<PAGE>
February 17, 1998
STAGECOACH FUNDS/R/
Stagecoach
Equity Index Fund
Prospectus
Class A and Class B 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.
Investment Advisor
and Administrator:
These securities have not been approved or
Wells Fargo Bank disapproved by the U.S. Securities and
Exchange Commission, any state securities
Investment Sub-Advisor commission or any other regulatory authority,
nor have any of these authorities passed upon
Barclays Global Fund the accuracy or adequacy of this Prospectus.
Advisors Any representation to the contrary is a
criminal offense.
Distributor and
Co-Administrator: Fund shares are NOT deposits or other
obligations of, or issued, endorsed or
Stephens Inc. guaranteed by, Wells Fargo Bank, N.A. ("Wells
Fargo Bank"), Barclays Global Investors, N.A.,
or any of their 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 THE FUND INVOLVES CERTAIN RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
About This Prospectus
- --------------------------------------------------------------------------------
What is a prospectus?
A prospectus provides you with the information you need in order to make an
informed investment decision. It describes how a 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:
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective and Investment Policies
ARROW]
What is the Fund trying to achieve? How do we intend to invest
your money? Look for the arrow icon to find out.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE
SIGN] A summary of the Fund's key permitted investments and practices.
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] What are key risk factors for this Fund? This will include the
factors described in "General Investment Risks" together with
any special risk factors for the Fund.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] Provides additional information about the Fund.
- --------------------------------------------------------------------------------
What else do I need to understand this 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).
Why is italicized print used throughout the Prospectus?
Words appearing in italicized print and highlighted in color
are defined in the Glossary.
<PAGE>
Table of Contents
Key Information 4
Summary of Expenses 5
- --------------------------------------------------------------------------------
The Fund Equity Index Fund 8
This section General Investment Risks 12
contains
important
information
about the Fund.
- --------------------------------------------------------------------------------
Your Account A Choice of Share Classes 15
Turn to this Reduced Sales Charges 17
section for
information on Your Account 21
how to open and
maintain your How to Buy Shares 23
account,
including how Selling Shares 24
to buy, sell
and exchange Exchanges 26
Fund shares.
Additional Services and Other Information 27
- --------------------------------------------------------------------------------
Reference Organization and Management of the Fund 31
Look here for How to Read the Financial Highlights 34
details on the
organization Glossary 36
of the Fund
and term
definitions.
<PAGE>
Key Information
- --------------------------------------------------------------------------------
Summary of the Stagecoach Equity Index Fund
The Fund described in this Prospectus seeks to approximate the total rate of
return of substantially all the common stocks comprising the S&P 500 Index.
The Fund's investment objective is fundamental and cannot be changed without a
majority vote of the shareholders.
Should you consider investing in this Fund? Yes, if:
* you are looking to add equity investments to your portfolio;
* you are interested in adding an index investment to your portfolio;
* you have an investment horizon of at least three to five years; and
* you are willing to accept the risks of equity investing, including the
risk that share prices may rise and fall significantly.
You should not invest in this Fund if:
* you are looking for FDIC insurance coverage or guaranteed rates of return;
* are unwilling or unable to accept that you may lose money on your
investment;
* you are unwilling or unable to accept the risks of investing in the
securities markets;
* you are looking for an actively managed equity fund; or
* you are seeking monthly dividend income.
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 Stagecoach Equity Index Fund. The
"Funds" also may refer to other mutual funds offered by Stagecoach Funds, Inc.
Key Terms
"Index Funds" are mutual funds that attempt to match the total return of a
particular index or list of securities. Index Funds are not "actively managed"
in that individual securities are not analyzed by traditional methods.
Dividends
We pay dividends, if any, quarterly. Capital gains, if any, are distributed at
least annually.
4 Stagecoach Equity Index Fund Prospectus
<PAGE>
Equity Index Fund Summary of Expenses
- --------------------------------------------------------------------------------
================================================================================
SHAREHOLDER TRANSACTION EXPENSES
================================================================================
These tables are intended to help you understand the various costs and
expenses you will pay as a 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.
- --------------------------------------------------------------------------------
Equity Index
-------------------
Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge on a purchase
(as a percentage of offering price) 4.50% None
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Maximum sales charge on reinvested
dividends None None
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
redemption None 5.00%
- --------------------------------------------------------------------------------
Exchange fees None None
- --------------------------------------------------------------------------------
================================================================================
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
================================================================================
Expenses shown have been restated to reflect contract amounts and amounts
payable by the Fund. Expenses shown "after waivers and reimbursements" reflect
voluntary fee waivers and reimbursements that may be discontinued without
prior notice. Long-term Class B shareholders may pay more than the equivalent
of the maximum front-end sales charge allowed by the National Association of
Securities Dealers, Inc.
================================================================================
Equity Index
-----------------
Class A Class B
- --------------------------------------------------------------------------------
Rule 12b-1 Fee 0.00% 0.75%
- --------------------------------------------------------------------------------
Management fee 0.25% 0.25%
- --------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.45% 0.45%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses
(after waivers or reimbursements) 0.70% 1.45%
- --------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursement) 0.51% 0.51%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses
(before waivers or reimbursements) 0.76% 1.51%
- --------------------------------------------------------------------------------
Stagecoach Equity Index Fund Prospectus 5
<PAGE>
Equity Index Fund Summary of Expenses
(continued)
- --------------------------------------------------------------------------------
================================================================================
Example of Expenses - This example is not a representation of past or future
expenses, and actual expenses may be higher or lower than those shown.
================================================================================
You would pay the following expenses on
a $1,000 investment assuming a 5% annual Equity Index
return and that you redeem your shares at -------------------
the end of each period. Class A Class B
- --------------------------------------------------------------------------------
1 year $52 $65
- --------------------------------------------------------------------------------
3 years $66 $76
- --------------------------------------------------------------------------------
5 years $82 $99
- --------------------------------------------------------------------------------
10 years $128 $134
- --------------------------------------------------------------------------------
================================================================================
Example of Expenses - This example is not a representation of past or future
expenses, and actual expenses may be higher or lower than those shown.
