrictions specified in the
Company's currently effective prospectus and the currently effective statement
of additional information incorporated by reference therein relating to the
Fund and the Company (such prospectus and such statement of additional
information being collectively referred to as the "Prospectus") included in the
Company's Registration Statement, as amended from time to time (the
"Registration Statement"), filed by the Company under the Investment Company
Act of 1940 (the "Act") and the Securities Act of 1933. Copies of the
documents referred to in the preceding sentence have been furnished to the
Adviser. Any amendments to those documents shall be furnished to the Adviser
promptly.
2. The Company is engaging the Adviser to manage the
investing and reinvesting of the assets of the Fund and to provide the advisory
services specified elsewhere in this contract, subject to the overall
supervision of the Board of Directors of the Company. Pursuant to an
administration agreement between the Company and Stephens Inc. (the
"Administrator") on behalf of the Fund, the Company has engaged the
Administrator to provide the administrative services specified therein.
3. (a) The Adviser shall make investments for the account
of the Fund in accordance with the Adviser's best judgment and consistent with
the investment objective and restrictions set forth in the Company's
Prospectus, the Act and the provisions of the Internal Revenue Code of 1986, as
amended, relating to regulated investment companies, subject to policy
decisions adopted by the Company's Board of Directors. The Adviser shall
advise the Company's officers and Board of Directors, at such times as the
Company's Board of Directors may specify, of investments made for the Fund and
shall, when requested by the Company's officers or Board of Directors, supply
the reasons for making particular investments.
(b) The Adviser shall provide to the Company
investment guidance and policy direction in connection with its daily
management of the Fund's portfolio, including oral and written research,
analysis, advice, statistical and economic data and information and judgments,
and shall furnish to the Company's Board of Directors periodic reports on the
investment strategy and performance of the Fund and such additional reports and
information as the Company's Board of Directors and officers shall reasonably
request.
<PAGE> 2
(c) The Adviser shall pay the costs of printing and
distributing all materials relating to the Fund prepared by it, or prepared at
its request, other than such costs relating to proxy statements, prospectuses,
shareholder reports and other materials distributed to existing or prospective
shareholders on behalf of the Fund.
(d) The Adviser shall, at its expense, employ or
associate with itself such persons as the Adviser believes appropriate to
assist it in performing its obligations under this contract.
4. The Company understands that the Adviser, in rendering
its services to the Fund hereunder, may engage a sub-adviser to provide certain
sub-advisory services pursuant to a separate sub-advisory contract. The
Adviser will not seek to amend any sub-advisory contract to materially alter
the obligations of the parties unless the Adviser gives the Company at least 60
days' prior written notice thereof.
5. Except as provided in each of the advisory contracts and
administration agreements on behalf of the Company's Funds, each Fund of the
Company shall bear all costs of its operations, except to the extent that such
costs are identified as attributable to a specific class of a Fund ("Class
Expenses"), including the Fund's pro-rata portion of the compensation of the
Company's directors who are not affiliated with the Adviser, the Administrator
or any of their affiliates; advisory and administration fees; governmental
fees; 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 any stock certificates,
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 Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; expenses relating to any pricing services;
organizational expenses; and any extraordinary expenses; except that Class
Expenses, such as payments related to a servicing plan or distribution-related
expenses pursuant to a Rule 12b-1 Plan, i.e., a plan of distribution of the
Company adopted on behalf of a class of shares of the Fund pursuant to Rule
12b-1 under the Act, or other such expenses as determined in accordance with
the Company's Rule 18f-3 Plan, shall be borne by the applicable class of the
Fund. Expenses attributable to one or more, but not all, of the Company's
Funds are charged against the assets of the relevant Funds. General expenses
of the Company 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.
6. The Adviser shall give the Company the benefit of the
Adviser's best judgment and efforts in rendering services under this contract.
As an inducement to the Adviser's undertaking to render these services, the
Company agrees that the Adviser shall not be liable under this contract for any
mistake in judgment or in any other event whatsoever except for lack of good
faith, provided that nothing in this contract shall be deemed to protect or
purport to protect the Adviser against any liability to the Company or its
shareholders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties under this contract or by reason of reckless disregard of its
obligations and duties hereunder.
7. In consideration of the services to be rendered by the
Adviser under this contract, the Company shall pay the Adviser a monthly fee on
the first business day of each month, at the annual rate of 0.50% of the
average daily value (as determined on each day that such value is determined
for the Fund at the time set forth in the Prospectus for determining net asset
value per share) of the Fund's net assets during the preceding month. If the
fee payable to the Adviser pursuant to this paragraph 7 begins to accrue before
the end of any month or if this contract 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 the Fund's net assets shall be
computed in the manner specified in the Prospectus and the Company'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.
2
<PAGE> 3
8. If in any fiscal year the total expenses of the Fund
incurred by, or allocated to, the Fund excluding taxes, interest, brokerage
commissions and other portfolio transaction expenses, 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 7 and those provided
for pursuant to the Fund's Administration Agreement ("includible expenses"),
exceed the most restrictive expense limitation applicable to the Fund imposed
by state securities laws or regulations thereunder, as these limitations may be
raised or lowered from time to time, the Adviser 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 7 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 Administration 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
Administration 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 the Company's
fiscal year, the Company shall review the includible expenses accrued during
that fiscal year to the end of the period and shall estimate the contemplated
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 8 for a fiscal year with
respect to the Fund, the monthly fee set forth in paragraph 7 payable to the
Adviser 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 8. 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 the last sentence of paragraph 7, and any reimbursements
required to be made by the Adviser shall be made once a year promptly after the
end of the Company's fiscal year.
9. This contract shall become effective on its execution
date and shall thereafter continue in effect, provided that this contract shall
continue in effect for a period of more than two years from the date hereof
only so long as the continuance is specifically approved at least annually (a)
by the vote of a majority of the Fund's outstanding voting securities (as
defined in the Act) or by the Company's Board of Directors and (b) by the vote,
cast in person at a meeting called for the purpose, of a majority of the
Company's directors who are not parties to this contract or "interested
persons" (as defined in the Act) of any such party. This contract may be
terminated at any time by the Company, without the payment of any penalty, by a
vote of a majority of the Fund's outstanding voting securities (as defined in
the Act) or by a vote of a majority of the Company's entire Board of Directors
on 60 days' written notice to the Adviser or by the Adviser, at any time after
the second anniversary of the effective date of this contract, on 60 days'
written notice to the Company. This contract shall terminate automatically in
the event of its assignment (as defined in the Act).
10. Except to the extent necessary to perform the Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Adviser, or any affiliate of the Adviser, or any
employee of the Adviser, 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.
11. The Adviser and the Company each agree that the word
"Stagecoach," which comprises a component of the Company's name, is a property
right of the parent of the Adviser. The Company agrees and consents that: (i)
it will use the word "Stagecoach" as a component of its corporate name, the
name of any class, or both and for no other purpose; (ii) it will not grant to
any third party the right to use the word "Stagecoach" for any purpose; (iii)
the Adviser or any corporate affiliate of the Adviser may use or grant to
others the right to use the word "Stagecoach," or any combination or
abbreviation thereof, as all or a portion of a corporate or business name or
for any commercial purpose, other than a grant of such right to another
registered investment company not advised by the Adviser or one of its
affiliates; and (iv) in the event that the Adviser or an affiliate thereof is
no longer acting as investment adviser to any class of the Fund, the Company
shall, upon request by the Adviser, promptly take such action as may be
necessary to change its corporate name to one not containing the word
"Stagecoach" and
3
<PAGE> 4
following such change, shall not use the word "Stagecoach," or any combination
thereof, as a part of its corporate name or for any other commercial purpose,
and shall use its best efforts to cause its directors, officers, and
shareholders to take any and all actions that the Adviser may request to effect
the foregoing and to reconvey to the Adviser any and all rights to such words.
12. This contract shall be governed by and construed in
accordance with the laws of the State of California without giving effect to
the choice of law provisions thereof.
If the foregoing correctly sets forth the agreement between
the Company and the Adviser, please so indicate by signing and returning to the
Company the enclosed copy hereof.
Very truly yours,
STAGECOACH FUNDS, INC.,
on behalf of the Arizona Tax-Free Fund
By: /s/Richard H. Blank, Jr.
-------------------------------
Name: Richard H. Blank, Jr.
-------------------------------
Title: Chief Operating Officer
-------------------------------
ACCEPTED as of the date
set forth above:
WELLS FARGO BANK, N.A.
By: /s/Elizabeth A. Gottfried
-----------------------------------
Name: Elizabeth A. Gottfried
-----------------------------------
Title: Vice President, Fund Administration
-----------------------------------
By: /s/Robert Bissell
-----------------------------------
Name: Robert Bissell
-----------------------------------
Title: Senior Vice President
-----------------------------------
4
<PAGE> 1
EXHIBIT 99.B5(1)
ADVISORY CONTRACT
BALANCED FUND
a portfolio of
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
September 6, 1996
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company"), on behalf of the Balanced Fund (the "Fund"), and Wells Fargo Bank,
N.A. (the "Adviser") as follows:
1. The Company is a registered open-end management
investment company currently consisting of a number of investment portfolios,
but which may from time to time consist of a greater or lesser number of
investment portfolios (the "Funds"). The Company proposes to engage in the
business of investing and reinvesting the assets of the Fund in the manner and
in accordance with the investment objective and restrictions specified in the
Company's currently effective prospectus and the currently effective statement
of additional information incorporated by reference therein relating to the
Fund and the Company (such prospectus and such statement of additional
information being collectively referred to as the "Prospectus") included in the
Company's Registration Statement, as amended from time to time (the
"Registration Statement"), filed by the Company under the Investment Company
Act of 1940 (the "Act") and the Securities Act of 1933. Copies of the
documents referred to in the preceding sentence have been furnished to the
Adviser. Any amendments to those documents shall be furnished to the Adviser
promptly.
2. The Company is engaging the Adviser to manage the
investing and reinvesting of the assets of the Fund and to provide the advisory
services specified elsewhere in this contract, subject to the overall
supervision of the Board of Directors of the Company. Pursuant to an
administration agreement between the Company and Stephens Inc. (the
"Administrator") on behalf of the Fund, the Company has engaged the
Administrator to provide the administrative services specified therein.
3. (a) The Adviser shall make investments for the account
of the Fund in accordance with the Adviser's best judgment and consistent with
the investment objective and restrictions set forth in the Company's
Prospectus, the Act and the provisions of the Internal Revenue Code relating to
regulated investment companies, subject to policy decisions adopted by the
Company's Board of Directors. The Adviser shall advise the Company's officers
and Board of Directors, at such times as the Company's Board of Directors may
specify, of investments made for the Fund and shall, when requested by the
Company's officers or Board of Directors, supply the reasons for making
particular investments.
(b) The Adviser shall provide to the Company investment
guidance and policy direction in connection with its daily management of the
Fund's portfolio, including oral and written research, analysis, advice,
statistical and economic data and information and judgments, and shall furnish
to the Company's Board of Directors periodic reports on the investment strategy
and performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
<PAGE> 2
(c) The Adviser shall pay the costs of printing and
distributing all materials relating to the Fund prepared by it, or prepared at
its request, other than such costs relating to proxy statements, prospectuses,
shareholder reports and other materials distributed to existing or prospective
shareholders on behalf of the Fund.
(d) The Adviser shall, at its expense, employ or
associate with itself such persons as the Adviser believes appropriate to
assist it in performing its obligations under this contract.
4. The Company understands that the Adviser, in rendering
its services to the Fund hereunder, may engage a sub-adviser to provide certain
sub-advisory services pursuant to a separate sub-advisory contract. The
Adviser will not seek to amend any sub-advisory contract to materially alter
the obligations of the parties unless the Adviser gives the Company at least 60
days' prior written notice thereof.
5. Except as provided in each of the advisory contracts
and administration agreements on behalf of the Company's Funds, each Fund of
the Company shall bear all costs of its operations, except to the extent that
such costs are identified as attributable to a specific class of a Fund ("Class
Expenses"), including the Fund's pro-rata portion of the compensation of the
Company's directors who are not affiliated with the Adviser, the Administrator
or any of their affiliates; advisory and administration fees; governmental
fees; 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 any stock certificates,
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 Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; expenses relating to any pricing services;
organizational expenses; and any extraordinary expenses; except that Class
Expenses, such as payments related to a servicing plan or distribution-related
expenses pursuant to a Rule 12b-1 Plan, i.e., a plan of distribution of the
Company adopted on behalf of a class of shares of the Fund pursuant to Rule
12b-1 under the Act, or other such expenses as determined in accordance with
the Company's Rule 18f-3 Plan, shall be borne by the applicable class of the
Fund. Expenses attributable to one or more, but not all, of the Company's
Funds are charged against the assets of the relevant Funds. General expenses
of the Company 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.
