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STAGECOACH FUNDS(R)
STAGECOACH
SHORT-INTERMEDIATE
U.S. GOVERNMENT INCOME FUND
PROSPECTUS
Class B
Investment Advisor
and Administrator:
WELLS FARGO BANK
Distributor and
Co-Administrator:
STEPHENS INC.
Please read this Prospectus and keep 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.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. 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. FUND 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.
<PAGE>
ABOUT THIS PROSPECTUS
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WHAT IS A PROSPECTUS?
A prospectus provides you with the information you need in order to make an
informed investment decision. It describes how the Fund operates and invests
its assets and also contains fee and expense information.
WHAT IS DIFFERENT ABOUT THIS PROSPECTUS?
We have rewritten our Prospectus in "Plain English" and grouped some of the
most important Fund information together to make it easier to read and
understand.
HOW IS THE FUND INFORMATION ORGANIZED?
After important summary information and the expense fee table, the Fund's
investment objective and financial highlights are presented. The icons below
tell you where various types of information about the Fund can be found.
IMPORTANT INFORMATION YOU SHOULD LOOK FOR:
INVESTMENT OBJECTIVE AND INVESTMENT POLICIES
What is the Fund trying to achieve? How do we intend to invest your money?
Look for the arrow icon to find out.
PERMITTED INVESTMENTS
A summary of the Fund's key permitted investments and practices.
IMPORTANT RISK FACTORS
What are key risk factors about this Fund? This will include the factors
described in "General Investment Risks" together with any special risk factors
for the Fund.
ADDITIONAL FUND FACTS
Provides additional information about the Fund.
WHY IS ITALICIZED PRINT USED THROUGHOUT THIS PROSPECTUS?
Words appearing in italicized print and highlighted in color are defined in
the Glossary.
WHAT ELSE DO I NEED TO UNDERSTAND ABOUT THE FUND?
The Fund has a "Statement of Additional Information" that supplements the
disclosures made in this Prospectus. You may also want to review the most
recent Annual or Semi-Annual Report. You can order copies of these documents
without charge by calling 1-800-222-8222. The Statement of Additional
Information and other information for the Fund is also available on the SEC's
website (http://www.sec.gov).
<PAGE>
<TABLE>
<S> <C>
Key Information 4
Summary of Expenses 5
Short-Intermediate U.S. Government
Income Fund 6
Sales Charges 11
Your Account 12
How to Buy Shares 14
Selling Shares 16
Exchanges 18
Additional Services and
Other Information 19
Organization and Management
of the Fund 22
Glossary 24
</TABLE>
TABLE OF CONTENTS
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THE FUND
This section contains important information about the Fund.
- --------------------------------------------------------------------------------
YOUR ACCOUNT
Turn to this section for information on how to open and maintain your account,
including how to buy, sell and exchange Fund shares.
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REFERENCE
Look here for details on the organization of the Fund and term definitions.
<PAGE>
KEY INFORMATION
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SUMMARY OF THE STAGECOACH SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
The Fund invests primarily in short-to intermediate-term debt securities
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. The Fund seeks to distribute monthly income. You should
consider the Fund's objectives, investment practices, permitted investments
and risks carefully before investing in the Fund.
SHOULD YOU CONSIDER INVESTING IN THE FUND? YES, IF:
. you are looking to add an income investment to your portfolio;
. you are looking for monthly income;
. you are looking for more stability of principal than equity funds typically
provide; and
. you are willing to accept the risks of income investing, including the risk
that share prices may rise and fall.
YOU SHOULD NOT INVEST IN THE FUND IF:
. you are looking for FDIC insurance coverage or guaranteed rates of return;
. you are unwilling to accept that you may lose money on your investment;
. you are unwilling to accept the risks of investing in the bond markets; or
. you are looking for returns characteristic of equity investments.
WHO ARE "WE"?
In this Prospectus, "We" generally means the Stagecoach Funds. "We" sometimes
refers to the Investment Advisor or other companies hired by the Fund to
perform services. The section on "Organization and Management of the Fund"
further explains how the Fund is organized.
WHO ARE "YOU"?
In this Prospectus, "You" means the potential investor or the shareholder.
WHAT IS THE "FUND"?
In this Prospectus, the "Fund" refers to the Short-Intermediate U.S.
Government Income Fund.
KEY TERMS
The term "debt securities" used in this Prospectus refers to a broad variety
of fixed-income and variable-rate securities including bonds, bills, notes and
mortgage-backed securities. The term "instruments" is used to describe a
negotiable contract or promise to pay money, such as a Certificate of Deposit
or a Banker's Acceptance. The "Permitted Investments" for the Fund and
"Investment Practices and Risks" table describe some of the particular
instruments and securities used for the Fund.
DIVIDENDS
We pay dividends, if any, monthly.
4 Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus
<PAGE>
SUMMARY OF EXPENSES
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SHAREHOLDER TRANSACTION EXPENSES
These tables are intended to help you understand the various costs and
expenses you will pay as a Class B shareholder in the Fund. These tables do
not reflect any charges that may be imposed by Wells Fargo Bank or other
institutions in connection with an account through which you hold Fund shares.
See "Organization and Management of the Fund" for more details.
<TABLE>
<S> <C>
Maximum sales charge on a purchase (as a percentage of offering
price).............................................................. None
Maximum sales charge on reinvested dividends......................... None
Maximum sales charge on a: Redemption during first year.............. 5.00%
Redemption after first year.......................................... 4.00%
Exchange fees........................................................ None
ANNUAL FUND OPERATING EXPENSE (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Expenses shown reflect contract amounts and amounts payable by the Fund. The
expenses shown under "Other Expenses" are based on estimated amounts. Expenses
shown "after waivers and reimbursements" reflect fee waivers and reimbursements
that generally may be discontinued without prior notice. Long-term shareholders
may pay more than the equivalent of the maximum front-end sales charge allowed
by the National Association of Securities Dealers, Inc.
Rule 12b-1 fee....................................................... 0.75%
Management fee(after waivers)........................................ 0.26%
Other expenses (after waivers or reimbursements)..................... 0.65%
Total Fund Operating Expenses (after waivers or reimbursements)...... 1.66%
Management fee (before waivers)...................................... 0.50%
Other expenses (before waivers or reimbursements).................... 0.57%
Total Fund Operating Expenses (before waivers or reimbursements)..... 1.82%
</TABLE>
EXAMPLE OF EXPENSES--THIS EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSE MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
You would pay the following expenses on a $1,000 investment in Class B shares
assuming a 5% annual return and that you redeem your shares at the end of each
period.
<TABLE>
<S> <C>
1 year.................................................................. $ 67
3 years................................................................. $ 82
5 years................................................................. $110
10 years................................................................ $160
</TABLE>
EXAMPLE OF EXPENSES--THIS EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSE MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
You would pay the following expenses on a $1,000 investment in Class B shares
assuming a 5% annual return and that you do not redeem your shares at the end
of each period.
<TABLE>
<S> <C>
1 year.................................................................. $ 17
3 years................................................................. $ 52
5 years................................................................. $ 90
10 years................................................................ $160
</TABLE>
Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus 5
<PAGE>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
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Portfolio Managers: Madeleine Gish (since 7/96)
Jeff Weaver (since 7/96)
INVESTMENT OBJECTIVE
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.
INVESTMENT POLICIES
We seek current income by actively managing a diversified portfolio consisting
primarily of short- to intermediate-term U.S. Government obligations. We may
invest in securities of any maturity. Under ordinary circumstances, we expect
to maintain a dollar-weighted average maturity of between 2 and 5 years. We
seek to preserve capital by shortening average maturity when interest rates
are expected to increase and to increase total return by lengthening maturity
when interest rates are expected to fall.
PERMITTED INVESTMENTS
Under normal market conditions, we invest:
. at least 65% of our total assets in U.S. Government obligations;
. in investment grade corporate debt securities including asset-backed
securities;
. in repurchase agreements;
. no more than 5% of our total assets in securities downgraded below
investment grade after we acquired them;
. up to 25% of our assets in dollar-denominated debt of U.S. branches of
foreign banks or foreign branches of U.S. banks; and
. in stripped Treasury securities, adjustable-rate mortgage securities,
adjustable portions of collateralized mortgage obligations.
We may temporarily hold assets in cash or in money market instruments,
including U.S. Government obligations, shares of other mutual funds and
repurchase agreements, or make other short-term investments, either to
maintain liquidity or for short-term defensive purposes when we believe it is
in the best interest of shareholders to do so.
IMPORTANT RISK FACTORS
You should consider both the General Investment Risks beginning on page 11 and
the specific risks listed below. They are both important to your investment
choice.
Stripped Treasury securities have greater interest rate risk than traditional
government securities with identical credit ratings. The U.S. Government does
not directly or indirectly insure or guarantee the performance of the Fund.
ADDITIONAL FUND FACTS
For information on Fund fees and expenses, see "Summary of Expenses" on page
5.
6 Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus
<PAGE>
GENERAL INVESTMENT RISKS
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Understanding the risks involved in mutual fund investing will help you make
an informed decision that takes into account your tolerance and preferences.
You should carefully consider risks common to all mutual funds, including the
Stagecoach Funds. Chief among these risks are the following:
. Unlike bank deposits, such as CDs or savings accounts, mutual funds are NOT
INSURED BY THE FDIC.
. We CANNOT GUARANTEE that we will meet our investment objectives.
. We do not guarantee the performance of the Fund, nor can we assure you that
the market value of your investment will not decline. We will not "make
good" any investment loss you may suffer, nor can anyone we contract with
to provide certain services for the Fund, such as selling agents or
investment advisors, offer or promise to make good any such losses.
. Share prices--and therefore the value of your investment--will INCREASE AND
DECREASE with changes in the value of the underlying securities and other
investments. This is referred to as volatility.
. Investing in any mutual fund, including those deemed conservative, involves
RISK, INCLUDING THE POSSIBLE LOSS OF ANY MONEY YOU INVEST.
. An investment in a single Fund, by itself, does not constitute a complete
investment plan.
The Fund invests in securities that involve particular kinds of risk.
. The Fund invests in debt securities such as notes and bonds, that are
subject to CREDIT RISK. Credit risk is the possibility that an issuer of a
security will be unable to make interest payments or repay principal.
Changes in the financial strength of an issuer or changes in the credit
rating of a security may affect its value.
. The Fund's debt securities are also subject to INTEREST RATE RISK. Interest
rate risk is the possibility that interest rates may increase and reduce
the resale value of securities in the Fund's portfolio. Debt securities
with longer maturities are generally more sensitive to interest rate
changes than those with shorter maturities. Changes in market interest
rates do not affect the rate payable on debt securities held in the Fund,
unless the securities has adjustable or variable rate features. Changes in
market interest rates may also extend or shorten the duration of certain
types of securities such as asset-backed securities, thereby affecting
their value and the return on your investment.
. The Fund may continue to hold debt securities that cease to be rated by a
nationally recognized ratings organization or whose rating falls below the
levels permitted for the Fund, provided Wells Fargo Bank continues to
believe that holding the instrument is in the best interest of the Fund.
Unrated or downgraded securities may be more susceptible to interest rate
and credit risk than rated or higher-rated securities.
. The Fund may invest a significant portion of its assets in U.S. Government
obligations. It is important to recognize that the U.S. Government does not
guarantee the market value or current yield of those obligations. Not all
U.S. Government obligations are backed by the full faith and credit of the
U.S. Treasury, and the U.S. Government's guarantee does not extend to the
Fund itself.
Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus 7
<PAGE>
GENERAL INVESTMENT RISKS--(CONTINUED)
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. The Fund also invests a significant portion of its assets in GNMAs, FNMAs
and FHLMCs. Each are mortgage-backed securities representing partial
ownership of a pool of residential mortgage loans. A "pool" or group of
such mortgages is assembled and, after being approved by the issuing
entity, is offered to investors through securities dealers. Once approved
by GNMA, a government corporation within the U.S. Department of Housing and
Urban Development, the timely payment of interest and principal of a GNMA
security is guaranteed by the full faith and credit of the U.S. Government.
FNMA and FHLMC are federally chartered corporations supervised by the U.S.
Government, acting as government-sponsored enterprises. FNMA and FHLMC
securities are not direct obligations of the U.S. Treasury, and are
supported by the credit of FNMA or FHLMC only. FNMA guarantees timely
payment of interest and principal on its securities; FHLMC guarantees
timely payment of interest and ultimate payment of principal only.
. The Fund may also use certain derivative instruments, such as options or
futures contracts. The term "derivatives" covers a wide number of
investments, but in general it refers to any financial instrument whose
value is derived, at least in part, from the price of another security or a
specified index, asset or rate. Some derivatives may be more sensitive to
interest rate changes or market moves, and some may be susceptible to
changes in yields or values due to their structure or contract terms.
What follows is a general list of the types of risks (some of which are
described above) that may apply to the Fund and a table showing some of the
additional investment practices that the Fund may use. Additional information
about these practices is available in the Statement of Additional Information.