================================================================================
You would pay the following expenses
on a $1,000 investment assuming a 5%
annual return and that you do not Equity Index
redeem your shares at the end of ------------------
each period. Class A Class B
- --------------------------------------------------------------------------------
1 year $52 $15
- --------------------------------------------------------------------------------
3 years $66 $46
- --------------------------------------------------------------------------------
5 years $82 $79
- --------------------------------------------------------------------------------
10 years $128 $134
- --------------------------------------------------------------------------------
6 Stagecoach Equity Index Fund Prospectus
<PAGE>
This page intentionally left blank
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<PAGE>
Equity Index Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Barclays Global Fund Advisors
- --------------------------------------------------------------------------------
Investment Objective
[LOGO The Equity Index Fund seeks to approximate to the extent
OF ARROW] practicable the total rate of return of substantially all
common stocks comprising the Standard & Poor's 500 Composite
Stock Index (the "S&P 500").
Investment Policies
In attempting to approximate the total rate of return of the
S&P 500, we use a statistical process known as "sampling." We
select and hold a relative sample of the common stocks listed
on the S&P 500 and attempt to achieve a 95% correlation
between the price and total return performance of the S&P 500
and our investment results, before expenses. This correlation
is sought regardless of market conditions.
A precise duplication of the performance of the S&P 500 would
mean that the net asset value of Fund shares, including
dividends and capital gains, would increase or decrease in
exact proportion to changes in the S&P 500. Such a 100%
correlation is not feasible. Our ability to track the
performance of the S&P 500 may be affected by, among other
things, transaction costs and shareholder purchases and
redemptions. We will regularly monitor the performance and
composition of the S&P 500 and adjust the Fund's portfolio as
necessary in order to achieve the 95% correlation.
- --------------------------------------------------------------------------------
Permitted Investments
[LOGO OF Under normal market conditions, we invest:
PERCENTAGE
SIGN] * in a diversified portfolio of common stocks designed to
provide a relative sample of the stocks listed on the S&P 500;
* in stock index futures and options on stock indexes as a
substitute for a comparable position in the underlying
securities; and
* in interest-rate futures contracts, options on interest
rate swaps and index swaps.
We may temporarily hold assets in cash or in money market
instruments, including U.S. Government obligations, shares of
other
8 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
[LOGO OF Important Risk Factors
EXCLAMATION
POINT] You should consider both the General Investment Risks
beginning on page 12 and the specific risks listed below. They
are equally important to your investment choice.
The Fund attempts is to match as closely as possible the total
return of the S&P 500. Therefore, during periods when the S&P
500 is losing value, your investment will also lose value.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] The Standard & Poor's 500 Index is an index of 500 widely held
common stocks representing, among others, industrial,
financial, utility and transportation companies listed or
traded on national exchanges or over-the-counter markets. It
is one of the most widely used benchmarks of U.S. equity
performance.
"Standard & Poor's/R/, "S & P/R/," "S & P 500/R/" and
"Standard & Poor's 500" are trademarks of McGraw-Hill, Inc.
The Equity Index Fund is not sponsored, endorsed, sold or
promoted by Standard & Poor's and Standard & Poor's makes no
representation regarding the advisability of investing in the
Fund.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 5.
Stagecoach Equity Index Fund Prospectus 9
<PAGE>
Equity Index Fund Financial Highlights
See "Historical Fund Information" on page 29.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
For a Share Outstanding
====================================================================================================================================
For the period ended: Class A Shares - Commenced
on January 25, 1984
------------------------------------------------------------------------------------------------
Sept. 30, March 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1997/1/ 1997/2/ 1996/3/ 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $49.60 $46.24 $41.45 $31.42 $33.00 $31.40 $30.38 $23.60
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.24 0.25 0.42 0.59 0.63 0.59 0.62 0.62
Net realized and unrealized gain
(loss) on investments 12.42 4.61 4.79 10.65 (0.50) 2.19 1.35 6.16
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 12.66 4.86 5.21 11.24 0.13 2.78 1.97 6.78
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.24) (0.25) (0.42) (0.59) (0.63) (0.59) (0.62) 0.00
Distributions from
net realized gain 0.00 (1.25) 0.00 (0.62) (1.08) (0.59) (0.33) 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.24) (1.50) (0.42) (1.21) (1.71) (1.18) (0.95) 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $62.02 $49.60 $46.24 $41.45 $31.42 $33.00 $31.40 $30.38
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized)
(loss) 25.54% 10.63% 12.60% 35.99% 0.42% 8.91% 6.59% 28.72%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period
(000s) $506,881 $406,739 $370,439 $327,208 $236,265 $258,327 $230,457 $204,926
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets/4/ 0.98% 0.97% 1.01% 0.96% 0.97% 0.97% 0.93% 0.97%
Ratio of net investment to
income to average net assets/4/ 0.82% 1.02% 1.28% 1.59% 1.92% 1.81% 2.05% 2.30%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover/4/ 3% 2% 1%/5/ 6% 7% 5% 4% 4%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid ($) $0.0280 $0.0266 $0.0248/5/ N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses 1.04% 1.07% 1.08% 1.00% 1.00% 0.99% 1.00% N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets prior to
waived fees and reimbursed
expenses (loss) 0.76% 0.92% 1.21% 1.55% 1.89% 1.79% 1.98% N/A
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
Class A Share Calendar Year Returns 1996 1995 1994 1993 1992 1991
====================================================================================================================================
These returns reflect fee waivers 21.66% 35.99% 0.42% 8.91% 6.59% 28.72%
and reimbursements, do not reflect
sales loads and are not a guarantee
of future performance.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Unaudited financial statements.
/2/ The Fund changed fiscal year-end from September 30 to March 31.
/3/ The Fund changed fiscal year-end from December 31 to September 30.