6. The Adviser shall give the Company the benefit of the
Adviser's best judgment and efforts in rendering services under this contract.
As an inducement to the Adviser's undertaking to render these services, the
Company agrees that the Adviser shall not be liable under this contract for any
mistake in judgment or in any other event whatsoever except for lack of good
faith, provided that nothing in this contract shall be deemed to protect or
purport to protect the Adviser against any liability to the Company or its
shareholders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties under this contract or by reason of reckless disregard of its
obligations and duties hereunder.
7. In consideration of the services to be rendered by the
Adviser under this contract, the Company shall pay the Adviser a monthly fee on
the first business day of each month, at the annual rate of 0.60% of the
average daily value (as determined on each day that such value is determined
for the Fund at the time set forth in the Prospectus for determining net asset
value per share) of the Fund's net assets during the preceding month. If the
fee payable to the Adviser pursuant to this paragraph 7 begins to accrue before
the end of any month or if this contract 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 the Fund's net assets shall be
computed in the manner specified in the Prospectus and the Company'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.
2
<PAGE> 3
8. If in any fiscal year the total expenses of the Fund
incurred by, or allocated to, the Fund excluding taxes, interest, brokerage
commissions and other portfolio transaction expenses, 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 7 and those provided
for pursuant to the Fund's Administration Agreement ("includible expenses"),
exceed the most restrictive expense limitation applicable to the Fund imposed
by state securities laws or regulations thereunder, as these limitations may be
raised or lowered from time to time, the Adviser 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 7 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 Administration 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
Administration 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 the Company's
fiscal year, the Company shall review the includible expenses accrued during
that fiscal year to the end of the period and shall estimate the contemplated
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 8 for a fiscal year with
respect to the Fund, the monthly fee set forth in paragraph 7 payable to the
Adviser 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 8. 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 the last sentence of paragraph 7, and any reimbursements
required to be made by the Adviser shall be made once a year promptly after the
end of the Company's fiscal year.
9. This contract shall become effective on its execution
date and shall thereafter continue in effect, provided that this contract shall
continue in effect for a period of more than two years from the date hereof
only so long as the continuance is specifically approved at least annually (a)
by the vote of a majority of the Fund's outstanding voting securities (as
defined in the Act) or by the Company's Board of Directors and (b) by the vote,
cast in person at a meeting called for the purpose, of a majority of the
Company's directors who are not parties to this contract or "interested
persons" (as defined in the Act) of any such party. This contract may be
terminated at any time by the Company, without the payment of any penalty, by a
vote of a majority of the Fund's outstanding voting securities (as defined in
the Act) or by a vote of a majority of the Company's entire Board of Directors
on 60 days' written notice to the Adviser or by the Adviser, at any time after
the second anniversary of the effective date of this contract, on 60 days'
written notice to the Company. This contract shall terminate automatically in
the event of its assignment (as defined in the Act).
10. Except to the extent necessary to perform the Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Adviser, or any affiliate of the Adviser, or any
employee of the Adviser, 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.
11. The Adviser and the Company each agree that the words
"Stagecoach," which comprise a component of the Company's name, is a property
right of the parent of the Adviser. The Company agrees and consents that: (i)
it will use the words "Stagecoach" as a component of its corporate name, the
name of any class, or both and for no other purpose; (ii) it will not grant to
any third party the right to use the words "Stagecoach" for any purpose; (iii)
the Adviser or any corporate affiliate of the Adviser may use or grant to
others the right to use the words "Stagecoach," or any combination or
abbreviation thereof, as all or a portion of a corporate or business name or
for any commercial purpose, other than a grant of such right to another
registered investment company not advised by the Adviser or one of its
affiliates; and (iv) in the event that the Adviser or an affiliate thereof is
no longer acting as investment adviser to any class, the Company shall, upon
request by the Adviser, promptly take such action as may be necessary to change
its corporate name to one not containing the words "Stagecoach" and following
such
3
<PAGE> 4
change, shall not use the words "Stagecoach," or any combination thereof, as a
part of its corporate name or for any other commercial purpose, and shall use
its best efforts to cause its directors, officers, and shareholders to take any
and all actions that the Adviser may request to effect the foregoing and to
reconvey to the Adviser any and all rights to such words.
12. This contract shall be governed by and construed in
accordance with the laws of the State of California without giving effect to
the choice of law provisions thereof.
If the foregoing correctly sets forth the agreement between
the Company and the Adviser, please so indicate by signing and returning to the
Company the enclosed copy hereof.
Very truly yours,
STAGECOACH FUNDS, INC.,
on behalf of the Balanced Fund
By: /s/Richard H. Blank, Jr.
-----------------------------
Name: Richard H. Blank, Jr.
-----------------------------
Title: Chief Operating Officer
-----------------------------
ACCEPTED as of the date
set forth above:
WELLS FARGO BANK, N.A.
By: /s/Elizabeth A. Gottfried
-----------------------------------
Name: Elizabeth A. Gottfried
-----------------------------------
Title: Vice President, Fund Administration
-----------------------------------
By: /s/Robert Bissell
-----------------------------------
Name: Robert Bissell
-----------------------------------
Title: Senior Vice President
-----------------------------------
4
<PAGE> 1
EXHIBIT 99.B5(m)
ADVISORY CONTRACT
EQUITY VALUE FUND
a portfolio of
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
September 6, 1996
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company"), on behalf of the Equity Value Fund (the "Fund"), and Wells Fargo
Bank, N.A. (the "Adviser") as follows:
1. The Company is a registered open-end management investment
company currently consisting of a number of investment portfolios, but which
may from time to time consist of a greater or lesser number of investment
portfolios (the "Funds"). The Company proposes to engage in the business of
investing and reinvesting the assets of the Fund in the manner and in
accordance with the investment objective and restrictions specified in the
Company's currently effective prospectus and the currently effective statement
of additional information incorporated by reference therein relating to the
Fund and the Company (such prospectus and such statement of additional
information being collectively referred to as the "Prospectus") included in the
Company's Registration Statement, as amended from time to time (the
"Registration Statement"), filed by the Company under the Investment Company
Act of 1940 (the "Act") and the Securities Act of 1933. Copies of the
documents referred to in the preceding sentence have been furnished to the
Adviser. Any amendments to those documents shall be furnished to the Adviser
promptly.
2. The Company is engaging the Adviser to manage the investing
and reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and Stephens Inc. (the "Administrator") on behalf of the
Fund, the Company has engaged the Administrator to provide the administrative
services specified therein.
3. (a) The Adviser shall make investments for the account of the
Fund in accordance with the Adviser's best judgment and consistent with the
investment objective and restrictions set forth in the Company's Prospectus,
the Act and the provisions of the Internal Revenue Code relating to regulated
investment companies, subject to policy decisions adopted by the Company's
Board of Directors. The Adviser shall advise the Company's officers and Board
of Directors, at such times as the Company's Board of Directors may specify, of
investments made for the Fund and shall, when requested by the Company's
officers or Board of Directors, supply the reasons for making particular
investments.
(b) The Adviser shall provide to the Company investment
guidance and policy direction in connection with its daily management of the
Fund's portfolio, including oral and written research, analysis, advice,
statistical and economic data and information and judgments, and shall furnish
to the Company's Board of Directors periodic reports on the investment strategy
and performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
<PAGE> 2
(c) The Adviser shall pay the costs of printing and
distributing all materials relating to the Fund prepared by it, or prepared at
its request, other than such costs relating to proxy statements, prospectuses,
shareholder reports and other materials distributed to existing or prospective
shareholders on behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate
with itself such persons as the Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. The Company understands that the Adviser, in rendering its
services to the Fund hereunder, may engage a sub-adviser to provide certain
sub-advisory services pursuant to a separate sub-advisory contract. The
Adviser will not seek to amend any sub-advisory contract to materially alter
the obligations of the parties unless the Adviser gives the Company at least 60
days' prior written notice thereof.
5. Except as provided in each of the advisory contracts and
administration agreements on behalf of the Company's Funds, each Fund of the
Company shall bear all costs of its operations, except to the extent that such
costs are identified as attributable to a specific class of a Fund ("Class
Expenses"), including the Fund's pro-rata portion of the compensation of the
Company's directors who are not affiliated with the Adviser, the Administrator
or any of their affiliates; advisory and administration fees; governmental
fees; 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 any stock certificates,
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 Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; expenses relating to any pricing services;
organizational expenses; and any extraordinary expenses; except that Class
Expenses, such as payments related to a servicing plan or distribution-related
expenses pursuant to a Rule 12b-1 Plan, i.e., a plan of distribution of the
Company adopted on behalf of a class of shares of the Fund pursuant to Rule
12b-1 under the Act, or other such expenses as determined in accordance with
the Company's Rule 18f-3 Plan, shall be borne by the applicable class of the
Fund. Expenses attributable to one or more, but not all, of the Company's
Funds are charged against the assets of the relevant Funds. General expenses
of the Company 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.
6. The Adviser shall give the Company the benefit of the
Adviser's best judgment and efforts in rendering services under this contract.
As an inducement to the Adviser's undertaking to render these services, the
Company agrees that the Adviser shall not be liable under this contract for any
mistake in judgment or in any other event whatsoever except for lack of good
faith, provided that nothing in this contract shall be deemed to protect or
purport to protect the Adviser against any liability to the Company or its
shareholders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties under this contract or by reason of reckless disregard of its
obligations and duties hereunder.
7. In consideration of the services to be rendered by the Adviser
under this contract, the Company shall pay the Adviser a monthly fee on the
first business day of each month, at the annual rate of 0.50% of the average
daily value (as determined on each day that such value is determined for the
Fund at the time set forth in the Prospectus for determining net asset value
per share) of the Fund's net assets during the preceding month. If the fee
payable to the Adviser pursuant to this paragraph 7 begins to accrue before the
end of any month or if this contract 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 the Fund's net assets shall be computed in
the manner specified in the Prospectus and the Company'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.
2
<PAGE> 3
8. If in any fiscal year the total expenses of the Fund incurred
by, or allocated to, the Fund excluding taxes, interest, brokerage commissions
and other portfolio transaction expenses, 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 7 and those provided
for pursuant to the Fund's Administration Agreement ("includible expenses"),
exceed the most restrictive expense limitation applicable to the Fund imposed
by state securities laws or regulations thereunder, as these limitations may be
raised or lowered from time to time, the Adviser 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 7 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 Administration 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
Administration 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 the Company's
fiscal year, the Company shall review the includible expenses accrued during
that fiscal year to the end of the period and shall estimate the contemplated
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 8 for a fiscal year with
respect to the Fund, the monthly fee set forth in paragraph 7 payable to the
Adviser 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 8. 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 the last sentence of paragraph 7, and any reimbursements
required to be made by the Adviser shall be made once a year promptly after the
end of the Company's fiscal year.
9. This contract shall become effective on its execution date and
shall thereafter continue in effect, provided that this contract shall continue
in effect for a period of more than two years from the date hereof only so long
as the continuance is specifically approved at least annually (a) by the vote
of a majority of the Fund's outstanding voting securities (as defined in the
Act) or by the Company's Board of Directors and (b) by the vote, cast in person
at a meeting called for the purpose, of a majority of the Company's directors
who are not parties to this contract or "interested persons" (as defined in the
Act) of any such party. This contract may be terminated at any time by the
Company, without the payment of any penalty, by a vote of a majority of the
Fund's outstanding voting securities (as defined in the Act) or by a vote of a
majority of the Company's entire Board of Directors on 60 days' written notice
to the Adviser or by the Adviser, at any time after the second anniversary of
the effective date of this contract, on 60 days' written notice to the Company.
This contract shall terminate automatically in the event of its assignment (as
defined in the Act).
10. Except to the extent necessary to perform the Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Adviser, or any affiliate of the Adviser, or any
employee of the Adviser, 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.
11. The Adviser and the Company each agree that the words
"Stagecoach," which comprise a component of the Company's name, is a property
right of the parent of the Adviser. The Company agrees and consents that: (i)
it will use the words "Stagecoach" as a component of its corporate name, the
name of any class, or both and for no other purpose; (ii) it will not grant to
any third party the right to use the words "Stagecoach" for any purpose; (iii)
the Adviser or any corporate affiliate of the Adviser may use or grant to
others the right to use the words "Stagecoach," or any combination or
abbreviation thereof, as all or a portion of a corporate or business name or
for any commercial purpose, other than a grant of such right to another
registered investment company not advised by the Adviser or one of its
affiliates; and (iv) in the event that the Adviser or an affiliate thereof is
no longer acting as investment adviser to any class, the Company shall, upon
request by the Adviser, promptly take such action as may be necessary to change
its corporate name to one not containing the words "Stagecoach" and following
such
3
<PAGE> 4
change, shall not use the words "Stagecoach," or any combination thereof, as a
part of its corporate name or for any other commercial purpose, and shall use
its best efforts to cause its directors, officers, and shareholders to take any
and all actions that the Adviser may request to effect the foregoing and to
reconvey to the Adviser any and all rights to such words.