COUNTER-PARTY RISK--The risk that the other party in a repurchase agreement or
other transaction will not fulfill its contract obligation.
CREDIT RISK--The risk that the issuer of a debt security will be unable to
make interest payments or repay principal on schedule. If an issuer does
default, the affected security could lose all of its value, or be renegotiated
at a lower interest rate or principal amount. Affected securities might also
lose liquidity. Credit risk also includes the risk that a party in a
transaction may not be able to complete the transaction as agreed.
CURRENCY RISK--The risk that a change in the exchange rate between U.S.
dollars and a foreign currency may reduce the value of an investment made in a
security denominated in that foreign currency.
DIPLOMATIC RISK--The risk that an adverse change in the diplomatic relations
between the United States and another country might reduce the value or
liquidity of investments in either country.
EXPERIENCE RISK--The risk presented by a new or innovative security. The risk
is that insufficient experience exists to forecast how the security's value
might be affected by various economic conditions.
EXTENSION RISK--The risk that as interest rates rise, prepayments slow,
thereby lengthening the duration and potentially reducing the value of certain
asset-backed securities.
INFORMATION RISK--The risk that information about a security is either
unavailable, incomplete or is inaccurate.
8 Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus
<PAGE>
GENERAL INVESTMENT RISKS--(CONTINUED)
- -------------------------------------------------------------------------------
INTEREST RATE RISK--The risk that changes in interest rates can reduce the
value of an existing security. Generally, when interest rates increase, the
value of a debt security decreases. The effect is usually more pronounced for
securities with longer dates to maturity.
LEVERAGE RISK--The risk that a practice may increase the Fund's exposure to
Market Risk, Interest Rate Risk or other risks by, in effect, increasing
assets available for investment.
LIQUIDITY RISK--The risk that a security cannot be sold, or cannot be sold
without adversely affecting its fair price.
MARKET RISK--The risk that the value of a stock, bond or other security will
be reduced by market activity. This is a basic risk associated with all
securities.
PREPAYMENT RISK--The risk that, as interest rates fall, homeowners will
refinance existing mortgages, causing mortgage-backed securities to have
reduced yields.
POLITICAL RISK--The risk that political actions, events or instability may be
unfavorable for investments made in a particular nation's or region's
industry, government or markets.
REGULATORY RISK--The risk that changes in government regulations will
adversely affect the value of a security. Also the risk that an insufficiently
regulated market might permit inappropriate trading practices.
INVESTMENT PRACTICE/RISK
The following table lists some of the additional investment practices of the
Fund, including some not disclosed in the Investment Objective and Investment
Policies section of the Prospectus. THE RISKS INDICATED AFTER THE DESCRIPTION
OF THE PRACTICE ARE NOT THE ONLY POTENTIAL RISKS ASSOCIATED WITH THAT
PRACTICE, BUT ARE AMONG THE MORE PROMINENT. Market risk is assumed for each.
The Fund engages in the investment practices described below to varying
degrees. In addition to the general risks discussed above, you should
carefully consider and evaluate any special risks that may apply to investing
in the Fund. See the "Important Risk Factors" in the summary for the Fund. You
should also see the Statement of Additional Information for additional
information about the investment practices and risks particular to the Fund.
Investment practices and risk levels are carefully monitored. We attempt to
ensure that the risk exposure for the Fund remains within the parameters of
its objective.
Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus 9
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT PRACTICE: RISK:
- ---------------------------------------------------- --------------------------
<S> <C>
FLOATING AND VARIABLE RATE DEBT
Instruments with interest rates that are adjusted Interest Rate and
either on a schedule or when an index or benchmark Credit Risk
changes.
REPURCHASE AGREEMENTS
A transaction in which the seller of a security Credit and
agrees to buy back a security at an agreed upon time Counter-Party Risk
and price, usually with interest.
OTHER MUTUAL FUNDS
The temporary investment in shares of another mutual Market Risk
fund. A pro rata portion of the other fund's ex-
penses, in addition to the expenses paid by the
Fund, will be borne by Fund shareholders.
STRIPPED OBLIGATIONS
Securities that give ownership to either future Interest Rate Risk
payments of interest or a future payment of
principal, but not both. These securities tend to
have greater interest rate sensitivity than
conventional debt obligations. The Fund may invest
up to 20% of assets in interest-only or principal-
only obligations, or a combination thereof.
ILLIQUID SECURITIES
A security that cannot be readily sold, or cannot be Liquidity Risk
readily sold without negatively affecting its fair
price. Limited to 15% of assets.
LOANS OF PORTFOLIO SECURITIES
The practice of loaning securities to brokers, deal- Credit, Leverage and
ers and financial institutions to increase return on Counter-Party Risk
those securities. Loans may be made in accordance
with existing investment policies. (Loans may not
exceed 33 1/3% of assets.)
FORWARD COMMITMENTS, WHEN-ISSUED SECURITIES AND
DELAYED DELIVERY TRANSACTIONS
Securities bought or sold for delivery at a later Interest Rate, Credit
date or bought or sold for a fixed price at a fixed and Experience Risk
date.
BORROWING POLICIES
The ability to borrow an equivalent of 10% of total Leverage Risk
assets from banks for temporary purposes to meet
shareholder redemptions.
ASSET-BACKED SECURITIES
Securities consisting of an undivided fractional in- Interest Rate, Credit
terests in pools of mortgages, consumer loans, such and Experience Risk
as car loans or credit card debt, or receivables
held in trust.
</TABLE>
10 Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus
<PAGE>
SALES CHARGES
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CLASS B SHARE CONTINGENT DEFERRED SALES CHARGES ("CDSC") SCHEDULE
You buy Class B Shares at Net Asset Value (NAV) and agree that if you redeem
your shares within six years of the purchase date, you will pay a contingent
deferred sales charge (CDSC) based on how long you have held your shares.
Certain exceptions apply (see "Class B Share CDSC Reductions").
The CDSC schedule is 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 5.00% 4.00% 3.00% 3.00% 2.00% 1.00%
</TABLE>
The CDSC percentage you pay is based on the lower of the NAV on the date of
the original purchase, or the NAV on the date of redemption. The distributor
pays sales commission of up to 4.00% of the purchase price of Class B shares
to selling agents at the time of the sale.
We always process partial redemptions so that the least expensive shares are
redeemed first in order to reduce your sales charges. After shares are held
for six years, the CDSC expires and the Class B shares are converted to Class
A shares to reduce your future on-going expenses.
CLASS B SHARE CDSC REDUCTIONS
. You pay no CDSC on Fund shares you purchase with reinvested distributions.
. We waive the CDSC for all redemptions made because of SCHEDULED OR
MANDATORY DISTRIBUTIONS for certain retirement plans. (See your retirement
plan disclosure for details.)
. We waive the CDSC for redemptions made in the event of the SHAREHOLDER'S
DEATH OR FOR A DISABILITY SUFFERED AFTER PURCHASING SHARES. ("Disability"
is defined by the Internal Revenue Code of 1986.)
. We waive the CDSC for redemptions made at the DIRECTION OF STAGECOACH
FUNDS, INC. in order to, for example, complete a merger or close an account
whose value has fallen below the minimum balance.
SPECIAL NOTICE:
If you acquire Class B shares through an exchange of Class B shares of another
Stagecoach Fund that you purchased prior to March 3, 1997, your CDSC schedule
is 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 3.00% 2.00% 1.00% 1.00% 0.00% 0.00%
</TABLE>
If you exchange Class B shares of the Fund for Class B shares of another Fund,
you will retain the above CDSC schedule on your exchanged shares, but
additional purchases of the newly purchased Fund will age at the higher CDSC.
Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus 11
<PAGE>
YOUR ACCOUNT
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This section tells you how to open an account and how to buy, sell or exchange
Fund shares once your account is open.
You can buy Fund shares:
. By opening an account directly with the Fund (simply complete and return a
Stagecoach Funds application with proper payment);
. Through a brokerage account with an approved selling agent; or
. Through certain retirement, benefits and pension plans, or through certain
packaged investment products (please see the providers of the plan for
instructions).
Minimum Investments:
. $1,000 minimum initial investment, or
. $100 minimum initial investment if you use the AutoSaver option.
. $100 for all investments after your first.
. We may waive the minimum if you purchase Fund shares through certain
retirement, benefit and pension plans, through certain packaged investment
products, or for certain classes of shareholders as permitted by the
Securities and Exchange Commission. Check the specific disclosure
statements and applications for the program through which you intend to,
invest.
Important Information:
. Read this Prospectus carefully. Discuss any questions you have with your
selling agent. You may also ask for copies of the Statement of Additional
Information and Annual Report. Copies are available free of charge from
your selling agent or by calling 1-800-222-8222.
. We process requests to buy or sell shares each business day as of the close
of regular trading on the New York Stock Exchange, which is usually 1:00 PM
Pacific Time. Any request we receive in proper form before the close of
regular trading on the New York Stock Exchange is processed the same day.
Requests we receive after the close are processed the next business day.
. As with all mutual fund investments, the price you pay to purchase shares
or the price you receive when you redeem shares is not determined until
after a request has been received in proper form.
. We determine the Net Asset Value (NAV) of each class of the Funds' shares
each business day as of the close of regular trading on the New York Stock
Exchange. We determine the NAV by subtracting the Fund class' liabilities
from its total assets, and then dividing the result by the total number of
outstanding shares of that class. The Fund's assets are generally valued at
current market prices. See the Statement of Additional Information for
further disclosure.
. We will process all requests to buy and sell shares at the first NAV
calculated after the request in proper form is received.
. You may have to complete additional paperwork for certain types of account
registrations, such as a Trust. Please speak to Stagecoach Investor
Services (1-800-222-8222) if you are investing directly with Stagecoach
Funds, or speak to your Selling Agent if you are buying shares through a
brokerage account.
12 Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus
<PAGE>
YOUR ACCOUNT--(CONTINUED)
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. Once an account has been opened, you can add additional Stagecoach Funds
under the same registration without completing a new application.
. We reserve the right to cancel any purchase order or delay redemption if
your check does not clear.
Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus 13
<PAGE>
HOW TO BUY SHARES
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The following section explains how you can buy shares directly from Stagecoach
Funds. For Funds held through brokerage and other types of accounts, please
consult your selling agent.
BY MAIL
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
Complete a Stagecoach Funds application. Be sure to indicate the Fund name and
the share class into which you intend to invest.
Enclose a check for at least $1,000 made out in the full name and share class
of the Fund. For example, "Stagecoach Short-Intermediate U.S. Government
Income Fund, Class B".
You may start your account with $100 if you elect the AutoSaver option on the
application.
Mail to:
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-9201
IF YOU ARE BUYING ADDITIONAL SHARES:
Make a check payable to the full name and share class of your Fund for at
least $100. Be sure to write your account number on the check as well.
Enclose the payment stub/card from your statement if available.
Mail to:
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-9201
BY WIRE
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
If you do not currently have an account, complete a Stagecoach Funds
application. You must wire at least $1,000. Be sure to indicate the Fund name
and the share class into which you intend to invest.
Mail the completed application.
You may also fax the completed application (with original to follow).
Mail to:
Stagecoach Funds
PO Box 7066
San Francisco, CA 94120-9201
Fax to: 1-415-546-0280
14 Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus
<PAGE>
HOW TO BUY SHARES--(CONTINUED)
- -------------------------------------------------------------------------------
IF YOU ARE BUYING ADDITIONAL SHARES:
Instruct your wiring bank to transmit at least $100 according to the
instructions given to the right. Be sure to have the wiring bank include your
current account number and the name your account is registered in.
Wire 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 Share Class)
Account Name:
(Registration Name Indicated on Application)
BY PHONE
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
You can only make your first purchase of a Fund by phone if you already have
an existing Stagecoach Account.
Call Investor Services and instruct the representative to either:
. transfer at least $1,000 from a linked settlement account, or
. exchange at least $1,000 worth of shares from an existing Stagecoach Fund.
Please see "Exchanges" for special rules.
Call:
1-800-222-8222
IF YOU ARE BUYING ADDITIONAL SHARES:
Call Investor Services and instruct the representative to either:
. transfer at least $100 from a linked settlement account, or
. exchange at least $100 worth of shares from another Stagecoach Fund.
Call:
1-800-222-8222
Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus 15
<PAGE>
SELLING SHARES
- -------------------------------------------------------------------------------
The following section explains how you can sell shares held directly through
an account with Stagecoach Funds by mail or by telephone. For Fund shares held
through brokerage and other types of accounts, please consult your selling
agent.
BY MAIL
Write a letter stating your account registration, your account number, the
Fund you wish to redeem and the dollar amount ($100 or more) of the redemption
you wish to receive (or write "Full Redemption").
Make sure all the account owners sign the request.
You may request that redemption proceeds be sent to you by check, by ACH
transfer into a bank account, or by wire ($5,000 minimum). Please call
Investor Services regarding requirements for linking bank accounts or for
wiring funds. We reserve the right to charge a fee for wiring funds although
it is not currently our practice to do so.