10 Stagecoach Equity Index Fund Prospectus
<PAGE>
See "How to Read the Financial Highlights" on page 34.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
For a Share Outstanding
====================================================================================================================================
For the period ended: Class A Shares - Commenced
on January 25, 1984
------------------------------------------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period $24.57 $18.93 $16.44 $15.93
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations: 0.64 0.60 0.57 0.45
Net investment income
Net realized and unrealized gain
(loss) on investments (1.61) 5.04 1.92 0.06
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.97) 5.64 2.49 0.5
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income 0.00 0.00 0.00 0.00
Distributions from
net realized gain 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.60 $24.57 $18.93 $16.44
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized)
(loss) (3.95)% 29.79% 15.15% 3.20%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period
(000s) $151,742 $153,126 $115,119 $119,155
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratio of expenses to average
net assets/4/ 0.97% 1.04% 1.02% 1.05%
Ratio of net investment
income to average net assets/4/ 2.71% 2.69% 3.17% 2.43%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover/4/ 6% 6% 3% 12%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid ($) N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets prior to waived fees and
reimbursed expenses N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets prior to
waived fees and reimbursed
expenses (loss) N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
Class A Share Calendar Year Returns 1990 1989 1988 1987
====================================================================================================================================
These returns reflect fee waivers -3.95% 29.79% 15.15% 3.20%
and reimbursements, do not reflect
sales loads and are not a guarantee
of future performance.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/4/ Reflects activity of the Master Portfolio from April 28, 1996 through
September 30, 1997.
/5/ Represents activity for the Fund's stand-alone period only. The portfolio
turnover and average commission rates for the Corporate Stock Master
Portfolio for the Period from April 28, 1996 to September 30, 1996, were 3%
and $0.0265, respectively.
Stagecoach Equity Index Fund Prospectus 11
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
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
perform certain functions 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 equities that are subject to equity market risk. This is
the risk that stock prices will fluctuate and can decline and reduce the
value of the portfolio. Certain types of stock and certain stocks selected
for the Fund's portfolio may underperform or decline in value more than the
overall market. As of the date of this Prospectus, the equity market, as
measured by the S&P 500 Index and other commonly used indexes, is trading at
or close to record levels. There can be no guarantee that these performance
levels will continue.
* The Fund may invest a 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.
* The Fund may also use certain derivative instruments such as stock index
futures and options on stock index futures. The term "derivatives" covers a
wide number of investments, but in general it refers to any financial
12 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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 apply to the Fund's investments 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
the 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.
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.
Information Risk- The risk that information about a security is either
unavailable, incomplete or is inaccurate.
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 the 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.
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 be permit inappropriate trading practices.
Stagecoach Equity Index Fund Prospectus 13
<PAGE>
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. See the Investment Objective and Investment
Policies for the Fund or the Statement of Additional Information for
more information on these practices.
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 discussion 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.
------------------------------------------------------------------------
================================================================================
INVESTMENT PRACTICE: RISK:
================================================================================
Other Mutual Funds
The temporary investment in shares of another Market Risk *
mutual fund. A pro rata portion of the other
fund's expenses, in addition to the expenses
paid by the Fund, will be borne by Fund
shareholders.
- --------------------------------------------------------------------------------
Options
The right or obligations to receive or deliver Credit, Information
a security or cash payments depending on the and Liquidity Risk
security's price or the performance of
an index or benchmark.
------------------------------------------------------------------------------
Stock Index Futures *
Options on Stock Index Futures *
Index Swaps *
Interest rate futures *
Interest Rate Futures *
Interest Rate Swaps *
- --------------------------------------------------------------------------------
Privately Issued Securities
Securities that are not publicly traded but Liquidity Risk *
which may be resold in accordance with Rule
144A of the Securities Act of 1933.
- --------------------------------------------------------------------------------
Loans of Portfolio Securities
The practice of loaning securities to brokers, Credit and *
dealers and financial and institutions Counter-Party Risk
to increase return on those securities. Loans
may be made in accordance with existing
investment policies. Limited to 33 1/3% of assets.
- --------------------------------------------------------------------------------
Borrowing Policies
The ability to borrow an equivalent of 20% Leverage Risk *
of assets from banks for temporary purposes
to meet shareholder redemptions.
- --------------------------------------------------------------------------------
Illiquid Securities
A security that cannot be readily sold, or Liquidity Risk *
cannot be readily sold without negatively
affecting the fair price.
- --------------------------------------------------------------------------------
14 Stagecoach Equity Index Fund Prospectus
<PAGE>
A Choice of Share Classes
- --------------------------------------------------------------------------------
After choosing a Fund, your next most important choice is which share class to
buy. The following classes of shares are available through this Prospectus:
* Class A Shares - with a front-end sales charge, volume reductions and lower
on-going expenses than Class B shares.
* Class B Shares - with a contingent deferred sales charge (CDSC) that
diminishes over time, and higher on-going expenses than Class A shares.
The choice between share classes is largely a matter of preference. You should
consider, among other things, the different fees and sales loads assessed on
each share class and the length of time you anticipate holding your investment.
If you prefer to pay sales charges up front, wish to avoid higher on-going
expenses, or, more importantly, you think you may qualify for volume discounts
based on the amount of your investment, then Class A shares may be the choice
for you.
You may prefer to see "every dollar working" from the moment you invest. If so,
then consider Class B shares. Please note that Class B shares convert to Class A
shares after six years to avoid the higher on-going expenses assessed against
Class B shares.
Please see the expenses listed for the Fund and the following charge schedules
before making your decision. You should also review the "Reduced Sales Charges"
section below. You may wish to discuss this choice with your financial
consultant.
Stagecoach Equity Index Fund Prospectus 15
<PAGE>
A Choice of Share Classes
- --------------------------------------------------------------------------------
Class A Share Sales Charge Schedule
If you choose to buy Class A shares, you will pay the Public Offering Price
(POP) which is the Net Asset Value (NAV) plus the applicable sales charge. Since
sales charges are reduced for Class A share purchases above certain dollar
amounts, known as "breakpoint levels", the POP is lower for these purchases.