12. This contract shall be governed by and construed in accordance
with the laws of the State of California without giving effect to the choice of
law provisions thereof.
If the foregoing correctly sets forth the agreement between the
Company and the Adviser, please so indicate by signing and returning to the
Company the enclosed copy hereof.
Very truly yours,
STAGECOACH FUNDS, INC.,
on behalf of the Equity Value Fund
By: /s/Richard H. Blank, Jr.
------------------------------------
Name: Richard H. Blank, Jr.
------------------------------------
Title: Chief Operating Officer
------------------------------------
ACCEPTED as of the date
set forth above:
WELLS FARGO BANK, N.A.
By: /s/Elizabeth A. Gottfried
------------------------------------
Name: Elizabeth A. Gottfried
------------------------------------
Title: Vice President, Fund Administration
------------------------------------
By: /s/Robert Bissell
------------------------------------
Name: Robert Bissell
------------------------------------
Title: Senior Vice President
------------------------------------
4
<PAGE> 1
EXHIBIT 99.B5(n)
ADVISORY CONTRACT
GOVERNMENT MONEY MARKET MUTUAL FUND
a portfolio of
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
September 6, 1996
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company"), on behalf of the Government Money Market Mutual Fund (the "Fund"),
and Wells Fargo Bank, N.A. (the "Adviser") as follows:
1. The Company is a registered open-end management investment
company currently consisting of a number of investment portfolios, but which
may from time to time consist of a greater or lesser number of investment
portfolios (the "Funds"). The Company proposes to engage in the business of
investing and reinvesting the assets of the Fund in the manner and in
accordance with the investment objective and restrictions specified in the
Company's currently effective prospectus and the currently effective statement
of additional information incorporated by reference therein relating to the
Fund and the Company (such prospectus and such statement of additional
information being collectively referred to as the "Prospectus") included in the
Company's Registration Statement, as amended from time to time (the
"Registration Statement"), filed by the Company under the Investment Company
Act of 1940 (the "Act") and the Securities Act of 1933. Copies of the
documents referred to in the preceding sentence have been furnished to the
Adviser. Any amendments to those documents shall be furnished to the Adviser
promptly.
2. The Company is engaging the Adviser to manage the investing
and reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and Stephens Inc. (the "Administrator") on behalf of the
Fund, the Company has engaged the Administrator to provide the administrative
services specified therein.
3. (a) The Adviser shall make investments for the account of the
Fund in accordance with the Adviser's best judgment and consistent with the
investment objective and restrictions set forth in the Company's Prospectus,
the Act and the provisions of the Internal Revenue Code relating to regulated
investment companies, subject to policy decisions adopted by the Company's
Board of Directors. The Adviser shall advise the Company's officers and Board
of Directors, at such times as the Company's Board of Directors may specify, of
investments made for the Fund and shall, when requested by the Company's
officers or Board of Directors, supply the reasons for making particular
investments.
(b) The Adviser shall provide to the Company investment
guidance and policy direction in connection with its daily management of the
Fund's portfolio, including oral and written research, analysis, advice,
statistical and economic data and information and judgments, and shall furnish
to the Company's Board of Directors periodic reports on the investment strategy
and performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
<PAGE> 2
(c) The Adviser shall pay the costs of printing and
distributing all materials relating to the Fund prepared by it, or prepared at
its request, other than such costs relating to proxy statements, prospectuses,
shareholder reports and other materials distributed to existing or prospective
shareholders on behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate
with itself such persons as the Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. The Company understands that the Adviser, in rendering its
services to the Fund hereunder, may engage a sub-adviser to provide certain
sub-advisory services pursuant to a separate sub-advisory contract. The
Adviser will not seek to amend any sub-advisory contract to materially alter
the obligations of the parties unless the Adviser gives the Company at least 60
days' prior written notice thereof.
5. Except as provided in each of the advisory contracts and
administration agreements on behalf of the Company's Funds, each Fund of the
Company shall bear all costs of its operations, except to the extent that such
costs are identified as attributable to a specific class of a Fund ("Class
Expenses"), including the Fund's pro-rata portion of the compensation of the
Company's directors who are not affiliated with the Adviser, the Administrator
or any of their affiliates; advisory and administration fees; governmental
fees; 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 any stock certificates,
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 Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; expenses relating to any pricing services;
organizational expenses; and any extraordinary expenses; except that Class
Expenses, such as payments related to a servicing plan or distribution-related
expenses pursuant to a Rule 12b-1 Plan, i.e., a plan of distribution of the
Company adopted on behalf of a class of shares of the Fund pursuant to Rule
12b-1 under the Act, or other such expenses as determined in accordance with
the Company's Rule 18f-3 Plan, shall be borne by the applicable class of the
Fund. Expenses attributable to one or more, but not all, of the Company's
Funds are charged against the assets of the relevant Funds. General expenses
of the Company 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.
6. The Adviser shall give the Company the benefit of the
Adviser's best judgment and efforts in rendering services under this contract.
As an inducement to the Adviser's undertaking to render these services, the
Company agrees that the Adviser shall not be liable under this contract for any
mistake in judgment or in any other event whatsoever except for lack of good
faith, provided that nothing in this contract shall be deemed to protect or
purport to protect the Adviser against any liability to the Company or its
shareholders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties under this contract or by reason of reckless disregard of its
obligations and duties hereunder.
7. In consideration of the services to be rendered by the Adviser
under this contract, the Company shall pay the Adviser a monthly fee on the
first business day of each month, at the annual rate of 0.25% of the average
daily value (as determined on each day that such value is determined for the
Fund at the time set forth in the Prospectus for determining net asset value
per share) of the Fund's net assets during the preceding month. If the fee
payable to the Adviser pursuant to this paragraph 7 begins to accrue before the
end of any month or if this contract 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 the Fund's net assets shall be computed in
the manner specified in the Prospectus and the Company'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.
2
<PAGE> 3
8. If in any fiscal year the total expenses of the Fund incurred
by, or allocated to, the Fund excluding taxes, interest, brokerage commissions
and other portfolio transaction expenses, 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 7 and those provided
for pursuant to the Fund's Administration Agreement ("includible expenses"),
exceed the most restrictive expense limitation applicable to the Fund imposed
by state securities laws or regulations thereunder, as these limitations may be
raised or lowered from time to time, the Adviser 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 7 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 Administration 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
Administration 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 the Company's
fiscal year, the Company shall review the includible expenses accrued during
that fiscal year to the end of the period and shall estimate the contemplated
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 8 for a fiscal year with
respect to the Fund, the monthly fee set forth in paragraph 7 payable to the
Adviser 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 8. 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 the last sentence of paragraph 7, and any reimbursements
required to be made by the Adviser shall be made once a year promptly after the
end of the Company's fiscal year.
9. This contract shall become effective on its execution date and
shall thereafter continue in effect, provided that this contract shall continue
in effect for a period of more than two years from the date hereof only so long
as the continuance is specifically approved at least annually (a) by the vote
of a majority of the Fund's outstanding voting securities (as defined in the
Act) or by the Company's Board of Directors and (b) by the vote, cast in person
at a meeting called for the purpose, of a majority of the Company's directors
who are not parties to this contract or "interested persons" (as defined in the
Act) of any such party. This contract may be terminated at any time by the
Company, without the payment of any penalty, by a vote of a majority of the
Fund's outstanding voting securities (as defined in the Act) or by a vote of a
majority of the Company's entire Board of Directors on 60 days' written notice
to the Adviser or by the Adviser, at any time after the second anniversary of
the effective date of this contract, on 60 days' written notice to the Company.
This contract shall terminate automatically in the event of its assignment (as
defined in the Act).
10. Except to the extent necessary to perform the Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Adviser, or any affiliate of the Adviser, or any
employee of the Adviser, 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.
11. The Adviser and the Company each agree that the words
"Stagecoach," which comprise a component of the Company's name, is a property
right of the parent of the Adviser. The Company agrees and consents that: (i)
it will use the words "Stagecoach" as a component of its corporate name, the
name of any class, or both and for no other purpose; (ii) it will not grant to
any third party the right to use the words "Stagecoach" for any purpose; (iii)
the Adviser or any corporate affiliate of the Adviser may use or grant to
others the right to use the words "Stagecoach," or any combination or
abbreviation thereof, as all or a portion of a corporate or business name or
for any commercial purpose, other than a grant of such right to another
registered investment company not advised by the Adviser or one of its
affiliates; and (iv) in the event that the Adviser or an affiliate thereof is
no longer acting as investment adviser to any class, the Company shall, upon
request by the Adviser, promptly take such action as may be necessary to change
its corporate name to one not containing the words "Stagecoach" and following
such
3
<PAGE> 4
change, shall not use the words "Stagecoach," or any combination thereof, as a
part of its corporate name or for any other commercial purpose, and shall use
its best efforts to cause its directors, officers, and shareholders to take any
and all actions that the Adviser may request to effect the foregoing and to
reconvey to the Adviser any and all rights to such words.
12. This contract shall be governed by and construed in accordance
with the laws of the State of California without giving effect to the choice of
law provisions thereof.
If the foregoing correctly sets forth the agreement between the
Company and the Adviser, please so indicate by signing and returning to the
Company the enclosed copy hereof.
Very truly yours,
STAGECOACH FUNDS, INC.,
on behalf of the Government Money Market
Mutual Fund
By: /s/Richard H. Blank, Jr.
------------------------------------
Name: Richard H. Blank, Jr.
------------------------------------
Title: Chief Operating Officer
------------------------------------
ACCEPTED as of the date
set forth above:
WELLS FARGO BANK, N.A.
By: /s/Elizabeth A. Gottfried
------------------------------------
Name: Elizabeth A. Gottfried
------------------------------------
Title: Vice President, Fund Administration
------------------------------------
By: /s/Robert Bissell
------------------------------------
Name: Robert Bissell
------------------------------------
Title: Senior Vice President
------------------------------------
4
<PAGE> 1
EXHIBIT 99.B5(o)
ADVISORY CONTRACT
INTERMEDIATE BOND FUND
a portfolio of
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
September 6, 1996
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company"), on behalf of the Intermediate Bond Fund (the "Fund"), and Wells
Fargo Bank, N.A. (the "Adviser") as follows:
1. The Company is a registered open-end management investment
company currently consisting of a number of investment portfolios, but which
may from time to time consist of a greater or lesser number of investment
portfolios (the "Funds"). The Company proposes to engage in the business of
investing and reinvesting the assets of the Fund in the manner and in
accordance with the investment objective and restrictions specified in the
Company's currently effective prospectus and the currently effective statement
of additional information incorporated by reference therein relating to the
Fund and the Company (such prospectus and such statement of additional
information being collectively referred to as the "Prospectus") included in the
Company's Registration Statement, as amended from time to time (the
"Registration Statement"), filed by the Company under the Investment Company
Act of 1940 (the "Act") and the Securities Act of 1933. Copies of the
documents referred to in the preceding sentence have been furnished to the
Adviser. Any amendments to those documents shall be furnished to the Adviser
promptly.
2. The Company is engaging the Adviser to manage the investing
and reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and Stephens Inc. (the "Administrator") on behalf of the
Fund, the Company has engaged the Administrator to provide the administrative
services specified therein.
3. (a) The Adviser shall make investments for the account of the
Fund in accordance with the Adviser's best judgment and consistent with the
investment objective and restrictions set forth in the Company's Prospectus,
the Act and the provisions of the Internal Revenue Code relating to regulated
investment companies, subject to policy decisions adopted by the Company's
Board of Directors. The Adviser shall advise the Company's officers and Board
of Directors, at such times as the Company's Board of Directors may specify, of
investments made for the Fund and shall, when requested by the Company's
officers or Board of Directors, supply the reasons for making particular
investments.
(b) The Adviser shall provide to the Company investment
guidance and policy direction in connection with its daily management of the
Fund's portfolio, including oral and written research, analysis, advice,
statistical and economic data and information and judgments, and shall furnish
to the Company's Board of Directors periodic reports on the investment strategy
and performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
<PAGE> 2
(c) The Adviser shall pay the costs of printing and
distributing all materials relating to the Fund prepared by it, or prepared at
its request, other than such costs relating to proxy statements, prospectuses,
shareholder reports and other materials distributed to existing or prospective
shareholders on behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate
with itself such persons as the Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. The Company understands that the Adviser, in rendering its
services to the Fund hereunder, may engage a sub-adviser to provide certain
sub-advisory services pursuant to a separate sub-advisory contract. The
Adviser will not seek to amend any sub-advisory contract to materially alter
the obligations of the parties unless the Adviser gives the Company at least 60
days' prior written notice thereof.