Signature Guarantees are required for mailed redemption requests over $5,000.
You can get a signature guarantee at financial institutions such as a bank or
brokerage house. We do not accept notarized signatures.
Mail to:
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-9201
BY PHONE
Call Investor Services to request a redemption of at least $100. Be prepared
to provide your account number and Taxpayer Identification Number.
Unless you have instructed us otherwise, only one account owner needs to call
in redemption requests.
You may request that redemption proceeds be sent to you by check, by transfer
into an ACH-linked bank account, or by wire ($5,000 minimum). Please call
Investor Services regarding requirements for linking bank accounts or for
wiring funds. We reserve the right to charge a fee for wiring funds although
it is not currently our practice to do so.
Telephone privileges are automatically made available to you unless you
specifically decline them on your application or subsequently in writing.
Phone privileges allow us to accept transaction instructions by anyone
representing themselves as the shareholder and who provides reasonable
confirmation of their identity, such as providing the Taxpayer Identification
Number on the account. We will not be liable for any losses incurred if we
follow telephone instructions we reasonably believe to be genuine.
Call:
1-800-222-8222
16 Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus
<PAGE>
SELLING SHARES--(CONTINUED)
- -------------------------------------------------------------------------------
GENERAL NOTES FOR SELLING SHARES
We process requests to sell shares at the first NAV calculated after a request
in proper form is received. Requests received before the close of trading on
the New York Stock Exchange are processed on the same business day.
Your redemptions are net of any applicable CDSC.
If you purchased shares through a packaged investment product or retirement
plan, read the directions for selling shares provided by the product or plan.
There maybe special requirements that supercede the directions in this
Prospectus.
We reserve the right to delay payment of a redemption for up to ten days so
that we may be reasonably certain that investments made by check have been
collected. Payments of redemptions also may be delayed under extraordinary
circumstances or as permitted by the Securities and Exchange Commission in
order to protect remaining shareholders. Payments of redemptions also may be
delayed up to seven days under normal circumstances, although it is not our
policy to delay such payments.
Generally, we pay redemption requests in cash, unless the redemption request
is for more than $250,000 or 1% of the net assets of the Fund by a single
shareholder over any ninety-day period. If a request for a redemption is over
these limits it may be to the detriment of existing shareholders. Therefore,
we may pay all or part of the redemption in securities of equal value.
Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus 17
<PAGE>
EXCHANGES
- -------------------------------------------------------------------------------
Exchanges between Stagecoach Funds are two transactions: a sale of one Fund
and the purchase of another. In general, the same rules and procedures that
apply to sales and purchases apply to exchanges. There are, however,
additional factors you should keep in mind while making or considering an
exchange:
. You should carefully read the Prospectus for the Fund into which you wish
to exchange.
. Every exchange involves selling Fund shares and that sale may produce a
capital gain or loss for federal income tax purposes.
. If you are making an initial investment into a new Fund through an
exchange, you must exchange at least the minimum first purchase amount of
the Fund you are redeeming, unless your balance has fallen below that
amount due to market conditions.
. Any exchange between Funds you already own must meet the minimum redemption
and subsequent purchase amounts for the Funds involved.
. Exchanges between Class B shares will not trigger the CDSC. The new shares
will continue to age according to their original schedule while in the new
Fund and will be charged the CDSC applicable to the original shares upon
redemption.
. Exchanges from any share class to a money market fund can only be re-
exchanged for the original share class.
. In order to discourage excessive Fund transaction expenses that must be
borne by other shareholders, we reserve the right to limit or reject
exchange orders. Generally, we will notify you 60 days in advance of any
changes in your exchange privileges.
. You may make exchanges between like share classes, and between Class B
shares and non-institutional class shares of a money market fund.
18 Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus
<PAGE>
ADDITIONAL SERVICES AND OTHER INFORMATION
- -------------------------------------------------------------------------------
Automatic Programs:
These programs help you conveniently purchase or redeem shares each month:
. AUTOSAVER PLAN--you need only specify an amount of at least $100 and a day
of the month. We will automatically transfer that amount from your linked
bank account each month to purchase additional shares. We will transfer the
amount on or about the day you specify, or on or about the 20th of each
month if you have not specified a day. Please call Investor Services at 1-
800-222-8222 if you wish to change or add linked accounts.
. SYSTEMATIC WITHDRAWAL PROGRAM--Stagecoach will automatically redeem enough
shares to equal a specified dollar amount of at least $100 on or about the
fifth business day prior to the end of each month and either send you the
proceeds by check or transfer it into your linked bank account. In order to
set up a Systematic Withdrawal Program, you:
.must have a Fund account valued at $10,000 or more;
.must have distributions reinvested; and
.may not simultaneously participate in an AutoSaver Plan.
It generally takes about ten days to set up either plan once we have received
your instructions. It generally takes about five days to change or cancel
participation in either plan. We automatically cancel your program if the
linked account you specified is closed.
DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
You may choose to do any of the following:
. AUTOMATIC REINVESTMENT OPTION--Lets you buy new shares of the same class of
the Fund that generated the distributions. The new shares are purchased at
NAV generally on the day the income is paid. This option is automatically
assigned to your account unless you specify another plan.
. FUND PURCHASE PLAN--Uses your distributions to buy shares at NAV of another
Stagecoach Fund of the same share class or a Money Market Fund. You must
have already satisfied the minimum investment requirements of the Fund into
which your distributions are being transferred in order to participate.
. AUTOMATIC CLEARING HOUSE OPTION--Deposits your dividends and capital gains
into any bank account you link to your Fund account if it is part of the
ACH system. If your specified bank account is closed, we will reinvest your
distributions.
. CHECK PAYMENT OPTION--Allows you to receive checks for distributions mailed
to your address of record or to another name and address which you have
specified in written, signature guaranteed instructions. If checks remain
uncashed for six months or are undeliverable by the Post Office, we will
reinvest the distributions at the earliest date possible.
TWO THINGS TO KEEP IN MIND ABOUT DISTRIBUTIONS
Remember, distributions have the effect of reducing the NAV per share by the
amount distributed. Also, distributions on new shares shortly after purchase
would be in effect a return of capital, although the distribution may still be
taxable to you.
Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus 19
<PAGE>
ADDITIONAL SERVICES AND OTHER INFORMATION--(CONTINUED)
- -------------------------------------------------------------------------------
TAXES
The following discussion regarding taxes is based on laws that were in effect
as of the date of this Prospectus. The discussion summarizes only some of the
important tax considerations that affect the Fund and you as a shareholder. It
is not intended as substitute for careful tax planning. You should consult
your tax advisor about your specific tax situation. Federal income tax
considerations are discussed further in the Statement of Additional
Information.
We will pass on to you net investment income and net short-term capital gains
earned by the Fund as dividend distributions. These are taxable to you as
ordinary income.
We will pass on to you any net capital gains earned by the Fund as a capital
gain distribution. In general, these distributions will be taxable to you as
long-term capital gains and are taxable when paid. However, distributions
declared in October, November and December and distributed by the following
January will be taxable as if they were paid on December 31 of the year in
which they were declared. We will notify you as to the status of your Fund
distributions.
Your redemptions, including exchanges, will ordinarily result in a taxable
capital gain or loss, depending on the amount you receive for your shares and
the amount you paid for them. Foreign shareholders may be subject to different
tax treatment, including withholding. In certain circumstances, U.S. residents
will also be subject to back-up withholding.
SHARE CLASS--This Prospectus contains information about Class B shares. The
Fund offers additional share classes with different expenses and returns than
those described here. Call Stephens Inc. at 1-800-643-9691 for information on
these or other investment options in Stagecoach Funds.
CONVERSION OF CLASS B SHARES--We will convert Class B shares into Class A
shares at the month end following the six-year anniversary of their original
purchase. This is done to avoid the higher on-going Rule 12b-1 fees assessed
to Class B shares. The conversion is done at NAV and, since it is unlikely
that Class A and Class B shares of the same Fund will have the same NAV on a
given date, the conversion is on a dollar-value basis, not a share-for-share
basis.
MINIMUM ACCOUNT VALUE--Due to the expense involved in maintaining low-balance
accounts, we reserve the right to close accounts that have fallen below the
$1,000 minimum balance due to redemptions (as opposed to market conditions).
You will be given an opportunity to make additional investments to prevent
account closure before any action is taken.
STATEMENTS--We mail statements after any account activity, including
transactions, dividends or capital gains, and at year-end. We do not send
statements for funds held in brokerage, retirement or other similar accounts.
You must check with the administrators of these accounts for statement
policies. The Fund will also send any necessary tax reporting documents in
January, and will send Annual and Semi-Annual Reports each year.
DEALER CONCESSIONS AND RULE 12B-1 FEES--Stephens Inc., as the Fund's
distributor, will pay the portion of the Class B share sales charge shown as
the Dealer Allowance to the selling agent, if any. Stephens Inc. also
compensates selling agents for the sale of Class B shares and is reimbursed
through Rule 12b-1 fees and contingent deferred sales charges. Selling agents
may receive different compensation for sales of Class A and Class B shares of
the same Fund.
20 Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus
<PAGE>
ADDITIONAL SERVICES AND OTHER INFORMATION--(CONTINUED)
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION--Additional information about some of the
topics discussed in this Prospectus as well as details about performance
calculations, distribution plans, servicing plans, tax issues and other
important issues are available in the Statement of Additional Information for
the Fund. The Statement of Additional Information should be read along with
this Prospectus and may be obtained free of charge by calling Investor
Services at 1-800-222-8222.
GLASS-STEAGALL ACT--Morrison & Foerster LLP, counsel to the Fund and special
counsel to Wells Fargo Bank, has advised us and Wells Fargo Bank that Wells
Fargo Bank and its affiliates may perform the services contemplated by the
Advisory Contracts and detailed in this Prospectus and the Statement of
Additional Information without violation of the Glass-Steagall Act. Counsel
has pointed out that future judicial or administrative decisions, or future
federal or state laws may prevent these entities from continuing in their
roles.
VOTING RIGHTS--All shares of the Fund have equal voting rights and are voted
in the aggregate, rather than by series or class, unless the matter affects
only one series or class. A shareholder of record is entitled to one vote for
each share owned and fractional votes for each fractional share owned. For a
detailed description of voting rights, see the "Capital Stock" section of the
Statement of Additional Information.
Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus 21
<PAGE>
ORGANIZATION AND MANAGEMENT OF THE FUND
- -------------------------------------------------------------------------------
A number of different entities provide services to the Fund. This section
shows how the Fund is organized, the entities that perform different services,
and how they are compensated. Further information is available in the
Statement of Additional Information for the Fund.
ABOUT STAGECOACH
The Fund is one of over 30 Funds of Stagecoach Funds, Inc., an open-end
management investment company. Stagecoach was organized on September 9, 1991,
as a Maryland Corporation.
The Board of Directors of Stagecoach supervises the Fund's activities and
approves the selection of various companies hired to manage the Fund's
operation. The major service providers are described in the diagram below. If
the Board believes that it is in the best interests of the shareholders, it
may make a change in one of these companies.
We do not hold annual shareholder meetings. We may hold special shareholder
meetings to ask shareholders to vote on items such as electing or removing
board members, or amending fundamental investment strategies or policies.
SHAREHOLDERS
FINANCIAL SERVICES FIRMS AND SELLING AGENTS
ADVISE CURRENT AND PROSPECTIVE SHAREHOLDERS ON THEIR FUND INVESTMENTS
<TABLE>
<CAPTION>
DISTRIBUTOR & TRANSFER AND DIVIDEND SHAREHOLDER
CO-ADMINISTRATOR ADMINISTRATOR DISBURSING AGENT SERVICING AGENTS
- ----------------------- ------------------- ----------------------- ----------------
<S> <C> <C> <C>
Stephens Inc. Wells Fargo Bank Wells Fargo Bank Various Agents
111 Center St. 525 Market St. 525 Market St.
Little Rock, AR San Francisco, CA San Francisco, CA
Markets the Fund, Manages the Fund's Maintains records of Provide services
distributes shares, and business activities shares and supervises to customers
manages the Fund's the paying of dividends
business activities
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT ADVISOR CUSTODIAN
------------------ ---------------------
<S> <C>
Wells Fargo Bank, Wells Fargo Bank,
525 Market St., 525 Market St.,
San Francisco, CA San Francisco, CA
Manages the Fund's Provides safekeeping
investment activities for the Fund's assets
</TABLE>
BOARD OF DIRECTORS
SUPERVISES THE FUND'S ACTIVITIES
22 Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus
<PAGE>
ORGANIZATION AND MANAGEMENT OF THE FUND--(CONTINUED)
- -------------------------------------------------------------------------------
In the following sections, the percentages shown are the percentages of the
average daily net assets of the Fund class paid on an annual basis for the
services described. The Statement of Additional Information has more detailed
information about the Investment Advisor and the other service providers and
plans described here.