<TABLE>
<CAPTION>
================================================================================
Class A shares listed in this prospectus have the following charge schedule:
================================================================================
Amount Front-end sales charge as Front-end sales charge as Dealer allowance as %
of purchase % of public offering price % of net amount invested of public offering price
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
- ----------------------------------------------------------------------------------------------------------------
$50,000 to $99,999 4.00% 4.17% 3.55%
- ----------------------------------------------------------------------------------------------------------------
$100,000 to $249,999 3.50% 3.63% 3.125%
- ----------------------------------------------------------------------------------------------------------------
$250,000 to $499,999 2.50% 2.56% 2.00%
- ----------------------------------------------------------------------------------------------------------------
$500,000 to $999,999 3.00% 2.04% 1.75%
- ----------------------------------------------------------------------------------------------------------------
$1,000,000 and over/1/ 0.00% 0.00% 1.00%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ We will assess Class A share purchases of $1,000,000 or more a 1.00% CDSC if
they are redeemed within one year from the date of purchase. Charges are
based on the lower of the NAV on the date of purchase or the date of
redemption.
Please note that Class A shares of other Funds listed in other prospectuses
have different loads and breakpoints levels.
Class B Share CDSC Schedule
If you choose Class B shares, you buy them at 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" and "Waivers for
Certain Parties"). The CDSC schedule is as follows:
<TABLE>
<CAPTION>
================================================================================
Class B shares listed in this prospectus have the following charge schedule:
================================================================================
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 commissions 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.
16 Stagecoach Equity Index Fund Prospectus
<PAGE>
Reduced Sales Charges
- --------------------------------------------------------------------------------
Generally, we offer more sales charge reductions for Class A shares than for
Class B shares, particularly if you intend to invest greater amounts. You should
consider whether you are eligible for any of these potential reductions when you
are deciding which share class to buy.
Class A Share Reductions:
* You pay no sales charges on Fund shares you buy with reinvested
distributions.
* You pay a lower sales charge if you are investing an amount over a
breakpoint level. See the "Class A Share Sales Charge Schedule" above.
* By signing a Letter of Intent (LOI), you pay a lower sales charge now in
exchange for promising to invest an amount over a specified breakpoint within
the next 13 months. We will hold in escrow shares equal to approximately 5%
of the amount you intend to buy. If you do not invest the amount specified in
the LOI before the expiration date, we will redeem enough escrowed shares to
pay the difference between the reduced sales load you paid and the sales load
you should have paid. Otherwise, we will release the escrowed shares when you
have invested the agreed amount.
* Rights of Accumulation (ROA) allow you to combine the amount you invest with
the total NAV of shares you own in other Stagecoach front- end load Funds in
order to reach breakpoint levels for a reduced load. We give you a discount
on the entire amount of the investment that puts you over the breakpoint
level.
* If you are reinvesting the proceeds of a Stagecoach Fund redemption for
shares on which you have already paid a front-end sales charge, you have 120
days to reinvest the proceeds of that redemption with no sales charge into a
Fund that charges the same or a lower front-end sales charge. If you use such
a redemption to purchase shares of a Fund with a higher front-end sales
charge, you will have to pay the difference between the lower and higher
charge.
* You may reinvest into a Stagecoach Fund with no sales charge a required
distribution from a pension, retirement, benefits, or similar plan for which
Wells Fargo Bank acts as trustee provided the distribution occurred within
the last 30 days.
If you believe you are eligible for any of these reductions, it is up to you to
ask the selling agent or the shareholder servicing agent for the reduction and
to provide appropriate proof of eligibility.
Stagecoach Equity Index Fund Prospectus 17
<PAGE>
Reduced Sales Charges
- --------------------------------------------------------------------------------
You, or your fiduciary or trustee, may also tell us to extend volume discounts,
including the reductions offered for rights of accumulation and letters of
intent, to include purchases made by:
* a family unit, consisting of a husband and wife and children under the age
of twenty-one or single trust estate;
* a trustee or fiduciary purchasing for a single fiduciary relationship; or
* the members of a "qualified group" which consists of a "Company" (as defined
in the 1940 Act), and related parties of such a "Company", which has been in
existence for at least six months and which has a primary purpose other than
acquiring Fund shares at a discount.
------------------------------------------------------------------------
How a Letter of Intent Can Save You Money!
If you plan to invest, for example, $100,000 in the Equity Index Fund in
installments over the next year, by signing a letter of intent you would
pay only a 3.50% sales load on the entire purchase. Otherwise, you might
pay 4.50% on the first $49,999, then 4.00% on the next $50,000!
------------------------------------------------------------------------
18 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Class B Share CDSC Reductions:
* You pay no CDSC on Funds 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
in order to, for example, complete a merger or close an account whose value
has fallen below the minimum balance.
Waivers for Certain Parties
If you are eligible for certain waivers, we will sell you Class A shares so you
can avoid higher on-going expenses. The following people can buy Class A shares
at NAV:
* Current and retired employees, directors and officers of:
* Stagecoach Funds and its affiliates;
* Wells Fargo Bank and its affiliates;
* Stephens Inc. and its affiliates; and
* Broker-Dealers who act as selling agents.
* The spouses of any of the above, as well as the grandparents, parents,
siblings, children, grandchildren, aunts, uncles, nieces, nephews,
fathers-in-law, mothers-in-law, brothers-in-law and sisters-in-law of either
the spouse or the current or retired employee, director or officer.
You may also buy Class A Fund shares at NAV if they are to be included in
certain retirement, benefits, pension or investment wrap accounts with whom
Stagecoach Funds has reached an agreement, or through an omnibus account
maintained with a Fund by a broker/dealer.
We reserve the right to enter into agreements that reduce or eliminate sales
charges for groups or classes of shareholders, or for Fund shares included in
other investment plans such as "wrap accounts". If you own Fund shares as part
of another account or package such as an IRA or a sweep account, you must read
the directions for that account. These directions may supersede the terms and
conditions discussed here.
Stagecoach Equity Index Fund Prospectus 19
<PAGE>
Reduced Sales Charges
- --------------------------------------------------------------------------------
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 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>
The above schedules do not apply for shares of another Fund purchased after
February 28, 1997. If you exchange Class B shares 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
schedule.
20 Stagecoach Equity Index Fund Prospectus
<PAGE>
Your Account
- --------------------------------------------------------------------------------
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 per Fund minimum initial investment; or
* $100 per Fund minimum initial investment if you use the AutoSaver option.
* $100 per Fund for all investments after your first.
* We may waive the minimum for Funds you purchase 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.