5. Except as provided in each of the advisory contracts and
administration agreements on behalf of the Company's Funds, each Fund of the
Company shall bear all costs of its operations, except to the extent that such
costs are identified as attributable to a specific class of a Fund ("Class
Expenses"), including the Fund's pro-rata portion of the compensation of the
Company's directors who are not affiliated with the Adviser, the Administrator
or any of their affiliates; advisory and administration fees; governmental
fees; 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 any stock certificates,
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 Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; expenses relating to any pricing services;
organizational expenses; and any extraordinary expenses; except that Class
Expenses, such as payments related to a servicing plan or distribution-related
expenses pursuant to a Rule 12b-1 Plan, i.e., a plan of distribution of the
Company adopted on behalf of a class of shares of the Fund pursuant to Rule
12b-1 under the Act, or other such expenses as determined in accordance with
the Company's Rule 18f-3 Plan, shall be borne by the applicable class of the
Fund. Expenses attributable to one or more, but not all, of the Company's
Funds are charged against the assets of the relevant Funds. General expenses
of the Company 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.
6. The Adviser shall give the Company the benefit of the
Adviser's best judgment and efforts in rendering services under this contract.
As an inducement to the Adviser's undertaking to render these services, the
Company agrees that the Adviser shall not be liable under this contract for any
mistake in judgment or in any other event whatsoever except for lack of good
faith, provided that nothing in this contract shall be deemed to protect or
purport to protect the Adviser against any liability to the Company or its
shareholders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties under this contract or by reason of reckless disregard of its
obligations and duties hereunder.
7. In consideration of the services to be rendered by the Adviser
under this contract, the Company shall pay the Adviser a monthly fee on the
first business day of each month, at the annual rate of 0.50% of the average
daily value (as determined on each day that such value is determined for the
Fund at the time set forth in the Prospectus for determining net asset value
per share) of the Fund's net assets during the preceding month. If the fee
payable to the Adviser pursuant to this paragraph 7 begins to accrue before the
end of any month or if this contract 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 the Fund's net assets shall be computed in
the manner specified in the Prospectus and the Company'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.
2
<PAGE> 3
8. If in any fiscal year the total expenses of the Fund incurred
by, or allocated to, the Fund excluding taxes, interest, brokerage commissions
and other portfolio transaction expenses, 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 7 and those provided
for pursuant to the Fund's Administration Agreement ("includible expenses"),
exceed the most restrictive expense limitation applicable to the Fund imposed
by state securities laws or regulations thereunder, as these limitations may be
raised or lowered from time to time, the Adviser 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 7 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 Administration 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
Administration 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 the Company's
fiscal year, the Company shall review the includible expenses accrued during
that fiscal year to the end of the period and shall estimate the contemplated
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 8 for a fiscal year with
respect to the Fund, the monthly fee set forth in paragraph 7 payable to the
Adviser 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 8. 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 the last sentence of paragraph 7, and any reimbursements
required to be made by the Adviser shall be made once a year promptly after the
end of the Company's fiscal year.
9. This contract shall become effective on its execution date and
shall thereafter continue in effect, provided that this contract shall continue
in effect for a period of more than two years from the date hereof only so long
as the continuance is specifically approved at least annually (a) by the vote
of a majority of the Fund's outstanding voting securities (as defined in the
Act) or by the Company's Board of Directors and (b) by the vote, cast in person
at a meeting called for the purpose, of a majority of the Company's directors
who are not parties to this contract or "interested persons" (as defined in the
Act) of any such party. This contract may be terminated at any time by the
Company, without the payment of any penalty, by a vote of a majority of the
Fund's outstanding voting securities (as defined in the Act) or by a vote of a
majority of the Company's entire Board of Directors on 60 days' written notice
to the Adviser or by the Adviser, at any time after the second anniversary of
the effective date of this contract, on 60 days' written notice to the Company.
This contract shall terminate automatically in the event of its assignment (as
defined in the Act).
10. Except to the extent necessary to perform the Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Adviser, or any affiliate of the Adviser, or any
employee of the Adviser, 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.
11. The Adviser and the Company each agree that the words
"Stagecoach," which comprise a component of the Company's name, is a property
right of the parent of the Adviser. The Company agrees and consents that: (i)
it will use the words "Stagecoach" as a component of its corporate name, the
name of any class, or both and for no other purpose; (ii) it will not grant to
any third party the right to use the words "Stagecoach" for any purpose; (iii)
the Adviser or any corporate affiliate of the Adviser may use or grant to
others the right to use the words "Stagecoach," or any combination or
abbreviation thereof, as all or a portion of a corporate or business name or
for any commercial purpose, other than a grant of such right to another
registered investment company not advised by the Adviser or one of its
affiliates; and (iv) in the event that the Adviser or an affiliate thereof is
no longer acting as investment adviser to any class, the Company shall, upon
request by the Adviser, promptly take such action as may be necessary to change
its corporate name to one not containing the words "Stagecoach" and following
such
3
<PAGE> 4
change, shall not use the words "Stagecoach," or any combination thereof, as a
part of its corporate name or for any other commercial purpose, and shall use
its best efforts to cause its directors, officers, and shareholders to take any
and all actions that the Adviser may request to effect the foregoing and to
reconvey to the Adviser any and all rights to such words.
12. This contract shall be governed by and construed in accordance
with the laws of the State of California without giving effect to the choice of
law provisions thereof.
If the foregoing correctly sets forth the agreement between the
Company and the Adviser, please so indicate by signing and returning to the
Company the enclosed copy hereof.
Very truly yours,
STAGECOACH FUNDS, INC.,
on behalf of the Intermediate Bond Fund
By: /s/Richard H. Blank, Jr.
-----------------------------------
Name: Richard H. Blank, Jr.
-----------------------------------
Title: Chief Operating Officer
-----------------------------------
ACCEPTED as of the date
set forth above:
WELLS FARGO BANK, N.A.
By: /s/Elizabeth A. Gottfried
-----------------------------------
Name: Elizabeth A. Gottfried
-----------------------------------
Title: Vice President, Fund Administration
-----------------------------------
By: /s/Robert Bissell
-----------------------------------
Name: Robert Bissell
-----------------------------------
Title: Senior Vice President
-----------------------------------
4
<PAGE> 1
EXHIBIT 99.B5(p)
ADVISORY CONTRACT
MONEY MARKET TRUST
a portfolio of
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
September 6, 1996
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company"), on behalf of the Money Market Trust (the "Fund"), and Wells Fargo
Bank, N.A. (the "Adviser") as follows:
1. The Company is a registered open-end management investment
company currently consisting of a number of investment portfolios, but which
may from time to time consist of a greater or lesser number of investment
portfolios (the "Funds"). The Company proposes to engage in the business of
investing and reinvesting the assets of the Fund in the manner and in
accordance with the investment objective and restrictions specified in the
Company's currently effective prospectus and the currently effective statement
of additional information incorporated by reference therein relating to the
Fund and the Company (such prospectus and such statement of additional
information being collectively referred to as the "Prospectus") included in the
Company's Registration Statement, as amended from time to time (the
"Registration Statement"), filed by the Company under the Investment Company
Act of 1940 (the "Act") and the Securities Act of 1933. Copies of the
documents referred to in the preceding sentence have been furnished to the
Adviser. Any amendments to those documents shall be furnished to the Adviser
promptly.
2. The Company is engaging the Adviser to manage the investing
and reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and Stephens Inc. (the "Administrator") on behalf of the
Fund, the Company has engaged the Administrator to provide the administrative
services specified therein.
3. (a) The Adviser shall make investments for the account of the
Fund in accordance with the Adviser's best judgment and consistent with the
investment objective and restrictions set forth in the Company's Prospectus,
the Act and the provisions of the Internal Revenue Code relating to regulated
investment companies, subject to policy decisions adopted by the Company's
Board of Directors. The Adviser shall advise the Company's officers and Board
of Directors, at such times as the Company's Board of Directors may specify, of
investments made for the Fund and shall, when requested by the Company's
officers or Board of Directors, supply the reasons for making particular
investments.
(b) The Adviser shall provide to the Company investment
guidance and policy direction in connection with its daily management of the
Fund's portfolio, including oral and written research, analysis, advice,
statistical and economic data and information and judgments, and shall furnish
to the Company's Board of Directors periodic reports on the investment strategy
and performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
<PAGE> 2
(c) The Adviser shall pay the costs of printing and
distributing all materials relating to the Fund prepared by it, or prepared at
its request, other than such costs relating to proxy statements, prospectuses,
shareholder reports and other materials distributed to existing or prospective
shareholders on behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate
with itself such persons as the Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. The Company understands that the Adviser, in rendering its
services to the Fund hereunder, may engage a sub-adviser to provide certain
sub-advisory services pursuant to a separate sub-advisory contract. The
Adviser will not seek to amend any sub-advisory contract to materially alter
the obligations of the parties unless the Adviser gives the Company at least 60
days' prior written notice thereof.
5. Except as provided in each of the advisory contracts and
administration agreements on behalf of the Company's Funds, each Fund of the
Company shall bear all costs of its operations, except to the extent that such
costs are identified as attributable to a specific class of a Fund ("Class
Expenses"), including the Fund's pro-rata portion of the compensation of the
Company's directors who are not affiliated with the Adviser, the Administrator
or any of their affiliates; advisory and administration fees; governmental
fees; 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 any stock certificates,
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 Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; expenses relating to any pricing services;
organizational expenses; and any extraordinary expenses; except that Class
Expenses, such as payments related to a servicing plan or distribution-related
expenses pursuant to a Rule 12b-1 Plan, i.e., a plan of distribution of the
Company adopted on behalf of a class of shares of the Fund pursuant to Rule
12b-1 under the Act, or other such expenses as determined in accordance with
the Company's Rule 18f-3 Plan, shall be borne by the applicable class of the
Fund. Expenses attributable to one or more, but not all, of the Company's
Funds are charged against the assets of the relevant Funds. General expenses
of the Company 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.
6. The Adviser shall give the Company the benefit of the
Adviser's best judgment and efforts in rendering services under this contract.
As an inducement to the Adviser's undertaking to render these services, the
Company agrees that the Adviser shall not be liable under this contract for any
mistake in judgment or in any other event whatsoever except for lack of good
faith, provided that nothing in this contract shall be deemed to protect or
purport to protect the Adviser against any liability to the Company or its
shareholders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties under this contract or by reason of reckless disregard of its
obligations and duties hereunder.
7. In consideration of the services to be rendered by the Adviser
under this contract, the Company shall pay the Adviser a monthly fee on the
first business day of each month, at the annual rate of 0.25% of the average
daily value (as determined on each day that such value is determined for the
Fund at the time set forth in the Prospectus for determining net asset value
per share) of the Fund's net assets during the preceding month. If the fee
payable to the Adviser pursuant to this paragraph 7 begins to accrue before the
end of any month or if this contract 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 the Fund's net assets shall be computed in
the manner specified in the Prospectus and the Company'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.
2
<PAGE> 3
8. If in any fiscal year the total expenses of the Fund incurred
by, or allocated to, the Fund excluding taxes, interest, brokerage commissions
and other portfolio transaction expenses, 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 7 and those provided
for pursuant to the Fund's Administration Agreement ("includible expenses"),
exceed the most restrictive expense limitation applicable to the Fund imposed
by state securities laws or regulations thereunder, as these limitations may be
raised or lowered from time to time, the Adviser 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 7 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 Administration 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
Administration 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 the Company's
fiscal year, the Company shall review the includible expenses accrued during
that fiscal year to the end of the period and shall estimate the contemplated
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 8 for a fiscal year with
respect to the Fund, the monthly fee set forth in paragraph 7 payable to the
Adviser 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 8. 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 the last sentence of paragraph 7, and any reimbursements
required to be made by the Adviser shall be made once a year promptly after the
end of the Company's fiscal year.
9. This contract shall become effective on its execution date and
shall thereafter continue in effect, provided that this contract shall continue
in effect for a period of more than two years from the date hereof only so long
as the continuance is specifically approved at least annually (a) by the vote
of a majority of the Fund's outstanding voting securities (as defined in the
Act) or by the Company's Board of Directors and (b) by the vote, cast in person
at a meeting called for the purpose, of a majority of the Company's directors
who are not parties to this contract or "interested persons" (as defined in the
Act) of any such party. This contract may be terminated at any time by the
Company, without the payment of any penalty, by a vote of a majority of the
Fund's outstanding voting securities (as defined in the Act) or by a vote of a
majority of the Company's entire Board of Directors on 60 days' written notice
to the Adviser or by the Adviser, at any time after the second anniversary of
the effective date of this contract, on 60 days' written notice to the Company.