THE INVESTMENT ADVISOR
Wells Fargo Bank is the advisor for the Fund. Wells Fargo Bank, founded in
1852, is the oldest bank in the western United States and is one of the
largest banks in the United States. Wells Fargo Bank is a wholly owned
subsidiary of Wells Fargo & Company, a national bank holding company. As of
December 31, 1997, Wells Fargo Bank and its affiliates managed over $62
billion in assets. The Fund paid Wells Fargo Bank 0.26% of its assets for
advisory services (after fee waivers) for the last fiscal year.
THE ADMINISTRATOR
Wells Fargo Bank is the administrator of the Fund. Wells Fargo Bank is paid
.03% of the Fund's assets for these services.
THE DISTRIBUTOR AND CO-ADMINISTRATOR
Stephens Inc. is the Fund's distributor and co-administrator. Stephens Inc.
receives .04% of the Fund's assets for its role as co-administrator. Stephens
Inc. also receives all loads, CDSCs and distribution plan fees. It uses a
portion of these amounts to compensate selling agents for their role in
marketing the Fund's shares.
DISTRIBUTION PLAN
We have adopted a distribution plan for the Fund. This plan is used to pay for
distribution-related services including ongoing compensation to Selling
Agents. The Fund may participate in joint distribution activities with other
Stagecoach Funds. The cost of these activities is generally allocated among
the Stagecoach Funds. Funds with higher assets levels pay a higher proportion
of these costs. The fee paid under this plan is 0.75% of the assets of the
Class B shares.
SHAREHOLDER SERVICING PLAN
We have a Shareholder Servicing Plan for the Fund. We have agreements with
various shareholder servicing agents to process purchase and redemption
requests, to service shareholder accounts, and to provide other related
services. For these services, the Fund pays 0.25% of the assets of the Class B
shares.
PORTFOLIO MANAGERS
The following is a list of portfolio managers identified within the fund
summary. More detailed biographical information is available in the Statement
of Additional Information.
. Madeleine Gish, CFA
With Wells Fargo since 1989.
. Jeff Weaver
With Wells Fargo since 1994.
With Bankers Trust Company in New York since 1991.
Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus 23
<PAGE>
GLOSSARY
- -------------------------------------------------------------------------------
ACH
Refers to the "Automated Clearing House" system maintained by the Federal
Reserve Bank which allows banks to process checks, transfer funds and perform
other tasks.
ANNUAL REPORT
A document that provides certain financial and other information for the most
recent reporting period and the Fund's portfolio of investments.
ASSET-BACKED SECURITIES
Securities consisting of an undivided fractional interest in pools of consumer
loans, such as car loans or credit card debt, or receivables held in trust.
BUSINESS DAY
Any day the New York Stock Exchange is open is a business day for the Fund.
CONVERTIBLE DEBT SECURITIES
Bonds or notes that are exchangeable for equity securities at a set price on a
set date or at the election of the holder.
CURRENT INCOME
Earnings in the form of dividends or interest as opposed to capital growth.
See also "Total Return".
DEBT SECURITIES
Generally, a promise to pay interest and repay principal by a single debtor or
group of single debtors sold as a security. The owner of the security is
entitled to receive any such payments. Examples include bonds and mortgage-
backed securities and can include securities in which the right to receive
interest and principal repayment have been sold separately.
DERIVATIVES
Securities whose values are derived in part from the value of another security
or index. An example is a stock option.
DISTRIBUTIONS
Dividends and/or capital gains paid by the Fund on its shares.
DIVERSIFIED
A diversified fund, as defined by the Investment Company Act, is one that
invests in cash, Government securities, other investment companies and no more
than 5% of its total assets in a single issuer. These policies must apply to
75% of the Fund's total assets.
24 Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus
<PAGE>
GLOSSARY--(CONTINUED)
- -------------------------------------------------------------------------------
DOLLAR-DENOMINATED
Securities issued by foreign banks, companies or governments in U.S. dollars.
DURATION
A measure of a security's or portfolio's sensitivity to changes in interest
rates. Duration is usually expressed in years, with longer duration typically
more sensitive to interest rate changes than shorter duration.
FDIC
The Federal Deposit Insurance Corporation. This is the company that provides
federally sponsored insurance covering bank deposits such as savings accounts
and CDs. Mutual funds are not FDIC insured.
ILLIQUID SECURITY
A security which cannot be readily sold or cannot be readily sold without
negatively affecting its fair price.
INVESTMENT-GRADE DEBT
A type of bond rated in the top four investment categories by a nationally
recognized ratings organization such as Moody's or Standard & Poors. Generally
these are bonds whose issuers are considered to have a strong ability to pay
interest and repay principal, although some investment-grade bonds may have
some speculative characteristics.
LIQUIDITY
The ability to readily sell a security at its fair price.
MOODY'S
One of the largest nationally recognized ratings organizations.
NATIONALLY RECOGNIZED RATING ORGANIZATION (NRRO)
A company that examines the ability of a bond issuer to meet its obligations
and which rates the bonds accordingly.
NET ASSET VALUE (NAV)
The value of a single fund share. It is determined by adding together all of
the Fund's assets, subtracting expenses and other liabilities, then dividing
by the total number of shares. The NAV is calculated separately for each class
of the Fund, and is determined as of the close of regular trading on each
business day the New York Stock Exchange is open, typically 1:00 p.m. Pacific
Time.
Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus 25
<PAGE>
GLOSSARY--(CONTINUED)
- -------------------------------------------------------------------------------
PRESERVATION OF CAPITAL
The attempt by a fund's manager to reduce drops in the net asset value of fund
shares in order to preserve the initial investment.
PRINCIPAL STABILITY
The degree to which share prices for a fund remain steady. Money market funds
attempt to achieve the highest degree of principal stability by maintaining a
$1.00 per share net asset value. More aggressive funds may not consider
principal stability an objective.
REPURCHASE AGREEMENT
An agreement between a buyer and seller of a security in which the seller
agrees to repurchase the security at an agreed upon price and time.
SELLING AGENT
A person who has an agreement with the Fund's distributor that allows them to
sell the Fund's shares.
SHAREHOLDER SERVICING AGENT
An entity appointed by the Fund to maintain shareholder accounts and records,
assist and provide information to shareholders or perform similar functions.
SIGNATURE GUARANTEE
A guarantee given by a financial institution that has verified the identity of
the maker of the signature.
STATEMENT OF ADDITIONAL INFORMATION
A document that supplements the disclosures made in this Prospectus.
STRIPPED TREASURY SECURITIES
Debt obligations in which the interest payments and the repayment of principal
are separated and sold as securities.
TAXPAYER IDENTIFICATION NUMBER
Usually the social security number for an individual or the Employer
Identification Number for a corporation.
TOTAL RETURN
The total value of capital growth and the value of all distributions, assuming
that distributions were used to purchase additional shares of the Fund.
26 Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus
<PAGE>
GLOSSARY--(CONTINUED)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS
Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
WEIGHTED-AVERAGE MATURITY
The average maturity for the debt securities in a portfolio on a dollar-for-
dollar basis.
Stagecoach Short-Intermediate U.S. Government Income Fund Prospectus 27
<PAGE>
- -------------------------------------------------------------------------------
STAGECOACH FUNDS(R)
You may wish to review the following documents:
Statement of Additional Information supplements the disclosures made by this
Prospectus. The Statement of Additional Information has been filed with the
SEC and is incorporated by reference into this Prospectus and is legally part
of this Prospectus.
Annual/Semi-Annual Report provides certain financial and other important
information for the most recent reporting period and the Fund's portfolio of
investments.
These are available free of charge by calling
1-800-222-8222, or from
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-7066
STAGECOACH FUNDS:
. are not insured by the FDIC
. are not obligations or deposits of Wells Fargo Bank, nor guaranteed by the
Bank
. involve investment risk, including possible loss of principal.
SC 135 P (4/98)
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated April 24, 1998
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
CLASS B
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about one fund in the Stagecoach Family of Funds -- the
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND (the "Fund"). This SAI relates
only to the Class B shares of the Fund.
This SAI is not a prospectus and should be read in conjunction with the
Fund's Prospectus, dated April 24, 1998. 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 free of charge by calling 1-800-222-8222 or
writing to Stagecoach Funds, P.O. Box 7066, San Francisco, CA 94120-7066.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information............................................. 1
Investment Restrictions................................................. 1
Additional Permitted Investment Activities.............................. 2
Risk Factors............................................................ 13
Management.............................................................. 15
Performance Calculations................................................ 22
Determination of Net Asset Value........................................ 27
Additional Purchase and Redemption Information.......................... 28
Portfolio Transactions.................................................. 28
Fund Expenses........................................................... 30
Federal Income Taxes.................................................... 30
Capital Stock........................................................... 35
Other................................................................... 36
Independent Auditors.................................................... 37
Financial Information................................................... 37
Appendix................................................................ A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The Fund commenced operations on October 27, 1993, as a fund of the
Company. The Class B shares are expected to commence operations on June 15,
1998.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies
-------------------------------
The 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
the Fund.
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;
1
<PAGE>
(9) write, purchase or sell straddles, spreads, warrants, or any
combination thereof;
(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; nor
(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 has adopted 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 Fund's shareholders.
(1) 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.
Currently, under the 1940 Act, the Fund's investment in such securities is
limited to, subject to certain exceptions, (i) 3% of the total voting stock
of any one investment company, (ii) 5% of the Fund's net assets with
respect to any one investment company, and (iii) 10% of the Fund's net
assets in the aggregate. Other investment companies in which the Fund
invest can be expected to charge fees for operating expenses, such as
investment advisory and administration fees, that would be in addition to
those charged by the Fund.
(2) The Fund may not invest or hold 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.
(3) The Fund may invest up to 25% of its net assets in securities of foreign
governmental and foreign private issuers that are denominated in and pay
interest in U.S. dollars.
(4) The Fund may lend securities from its portfolio to brokers, dealers and
financial institutions, in amounts not to exceed (in the aggregate) one-
third of the Fund's total assets. Any such 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.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the Fund.
2
<PAGE>
Asset-Backed Securities
-----------------------
The Fund may invest in various types of asset-backed securities. Asset-
backed securities are securities that represent an interest in an underlying
security. The asset-backed securities in which the Fund invest 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 surety bond, limited guaranty, or subordination. The
extent of credit enhancement varies, but usually amounts to only a fraction of
the asset-backed security's par value until exhausted. Ultimately, asset-backed
securities are dependent upon payment of the consumer loans or receivables by
individuals, and the certificate holder frequently has no recourse to the entity
that originated the loans or receivables. The actual maturity and realized yield
will vary based upon the prepayment experience of the underlying asset pool and
prevailing interest rates at the time of prepayment. Asset-backed securities are
relatively new instruments and may be subject to greater risk of default during
periods of economic downturn than other instruments. Also, the secondary market
for certain asset-backed securities may not be as liquid as the market for other
types of securities, which could result in the Fund experiencing difficulty in
valuing or liquidating such securities.
Bank Obligations
----------------
The Fund may invest in bank obligations, including certificates of deposit,
time deposits, bankers' acceptances and other short-term obligations of domestic
banks, foreign subsidiaries of domestic banks, foreign branches of domestic
banks, and domestic and foreign branches of foreign banks, domestic savings and
loan associations and other banking institutions. With respect to such
securities issued by foreign branches of domestic banks, foreign subsidiaries of
domestic banks, and domestic and foreign branches of foreign banks, the Fund may
be subject to additional investment risks that are different in some respects
from those incurred by the 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 the Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation ("FDIC"). 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
3
<PAGE>
pay the face amount of the instrument upon maturity. The other short-term
obligations may include uninsured, direct obligations, bearing fixed, floating-
or variable-interest rates.
Bonds
-----
Certain of the debt instruments purchased by the Fund may be bonds. A bond
is an interest-bearing security issued by a company or governmental unit. The
issuer of a bond has a contractual obligation to pay interest at a stated rate
on specific dates and to repay principal (the bond's face value) periodically or
on a specified maturity date. An issuer may have the right to redeem or "call" a
bond before maturity, in which case the investor may have to reinvest the
proceeds at lower market rates. Most bonds bear interest income at a "coupon"
rate that is fixed for the life of the bond. The value of a fixed rate bond
usually rises when market interest rates fall, and falls when market interest
rates rise. Accordingly, a fixed rate bond's yield (income as a percent of the
bond's current value) may differ from its coupon rate as its value rises or
falls.
Other types of bonds bear income at an interest rate that is adjusted
periodically. Because of their adjustable interest rates, the value of
"floating-rate" or "variable-rate" bonds fluctuates much less in response to
market interest rate movements than the value of fixed rate bonds. Also, the
Fund may treat some of these bonds as having a shorter maturity for purposes of
calculating the weighted average maturity of their investment portfolios. Bonds
may be senior or subordinated obligations. Senior obligations generally have the
first claim on a corporation's earnings and assets and, in the event of
liquidation, are paid before subordinated debt. Bonds may be unsecured (backed
only by the issuer's general creditworthiness) or secured (also backed by
specified collateral).