Stagecoach Equity Index Fund Prospectus 21
<PAGE>
Your Account
- --------------------------------------------------------------------------------
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 Fund's 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 of the first NAV
calculated after the request and 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.
* Once an account has been opened, you can add additional Funds under the same
registration without requiring a new application.
* We reserve the right to cancel any purchase order or delay redemption if
your check does not clear.
22 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
How to Buy Shares:
The following section explains how you can buy Fund shares directly from
Stagecoach Funds. For Fund shares 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. |
- --------------------------------------------------------| Mail to:
Enclose a check for at least $1,000 made out in the | Stagecoach Funds
full name and share class of the Fund. For example, | PO Box 7066
"Stagecoach International Equity Fund, Class B". | San Francisco, CA
- --------------------------------------------------------| 94120-9201
You may start your account with $100 if you elect the |
AutoSaver option on the application. |
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 | Mail to:
account number on the check as well. | Stagecoach Funds
- --------------------------------------------------------| PO Box 7066
Enclose the payment stub/card from your statement if | San Francisco, CA
available. | 94120-9201
- --------------------------------------------------------------------------------
================================================================================
By wire
================================================================================
If you are buying shares for the first time:
- --------------------------------------------------------------------------------
If you do not currently have an account, complete a | Mail to:
Stagecoach Funds application. You must wire at least | Stagecoach Funds
$1,000. Be sure to indicate the Fund name and the | PO Box 7066
share class into which you intend to invest. | San Francisco, CA
- --------------------------------------------------------| 94120-9201
Mail the completed application. | Fax to:
- --------------------------------------------------------| 1-415-546-0280
You may also fax the completed application (with |
original to follow). |
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If you are buying additional shares:
- --------------------------------------------------------------------------------
Instruct your wiring bank to transmit | Wire to:
at least $100 according to the | Wells Fargo Bank, N.A.
instructions given to the right. Be | San Francisco, California
sure to have the wiring bank include |
your current account number and the | Bank Routing Number:
name your account is registered in. | 121000248
- ----------------------------------------------|
| Wire Purchase Account Number:
| 4068-000587
|
| Attention:
| Stagecoach Funds (Name of Fund
| and Share Class)
|
| Account Name:
| (Registration Name Indicated on
| Application)
----------------------------------
Stagecoach Equity Index Fund Prospectus 23
<PAGE>
Your Account
- --------------------------------------------------------------------------------
================================================================================
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 | Call:
to either: | 1-800-222-8222
* 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. |
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If you are buying additional shares:
- --------------------------------------------------------------------------------
Call Investor Services and instruct the representative |
to either: |
* transfer at least $100 from a linked settlement | Call:
account, or | 1-800-222-8222
* exchange at least $100 worth of shares from another|
Stagecoach Fund. |
- --------------------------------------------------------------------------------
Selling Shares:
The following section explains how you can sell shares held directly through an
account with Stagecoach Funds. 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, | Mail to:
or by wire ($5,000 minimum). Please call Investor | Stagecoach Funds
Services regarding requirements for linking bank | PO Box 7066
accounts or for wiring funds. We reserve the right | San Francisco, CA
to charge a fee for wiring funds although it is not | 94120-9201
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. |
- --------------------------------------------------------------------------------
24 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
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 | Call:
charge a fee for wiring funds although it is not | 1-800-222-8222
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. |
- --------------------------------------------------------------------------------
================================================================================
General notes for selling shares
================================================================================
We will process all 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.
- --------------------------------------------------------------------------------
We determine the NAV each day as of the close of the New York Stock Exchange,
which is generally 1:00 PM Pacific Time.
- --------------------------------------------------------------------------------
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 may be special requirements that supersede 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 to pay such
redemption in cash. Therefore, we may pay all or part of the redemption in
securities of equal value.
- --------------------------------------------------------------------------------
Stagecoach Equity Index Fund Prospectus 25
<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.
* You may make exchanges between like share classes. You may also exchange
between A or B share classes and non-institutional class shares of a Money
Market Fund.
* If you exchange between Class A shares, you will have to pay any difference
between a load you have already paid and the load you are subject to in the
new Fund (less the difference between any load already paid under the maximum
3% load schedule and the maximum 4.5% schedule).
* 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.
* If you are exchanging from a higher-load Fund to a lower or no-load Fund,
then back to the higher load, it is up to you to inform Stagecoach Funds that
you have already paid the higher load.
* Exchanges between Class B shares or between Class B shares and a Stagecoach
Money Market Fund 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. This also
applies to exchanges of Class A shares that are subject to a CDSC.
* 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.
26 Stagecoach Equity Index Fund Prospectus
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Automatic Programs:
These programs help you conveniently purchase or redeem shares each month:
* AutoSaver - 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 Stagecoach 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.
Stagecoach Equity Index Fund Prospectus 27
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
* 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.
------------------------------------------------------------------------
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 Funds 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 annually 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.
shareholders may be subject to back-up withholding.
If more than 50% of the Fund's total assets at the close of its taxable year
consist of stock or securities of non-U.S. issuers, the Fund will be eligible to
file an election with the Internal Revenue Service. Pursuant to this election,
and
28 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
subject to qualifications, you must include in your gross income for federal
tax purposes your pro rata portion of foreign withholding and other taxes paid
by the Fund. In computing your federal income taxes, you must either claim such
pro rata portion as a deduction or a foreign tax credit. We expect the Fund will
be eligible for, and will make, this election because of its substantial
investment in stocks and securities of non-U.S. issuers.
Historical Fund Information
From the period from April 28, 1996 to December 15, 1997, the Fund invested all
of its assets in a Master Portfolio with a corresponding investment objective;
the Fund no longer invests in a Master Portfolio. Currently, and for periods
prior to April 28, 1996, the Fund invests directly in a portfolio of securities.
Performance information for periods prior to January 1, 1992, reflects the
performance of the Equity Index Fund of the Wells Fargo Investment Trust for
Retirement Programs. The Fund's manager has voluntarily waived fees or
reimbursed expenses to the Fund; without these reductions the Fund's performance
would have been lower.
Share Class - This Prospectus contains information about Class A and Class B
shares. The Fund may offer 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 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.