This contract shall terminate automatically in the event of its assignment (as
defined in the Act).
10. Except to the extent necessary to perform the Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Adviser, or any affiliate of the Adviser, or any
employee of the Adviser, 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.
11. The Adviser and the Company each agree that the words
"Stagecoach," which comprise a component of the Company's name, is a property
right of the parent of the Adviser. The Company agrees and consents that: (i)
it will use the words "Stagecoach" as a component of its corporate name, the
name of any class, or both and for no other purpose; (ii) it will not grant to
any third party the right to use the words "Stagecoach" for any purpose; (iii)
the Adviser or any corporate affiliate of the Adviser may use or grant to
others the right to use the words "Stagecoach," or any combination or
abbreviation thereof, as all or a portion of a corporate or business name or
for any commercial purpose, other than a grant of such right to another
registered investment company not advised by the Adviser or one of its
affiliates; and (iv) in the event that the Adviser or an affiliate thereof is
no longer acting as investment adviser to any class, the Company shall, upon
request by the Adviser, promptly take such action as may be necessary to change
its corporate name to one not containing the words "Stagecoach" and following
such
3
<PAGE> 4
change, shall not use the words "Stagecoach," or any combination thereof, as a
part of its corporate name or for any other commercial purpose, and shall use
its best efforts to cause its directors, officers, and shareholders to take any
and all actions that the Adviser may request to effect the foregoing and to
reconvey to the Adviser any and all rights to such words.
12. This contract shall be governed by and construed in accordance
with the laws of the State of California.
If the foregoing correctly sets forth the agreement between the
Company and the Adviser, please so indicate by signing and returning to the
Company the enclosed copy hereof.
Very truly yours,
STAGECOACH FUNDS, INC.,
on behalf of the Money Market Trust
By: /s/Richard H. Blank, Jr.
-----------------------------------
Name: Richard H. Blank, Jr.
-----------------------------------
Title: Chief Operating Officer
-----------------------------------
ACCEPTED as of the date
set forth above:
WELLS FARGO BANK, N.A.
By: /s/Elizabeth A. Gottfried
-----------------------------------
Name: Elizabeth A. Gottfried
-----------------------------------
Title: Vice President, Fund Administration
-----------------------------------
By: /s/Robert Bissell
-----------------------------------
Name: Robert Bissell
-----------------------------------
Title: Senior Vice President
-----------------------------------
4
<PAGE> 1
EXHIBIT 99.B5(q)
ADVISORY CONTRACT
NATIONAL TAX-FREE FUND
a portfolio of
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
September 6, 1996
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company"), on behalf of the National Tax-Free Fund (the "Fund"), and Wells
Fargo Bank, N.A. (the "Adviser") as follows:
1. The Company is a registered open-end management investment
company currently consisting of a number of investment portfolios, but which
may from time to time consist of a greater or lesser number of investment
portfolios (the "Funds"). The Company proposes to engage in the business of
investing and reinvesting the assets of the Fund in the manner and in
accordance with the investment objective and restrictions specified in the
Company's currently effective prospectus and the currently effective statement
of additional information incorporated by reference therein relating to the
Fund and the Company (such prospectus and such statement of additional
information being collectively referred to as the "Prospectus") included in the
Company's Registration Statement, as amended from time to time (the
"Registration Statement"), filed by the Company under the Investment Company
Act of 1940 (the "Act") and the Securities Act of 1933. Copies of the
documents referred to in the preceding sentence have been furnished to the
Adviser. Any amendments to those documents shall be furnished to the Adviser
promptly.
2. The Company is engaging the Adviser to manage the investing
and reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and Stephens Inc. (the "Administrator") on behalf of the
Fund, the Company has engaged the Administrator to provide the administrative
services specified therein.
3. (a) The Adviser shall make investments for the account of the
Fund in accordance with the Adviser's best judgment and consistent with the
investment objective and restrictions set forth in the Company's Prospectus,
the Act and the provisions of the Internal Revenue Code relating to regulated
investment companies, subject to policy decisions adopted by the Company's
Board of Directors. The Adviser shall advise the Company's officers and Board
of Directors, at such times as the Company's Board of Directors may specify, of
investments made for the Fund and shall, when requested by the Company's
officers or Board of Directors, supply the reasons for making particular
investments.
(b) The Adviser shall provide to the Company investment
guidance and policy direction in connection with its daily management of the
Fund's portfolio, including oral and written research, analysis, advice,
statistical and economic data and information and judgments, and shall furnish
to the Company's Board of Directors periodic reports on the investment strategy
and performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
<PAGE> 2
(c) The Adviser shall pay the costs of printing and
distributing all materials relating to the Fund prepared by it, or prepared at
its request, other than such costs relating to proxy statements, prospectuses,
shareholder reports and other materials distributed to existing or prospective
shareholders on behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate
with itself such persons as the Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. The Company understands that the Adviser, in rendering its
services to the Fund hereunder, may engage a sub-adviser to provide certain
sub-advisory services pursuant to a separate sub-advisory contract. The
Adviser will not seek to amend any sub-advisory contract to materially alter
the obligations of the parties unless the Adviser gives the Company at least 60
days' prior written notice thereof.
5. Except as provided in each of the advisory contracts and
administration agreements on behalf of the Company's Funds, each Fund of the
Company shall bear all costs of its operations, except to the extent that such
costs are identified as attributable to a specific class of a Fund ("Class
Expenses"), including the Fund's pro-rata portion of the compensation of the
Company's directors who are not affiliated with the Adviser, the Administrator
or any of their affiliates; advisory and administration fees; governmental
fees; 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 any stock certificates,
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 Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; expenses relating to any pricing services;
organizational expenses; and any extraordinary expenses; except that Class
Expenses, such as payments related to a servicing plan or distribution-related
expenses pursuant to a Rule 12b-1 Plan, i.e., a plan of distribution of the
Company adopted on behalf of a class of shares of the Fund pursuant to Rule
12b-1 under the Act, or other such expenses as determined in accordance with
the Company's Rule 18f-3 Plan, shall be borne by the applicable class of the
Fund. Expenses attributable to one or more, but not all, of the Company's
Funds are charged against the assets of the relevant Funds. General expenses
of the Company 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.
6. The Adviser shall give the Company the benefit of the
Adviser's best judgment and efforts in rendering services under this contract.
As an inducement to the Adviser's undertaking to render these services, the
Company agrees that the Adviser shall not be liable under this contract for any
mistake in judgment or in any other event whatsoever except for lack of good
faith, provided that nothing in this contract shall be deemed to protect or
purport to protect the Adviser against any liability to the Company or its
shareholders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties under this contract or by reason of reckless disregard of its
obligations and duties hereunder.
7. In consideration of the services to be rendered by the Adviser
under this contract, the Company shall pay the Adviser a monthly fee on the
first business day of each month, at the annual rate of 0.50% of the average
daily value (as determined on each day that such value is determined for the
Fund at the time set forth in the Prospectus for determining net asset value
per share) of the Fund's net assets during the preceding month. If the fee
payable to the Adviser pursuant to this paragraph 7 begins to accrue before the
end of any month or if this contract 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 the Fund's net assets shall be computed in
the manner specified in the Prospectus and the Company'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.
2
<PAGE> 3
8. If in any fiscal year the total expenses of the Fund incurred
by, or allocated to, the Fund excluding taxes, interest, brokerage commissions
and other portfolio transaction expenses, 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 7 and those provided
for pursuant to the Fund's Administration Agreement ("includible expenses"),
exceed the most restrictive expense limitation applicable to the Fund imposed
by state securities laws or regulations thereunder, as these limitations may be
raised or lowered from time to time, the Adviser 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 7 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 Administration 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
Administration 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 the Company's
fiscal year, the Company shall review the includible expenses accrued during
that fiscal year to the end of the period and shall estimate the contemplated
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 8 for a fiscal year with
respect to the Fund, the monthly fee set forth in paragraph 7 payable to the
Adviser 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 8. 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 the last sentence of paragraph 7, and any reimbursements
required to be made by the Adviser shall be made once a year promptly after the
end of the Company's fiscal year.
9. This contract shall become effective on its execution date and
shall thereafter continue in effect, provided that this contract shall continue
in effect for a period of more than two years from the date hereof only so long
as the continuance is specifically approved at least annually (a) by the vote
of a majority of the Fund's outstanding voting securities (as defined in the
Act) or by the Company's Board of Directors and (b) by the vote, cast in person
at a meeting called for the purpose, of a majority of the Company's directors
who are not parties to this contract or "interested persons" (as defined in the
Act) of any such party. This contract may be terminated at any time by the
Company, without the payment of any penalty, by a vote of a majority of the
Fund's outstanding voting securities (as defined in the Act) or by a vote of a
majority of the Company's entire Board of Directors on 60 days' written notice
to the Adviser or by the Adviser, at any time after the second anniversary of
the effective date of this contract, on 60 days' written notice to the Company.
This contract shall terminate automatically in the event of its assignment (as
defined in the Act).
10. Except to the extent necessary to perform the Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Adviser, or any affiliate of the Adviser, or any
employee of the Adviser, 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.
11. The Adviser and the Company each agree that the words
"Stagecoach," which comprise a component of the Company's name, is a property
right of the parent of the Adviser. The Company agrees and consents that: (i)
it will use the words "Stagecoach" as a component of its corporate name, the
name of any class, or both and for no other purpose; (ii) it will not grant to
any third party the right to use the words "Stagecoach" for any purpose; (iii)
the Adviser or any corporate affiliate of the Adviser may use or grant to
others the right to use the words "Stagecoach," or any combination or
abbreviation thereof, as all or a portion of a corporate or business name or
for any commercial purpose, other than a grant of such right to another
registered investment company not advised by the Adviser or one of its
affiliates; and (iv) in the event that the Adviser or an affiliate thereof is
no longer acting as investment adviser to any class, the Company shall, upon
request by the Adviser, promptly take such action as may be necessary to change
its corporate name to one not containing the words "Stagecoach" and following
such
3
<PAGE> 4
change, shall not use the words "Stagecoach," or any combination thereof, as a
part of its corporate name or for any other commercial purpose, and shall use
its best efforts to cause its directors, officers, and shareholders to take any
and all actions that the Adviser may request to effect the foregoing and to
reconvey to the Adviser any and all rights to such words.
12. This contract shall be governed by and construed in accordance
with the laws of the State of California without giving effect to the choice of
law provisions thereof.
If the foregoing correctly sets forth the agreement between the
Company and the Adviser, please so indicate by signing and returning to the
Company the enclosed copy hereof.
Very truly yours,
STAGECOACH FUNDS, INC.,
on behalf of the National Tax-Free Fund
By: /s/Richard H. Blank, Jr.
-----------------------------------
Name: Richard H. Blank, Jr.
-----------------------------------
Title: Chief Operating Officer
-----------------------------------
ACCEPTED as of the date
set forth above:
WELLS FARGO BANK, N.A.
By: /s/Elizabeth A. Gottfried
-----------------------------------
Name: Elizabeth A. Gottfried
-----------------------------------
Title: Vice President, Fund Administration
-----------------------------------
By: /s/Robert Bissell
-----------------------------------
Name: Robert Bissell
-----------------------------------
Title: Senior Vice President
-----------------------------------
4
<PAGE> 1
EXHIBIT 99.B5(r)
ADVISORY CONTRACT
OREGON TAX-FREE FUND
a portfolio of
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
September 6, 1996
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company"), on behalf of the Oregon Tax-Free Fund (the "Fund"), and Wells Fargo
Bank, N.A. (the "Adviser") as follows:
1. The Company is a registered open-end management investment
company currently consisting of a number of investment portfolios, but which
may from time to time consist of a greater or lesser number of investment
portfolios (the "Funds"). The Company proposes to engage in the business of
investing and reinvesting the assets of the Fund in the manner and in
accordance with the investment objective and restrictions specified in the
Company's currently effective prospectus and the currently effective statement
of additional information incorporated by reference therein relating to the
Fund and the Company (such prospectus and such statement of additional
information being collectively referred to as the "Prospectus") included in the
Company's Registration Statement, as amended from time to time (the
"Registration Statement"), filed by the Company under the Investment Company
Act of 1940 (the "Act") and the Securities Act of 1933. Copies of the
documents referred to in the preceding sentence have been furnished to the
Adviser. Any amendments to those documents shall be furnished to the Adviser
promptly.
2. The Company is engaging the Adviser to manage the investing
and reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and Stephens Inc. (the "Administrator") on behalf of the
Fund, the Company has engaged the Administrator to provide the administrative
services specified therein.