Commercial Paper
----------------
The Fund may invest in commercial paper (including variable amount master
demand notes) which refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations which permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes.
Investments by the 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
Nationally Recognized Statistical Ratings Organization ("NRSRO"). Commercial
paper may include variable- and floating-rate instruments.
Derivative Securities
---------------------
The Fund may invest in various instruments that may be considered
"derivatives," including 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. The Fund may also hold derivative instruments
that have interest rates
4
<PAGE>
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 the Fund can realize on its investment, could
cause the 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 Advisor will, consistent with the Fund's
investment objective, policies and quality standards, consider making
investments in such new types of derivative securities.
Floating- and Variable-Rate Obligations
---------------------------------------
The Fund may purchase floating- and variable-rate obligations, demand notes
and bonds. Variable-rate demand notes include master demand notes 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 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, 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
the 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 the
Fund's portfolio. The Fund will not invest more than 15% of the value of its
total net assets in floating- or variable-rate demand obligations whose demand
feature is not exercisable within seven days. Such obligations may be treated
as liquid, provided that an active secondary market exists.
5
<PAGE>
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, U.S. branches of foreign
banks and short-term debt obligations of foreign governmental agencies that are
denominated in and pay interest in U.S. dollars. Investments in foreign
obligations involve certain considerations that are not typically associated
with investing in domestic obligations. There may be less publicly available
information about a foreign issuer than about a domestic issuer. Foreign issuers
also are not subject to the same uniform accounting, auditing and financial
reporting standards or governmental supervision as domestic issuers. In
addition, with respect to certain foreign countries, taxes may be withheld at
the source under foreign tax laws, and there is a possibility of expropriation
or confiscatory taxation, political or social instability or diplomatic
developments that could adversely affect investments in, the liquidity of, and
the ability to enforce contractual obligations with respect to, securities of
issuers located in those countries.
Investment 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.
Forward Commitment, When-Issued and Delayed-Delivery Transactions
-----------------------------------------------------------------
The Fund may purchase or sell securities on a when-issued or delayed
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Delivery and payment
on such transaction normally take place within 120 days after the date of the
commitment to purchase. Securities purchased or sold on a when-issued, delayed-
delivery or forward commitment basis involve a risk of loss if the value of the
security to be purchased declines, or the value of the security to be sold
increases, before the settlement date. Although the Fund will generally
purchase securities with the intention of acquiring them, the Fund may dispose
of securities purchased on a when-issued, delayed-delivery or a forward
commitment basis before settlement when deemed appropriate by the Advisor.
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.
6
<PAGE>
Illiquid Securities
-------------------
The Fund may invest in securities not registered under the 1933 Act and
other securities subject to legal or other restrictions on resale. Because such
securities may be less liquid than other investments, they may be difficult to
sell promptly at an acceptable price. Delay or difficulty in selling securities
may result in a loss or be costly to the Fund. The Fund may invest up to 15% of
its net assets in illiquid securities.
Loans of Portfolio Securities
-----------------------------
The Fund may lend its portfolio securities to brokers, dealers and
financial institutions, provided: (1) the loan is secured continuously by
collateral consisting of U.S. Government securities or cash or letters of credit
maintained on a daily marked-to-market basis in an amount at least equal to the
current market value of the securities loaned; (2) the Fund may at any time call
the loan and obtain the return of the securities loaned within five business
days; (3) the Fund will receive any interest or dividends paid on the loaned
securities; and (4) the aggregate market value of securities loaned will not at
any time exceed one-third of the total assets of the Fund.
The Fund will earn income for lending its securities because cash
collateral pursuant to these loans will be invested in short-term money market
instruments. In connection with lending securities, the Fund may pay reasonable
finders, administrative and custodial fees. The Fund will not enter into any
security lending arrangement having a duration longer than one year. Loans of
securities involve a risk that the borrower may fail to return the securities or
may fail to provide additional collateral. In either case, the Fund could
experience delays in recovering securities or collateral or could lose all or
part of the value of the loaned securities. When the Fund lends its securities,
it continues to receive interest or dividends on the securities loaned and may
simultaneously earn interest on the collateral received from the borrower or
from the investment of cash collateral in readily marketable, high-quality,
short-term obligations. Although voting rights, or rights to consent, attendant
to securities on loan pass to the borrower, such loans may be called at any time
and will be called so that the securities may be voted by the Fund if a material
event affecting the investment is to occur. The Fund may pay a portion of the
interest or fee earned from securities lending to a borrower or a placing
broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly with Wells Fargo Bank, Stephens or any of their affiliates.
Mortgage-Related Securities
---------------------------
The Fund may invest in mortgage-related securities. Mortgage pass-through
securities are securities representing interests in "pools" of mortgages in
which payments of both interest and principal on the securities are made
monthly, in effect "passing through" monthly payments made by the individual
borrowers on the residential mortgage loans which underlie the securities (net
of fees paid to the issuer or guarantor of the securities). The stated
maturities of pass-through obligations may be shortened by unscheduled
prepayments of principal on the underlying mortgages. Therefore, it is not
possible to predict accurately the average maturity of a particular pass-through
obligation. Variations in the maturities of pass-through obligations will
affect the yield of the Fund. 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
7
<PAGE>
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 the Government National Mortgage Association ("GNMA"), the Federal
Home Loan Mortgage Corporation ("FHLMC") or Federal National Mortgage
Association ("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 Advisor will, consistent
with the Fund's investment objective, policies and quality standards, consider
making investments in such new types of mortgage-related securities.
Adjustable Rate Mortgages ("ARMs") and Collateralized Mortgage Obligations
--------------------------------------------------------------------------
("CMOs"). The Fund may invest in ARMs issued or guaranteed by the GNMA, FNMA or
- --------
the FHLMC. 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 United States. However, because FNMA and FHLMC are
government-sponsored enterprises, these securities are generally considered 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, although there can be no
assurance that this historical performance will continue.
The mortgages underlying ARMs guaranteed by GNMA are typically 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,
8
<PAGE>
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 some of the
CMOs in which the Fund may invest generally are readjusted at periodic intervals
ranging from one year or less to several years 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 a cost-of-funds index or a moving average of mortgage rates.
Commonly utilized indices include the one-year and five-year constant maturity
Treasury note rates, the three-month Treasury bill rate, the 180-day Treasury
bill rate, rates on longer-term 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, a common form of residential financing,
generally have a specified maturity date. Most provide for amortization of
principal in a manner similar to fixed-rate mortgages, but have interest rates
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
cannot be adjusted in response to interest rate changes because of interest rate
caps, the ARMs or CMOs backed by such mortgages 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 CMOs or ARMs 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 interest rate floors can be expected to cause the CMOs or ARMs 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.
These adjustable rate features should reduce, but will not eliminate, price
fluctuations in such securities, particularly when market interest rates
fluctuate. Since the interest rates on mortgages typically are reset at most
annually and generally are subject to caps, it can be expected that the prices
of ARMs and CMOs backed by such mortgages will fluctuate to the extent
prevailing market interest rates are not reflected in the interest rates payable
on the underlying ARMs. In this regard, the net asset value of the 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 shares of the Fund or if the Fund sells these portfolio securities before
the interest rates on the underlying mortgages are adjusted to reflect
prevailing market interest rates.
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. Changes in
market interest rates and interest rate
9
<PAGE>
indexes can affect these prepayment rates, thereby shortening or lengthening
their duration, the holder 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.
CMOs backed by fixed rate mortgages share many of the rate, duration and
investment risks described above because of their contractual and investment
features and because of factors such as the prepayment rates on the underlying
fixed rate mortgages.
The Fund will not invest in CMOs that, at the time of purchase, are "high-
risk mortgage securities" as defined in the then current Federal Financial
Institutions Examination Council Supervisory Policy Statement on Securities
Activities (the "FFIEC Policy Statement"). Under the FFIEC Policy Statement, a
CMO qualifies as a "high-risk mortgage security" if it meets an Average Life
Test, an Average Life Sensitivity Test, or a Price Sensitivity Test. A CMO meets
the Average Life Test if it has an expected weighted average life greater than
10 years. A CMO meets the Average Life Sensitivity Test if the expected weighted
average life of the CMO either (i) extends by more than 4 years, assuming an
immediate and sustained parallel shift in the yield curve of plus 300 basis
points, or (ii) shortens by more than 6 years, assuming an immediate and
sustained parallel shift in the yield curve of minus 300 basis points. A CMO
meets the Price Sensitivity Test if an immediate and sustained parallel shift in
the yield curve of plus or minus 300 basis points would result in an estimated
change in the price of the CMO of more than 17 percent. Under the FFIEC Policy
Statement, a CMO floating-rate debt class, i.e., a CMO the rate of which adjusts
at least annually on a one-for-one basis with a conventional, widely used market
interest rate index (such as the London Interbank Offered Rate), will not be
subject to the Average Life and Average Life Sensitivity Tests if it bears a
rate that is below the contractual cap on the instrument.
Other Investment Companies
--------------------------
The Fund may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act. Under
the 1940 Act, the 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 the Fund's net assets with respect to any one
investment company and (iii) 10% of the Fund's net assets in aggregate. Other
investment companies in which the Fund invest can be expected to charge fees for
operating expenses, such as investment advisory and administration fees, that
would be in addition to those charged by the Fund.
Stripped Securities
-------------------
The Fund may purchase Treasury receipts and other "stripped" securities
that evidence ownership in either (i) future interest payments or (ii) future
principal payments. The stripped securities the Fund may purchase are issued by
the U.S. Government (or a U.S. Government agency or instrumentality) or by
private issuers such as banks, corporations and other institutions at a discount
to their face value. The Fund will not purchase stripped mortgage-backed
securities ("SMBS"). The stripped securities purchased by the Fund generally
are structured to make a lump-sum payment at maturity and do not make periodic
payments of principal or interest. Hence, the duration of these securities
tends to be longer and they are therefore more sensitive to interest
10
<PAGE>
rate fluctuations than similar securities that offer periodic payments over
time. The stripped securities purchased by the Fund are not subject to
prepayment or extension risk.
Temporary Investments
---------------------
The Fund may hold a certain portion of its assets in cash or short-term
investments in order to maintain adequate liquidity for redemption requests or
other cash management needs or for temporary defensive purposes during periods
of unusual market volatility. The short-term investments that the Fund may
purchase include, among other things, U.S. government obligations, shares of
other mutual funds, repurchase agreements, obligations of domestic banks and
short-term obligations of foreign banks, corporations and other entities. Some
of these short-term investments are described below.
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.
Repurchase Agreements. The Fund may enter into repurchase agreements,
---------------------
wherein the seller of a security to the Fund agrees to repurchase that security
from the Fund at a mutually agreed upon time and price. The Fund may enter into
repurchase agreements only with respect to securities that could otherwise be
purchased by the Fund. All repurchase agreements will be fully collateralized
at 102% based on values that are marked to market daily. The maturities of the
underlying securities in a repurchase agreement transaction may be greater than
twelve months, although the maximum term of a repurchase agreement will always
be less than twelve months. If the seller defaults and the value of the
underlying securities has declined, the Fund may incur a loss. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the security,
the Fund's disposition of the security may be delayed or limited.
The Fund may not enter into a repurchase agreement with a maturity of more
than seven days, if, as a result, more than 15% of the market value of such
Fund's total net assets would be invested in repurchase agreements with
maturities of more than seven days, restricted securities and illiquid
securities. The Fund will only enter into repurchase agreements with primary
broker/dealers and commercial banks that meet guidelines established by the
Board of Directors and that are not affiliated with the investment Advisor. The
Fund may participate in pooled repurchase agreement transactions with other
funds advised by Wells Fargo Bank.
Unrated Investments
-------------------
The Fund may purchase instruments that are not rated if, in the opinion of
Wells Fargo Bank, such obligations are of investment quality comparable to other
rated investments that are permitted to be purchased by the Fund. After
purchase by the Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund.
11
<PAGE>
Neither event will require a sale of such security by the Fund. To the extent
the ratings given by Moody's Investors Service, Inc. ("Moody's") or Standard and
Poor's Ratings Group ("S&P") may change as a result of changes in such
organizations or their rating systems, the Fund will attempt to use comparable
ratings as standards for investments in accordance with the investment policies
contained in its Prospectus and in this SAI. The ratings of Moody's and S&P are
more fully described in the Appendix.
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.
Nationally Recognized Statistical Ratings Organizations
-------------------------------------------------------
The ratings of Moody's, S&P, 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 the 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 the
Fund. The Advisor 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
Fund 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
12
<PAGE>
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.
RISK FACTORS
Investments in the Fund are not bank deposits or obligations of Wells Fargo
Bank, are not insured by the FDIC and are not insured against loss of principal.
When the value of the securities that the Fund owns declines, so does the value
of your Fund shares. You should be prepared to accept some risk with the money
you invest in the Fund.
The portfolio debt instruments of the Fund may be subject to credit risk.