Stagecoach Equity Index Fund Prospectus 29
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Dealer Concessions and Rule 12b-1 fees - Stephens Inc., as the Fund's
distributor, will pay the portion of the Class A 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 Fund.
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.
30 Stagecoach Equity Index Fund Prospectus
<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.
In the following sections, the percentages shown are the percentages of the
average daily net assets of the Fund class 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.
Stagecoach Equity Index Fund Prospectus 31
<PAGE>
Organization and Management of the Fund
- --------------------------------------------------------------------------------
================================================================================
Shareholders
================================================================================
\/
================================================================================
Financial services firms and selling agents
================================================================================
Advise current and prospective shareholders on their Fund investments
- --------------------------------------------------------------------------------
\/
================================================================================
Transfer and Shareholder
Distributor & dividend disbursing servicing
co-administrator Administrator agent agents
================================================================================
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 |Provide
Markets the Fund, | Manages the Fund's | Maintains records |services
distributes shares, | business activities | of shares and |to customers
and manages the | | supervises the |
Fund's business | | paying of dividends|
activities | | |
- --------------------------------------------------------------------------------
\/
================================================================================
Investment advisor Custodian
================================================================================
Wells Fargo Bank, 525 Market St. | Barclays Global Investors, N.A.,
San Francisco, CA | 45 Freemont St.
| San Francisco, CA
Manages the Fund's investment |
activities | Provides safekeeping for the
| Fund's assets
- --------------------------------------------------------------------------------
\/
================================================================================
Investment sub-advisor
================================================================================
Barclays Global Fund Advisors, 45 Fremont Street, San Francisco, CA
Manages the Fund's investment activities
- --------------------------------------------------------------------------------
\/
================================================================================
Board of directors
================================================================================
Supervises the Fund's activities
- --------------------------------------------------------------------------------
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 the following for advisory services (after fee waivers) for the
fiscal period ended March 31, 1997:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Class A Class B
- --------------------------------------------------------------------------------
<S> <C> <C>
Equity Index Fund .46% N/A
- --------------------------------------------------------------------------------
</TABLE>
32 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
The Sub-Advisor
Barclays Global Fund Advisors ("BGFA"), a wholly owned subsidiary of Barclays
Global Investors and an indirect subsidiary of Barclays Bank PLC, is the sub-
advisor for the Fund. BGFA was created from the reorganization of Wells Fargo
Nikko Investment Advisors, a former affiliate of Wells Fargo Bank. As of
September 30, 1997, BGFA managed or provided investment advice for assets
aggregating in excess of $495 billion. For its sub-advisory services, BGFA is
entitled to receive from Wells Fargo Bank .02% of the Fund's assets up to $500
million and .01% of the Fund's assets in excess of $500 million. The Fund paid
BGFA the following for sub-advisory services for the fiscal period ended March
31, 1997:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Class A Class B
- --------------------------------------------------------------------------------
<S> <C> <C>
Equity Index Fund .09% N/A
- --------------------------------------------------------------------------------
</TABLE>
The Administrator
Wells Fargo Bank is the administrator of the Fund. Wells Fargo Bank is paid .03%
of the Fund's assets for this service.
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.
We have adopted a distribution plan for Class B of the Fund. This plan is used
to pay for distribution-related services, including on-going 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 Funds. Funds with higher asset levels pay a higher proportion of these
costs. The fee paid under this plan is .75%.
Shareholder Servicing Plan
We have Shareholder Servicing Plans 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 as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Class A Class B
- --------------------------------------------------------------------------------
<S> <C> <C>
Equity Index Fund .25% .25%
- --------------------------------------------------------------------------------
</TABLE>
Stagecoach Equity Index Fund Prospectus 33
<PAGE>
How to Read the Financial Highlights
- --------------------------------------------------------------------------------
After the description of the Fund there is a chart showing important financial
information about the Fund. The chart is called "Financial Highlights" and is
designed to help you understand the past performance of the Fund. The Financial
Highlights, except as indicated, were audited by KPMG Peat Marwick LLP. The
financial statements are included in the Fund's most recent Annual Report and
are available free of charge by calling 1-800-222-8222. Other auditors audited
statements for periods prior to January 1, 1992.
Here is an explanation of some terms that will help you read these charts.
Net Asset Value (NAV)- The net value of one share of a class of the Fund. See
the Glossary for a fuller definition.
Net Investment Income- Net investment income is calculated by subtracting the
aggregate Fund expenses from the Fund's investment income. The number in the
financial highlights is the net investment income of a class divided by the
number of outstanding shares of that class. The amount distributed to
shareholders is listed under the heading "Less Distributions-Dividends from Net
Investment Income."
Net Realized and Unrealized Gain (Loss) on Investments- We continually buy and
sell investments. The profit on an investment sold for more than its purchase
price is a realized capital gain while a loss on an investment sold for less
than its purchase price is a realized capital loss. An unrealized gain or loss
occurs when an investment gains or loses value but is not sold. The amount of
capital gain or loss per share that was paid to shareholders is listed under the
heading "Less Distributions-Distributions From Net Realized Gains."
Net Assets- The value of the investments in the Fund's portfolio (after
accounting for expenses) that are attributable to a particular class of the
Fund.
Ratio of Expenses to Average Net Assets- This ratio reflects the amount paid by
the Fund to cover the costs of its daily operations, and includes advisory,
administration and other operating expenses. It is expressed as a percentage of
the average daily net assets of a class.
Ratio of Net Investment Income (Loss) to Average Net Assets- This ratio is the
result of dividing net investment income (or loss) by average net assets.
34 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Average Commission Rate Paid- The average brokerage commission paid by a Fund
when it buys or sells shares of securities. The rate is expressed on a per share
basis and the amount paid may vary depending upon trading practices or other
conditions. This information is required only for fiscal years beginning after
September 1, 1995.
Portfolio Turnover- Portfolio turnover reflects the trading activity in the
Fund's portfolio and is expressed as a percentage of a Fund's investment
portfolio. For example, a 50% portfolio turnover has sold and bought half of its
investment portfolio during the given period.