3. (a) The Adviser shall make investments for the account of the
Fund in accordance with the Adviser's best judgment and consistent with the
investment objective and restrictions set forth in the Company's Prospectus,
the Act and the provisions of the Internal Revenue Code relating to regulated
investment companies, subject to policy decisions adopted by the Company's
Board of Directors. The Adviser shall advise the Company's officers and Board
of Directors, at such times as the Company's Board of Directors may specify, of
investments made for the Fund and shall, when requested by the Company's
officers or Board of Directors, supply the reasons for making particular
investments.
(b) The Adviser shall provide to the Company investment
guidance and policy direction in connection with its daily management of the
Fund's portfolio, including oral and written research, analysis, advice,
statistical and economic data and information and judgments, and shall furnish
to the Company's Board of Directors periodic reports on the investment strategy
and performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
<PAGE> 2
(c) The Adviser shall pay the costs of printing and
distributing all materials relating to the Fund prepared by it, or prepared at
its request, other than such costs relating to proxy statements, prospectuses,
shareholder reports and other materials distributed to existing or prospective
shareholders on behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate
with itself such persons as the Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. The Company understands that the Adviser, in rendering its
services to the Fund hereunder, may engage a sub-adviser to provide certain
sub-advisory services pursuant to a separate sub-advisory contract. The
Adviser will not seek to amend any sub-advisory contract to materially alter
the obligations of the parties unless the Adviser gives the Company at least 60
days' prior written notice thereof.
5. Except as provided in each of the advisory contracts and
administration agreements on behalf of the Company's Funds, each Fund of the
Company shall bear all costs of its operations, except to the extent that such
costs are identified as attributable to a specific class of a Fund ("Class
Expenses"), including the Fund's pro-rata portion of the compensation of the
Company's directors who are not affiliated with the Adviser, the Administrator
or any of their affiliates; advisory and administration fees; governmental
fees; 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 any stock certificates,
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 Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; expenses relating to any pricing services;
organizational expenses; and any extraordinary expenses; except that Class
Expenses, such as payments related to a servicing plan or distribution-related
expenses pursuant to a Rule 12b-1 Plan, i.e., a plan of distribution of the
Company adopted on behalf of a class of shares of the Fund pursuant to Rule
12b-1 under the Act, or other such expenses as determined in accordance with
the Company's Rule 18f-3 Plan, shall be borne by the applicable class of the
Fund. Expenses attributable to one or more, but not all, of the Company's
Funds are charged against the assets of the relevant Funds. General expenses
of the Company 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.
6. The Adviser shall give the Company the benefit of the
Adviser's best judgment and efforts in rendering services under this contract.
As an inducement to the Adviser's undertaking to render these services, the
Company agrees that the Adviser shall not be liable under this contract for any
mistake in judgment or in any other event whatsoever except for lack of good
faith, provided that nothing in this contract shall be deemed to protect or
purport to protect the Adviser against any liability to the Company or its
shareholders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties under this contract or by reason of reckless disregard of its
obligations and duties hereunder.
7. In consideration of the services to be rendered by the Adviser
under this contract, the Company shall pay the Adviser a monthly fee on the
first business day of each month, at the annual rate of 0.50% of the average
daily value (as determined on each day that such value is determined for the
Fund at the time set forth in the Prospectus for determining net asset value
per share) of the Fund's net assets during the preceding month. If the fee
payable to the Adviser pursuant to this paragraph 7 begins to accrue before the
end of any month or if this contract 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 the Fund's net assets shall be computed in
the manner specified in the Prospectus and the Company'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.
2
<PAGE> 3
8. If in any fiscal year the total expenses of the Fund incurred
by, or allocated to, the Fund excluding taxes, interest, brokerage commissions
and other portfolio transaction expenses, 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 7 and those provided
for pursuant to the Fund's Administration Agreement ("includible expenses"),
exceed the most restrictive expense limitation applicable to the Fund imposed
by state securities laws or regulations thereunder, as these limitations may be
raised or lowered from time to time, the Adviser 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 7 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 Administration 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
Administration 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 the Company's
fiscal year, the Company shall review the includible expenses accrued during
that fiscal year to the end of the period and shall estimate the contemplated
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 8 for a fiscal year with
respect to the Fund, the monthly fee set forth in paragraph 7 payable to the
Adviser 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 8. 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 the last sentence of paragraph 7, and any reimbursements
required to be made by the Adviser shall be made once a year promptly after the
end of the Company's fiscal year.
9. This contract shall become effective on its execution date and
shall thereafter continue in effect, provided that this contract shall continue
in effect for a period of more than two years from the date hereof only so long
as the continuance is specifically approved at least annually (a) by the vote
of a majority of the Fund's outstanding voting securities (as defined in the
Act) or by the Company's Board of Directors and (b) by the vote, cast in person
at a meeting called for the purpose, of a majority of the Company's directors
who are not parties to this contract or "interested persons" (as defined in the
Act) of any such party. This contract may be terminated at any time by the
Company, without the payment of any penalty, by a vote of a majority of the
Fund's outstanding voting securities (as defined in the Act) or by a vote of a
majority of the Company's entire Board of Directors on 60 days' written notice
to the Adviser or by the Adviser, at any time after the second anniversary of
the effective date of this contract, on 60 days' written notice to the Company.
This contract shall terminate automatically in the event of its assignment (as
defined in the Act).
10. Except to the extent necessary to perform the Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Adviser, or any affiliate of the Adviser, or any
employee of the Adviser, 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.
11. The Adviser and the Company each agree that the words
"Stagecoach," which comprise a component of the Company's name, is a property
right of the parent of the Adviser. The Company agrees and consents that: (i)
it will use the words "Stagecoach" as a component of its corporate name, the
name of any class, or both and for no other purpose; (ii) it will not grant to
any third party the right to use the words "Stagecoach" for any purpose; (iii)
the Adviser or any corporate affiliate of the Adviser may use or grant to
others the right to use the words "Stagecoach," or any combination or
abbreviation thereof, as all or a portion of a corporate or business name or
for any commercial purpose, other than a grant of such right to another
registered investment company not advised by the Adviser or one of its
affiliates; and (iv) in the event that the Adviser or an affiliate thereof is
no longer acting as investment adviser to any class, the Company shall, upon
request by the Adviser, promptly take such action as may be necessary to change
its corporate name to one not containing the words "Stagecoach" and following
such
3
<PAGE> 4
change, shall not use the words "Stagecoach," or any combination thereof, as a
part of its corporate name or for any other commercial purpose, and shall use
its best efforts to cause its directors, officers, and shareholders to take any
and all actions that the Adviser may request to effect the foregoing and to
reconvey to the Adviser any and all rights to such words.
12. This contract shall be governed by and construed in accordance
with the laws of the State of California without giving effort to the choice of
law provisions thereof.
If the foregoing correctly sets forth the agreement between the
Company and the Adviser, please so indicate by signing and returning to the
Company the enclosed copy hereof.
Very truly yours,
STAGECOACH FUNDS, INC.,
on behalf of the Oregon Tax-Free Fund
By: /s/Richard H. Blank, Jr.
-----------------------------------
Name: Richard H. Blank, Jr.
-----------------------------------
Title: Chief Operating Officer
-----------------------------------
ACCEPTED as of the date
set forth above:
WELLS FARGO BANK, N.A.
By: /s/Elizabeth A. Gottfried
-----------------------------------
Name: Elizabeth A. Gottfried
-----------------------------------
Title: Vice President, Fund Administration
-----------------------------------
By: /s/Robert Bissell
-----------------------------------
Name: Robert Bissell
-----------------------------------
Title: Senior Vice President
-----------------------------------
4
<PAGE> 1
EXHIBIT 99.B5(s)
ADVISORY CONTRACT
PRIME MONEY MARKET MUTUAL FUND
a portfolio of
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
September 6, 1996
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company"), on behalf of the Prime Money Market Mutual Fund (the "Fund"), and
Wells Fargo Bank, N.A. (the "Adviser") as follows:
1. The Company is a registered open-end management investment
company currently consisting of a number of investment portfolios, but which
may from time to time consist of a greater or lesser number of investment
portfolios (the "Funds"). The Company proposes to engage in the business of
investing and reinvesting the assets of the Fund in the manner and in
accordance with the investment objective and restrictions specified in the
Company's currently effective prospectus and the currently effective statement
of additional information incorporated by reference therein relating to the
Fund and the Company (such prospectus and such statement of additional
information being collectively referred to as the "Prospectus") included in the
Company's Registration Statement, as amended from time to time (the
"Registration Statement"), filed by the Company under the Investment Company
Act of 1940 (the "Act") and the Securities Act of 1933. Copies of the
documents referred to in the preceding sentence have been furnished to the
Adviser. Any amendments to those documents shall be furnished to the Adviser
promptly.
2. The Company is engaging the Adviser to manage the investing
and reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and Stephens Inc. (the "Administrator") on behalf of the
Fund, the Company has engaged the Administrator to provide the administrative
services specified therein.
3. (a) The Adviser shall make investments for the account of the
Fund in accordance with the Adviser's best judgment and consistent with the
investment objective and restrictions set forth in the Company's Prospectus,
the Act and the provisions of the Internal Revenue Code relating to regulated
investment companies, subject to policy decisions adopted by the Company's
Board of Directors. The Adviser shall advise the Company's officers and Board
of Directors, at such times as the Company's Board of Directors may specify, of
investments made for the Fund and shall, when requested by the Company's
officers or Board of Directors, supply the reasons for making particular
investments.
(b) The Adviser shall provide to the Company investment
guidance and policy direction in connection with its daily management of the
Fund's portfolio, including oral and written research, analysis, advice,
statistical and economic data and information and judgments, and shall furnish
to the Company's Board of Directors periodic reports on the investment strategy
and performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
<PAGE> 2
(c) The Adviser shall pay the costs of printing and
distributing all materials relating to the Fund prepared by it, or prepared at
its request, other than such costs relating to proxy statements, prospectuses,
shareholder reports and other materials distributed to existing or prospective
shareholders on behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate
with itself such persons as the Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. The Company understands that the Adviser, in rendering its
services to the Fund hereunder, may engage a sub-adviser to provide certain
sub-advisory services pursuant to a separate sub-advisory contract. The
Adviser will not seek to amend any sub-advisory contract to materially alter
the obligations of the parties unless the Adviser gives the Company at least 60
days' prior written notice thereof.
5. Except as provided in each of the advisory contracts and
administration agreements on behalf of the Company's Funds, each Fund of the
Company shall bear all costs of its operations, except to the extent that such
costs are identified as attributable to a specific class of a Fund ("Class
Expenses"), including the Fund's pro-rata portion of the compensation of the
Company's directors who are not affiliated with the Adviser, the Administrator
or any of their affiliates; advisory and administration fees; governmental
fees; 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 any stock certificates,
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 Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; expenses relating to any pricing services;
organizational expenses; and any extraordinary expenses; except that Class
Expenses, such as payments related to a servicing plan or distribution-related
expenses pursuant to a Rule 12b-1 Plan, i.e., a plan of distribution of the
Company adopted on behalf of a class of shares of the Fund pursuant to Rule
12b-1 under the Act, or other such expenses as determined in accordance with
the Company's Rule 18f-3 Plan, shall be borne by the applicable class of the
Fund. Expenses attributable to one or more, but not all, of the Company's
Funds are charged against the assets of the relevant Funds. General expenses
of the Company 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.
6. The Adviser shall give the Company the benefit of the
Adviser's best judgment and efforts in rendering services under this contract.
As an inducement to the Adviser's undertaking to render these services, the
Company agrees that the Adviser shall not be liable under this contract for any
mistake in judgment or in any other event whatsoever except for lack of good
faith, provided that nothing in this contract shall be deemed to protect or
purport to protect the Adviser against any liability to the Company or its
shareholders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties under this contract or by reason of reckless disregard of its
obligations and duties hereunder.
7. In consideration of the services to be rendered by the Adviser
under this contract, the Company shall pay the Adviser a monthly fee on the
first business day of each month, at the annual rate of 0.25% of the average
daily value (as determined on each day that such value is determined for the
Fund at the time set forth in the Prospectus for determining net asset value
per share) of the Fund's net assets during the preceding month. If the fee
payable to the Adviser pursuant to this paragraph 7 begins to accrue before the
end of any month or if this contract 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 the Fund's net assets shall be computed in
the manner specified in the Prospectus and the Company'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.
2
<PAGE> 3
8. If in any fiscal year the total expenses of the Fund incurred
by, or allocated to, the Fund excluding taxes, interest, brokerage commissions
and other portfolio transaction expenses, 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 7 and those provided
for pursuant to the Fund's Administration Agreement ("includible expenses"),
exceed the most restrictive expense limitation applicable to the Fund imposed
by state securities laws or regulations thereunder, as these limitations may be
raised or lowered from time to time, the Adviser 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 7 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 Administration 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
Administration 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 the Company's
fiscal year, the Company shall review the includible expenses accrued during
that fiscal year to the end of the period and shall estimate the contemplated
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 8 for a fiscal year with
respect to the Fund, the monthly fee set forth in paragraph 7 payable to the
Adviser 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 8. 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 the last sentence of paragraph 7, and any reimbursements
required to be made by the Adviser shall be made once a year promptly after the
end of the Company's fiscal year.