Credit risk is the risk that the issuers of securities in which the Fund invests
may default in the payment of principal and/or interest. Interest rate risk is
the risk that increases in market interest rates may adversely affect the value
of the debt instruments in which the Fund invests and hence the value of your
investment in the Fund.
The market value of the Fund's investments in fixed-income securities will
change in response to various factors, such as changes in market interest rates
and the relative financial strength of an 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 price
fluctuation than obligations with shorter maturities. Fluctuations in the
market value of fixed-income securities can be reduced, but not eliminated, by
variable rate or floating rate features. In addition, some of the asset-backed
securities in which the Fund invest are subject to extension risk. This is the
risk that when interest rates rise, prepayments of the underlying obligations
slow, thereby lengthening the duration and potentially reducing the value of
these securities.
Although some of the Fund's portfolio securities are guaranteed by the U.S.
Government, its agencies or instrumentalities, such securities are subject to
interest rate risk and the market value of these securities, upon which the
Fund's daily net asset value are based, will fluctuate. No assurance can be
given that the U.S. Government would provide financial support to its agencies
or instrumentalities where it is not obligated to do so.
Although GNMA securities are guaranteed by the U.S. Government as to timely
payment of principal and interest and ARMs are guaranteed by the U.S.
Government, its agencies or instrumentalities (including government-sponsored
enterprises as noted above), the market value of these securities, upon which
the Fund's daily net asset value is based, will fluctuate. The Fund is subject
to interest-rate risk, that is, the risk that increases in interest rates may
adversely affect the value of the securities in which the Fund invests, and
hence the value of your investment in the Fund. The value of the securities in
which the Fund invests generally changes inversely to changes in interest rates.
However, the adjustable-rate feature of the mortgages underlying the ARMs and
the CMOs in which the Fund may invest should reduce, but will not eliminate,
price fluctuations in such securities, particularly during periods of extreme
fluctuations in market interest rates.
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
13
<PAGE>
full and timely payment of both interest and principal, while FHLMC guarantees
full and timely payment of interest and ultimate payment of principal. FNMA and
FHLMC ARMs are not backed by the full faith and credit of the U.S. Government.
However, because FNMA and FHLMC are government-sponsored enterprises, these
securities are considered by some investors to be high-quality investments that
present minimal credit risks. The yields provided by these ARMs have
historically exceeded the yields on other types of U.S. Government securities
with comparable maturities. Of course, there can be no assurance that this
historical performance will continue or that the Fund, which is diversified,
will meet its investment objective.
Moreover, no assurance can be given that the U.S. Government would supply
financial support to U.S. Government-sponsored enterprises such as FNMA and
FHLMC in the event of a default in payment on the underlying mortgages which the
government- sponsored enterprise is unable to make good. Principal on the
mortgages underlying the mortgage pass-through securities in which the Fund may
invest may be prepaid in advance of maturity. Such prepayments tend to increase
when interest rates decline and may present the Fund with more principal to
invest at lower rates. The converse also tends to be the case.
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 the Fund invests) and not from the
risk of default. CMOs may have significantly greater interest rate risk than
traditional government securities with identical ratings. The adjustable-rate
portions of CMOs have significantly less interest rate risk.
The Fund 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 the Fund.
Wells Fargo Bank may use certain derivative investments or techniques, such
as investments in floating- and variable-rate instruments, structured notes and
certain U.S. Government obligations, to adjust the risk and return
characteristics of the Fund's portfolio. Derivatives are financial instruments
whose value is derived, at least in part, from the price of another security or
a specified asset, index or rate. Some derivatives may be more sensitive than
direct securities to changes in interest rates or sudden market moves. Some
derivatives also may be susceptible to fluctuations in yield or value due to
their structure or contract terms. If Wells Fargo Bank judges market conditions
incorrectly, the use of certain derivatives could result in a loss, regardless
of Wells Fargo Bank's intent in using the derivatives.
The 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
14
<PAGE>
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.
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.
MANAGEMENT
The following information supplements, and should be read in conjunction
with, the section in the Prospectus entitled "Organization and Management of the
Fund." The principal occupations during the past five years of the Directors
and principal executive Officer of the Company are listed below. The address of
each, unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas
72201. Directors deemed to be "interested persons" of the Company for purposes
of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- ------------------------------------- ------------------ -----------------------------------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 46 Director, Executive Vice President of Stephens Inc.;
Chairman and President of Stephens Insurance Services Inc.;
President Senior Vice President of Stephens Sports
Management Inc.; and President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the School
321 Beechcliff Court of Business and Accounting at Wake Forest
Winston-Salem, NC 27104 University since 1982.
Peter G. Gordon, 54 Director Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street Roxane Water Company since 1977.
San Francisco, CA 94133
Joseph N. Hankin, 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, NY 10595 University Teachers College since 1976.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- ------------------------------------- ------------------ -----------------------------------------------
<S> <C> <C>
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate 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., 41 Chief Operating Vice President of Stephens Inc.; Director of
Officer, Stephens Sports Management Inc.; and Director
Secretary and of Capo Inc.
Treasurer
</TABLE>
Compensation Table
Year Ended March 31, 1998
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ------------------------ ----------------------------------------- -------------------------------------
<S> <C> <C>
Jack S. Euphrat $25,750 $34,500
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $25,750 $34,500
Director
Peter G. Gordon $24,250 $30,500
Director
Joseph N. Hankin $25,750 $34,500
Director
W. Rodney Hughes $25,250 $33,000
Director
Robert M. Joses $ 1,500 $ 4,000
Director
J. Tucker Morse $25,250 $33,000
Director
</TABLE>
16
<PAGE>
As of January 1, 1998, Peter G. Gordon replaced Robert M. Joses on the
Board of Directors of the Wells Fargo Fund Complex.
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, Stagecoach Trust and Life & Annuity 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"). Overland Express Funds,
Inc. and Master Investment Trust, two investment companies previously advised by
Wells Fargo Bank, were part of the Wells Fargo Fund Complex prior to December
12, 1997. These companies are no longer part of the Wells Fargo Fund Complex.
MasterWorks Funds Inc., Master Investment Portfolio and Managed Series
Investment Trust together form a separate fund complex (the "BGFA Fund
Complex"). Each of the Directors and Officers of the Company serves in the
identical capacity as directors and officers or as trustees and/or officers of
each registered open-end management investment company in both the Wells Fargo
and BGFA Fund Complexes, except for Joseph N. Hankin and Peter G. Gordon, who
only serve the aforementioned members of the Wells Fargo 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 ADVISOR. Wells Fargo Bank provides investment advisory services
------------------
to the Fund. As investment advisor, Wells Fargo Bank furnishes investment
guidance and policy direction in connection with the daily portfolio management
of the Fund. 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 provides 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 securities markets trends, portfolio
composition, and credit conditions.
As compensation for its advisory services, Well Fargo Bank is entitled to
receive a monthly fee at the annual rate of 0.50% of the Fund's average daily
net assets.
For the period indicated below, the Fund paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amount:
<TABLE>
<CAPTION>
Six-Month
Period Ended
3/31/97
------------
Fees Paid Fees Waived
--------- -----------
<S> <C>
$134,529 $121,235
</TABLE>
17
<PAGE>
For the nine-month period ended September 30, 1996, the Fund paid $213,467
to Wells Fargo Bank for advisory fees. Wells Fargo Bank did not waive any
advisory fees.
For the periods indicated below, the Fund paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
<TABLE>
Year Ended Year Ended
12/31/95 12/31/94
---------- ----------
Fees Fees Fees Fees
Paid Waived Paid Waived
------- ------- ------- -------
<S> <C> <C> <C>
$56,387 $60,241 $0 $58,270
</TABLE>
General. The Fund's Advisory Contract will continue in effect for more
-------
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the Fund's outstanding voting
securities or by the Company's Board of Directors and (ii) by a majority of the
Directors of the Company who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. The Fund's
Advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.
PORTFOLIO MANAGERS. Mr. Jeff Weaver assumed responsibility as a portfolio
------------------
co-manager for the day-to-day management of the Fund's portfolio 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 assumed responsibility as a portfolio co-manager for the
day-to-day management of the portfolio of the 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 B.S. in Business
Administration from the University of Kansas and is a chartered financial
analyst.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells Fargo
----------------------------------
Bank as Administrator and Stephens Inc. ("Stephens") as Co-Administrator on
behalf of the Fund. Under the respective Administration and Co-Administration
Agreements among Wells Fargo Bank, Stephens and the Company, Wells Fargo Bank
and Stephens shall provide as administration services, among other things: (i)
general supervision of the Fund's operations, including coordination of the
services performed by the Fund's investment Advisor, 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 U.S. Securities and
Exchange Commission ("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
18
<PAGE>
furnish office space and certain facilities required for conducting the Fund's
business together with ordinary clerical and bookkeeping services. Stephens pays
the compensation of the Company's Directors, officers and employees who are
affiliated with Stephens. The Administrator and Co-Administrator are entitled to
receive a monthly fee of 0.03% and 0.04%, respectively, of the average daily net
assets of the Fund. Prior to February 1, 1998, the Administrator and Co-
Administrator received a monthly fee of 0.04% and 0.02%, respectively, of the
average daily net assets of the Fund. In connection with the change in fees, the
responsibility for performing various administration services was shifted to the
Co-Administrator.
Prior to February 1, 1997, Stephens served as the sole Administrator and
performed substantially the same services now provided by Stephens and Wells
Fargo Bank.
For the period indicated below, the Fund paid the following dollar amounts
to Wells Fargo Bank and Stephens for administration and co-administration fees:
<TABLE>
<CAPTION>
Six-Month
Period Ended
3/31/97
--------
Total Wells Fargo Stephens
------- ----------- --------
<S> <C> <C>
$19,910 $ 3,982 $15,928
</TABLE>
For the periods indicated below, the Fund paid to Stephens the following
dollar amounts of administration fees. Stephens, as sole Administrator for the
years ended December 31, 1994, and 1995, and the nine-month period September 30,
1996, 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>
Nine-Month
Period Ended Year Ended Year Ended
9/30/96 12/31/95 12/31/94
------------ ---------- ----------
<S> <C> <C>
$12,808 $ 6,998 $ 3,522
</TABLE>
DISTRIBUTOR. Stephens (the "Distributor"), located at 111 Center Street,
-----------
Little Rock, Arkansas 72201, serves as the Distributor for the Fund. 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 B shares. The Plan 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 "Non-Interested
Directors").
Under the Plan, and pursuant to the related Distribution Agreement, the
Fund may pay Stephens up to 0.75% of the average daily net assets attributable
to the Class B shares as compensation for distribution-related services or as
reimbursement for distribution-related expenses.
19
<PAGE>
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 Conduct Rules of the NASD. 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 its 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.
General. 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 Non-Interested Directors. Any Distribution Agreement related to the
Plan also must be approved by such vote of the Directors and the Non-Interested
Directors. Such Agreement 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. The Plan may not be amended to increase materially the amounts
payable thereunder without the approval of a majority of the outstanding voting
securities of the Fund, and no material amendment to the Plan may be made except
by a majority of both the Directors of the Company and the Non-Interested
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.
Wells Fargo Bank, an interested person (as that term is defined in Section
2(a)(19) of the 1940 Act) of the Company, acts as a selling agent for the Fund's
shares pursuant to selling agreements with Stephens authorized under the Plan.
As a selling agent, Wells Fargo Bank has an indirect financial interest in the
operation of the Plan. The Board of Directors has concluded that the Plan is
reasonably likely to benefit the Fund and its shareholders because the Plan
authorizes the relationships with selling agents, including Wells Fargo Bank,
that have previously developed distribution channels and relationships with the
retail customers that the Fund are designed to serve. These relationships and
distribution channels are believed by the Board to provide potential for
increased Fund assets and ultimately corresponding economic efficiencies (i.e.,
lower per-share transaction costs and fixed expenses) that are generated by
increased assets under management.
SHAREHOLDER SERVICING AGENTS. The Fund has approved a Servicing Plan for
----------------------------
the Class B shares and has entered into related shareholder servicing agreements
with financial institutions, including Wells Fargo Bank. 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.
20
<PAGE>
For providing shareholder services, a Servicing Agent is entitled to a fee of up
to 0.25% from the Fund, on an annualized basis, of the average daily net assets
of the Class B 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 forms of 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 Agreement that exceed the maximum
amounts payable under the Conduct Rules of the NASD.
General. The Servicing Plan will continue in effect from year to year if
-------
such continuance is approved by a majority vote of the Directors of the Company,
including a majority of the Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund ("Non-Interested Directors"). Any form of
Servicing Agreement related to a Servicing Plan also must be approved by such
vote of the Directors and Non-Interested Directors. Servicing Agreements may be
terminated at any time, without payment of any penalty, by vote of a majority of
the Board of Directors, including a majority of the Non-Interested Directors.
No material amendment to the Servicing Plan or related Servicing Agreement may
be made except by a majority of both the Directors of the Company and the 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.