Total Return- The annual return on an investment, including any appreciation or
decline in share value, assumes reinvestment of all dividends and capital gains,
reflects fee waivers and excludes sales loads.
Stagecoach Equity Index Fund Prospectus 35
<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.
Business Day
Any day the New York Stock Exchange is open is a business day for the Fund.
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 a 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.
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.
Interest Rate Futures
The agreement to buy or sell a finance instrument or cash at a particular time
and price based on movements in interest rate. Unlike Options, in which the
holder may or may not execute the right, a futures contract must be fulfilled.
Interest Rate Swaps
Involve the exchange between parties of their respective commitments to pay or
receive interest.
36 Stagecoach Equity Index Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Index Swaps
The exchange with another party of cash flows based on the performance of an
index of securities or a portion of an index that usually includes dividends or
income.
Liquidity
The ability to readily sell a security at its fair price.
Net Asset Value (NAV)
The value of a single fund share. It is determined by adding together all of a
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.
Options
An option is the right to buy or sell a security based on an agreed upon price
for at a specified time. For example, an option may give the holder of a stock
the right to sell the stock to another party, allowing the seller to profit if
the price has fallen below the agreed price. Options can also be based on the
movement of an index such as the S&P 500.
Public Offering Price (POP)
The NAV with the sales load added.
Repurchase Agreements
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 a 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.
Stagecoach Equity Index Fund Prospectus 37
<PAGE>
Glossary
- --------------------------------------------------------------------------------
S&P 500 Index
An unmanaged Index of Stocks comprised of 500 companies, including industrial,
financial, utility and transportation companies.
Statement of Additional Information
A document that supplements the disclosures made in the Prospectus.
Stock Index Futures & Options on Stock Index Futures
A Stock Index Future obligates the seller to deliver (and the purchaser to
take), effectively, an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
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.
Turnover Ratio
The percentage of the securities held in a Fund's portfolio, other than short-
term securities, that were bought or sold within a year.
U.S. Government Obligations
Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
38 Stagecoach Equity Index Fund Prospectus
<PAGE>
This page intentionally left blank
- --------------------------------------------------------------------------------
<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. |
- ----------------------------------------------------------
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated February 17, 1998
EQUITY INDEX FUND
CLASS A AND CLASS B
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about a fund in the Stagecoach Family of Funds (the
"Fund") the EQUITY INDEX FUND. This SAI relates to the Class A and Class B
shares of the Fund .
This SAI is not a Prospectus and should be read in conjunction with the
Fund's Prospectus, dated February 17, 1998. All terms used in this SAI that are
defined in the Prospectus have the meaning assigned in the Prospectus. A copy
of the Prospectus may be obtained without charge by calling 1-800-222-8222 or
writing to Stagecoach Funds, P.O. Box 7066, San Francisco, CA 94120-7066.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Historical Fund Information..................... 1
Investment Restrictions......................... 1
Additional Permitted Investment Activities...... 3
Risk Factors.................................... 15
Management...................................... 17
Performance Calculations........................ 27
Determination of Net Asset Value................ 32
Additional Purchase and Redemption Information.. 32
Portfolio Transactions.......................... 33
Fund Expenses................................... 35
Federal Income Taxes............................ 36
Capital Stock................................... 44
Other........................................... 45
Independent Auditors............................ 46
Financial Information........................... 46
Appendix........................................ A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The Equity Index Fund commenced operations on January 1, 1992, as successor
to the Corporate Stock Fund of the Wells Fargo Investment Trust for Retirement
Programs. The predecessor Fund's commencement of operations was January 25,
1984. During the period from April 28, 1996 to December 12, 1997, the Fund
invested all of its assets in a Master Portfolio with a corresponding investment
objective. Prior to December 12, 1997, the Equity Index Fund was known as the
"Corporate Stock Fund."
The Class B shares of the Fund commenced operations on February 17, 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 its principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would be 25% or
more of the current value of its total assets, provided that there is no
limitation with respect to investments in (i) obligations of the United States
Government, its agencies or instrumentalities and (ii) any industry in which the
S&P 500 Index becomes concentrated to the same degree during the same period;
and provided further, that the Fund may invest all of its assets in a
diversified, open-end management investment company, or a series thereof, with
substantially the same investment objective, policies and restrictions as the
Fund, without regard to the limitations set forth in this paragraph (1);
(2) purchase or sell real estate or real estate limited partnerships (other
than securities secured by real estate or interests therein or securities issued
by companies that invest in real estate or interests therein);
(3) purchase or sell commodities or commodity contracts; except that the
Fund may purchase and sell (i.e., write) options, forward contracts, futures
contracts, including those relating to indices, and options on futures contracts
or indices, and may participate in interest rate and index swaps;
1
<PAGE>
(4) purchase interests, leases, or limited partnership interests in oil,
gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions and except for margin payments in connection
with transactions in options, forward contracts, futures contracts, including
those relating to indices, and options on futures contracts or indices) or make
short sales of securities;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting; and provided further, that the purchase by the Fund of securities
issued by a diversified, open-end management investment company, or a series
thereof, with substantially the same investment objective, policies and
restrictions as the Fund shall not constitute an underwriting for purposes of
this paragraph (6);
(7) make investments for the purpose of exercising control or management;
(8) issue senior securities, except to the extent the activities permitted
in Investment Restrictions Nos. 3 and 5 may be deemed to give rise to a senior
security but do not violate the provisions of section 18 of the 1940 Act, and
except that the Fund may borrow up to 20% of the current value of the Fund's net
assets for temporary purposes only in order to meet redemptions, and these
borrowings may be secured by the pledge of up to 20% of the current value of the
Fund's net assets (but investments may not be purchased by the Fund while any
such outstanding borrowings exceed 5% of the Fund's net assets);
(9) write, purchase or sell puts, calls, straddles, spreads, warrants,
options or any combination thereof, except that the Fund may engage in options
transactions to the extent permitted in Investment Restrictions Nos. 3 and 5,
and except that the Fund may purchase securities with put rights in order to
maintain liquidity; nor
(10) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities) if, as a
result, more than 5% of the value of the Fund's total assets would be invested
in the securities of any one issuer or the Fund's ownership would be more than
10% of the outstanding voting securities of such issuer, provided that the Fund
may invest all its assets in a diversified, open-end management investment
company, or a series thereof, with substantially the same investment objective,
policies and restrictions as the Fund, without regard to the limitations set
forth in this paragraph (10).