9. This contract shall become effective on its execution date and
shall thereafter continue in effect, provided that this contract shall continue
in effect for a period of more than two years from the date hereof only so long
as the continuance is specifically approved at least annually (a) by the vote
of a majority of the Fund's outstanding voting securities (as defined in the
Act) or by the Company's Board of Directors and (b) by the vote, cast in person
at a meeting called for the purpose, of a majority of the Company's directors
who are not parties to this contract or "interested persons" (as defined in the
Act) of any such party. This contract may be terminated at any time by the
Company, without the payment of any penalty, by a vote of a majority of the
Fund's outstanding voting securities (as defined in the Act) or by a vote of a
majority of the Company's entire Board of Directors on 60 days' written notice
to the Adviser or by the Adviser, at any time after the second anniversary of
the effective date of this contract, on 60 days' written notice to the Company.
This contract shall terminate automatically in the event of its assignment (as
defined in the Act).
10. Except to the extent necessary to perform the Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Adviser, or any affiliate of the Adviser, or any
employee of the Adviser, 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.
11. The Adviser and the Company each agree that the words
"Stagecoach," which comprise a component of the Company's name, is a property
right of the parent of the Adviser. The Company agrees and consents that: (i)
it will use the words "Stagecoach" as a component of its corporate name, the
name of any class, or both and for no other purpose; (ii) it will not grant to
any third party the right to use the words "Stagecoach" for any purpose; (iii)
the Adviser or any corporate affiliate of the Adviser may use or grant to
others the right to use the words "Stagecoach," or any combination or
abbreviation thereof, as all or a portion of a corporate or business name or
for any commercial purpose, other than a grant of such right to another
registered investment company not advised by the Adviser or one of its
affiliates; and (iv) in the event that the Adviser or an affiliate thereof is
no longer acting as investment adviser to any class, the Company shall, upon
request by the Adviser, promptly take such action as may be necessary to change
its corporate name to one not containing the words "Stagecoach" and following
such
3
<PAGE> 4
change, shall not use the words "Stagecoach," or any combination thereof, as a
part of its corporate name or for any other commercial purpose, and shall use
its best efforts to cause its directors, officers, and shareholders to take any
and all actions that the Adviser may request to effect the foregoing and to
reconvey to the Adviser any and all rights to such words.
12. This contract shall be governed by and construed in accordance
with the laws of the State of California without giving effect to the choice of
law provisions thereof.
If the foregoing correctly sets forth the agreement between the
Company and the Adviser, please so indicate by signing and returning to the
Company the enclosed copy hereof.
Very truly yours,
STAGECOACH FUNDS, INC.,
on behalf of the Prime Money Market
Mutual Fund
By: /s/Richard H. Blank, Jr.
-----------------------------------
Name: Richard H. Blank, Jr.
-----------------------------------
Title: Chief Operating Officer
-----------------------------------
ACCEPTED as of the date
set forth above:
WELLS FARGO BANK, N.A.
By: /s/Elizabeth A. Gottfried
-----------------------------------
Name: Elizabeth A. Gottfried
-----------------------------------
Title: Vice President, Fund Administration
-----------------------------------
By: /s/Robert Bissell
-----------------------------------
Name: Robert Bissell
-----------------------------------
Title: Senior Vice President
-----------------------------------
4
<PAGE> 1
EXHIBIT 99.B5(t)
ADVISORY CONTRACT
TREASURY MONEY MARKET MUTUAL FUND
a portfolio of
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
September 6, 1996
Wells Fargo Bank, N.A.
420 Montgomery Street
San Francisco, California 94163
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company"), on behalf of the Treasury Money Market Mutual Fund (the "Fund"),
and Wells Fargo Bank, N.A. (the "Adviser") as follows:
1. The Company is a registered open-end management investment
company currently consisting of a number of investment portfolios, but which
may from time to time consist of a greater or lesser number of investment
portfolios (the "Funds"). The Company proposes to engage in the business of
investing and reinvesting the assets of the Fund in the manner and in
accordance with the investment objective and restrictions specified in the
Company's currently effective prospectus and the currently effective statement
of additional information incorporated by reference therein relating to the
Fund and the Company (such prospectus and such statement of additional
information being collectively referred to as the "Prospectus") included in the
Company's Registration Statement, as amended from time to time (the
"Registration Statement"), filed by the Company under the Investment Company
Act of 1940 (the "Act") and the Securities Act of 1933. Copies of the
documents referred to in the preceding sentence have been furnished to the
Adviser. Any amendments to those documents shall be furnished to the Adviser
promptly.
2. The Company is engaging the Adviser to manage the investing
and reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and Stephens Inc. (the "Administrator") on behalf of the
Fund, the Company has engaged the Administrator to provide the administrative
services specified therein.
3. (a) The Adviser shall make investments for the account of the
Fund in accordance with the Adviser's best judgment and consistent with the
investment objective and restrictions set forth in the Company's Prospectus,
the Act and the provisions of the Internal Revenue Code relating to regulated
investment companies, subject to policy decisions adopted by the Company's
Board of Directors. The Adviser shall advise the Company's officers and Board
of Directors, at such times as the Company's Board of Directors may specify, of
investments made for the Fund and shall, when requested by the Company's
officers or Board of Directors, supply the reasons for making particular
investments.
(b) The Adviser shall provide to the Company investment
guidance and policy direction in connection with its daily management of the
Fund's portfolio, including oral and written research, analysis, advice,
statistical and economic data and information and judgments, and shall furnish
to the Company's Board of Directors periodic reports on the investment strategy
and performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
<PAGE> 2
(c) The Adviser shall pay the costs of printing and
distributing all materials relating to the Fund prepared by it, or prepared at
its request, other than such costs relating to proxy statements, prospectuses,
shareholder reports and other materials distributed to existing or prospective
shareholders on behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate
with itself such persons as the Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. The Company understands that the Adviser, in rendering its
services to the Fund hereunder, may engage a sub-adviser to provide certain
sub-advisory services pursuant to a separate sub-advisory contract. The
Adviser will not seek to amend any sub-advisory contract to materially alter
the obligations of the parties unless the Adviser gives the Company at least 60
days' prior written notice thereof.
5. Except as provided in each of the advisory contracts and
administration agreements on behalf of the Company's Funds, each Fund of the
Company shall bear all costs of its operations, except to the extent that such
costs are identified as attributable to a specific class of a Fund ("Class
Expenses"), including the Fund's pro-rata portion of the compensation of the
Company's directors who are not affiliated with the Adviser, the Administrator
or any of their affiliates; advisory and administration fees; governmental
fees; 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 any stock certificates,
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 Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; expenses relating to any pricing services;
organizational expenses; and any extraordinary expenses; except that Class
Expenses, such as payments related to a servicing plan or distribution-related
expenses pursuant to a Rule 12b-1 Plan, i.e., a plan of distribution of the
Company adopted on behalf of a class of shares of the Fund pursuant to Rule
12b-1 under the Act, or other such expenses as determined in accordance with
the Company's Rule 18f-3 Plan, shall be borne by the applicable class of the
Fund. Expenses attributable to one or more, but not all, of the Company's
Funds are charged against the assets of the relevant Funds. General expenses
of the Company 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.
6. The Adviser shall give the Company the benefit of the
Adviser's best judgment and efforts in rendering services under this contract.
As an inducement to the Adviser's undertaking to render these services, the
Company agrees that the Adviser shall not be liable under this contract for any
mistake in judgment or in any other event whatsoever except for lack of good
faith, provided that nothing in this contract shall be deemed to protect or
purport to protect the Adviser against any liability to the Company or its
shareholders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties under this contract or by reason of reckless disregard of its
obligations and duties hereunder.
7. In consideration of the services to be rendered by the Adviser
under this contract, the Company shall pay the Adviser a monthly fee on the
first business day of each month, at the annual rate of 0.25% of the average
daily value (as determined on each day that such value is determined for the
Fund at the time set forth in the Prospectus for determining net asset value
per share) of the Fund's net assets during the preceding month. If the fee
payable to the Adviser pursuant to this paragraph 7 begins to accrue before the
end of any month or if this contract 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 the Fund's net assets shall be computed in
the manner specified in the Prospectus and the Company'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.
2
<PAGE> 3
8. If in any fiscal year the total expenses of the Fund incurred
by, or allocated to, the Fund excluding taxes, interest, brokerage commissions
and other portfolio transaction expenses, 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 7 and those provided
for pursuant to the Fund's Administration Agreement ("includible expenses"),
exceed the most restrictive expense limitation applicable to the Fund imposed
by state securities laws or regulations thereunder, as these limitations may be
raised or lowered from time to time, the Adviser 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 7 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 Administration 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
Administration 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 the Company's
fiscal year, the Company shall review the includible expenses accrued during
that fiscal year to the end of the period and shall estimate the contemplated
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 8 for a fiscal year with
respect to the Fund, the monthly fee set forth in paragraph 7 payable to the
Adviser 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 8. 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 the last sentence of paragraph 7, and any reimbursements
required to be made by the Adviser shall be made once a year promptly after the
end of the Company's fiscal year.
9. This contract shall become effective on its execution date and
shall thereafter continue in effect, provided that this contract shall continue
in effect for a period of more than two years from the date hereof only so long
as the continuance is specifically approved at least annually (a) by the vote
of a majority of the Fund's outstanding voting securities (as defined in the
Act) or by the Company's Board of Directors and (b) by the vote, cast in person
at a meeting called for the purpose, of a majority of the Company's directors
who are not parties to this contract or "interested persons" (as defined in the
Act) of any such party. This contract may be terminated at any time by the
Company, without the payment of any penalty, by a vote of a majority of the
Fund's outstanding voting securities (as defined in the Act) or by a vote of a
majority of the Company's entire Board of Directors on 60 days' written notice
to the Adviser or by the Adviser, at any time after the second anniversary of
the effective date of this contract, on 60 days' written notice to the Company.
This contract shall terminate automatically in the event of its assignment (as
defined in the Act).
10. Except to the extent necessary to perform the Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Adviser, or any affiliate of the Adviser, or any
employee of the Adviser, 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.
11. The Adviser and the Company each agree that the words
"Stagecoach," which comprise a component of the Company's name, is a property
right of the parent of the Adviser. The Company agrees and consents that: (i)
it will use the words "Stagecoach" as a component of its corporate name, the
name of any class, or both and for no other purpose; (ii) it will not grant to
any third party the right to use the words "Stagecoach" for any purpose; (iii)
the Adviser or any corporate affiliate of the Adviser may use or grant to
others the right to use the words "Stagecoach," or any combination or
abbreviation thereof, as all or a portion of a corporate or business name or
for any commercial purpose, other than a grant of such right to another
registered investment company not advised by the Adviser or one of its
affiliates; and (iv) in the event that the Adviser or an affiliate thereof is
no longer acting as investment adviser to any class, the Company shall, upon
request by the Adviser, promptly take such action as may be necessary to change
its corporate name to one not containing the words "Stagecoach" and following
such
3
<PAGE> 4
change, shall not use the words "Stagecoach," or any combination thereof, as a
part of its corporate name or for any other commercial purpose, and shall use
its best efforts to cause its directors, officers, and shareholders to take any
and all actions that the Adviser may request to effect the foregoing and to
reconvey to the Adviser any and all rights to such words.
12. This contract shall be governed by and construed in accordance
with the laws of the State of California without giving effort to the choice of
law provisions thereof.
If the foregoing correctly sets forth the agreement between the
Company and the Adviser, please so indicate by signing and returning to the
Company the enclosed copy hereof.
Very truly yours,
STAGECOACH FUNDS, INC.,
on behalf of the Treasury Money Market
Mutual Fund
By: /s/Richard H. Blank, Jr.
-----------------------------------
Name: Richard H. Blank, Jr.
-----------------------------------
Title: Chief Operating Officer
-----------------------------------
ACCEPTED as of the date
set forth above:
WELLS FARGO BANK, N.A.
By: /s/Elizabeth A. Gottfried
-----------------------------------
Name: Elizabeth A. Gottfried
-----------------------------------
Title: Vice President, Fund Administration
-----------------------------------
By: /s/Robert Bissell
-----------------------------------
Name: Robert Bissell
-----------------------------------
Title: Senior Vice President
-----------------------------------
4
<PAGE> 1
EXHIBIT 99.B9(a)(xiv)
ADMINISTRATION AGREEMENT
for various portfolios of
STAGECOACH FUNDS, INC.