CUSTODIAN. Wells Fargo Bank acts as Custodian for the Fund. The Custodian,
---------
among other things, maintains a custody account or accounts in the name of the
Fund, receives and delivers all assets for the Fund upon purchase and upon sale
or maturity, collects and receives all income and other payments and
distributions on account of the assets of the Fund, and pays all expenses of the
Fund. For its services as Custodian, Wells Fargo Bank is entitled to receive
fees as follows: a net asset charge at the annual rate of 0.0167%, payable
monthly, plus specified transaction charges. Wells Fargo Bank also will provide
portfolio accounting services under the Custody Agreement as follows: a monthly
base fee of $2,000 plus a net asset fee at the annual rate of 0.070% of the
first $50,000,000 of the Fund's average daily net assets, 0.045% of the next
$50,000,000, and 0.020% of the average daily net assets in excess of
$100,000,000.
For the six-month period ended March 31, 1997, the Fund did not pay any
custody fees. For the period ended September 30, 1996, the Fund did not pay any
custody fees.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank acts as Transfer
--------------------------------------
and Dividend Disbursing Agent for the Fund. For providing such services, Wells
Fargo Bank is entitled to receive monthly payments at the annual rate of 0.14%
of the Fund's average daily net assets of the Class B shares.
For the six-month period ended March 31, 1997, the Fund did not pay any
transfer and dividend disbursing agency fees to Wells Fargo Bank.
Under the prior transfer agency agreement with the Fund for the Class A
shares, Wells Fargo Bank was entitled to receive a per account fee plus
transaction fees and reimbursement of out-of-pocket expenses, with a minimum of
$3,000 per month, unless net assets of the Fund were
21
<PAGE>
under $20 million. For as long as a Fund's assets remained under $20 million,
the Fund was not charged any transfer agency fees.
UNDERWRITING COMMISSIONS. For the six-month period ended March 31, 1997,
------------------------
the aggregate dollar amount of underwriting commissions paid to Stephens on
sales/redemptions of the Company's shares was $2,296,243 and Stephens retained
$241,806 of such commissions. WFSI and its registered representatives received
$1,719,000 and $335,437, respectively, of such commissions.
For the nine-month period ended September 30, 1996, the aggregate amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
shares was $2,917,738. Stephens retained $198,664 of such commissions. WFSI and
its registered representatives received $2,583,027 and $136,047, respectively,
of such commissions.
For the year ended December 31, 1995, the aggregate amount of underwriting
commissions paid to Stephens on sales/redemptions of the Company's shares was
$1,251,311. Stephens retained $162,660 of such commissions. WFSI and its
registered representatives received $399,809 of such commissions.
For the year ended December 31, 1994, Stephens retained $5,415,227, 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 year ended
December 31, 1994, WFSI, an affiliated broker-dealer of the Company, and its
registered representatives received $904,274, in underwriting commissions in
connection with the purchase or redemption of Company's shares.
PERFORMANCE CALCULATIONS
The Fund may advertise certain yield and total return information.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in the 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 performance 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.
Performance information for the Fund or Class of shares in the Fund may be
useful in reviewing the performance of the Fund or Class of shares and for
providing a basis for comparison with investment alternatives. The performance
of the Fund and the performance of a Class of shares in the Fund, however, may
not be comparable to the performance from investment alternatives because of
differences in the foregoing variables and differences in the methods used to
value portfolio securities, compute expenses and calculate performance.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Fund.
22
<PAGE>
Performance shown or advertised for the Class B shares for periods prior to
June 15, 1998, the commencement of operations for the Class B shares, reflects
the performance of the Fund's Class A shares adjusted to reflect the sales
charges and expenses of the Class B shares in effect on June 15, 1998.
AVERAGE ANNUAL TOTAL RETURN: The Fund may advertise certain total return
---------------------------
information. 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.
Average Annual Total Return for the Applicable
Period Ended September 30, 1997/1/
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception Inception Five Year Five Year Three Year Three Year One Year One Year
With No With No With No With No
Sales/2/ Sales Sales Sales Sales Sales Sales Sales
Class Charge Charge Charge Charge Charge Charge Charge Charge
- ------------- --------- --------- --------- --------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A 4.37% 5.19% N/A N/A 5.98% 7.08% 4.57% 7.79%
Class B 3.88% 4.53% N/A N/A 5.53% 6.42% 2.20% 7.20%
</TABLE>
- -------------
1 Return calculations, except as indicted, reflect the inclusion of front-end
sales charges for Class A shares and the maximum applicable contingent
deferred sales charge ("CDSC") for Class B shares.
2 For purposes of showing performance information, the inception date of the
Fund is October 27, 1993. The actual inception date of each class may
differ from the inception date of the Fund.
CUMULATIVE TOTAL RETURN. In addition to the above performance information,
-----------------------
the Fund may also advertise the cumulative total return. Cumulative total
return is based on the overall percentage change in value of a hypothetical
investment in the Fund, assuming all Fund dividends and capital gain
distributions are reinvested, without reflecting the effect of any sales charge
that would be paid by an investor, and is not annualized.
Cumulative Total Return for the Applicable Period Ended September 30, 1997/1/
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception Inception Five Year Five Year Three Year Three 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>
Class A 18.25% 21.91% N/A N/A 19.03% 22.77%
Class B 16.07% 18.95% N/A N/A 17.52% 20.52%
</TABLE>
- ------------------
1 Return calculations, except as indicted, reflect the inclusion of front-end
sales charges for Class A shares and the maximum applicable contingent
deferred sales charge for Class B shares.
2 For purposes of showing performance information, the inception date of the
Fund is October 27, 1993. The actual inception date of each class may
differ from the inception date of the Fund.
23
<PAGE>
YIELD CALCULATIONS: The Fund may, from time to time, include its yields
------------------
and effective yields in advertisements or reports to shareholders or prospective
investors. Quotations of yield for the Fund is based on the investment income
per share earned during a particular seven-day or thirty-day period, less
expenses accrued during a period ("net investment income") and are computed by
dividing net investment income by the offering price per share on the last date
of the period, according to the following formula:
YIELD = 2[(a - b + 1)/6/ - 1]
-----
Cd
where a = dividends and interest earned during the period; b = expenses
accrued for the period (net of reimbursements); c = the average daily number of
shares of each class outstanding during the period that were entitled to receive
dividends; and d = the maximum offering price per share each class of shares on
the last day of the period.
EFFECTIVE YIELD: Effective yields for the Fund are based on the change in
---------------
the value of a hypothetical investment (exclusive of capital changes) over a
particular thirty-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 multiplying by 365/30, 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 the 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 Thirty-Day Yield = [(Base Period Return +1)365/30]-1
Yield for the Applicable Period Ended September 30, 1997/1/
-----------------------------------------------------------
<TABLE>
<CAPTION>
Thirty-Day Yield
----------------
Class After Waiver Before Waiver
- ------------------ ------------ -------------
<S> <C> <C>
Class A 5.66% 5.16%
Class B N/A N/A
</TABLE>
- ------------------
1 The amounts shown above reflect all front-end sales charges and applicable
CDSCs. "After waiver" figures reflect any waived fees or reimbursed
expenses throughout the period.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in the 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 the 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
24
<PAGE>
reinvestment of dividends but generally do not reflect deductions for
administrative and management costs.
The yields for each class of shares will fluctuate from time to time,
unlike bank deposits or other investments that pay a fixed yield for a stated
period of time, and do not provide a basis for determining future yields since
they are 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 or to a particular class of the Fund.
In addition, investors should recognize that changes in the net asset
values of shares of each class of the Fund will affect the yield of the
respective class of shares for any specified period, and such changes should be
considered together with such class' yield in ascertaining such class' total
return to shareholders for the period. Yield information for each class of
shares may be useful in reviewing the performance of the class of shares and for
providing a basis for comparison with investment alternatives. The yield of each
class of shares, 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, the Company may quote the performance or price-
earning ratio of the Fund or a Class of in advertising and other types of
literature as compared with 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 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), other managed or
unmanaged indices or performance data of bonds, municipal securities, stocks or
government securities (including data provided by Ibbotson Associates), or by
other services, companies, publications or persons who monitor mutual funds on
overall performance or other criteria. The S&P Index and the Dow Jones
Industrial Average are unmanaged indices of selected common stock prices. The
performance of the Fund 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 Fund's
performance will be calculated by relating net asset value per share of each
class at the beginning of a stated period to the net asset value of the
investment, assuming reinvestment of all gains distributions paid, at the end of
the period. The Fund's comparative performance will be based on a comparison of
yields, as described above, or total return, as reported by Lipper, Survey
Publications, Donoghue or Morningstar, Inc. of other mutual funds having similar
objectives.
Any such comparisons may be useful to investors who wish to compare the
past performance of each class of shares of the Fund with the performance of the
Fund's competitors. Of course, past performance cannot be a guarantee of future
results. The Company also may
25
<PAGE>
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 shares of the Fund: (i) the Consumer Price Index may be used to
assess the real rate of return from an investment in each 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
each class of shares of the 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 each 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 each 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 each class of shares of
the Fund 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 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 the Fund has been assigned a rating by an NRSRO, such as Standard Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to
purchase, sell or hold the Fund's shares since the rating would not comment on
the market price of the Fund's shares or the suitability of the Fund for a
particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. The Company may compare
the performance of each class of shares of the Fund with other investments which
are assigned ratings by NRSROs. Any such comparisons may be useful to investors
who wish to compare each class' 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 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."
26
<PAGE>
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Capital Management, Inc.
(formerly, Wells Fargo Investment Management) a subsidiary of Wells Fargo Bank,
is listed in the top 100 by Institutional Investor magazine in its July 1997
survey "America's Top 300 Money Managers." This survey ranks money managers in
several asset categories. The Company also may disclose in advertising and other
types of sales literature the assets and categories of assets under management
by the Company's investment Advisor and the total amount of assets and mutual
fund assets managed by Wells Fargo Bank. As of December 31, 1997, Wells Fargo
Bank and its affiliates provided investment advisory services for approximately
$62 billion of assets of individuals, trusts, estates and institutions and $23
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 each class of the Fund is determined as of
the close of regular trading (currently 1:00 p.m., Pacific time) on each day the
New York Stock Exchange ("NYSE") is open for business. 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 Fund's shares.
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 and debt securities
maturing in 60 days or less are valued at amortized cost. The assets of the
Fund, other than money market instruments or debt securities maturing in 60 days
or less, are valued at latest quoted bid prices. Futures contracts will be
marked to market daily at their respective settlement prices determined by the
relevant exchange. Prices
27
<PAGE>
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
the Fund for which current market quotations are not readily available are
valued at fair value as determined in good faith by the Company's Board of
Directors and in accordance with procedures adopted by the Directors.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day the Fund is open for business. The Fund
is open for business each day the NYSE is open for trading (a "Business Day").
Currently, the NYSE is closed on New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day (each a "Holiday"). When any Holiday falls on
a weekend, the NYSE typically is closed on the weekday immediately before or
after such Holiday.
Payment for shares may, in the discretion of the Advisor, be made in the
form of securities that are permissible investments for the Fund. 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 also redeem shares involuntarily or make
payment for redemption in securities or other property if it appears appropriate
to do so in light of the Company's responsibilities under the 1940 Act. In
addition, the Company may redeem shares involuntarily to reimburse the Fund for
any losses sustained by reason of the failure of a shareholder to make full
payment for shares purchased or to collect any charge relating to a transaction
effected for the benefit of a shareholder which is applicable to shares of the
Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
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
28
<PAGE>
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 non-equity 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
securities from underwriting syndicates of which Stephens or Wells Fargo Bank is
a member under certain conditions in accordance with the provisions of a rule
adopted under the 1940 Act and in compliance with procedures adopted by the
Board of Directors.
Wells Fargo Bank, as the Investment Advisor of the 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 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 six-month period ended March 31, 1997, the
---------------------
Fund did not pay any brokerage commissions.
For the years ended December 31, 1994 and 1995, and the period ended
September 30, 1996, the Fund did not pay any brokerage commissions.
Securities of Regular Broker/Dealers. As of March 31, 1997, the Fund owned
------------------------------------
securities (pooled repurchase agreements) of its "regular brokers or dealers" as
defined in the 1940 Act or its parents, as follows:
<TABLE>
<CAPTION>
Brokers/Dealers Amount
-------------------- ----------
<S> <C>
Goldman Sachs & Co. $1,211,000
JP Morgan Securities $2,600,000
</TABLE>
29
<PAGE>
Portfolio Turnover. The portfolio turnover rate is not a limiting factor
------------------
when Wells Fargo Bank deems portfolio changes appropriate. Changes may be made
in the portfolios consistent with the investment objectives and policies of the
Fund whenever such changes are believed to be in the best interests of the Fund
and its 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
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.
Portfolio turnover rate is not a limiting factor when Wells Fargo Bank deems
portfolio changes appropriate.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees from the
Fund in whole or in part. Any such waiver will reduce expenses and,
accordingly, have a favorable impact on a Fund's performance. Except for the
expenses borne by Wells Fargo Bank and Stephens, the Company bears all costs of
its operations, including 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 net asset value per share of the
Fund; expenses of shareholders' meetings; expenses relating to the issuance,
registration and qualification of the Fund's shares; pricing services,
organizational expenses and any extraordinary expenses. Expenses attributable to
the Fund are charged against Fund assets. General expenses of the Company are
allocated among all of the funds of the Company, including the Fund, in a manner
proportionate to the net assets of the Fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectus describes
generally the tax treatment of distributions by the Fund. This section of the
SAI includes additional information concerning income taxes.
General. The Company intends to qualify the Fund as a regulated investment
-------
company under Subchapter M of the Internal Revenue Code of 1986, as amended (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
30
<PAGE>
investment companies will generally be applied to the Fund, rather than to the
Company as a whole. In addition, net capital gain, net investment income, and
operating expenses will be determined separately for the Fund. As a regulated
investment company, the Fund will not be taxed on its net investment income and
capital gains distributed to its shareholders.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) the Fund derive at least 90% of its annual gross
income from dividends, interest, certain payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related to
the regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) the Fund diversify its holdings
so that, at the end of each quarter of the taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, government securities
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
obligations and the securities of other regulated investment companies), or in
two or more issuers which the Fund controls and which are determined to be
engaged in the same or similar trades or businesses.
The Fund must also distribute or be deemed to distribute to its
shareholders at least 90% of its net investment income earned in each taxable
year. In general, these distributions must actually or be deemed to be made in
the taxable year. However, in certain circumstances, such distributions may be
made in the 12 months following the taxable year. The Fund intends to pay out
substantially all of its net investment income and net realized capital gain (if
any) for each year.
In addition, a regulated investment company must, in general, derive less
than 30% of its gross income from the sale or other disposition of securities or
options thereon held for less than three months. However, this restriction has
been repealed with respect to a regulated investment company's taxable years
beginning after August 5, 1997.
Excise Tax. A 4% nondeductible excise tax will be imposed on the Fund
----------
(other than to the extent of its tax-exempt interest income) to the extent it
does not meet certain minimum distribution requirements by the end of each
calendar year. The Fund intends to actually or be deemed to distribute
substantially all of its net investment income and net capital gains by the end
of each calendar year and, thus, expects not to be subject to the excise tax.
Taxation of Fund Investments. Except as provided herein, gains and losses
----------------------------
on the sale of portfolio securities by the Fund will generally be capital gains
and losses. Such gains and losses will ordinarily be long-term capital gains
and losses if the securities have been held by the Fund for more than one year
at the time of disposition of the securities.
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
31
<PAGE>
extent of the portion of market discount which accrued, but was not previously
recognized pursuant to an available election, during the term a Fund held the
debt obligation.
If the Fund enters into a "constructive sale" of any appreciated position
in stock, a partnership interest, or certain debt instruments, the Fund must
recognize gain (but not loss) with respect to that position. For this purpose,
a constructive sale occurs when the Fund enters into one of the following
transactions with respect to the same or substantially identical property: (i) a
short sale; (ii) an offsetting notional principal contract; or (iii)a futures or
forward contract.
Foreign Taxes. 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 do not expect to be eligible to make such an
election.
Capital Gain Distributions. Distributions which are designated by the Fund
--------------------------
as capital gain distributions will be taxed to shareholders as long-term capital
gain (to the extent such dividends do exceed the Fund's actual net capital gain
for the taxable year), 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 its shareholders not later than 60 days
after the close of the Fund's taxable year.
The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers were generally taxed at a maximum rate of 28% on net
capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers are now generally taxed at a
maximum rate of 20% on net capital gain attributable to gains realized on the
sale of property held for greater than 18 months, and a maximum rate of 28% on
net capital gain attributable to gain realized on the sale of property held for
greater than one year and not more than 18 months. The 1997 Act retains the
treatment of short term capital gain or loss (generally, gain or loss
attributable to capital assets held for 1 year or less) and did not affect the
taxation of capital gains in the hands of corporate taxpayers.
Under the 1997 Act, the Treasury is authorized to issue regulations for
application of the reduced capital gains tax rates to pass-through entities,
including regulated investment companies, such as the Fund. The Internal
Revenue Service has published a notice describing temporary Regulations to be
issued pursuant to such authority, permitting the application of the reduced
capital gains tax rates to pass-through entities such as the Fund. Under the
Regulations to be issued, if a regulated investment company designates a
dividend as a capital gain dividend for a taxable year ending on or after May 7,
1997, then such regulated investment company may also designate the dividends as
one of two classes: a 20% rate gain distribution, or a 28% rate gain
distribution. Thus, noncorporate shareholders of the Fund may qualify for the
reduced rate of tax on capital gain dividends paid by the Fund, subject only to
the limitation as to the maximum amounts which may be designated in each class.
Such maximum amount for each class is determined by performing the computation
required by Section 1(h) of the Code as if the Fund is an individual whose
ordinary income is subject to a marginal rate of at least 28%.
32
<PAGE>
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. A disposition of Fund shares pursuant to
--------------------------
redemption (including a redemption in-kind) or exchanges will ordinarily result
in a taxable capital gain or loss, depending on the amount received for the
shares (or are deemed to receive in the case of an exchange) and the cost of the
shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as 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 long-term capital loss to the extent of the designated capital gain
distribution. The foregoing loss disallowance rule does not apply to losses
realized under a periodic redemption plan.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.6% (marginal tax rates
may be higher for some individuals to reduce or eliminate the benefit of
exemptions and deductions); the maximum individual marginal tax rate applicable
to net capital gain is 28% (however, see "Capital Gain Distributions" above);
and the maximum corporate tax rate applicable to ordinary income and net capital
gain is 35% (marginal tax rates may be higher for some corporations to reduce or
eliminate the benefit of lower marginal income tax rates). Naturally, the
amount of tax payable by an individual or corporation will be affected by a
combination of tax laws covering, for example, deductions, credits, deferrals,
exemptions, sources of income and other matters.
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 the shareholder certifies that the Taxpayer
33
<PAGE>
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 that 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 credit or refund 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. Foreign shareholders of
the Fund (described below) are generally not subject to backup withholding.
Foreign Shareholders. Under the Code, distributions of net investment
--------------------
income by the Fund to a nonresident alien individual, foreign trust (i.e., trust
which a U.S. court is able to exercise primary supervision over administration
of that trust and one or more U.S. persons have authority to control substantial
decisions of that trust), foreign estate (i.e., the income of which is not
subject to U.S. tax regardless of source), foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. income tax
withholding (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend distribution paid by the Fund to a
foreign shareholder is "effectively connected" with a U.S. trade or business
(or, if an income tax treaty applies, is attributable to a U.S. permanent
establishment of the foreign shareholder), in which case the reporting and
withholding requirements applicable to U.S. residents will apply. Distributions
of net capital gain are generally not subject to U.S. income tax withholding.
New Regulations. On October 6, 1997, the Treasury Department issued new
---------------
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S. income tax withholding and information reporting rules
applicable to foreign shareholders. The New Regulations will generally be
effective for payments made after December 31, 1998, subject to certain
transition rules. Among other things, the New Regulations will permit the Fund
to estimate the portion of its distributions qualifying as capital gain
distributions for purposes of determining the portion of such distributions paid
to foreign shareholders which will be subject to U.S. income tax withholding.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
Tax-Deferred Plans. The shares of the Fund are available for a variety of
------------------
tax-deferred retirement and other plans, including Individual Retirement
Accounts ("IRA"), Simplified Employee Pension Plans ("SEP-IRA"), Savings
Incentive Match Plans for Employees ("SIMPLE plans"), Roth IRAs, and Education
IRAs, which permit investors to defer some of their income from taxes.
Investors should contact their selling agents for details concerning retirement
plans.
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.
34
<PAGE>
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the federal income 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, local
and foreign taxes.
CAPITAL STOCK
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 over thirty funds.
Most of the Company's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, classes subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Company's funds also are authorized to
issue other classes of shares, which are sold primarily to institutional
investors. Each class of shares in a fund represents an equal, proportionate
interest in a fund with other shares of the same class. Shareholders of each
class bear their pro rata portion of the fund's operating expenses, except for
certain class-specific expenses (e.g., any state securities registration fees,
shareholder servicing fees or distribution fees that may be paid under Rule 12b-
1) that are allocated to a particular class. Please contact Stagecoach
Shareholder Services at 1-800-222-8222 if you would like additional information
about other funds or classes of shares offered.
With respect to matters affecting one class but not another, shareholders
vote as a class; for example, the approval of a Plan. Subject to the foregoing,
all shares of the Fund have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by a series is required by law
or where the matter involved only affects one series. For example, a change in
the Fund's fundamental investment policy affects only one series and would be
voted upon only by shareholders of the Fund involved. Additionally, approval of
an advisory contract, since it affects only one Fund, is a matter to be
determined separately by Series. Approval by the shareholders of one Series is
effective as to that Series whether or not sufficient votes are received from
the shareholders of the other Series to approve the proposal as to those Series.
As used in the Prospectus and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of a Class of shares of
the Fund, means the vote of the lesser of (i) 67% of the shares of the Class
represented at a meeting if the holders of more than 50% of the outstanding
shares of the Class are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of the Class of the Fund. 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.
35
<PAGE>
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and non-assessable by the Company. 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 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 that Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular Fund or portfolio that are available for distribution in such manner
and on such basis as the Directors in their sole discretion may determine.
Set forth below, as of March 1, 1998, 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 as a whole. The term "N/A" is used where a shareholder holds 5% or
more of a class, but less than 5% of a Fund as a whole.
5% OWNERSHIP AS OF MARCH 1, 1998
--------------------------------
<TABLE>
<CAPTION>
TYPE OF PERCENTAGE PERCENTAGE
NAME AND ADDRESS OWNERSHIP OF CLASS OF PORTFOLIO
- ------------------------------ ------------------ ----------- -------------
<S> <C> <C> <C>
WELLS FARGO BANK CLASS A 28.88% 10.10%
P.O. BOX 63015 BENEFICIALLY OWNED
SAN FRANCISCO, CA 94163
WELLS FARGO BANK CLASS I 10.22% 6.65%
CHOICEMASTER BENEFICIALLY OWNED
ATTN: MUTUAL FUNDS A88-4
P.O. BOX 9800
CALABASAS, CA 91372
DIM & CO. CLASS I 48.47% 31.52%
ATTN: MF DEPT. A88-4 BENEFICIALLY OWNED
P.O. BOX 9800
CALABASAS, CA 91372
VIRG & CO. CLASS I 24.50% 15.94%
ATTN: MF DEPT. A88-4 BENEFICIALLY OWNED
P.O. BOX 9800
CALABASAS, CA 91372
HEP & CO. CLASS I 14.33% 9.32%
ATTN: MF DEPT. A88-4 BENEFICIALLY OWNED
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
The Company's Registration Statement, including the Prospectus and SAI for
the Fund and the exhibits filed therewith, may be examined at the office of the
U.S. Securities and Exchange 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.
36
<PAGE>
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 and unaudited financial statements for the
Fund for the six-month period ended September 30, 1997, are hereby incorporated
by reference to the Company's Semi-Annual Reports as filed with the SEC on
December 5, 1997.
The portfolio of investments, audited financial statements and independent
auditors report for the Fund for the year ended March 31, 1997 are hereby
incorporated by reference to the Company's Annual Reports as filed with the SEC
on June 4, 1997.
Annual and Semi-Annual Reports may be obtained by calling 1-800-222-8222.
37
<PAGE>
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 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 lack outstanding investment
characteristics and in fact have speculative characteristics as well. Moody's
also applies numerical modifiers in its rating system: 1, 2 and 3 in each rating
category from "Aa" through "Baa" in its rating system. The modifier 1 indicates
that the security ranks in the higher end of its category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are "AAA,"
"AA," "A" and "BBB." Bonds rated "AAA" have the "highest rating" assigned by S&P
and have "an extremely strong capacity" to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity" to pay interest and repay
principal and "differ from the highest rated obligations only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having "adequate protection parameters" to pay
interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of a
plus or minus sign to show relative standing within the category.
Commercial Paper
----------------
Moody's: The highest rating for commercial paper is "P-1" (Prime-1).
Issuers rated "P-1" have a "superior ability for repayment of senior short-term
debt obligations." Issuers rated "P-2" (Prime-2) "have a strong capacity for
repayment of senior short-term debt obligations," but earnings trends, while
sound, will be subject to more variation.
A-1
<PAGE>
S&P: The "A-1" rating for commercial paper is rated "in the highest
category" by S&P and "the obligor's capacity to meet its financial commitment on
the obligation is strong." The "A-1+" rating indicates that said capacity is
"extremely strong." The A-2 rating indicates that said capacity is
"satisfactory," but that corporate and municipal commercial paper rated "A-2" is
"more susceptible" to the adverse effects of changes in economic conditions or
other circumstances than commercial paper rated in higher rating categories.
A-2