111 Center Street
Little Rock, Arkansas 72201
September 6, 1996
Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company"), on behalf of the Company's portfolios listed on Schedule 1 hereto
as such Schedule may be revised from time to time (each, a "Fund" and
collectively, the "Funds"), and Stephens Inc. (the "Administrator") as follows:
1. The Company is a registered open-end management investment
company currently consisting of a number of investment portfolios, but which
may from time to time consist of a greater or lesser number of investment
portfolios. The Company proposes to engage in the business of investing and
reinvesting the assets of a Fund in the manner and in accordance with the
investment objective and restrictions specified in the Company's currently
effective Registration Statement, as amended from time to time (the
"Registration Statement"), filed by the Company under the Investment Company
Act of 1940 (the "Act") and the Securities Act of 1933. Copies of the
Registration Statement have been furnished to the Administrator. Any
amendments to the Registration Statement shall be furnished to the
Administrator promptly.
2. The Company is engaging the Administrator to provide the
administrative services specified elsewhere in this agreement, subject to the
overall supervision of the Board of Directors of the Company. Pursuant to an
advisory contract between the Company and Wells Fargo Bank, N.A. (the
"Adviser"), on behalf of the Funds, the Company has engaged the Adviser to
manage the investing and reinvesting of the assets of the Funds and to provide
advisory services.
3. The Administrator shall, at its expense, provide the following
administrative services in connection with the operations of the Company and
the Funds: (a) furnishing office space and certain facilities required for
conducting the business of the Funds; (b) general supervision of the operation
of each Fund, including coordination of the
1
<PAGE> 2
services performed by the Company's investment adviser, if any, transfer and
dividend disbursing agent, shareholder servicing agents, custodians,
independent auditors and legal counsel; regulatory compliance, including the
compilation of information for documents such as reports to, and filings with,
the Securities and Exchange Commission and state securities commissions; and
preparation of proxy statements and shareholder reports for the Company; (c)
the compensation of the Company's directors, officers and employees who are
affiliated with the Administrator; (d) general supervision relating to the
compilation of data required for the preparation of periodic reports on the
performance of its obligations under this agreement and statements of the Funds
that are distributed to the Company's officers and Board of Directors and the
preparation of such additional reports and information as the Company's Board
of Directors or officers shall reasonably request; and (e) all other
administrative services reasonably necessary for the operation of the Funds,
other than those services that are to be provided by the Company's shareholder
servicing agents and transfer and dividend disbursing agent.
4. Except as provided in each of the advisory contracts and
shareholder servicing and administration agreements on behalf of the Company's
Funds, each Fund of the Company shall bear all costs of its operations,
including its pro-rata portion of the compensation of the Company's directors
who are not affiliated with any investment adviser of the Company's Funds, the
Administrator or any of their affiliates; any advisory shareholder servicing
and administration fees; governmental fees; interest charges; taxes; fees and
expenses of its independent auditors, legal counsel, transfer agent and
dividend disbursing agent (except to the extent that such fees and expenses are
identified as expenses applicable to a specific class of a Fund ("Class
Expenses")); 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; except that Class Expenses, such as
payments for distribution-related expenses pursuant to any Rule 12b-1 Plan,
(i.e., a plan of distribution of the Company adopted on behalf of any of the
Funds pursuant to Rule 12b-1 under the Act), or a servicing plan and other such
expenses as determined in accordance with the Company's Rule 18f-3 Plan, shall
be borne by the applicable class of a Fund. 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 Company 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.
2
<PAGE> 3
5. The Administrator shall give the Company and its Funds the
benefit of the Administrator's best judgment and efforts in rendering services
under this agreement. As an inducement to the Administrator's undertaking to
render these services, the Company agrees that the Administrator shall not be
liable under this agreement for any mistake in judgment or in any other event
whatsoever except for lack of good faith, provided that nothing in this
agreement shall be deemed to protect or purport to protect the Administrator
against any liability to the Company or its shareholders to which the
Administrator would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of the Administrator's duties
under this agreement or by reason of reckless disregard of its obligations and
duties hereunder.
6. In consideration of the services to be rendered by the
Administrator under this agreement, the Company shall pay the Administrator a
monthly fee on the first business day of each month, at the annual rate of
0.05% of the average daily value (as determined on each business day at the
time set forth in the Registration Statement for determining net asset value
per share) of each Fund's net assets during the preceding month, or as
otherwise indicated on Schedule 1. If the fee payable to the Administrator
pursuant to this paragraph 6 begins to accrue after the beginning 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 a Fund's net assets shall be computed in the manner
specified in the Company's Registration Statement and the Company's Articles of
Incorporation for the computation of the value of a 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 defined in the manner specified
in the Company's Registration Statement .
7. If in any fiscal year the total expenses as incurred by, or
allocated to, a 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 a Fund or
class, but including the fees provided for in paragraph 6 and those provided
for pursuant to any investment advisory contract of a Fund ("includable
expenses"), exceed the most restrictive expense limitation applicable to each
Fund imposed by state securities laws or regulations thereunder, as these
limitations may be raised or lowered from time to time, the Administrator shall
waive or reimburse that portion of the Fund's excess expenses, 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 6 hereof, and the denominator
of which shall be the sum of such percentage plus the percentage at which the
excess portion attributable to any fee payable pursuant to the investment
advisory contract of the Fund 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
3
<PAGE> 4
Fund's investment advisory contract 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 the Company's
fiscal year, the Company shall review each Fund's includable expenses accrued
during that fiscal year to the end of that period and shall estimate the Fund's
includable expenses for the balance of that fiscal year. If as a result of
that review and estimation it appears likely that a Fund's includable expenses
will exceed the limitations referred to in this paragraph 7 for a fiscal year,
the monthly fee set forth in paragraph 6 payable to the Administrator with
respect to a Fund 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 includable expenses
for the fiscal year are expected to exceed the limitations provided for in this
paragraph 7. For purposes of computing the excess, if any, over the most
restrictive applicable expense limitation, the value of a Fund's net assets
shall be computed in the manner specified in the last sentence of paragraph 6,
and any reimbursements required to be made by the Administrator shall be made
once a year promptly after the end of the Company's fiscal year.
8. This agreement shall become effective on its execution date
and shall thereafter continue in effect for a period of no less than three
years. Thereafter, this agreement may be terminated at any time, without the
payment of any penalty, by the Company by vote of a majority of a Fund's
outstanding voting securities (as defined in the Act) or by vote of a majority
of the Company's Board of Directors on 60 days' written notice to the
Administrator, or by the Administrator on 60 days' written notice to the
Company.
9. Except to the extent necessary to perform the Administrator's
obligations under this agreement, nothing herein shall be deemed to limit or
restrict the right of the Administrator, or any affiliate of the Administrator,
or any employee of the Administrator 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.
10. This agreement shall be governed by and construed in
accordance with the laws of the State of Arkansas without giving effect to the
choice of law provisions thereof.
4
<PAGE> 5
If the foregoing correctly sets forth the agreement between the
Company and the Administrator, please so indicate by signing and returning to
the Company the enclosed copy hereof.
Very truly yours,
STAGECOACH FUNDS, INC.,
on behalf of each of the Funds listed on
Schedule 1
By: /s/Richard H. Blank, Jr.
-------------------------------
Name: Richard H. Blank, Jr.
Title: Chief Operating Officer,
Secretary and Treasurer
ACCEPTED as of the date
set forth above:
STEPHENS INC.
By: /s/Richard H. Blank,Jr.
---------------------------
Name: Richard H. Blank, Jr.
Title: Vice President
5
<PAGE> 6
SCHEDULE 1
List of Funds
Arizona Tax-Free Fund
Balanced Fund
California Tax-Free Money Market Trust
Equity Value Fund
Government Money Market Mutual Fund
Intermediate Bond Fund
Money Market Trust
National Tax-Free Fund
Oregon Tax-Free Fund
Prime Money Market Mutual Fund
Treasury Money Market Mutual Fund
Approved: April 25, 1996
Approved as Amended: October 24, 1996
6
<PAGE> 1
EXHIBIT 99.B10
[MORRISON & FOERSTER LLP LETTERHEAD]
Writer's Direct Dial Number
January 31, 1997 (202) 887-1500
Stagecoach Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
Re: Shares of Common Stock of
Stagecoach Funds, Inc.
Ladies/Gentlemen:
We refer to Post-Effective Amendment No. 30 and Amendment No. 31 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 Company (collectively, the "Shares").
We have been requested by the Company to furnish this opinion as
Exhibit 10 to the Registration Statement.
We have examined documents relating to the organization of the Company
and its series and the authorization and issuance of shares of its series. We
have also verified with the Company's transfer agent the maximum number of
shares issued by the Company during the nine-month fiscal period and fiscal
year ended September 30, 1996.
Based upon and subject to the foregoing, we are of the opinion that:
The issuance of the Shares by the Company has been duly and validly
authorized by all appropriate corporate action, and assuming delivery by sale
or in accord with the Funds' dividend reinvestment plan in accordance with the
description set forth in the Funds' current prospectuses the Shares will be
legally issued, fully paid and nonassessable by the Company.
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
<PAGE> 2
In addition, we hereby consent to the use of our name and to the
reference to our firm under the caption "Legal Counsel" and the description of
advice rendered by our firm under the heading "Management and Servicing Fees"
or "Management, Distribution 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> 1
EX-99.B11
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders
Stagecoach Funds, Inc.:
We consent to incorporation by reference in Stagecoach Funds, Inc.'s
Post-Effective Amendment No. 30 to the Registration Statement Number 33-42927
on Form N-1A under the Securities Act of 1933 and Amendment No. 31 to the
Registration Statement Number 811-6419 on Form N-1A under the Investment
Company Act of 1940 of our reports dated November 15, 1996, on the statement of
assets and liabilities, including the portfolio of investments, of each of the
Funds comprising Stagecoach Funds, Inc. as of September 30, 1996, the related
statements of operations and changes in net assets, and financial highlights
for the periods indicated therein, which reports have been incorporated by
reference into each statement of additional information.
We also consent to incorporation by reference of our reports dated
November 15, 1996, on the financial statements and financial highlights of
the Asset Allocation Master Portfolio, Capital Appreciation Master Portfolio,
Corporate Stock Master Portfolio, Small Cap Master Portfolio, Tax-Free Money
Market Master Portfolio, and U.S. Government Allocation Master Portfolio (six
of the master portfolios comprising Master Investment Trust) as of September
30, 1996, the related statements of operations and changes in net assets, and
financial highlights for the periods indicated therein, which reports have been
incorporated by reference in the statements of additional information.
We also consent to the reference to our firm under the heading
"Financial Highlights" in each prospectus and "Independent Auditors" in each
statement of additional information.
/s/ KPMG Peat Marwick LLP
San Francisco, California
January 31, 1997
<PAGE> 1
EXHIBIT 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 twenty-five
separate Funds: Aggressive Growth, 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, 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 Aggressive Growth, Asset Allocation, Corporate Stock, National Tax-Free
Money Market Mutual, Small Cap 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 and Institutional Class shares: California
Tax-Free Income and Short-Intermediate U.S. Government Income
Funds.
(iii) Class A shares, Class B shares and Institutional Class shares:
Aggressive Growth, Arizona Tax-Free, Balanced, California
Tax-Free Bond, Equity Value, Ginnie Mae, Growth and Income,
Intermediate Bond, National Tax-Free, Oregon Tax-Free Fund and
Small Cap Funds.
(iv) Class A shares, Institutional Class shares and Service Class
shares: Prime Money Market Mutual Fund.
1
<PAGE> 2
(v) Class A, Class E, Institutional Class and Service Class shares:
Treasury Money Market Mutual Fund.
(vi) 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, California Tax-Free Money Market Trust, Corporate Stock, Money
Market Trust, and National Tax-Free Money Market Mutual Funds, which offer a
single unnammed 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;
(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.
2
<PAGE> 3
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 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 and Short-Intermediate
Government Income Funds.
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.
4. Maximum Annual Shareholder Servicing Fee: 0.30% of
average daily net assets attributable to Class A shares.
5. Conversion Features: None
6. Exchange Privileges: As described in the current
prospectus for each Fund.
7. Other Class-Specific Shareholder Services: None
3
<PAGE> 4
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 4 Years 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.
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 such
converted shares.
6. Exchange Privileges: As described in the current
prospectus for each Fund.
7. Other Class-Specific Shareholder Services: None
C. 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.
5. Conversion Features: None.
6. Exchange Privileges: As described in the current
prospectus for each Fund.
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7. Other Class-Specific Shareholder Services: None
D. 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 Service 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
E. 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
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
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evaluate such information as it considers reasonably necessary to evaluate the
proposed amendment(s) to the Plan.
Adopted by the Company effective April 3, 1995
Amended by the Company effective April 25, 1996
Amended by the Company effective January 16, 1997
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