The Fund may make loans in accordance with its investment policies.
2
<PAGE>
As a fundamental policy, the Fund may invest, notwithstanding any other
investment restrictions (whether or not fundamental), all of its assets in the
securities of a single open-end, management investment company with
substantially the same fundamental investment objectives, policies and
restrictions as the Fund. A decision to so invest all of its assets may,
depending on the circumstances applicable at the time, require approval of
shareholders.
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 shareholder approval.
(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.
Under the 1940 Act, a Fund's investment in such securities currently is limited
to, subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Fund's net assets with respect to any one
investment company, and (iii) 10% of such Fund's net assets in the aggregate.
Other investment companies in which the Funds 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 a Fund.
(2) The Fund may not invest or hold more than 15% of the Fund's net assets
in illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
(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.
3
<PAGE>
Convertible Securities
----------------------
The Fund may invest in convertible securities that provide current income
and are issued by companies with the characteristics described above for the
Fund and that have a strong earnings and credit record. The Fund may purchase
convertible securities that are fixed-income debt securities or preferred
stocks, and which may be converted at a stated price within a specified period
of time into a certain quantity of the common stock of the same issuer.
Convertible securities, while usually subordinate to similar nonconvertible
securities, are senior to common stocks in an issuer's capital structure.
Convertible securities offer flexibility by providing the investor with a steady
income stream (which generally yield a lower amount than similar nonconvertible
securities and a higher amount than common stocks) as well as the opportunity to
take advantage of increases in the price of the issuer's common stock through
the conversion feature. Fluctuations in the convertible security's price can
reflect changes in the market value of the common stock or changes in market
interest rates. At most, 5% of the Fund's net assets will be invested, at the
time of purchase, in convertible securities that are not rated in the four
highest rating categories by one or more Nationally Recognized Statistical
Ratings Organizations ("NRSROs") such as Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Rating Group ("S&P"), or unrated but determined
by the advisor to be of comparable quality.
Corporate Reorganizations
-------------------------
The Fund may invest in securities for which a tender or exchange offer has
been made or announced, and in securities of companies for which a merger,
consolidation, liquidation or similar reorganization proposal has been announced
if, in the judgment of Wells Fargo Bank, N.A. ("Wells Fargo Bank") there is a
reasonable prospect of capital appreciation significantly greater than the added
portfolio turnover expenses inherent in the short term nature of such
transactions. The principal risk associated with such investments is that such
offers or proposals may not be consummated within the time and under the terms
contemplated at the time of the investment, in which case, unless such offers or
proposals are replaced by equivalent or increased offers or proposals which are
consummated, the Fund may sustain a loss.
Custodial Receipts for Treasury Securities
------------------------------------------
The Fund may purchase participations in trusts that hold U.S. Treasury
securities (such as TIGRs and CATS) or other obligations where the trust
participations evidence ownership in either the future interest payments or the
future principal payments on the obligations. These participations are normally
issued at a discount to their "face value," and can exhibit greater price
volatility than ordinary debt securities because of the way in which their
principal and interest are returned to investors. Investments by the Fund in
such participations will not exceed 5% of the value of the Fund's total assets.
4
<PAGE>
Derivatives
-----------
Some of the permissible investments described herein are considered
"derivative" securities because their value is derived, at least in part, from
the price of another security or a specified asset, index or rate. For example,
the futures contracts and options on futures contracts that the Fund may
purchase are considered derivatives. The Fund may only purchase or sell these
contracts or options as substitutes for comparable market positions in the
underlying securities. Also, asset-backed securities issued or guaranteed by
U.S. Government agencies or instrumentalities and certain floating- and
variable-rate instruments can be considered derivatives. Some derivatives may
be more sensitive than direct securities to changes in interest rates or sudden
market moves. Some derivatives also may be susceptible to fluctuations in yield
or value due to their structure or contract terms.
Wells Fargo Bank and Barclays Global Fund Advisors ("BGFA") use a variety
of internal risk management procedures to ensure that derivatives use is
consistent with the Fund's investment objective, does not expose the Fund to
undue risk and is closely monitored. These procedures include providing periodic
reports to the Board of Trustees concerning the use of derivatives.
The use of derivatives by the Fund also is subject to broadly applicable
investment policies. For example, the Fund may not invest more than a specified
percentage of its assets in "illiquid securities," including those derivatives
that do not have active secondary markets. Nor may the Fund use certain
derivatives without establishing adequate "cover" in compliance with the U.S.
Securities and Exchange Commission ("SEC") rules limiting the use of leverage.
Floating- and Variable-Rate Instruments
---------------------------------------
The Fund may purchase debt instruments with interest rates that are
periodically adjusted at specified intervals or whenever a benchmark rate or
index changes. These adjustments generally limit the increase or decrease in
the amount of interest received on the debt instruments. The floating- and
variable-rate instruments that the Fund may purchase include certificates of
participation in such instruments. Floating- and variable-rate instruments are
subject to interest-rate risk and credit risk.
Foreign Currency Transactions
-----------------------------
If the Fund enters into a foreign currency transaction or forward contract,
the Fund deposits, if required by applicable regulations, in a segregated
account of the Fund an amount at least equal to the value of the Fund's total
assets committed to the consummation of the forward contract. If the value of
the securities placed in the segregated account declines, additional cash or
securities are placed in the account so that the value of the account equals the
amount of the Fund's commitment with respect to the contract.
5
<PAGE>
At or before the maturity of a forward contract, the Fund either may sell a
portfolio security and make delivery of the currency, or may retain the security
and offset its contractual obligation to deliver the currency by purchasing a
second contract pursuant to which the Fund obtains, on the same maturity date,
the same amount of the currency which it is obligated to deliver. If the Fund
retains the portfolio security and engages in an offsetting transaction, the
Fund, at the time of execution of the offsetting transaction, incurs a gain or a
loss to the extent that movement has occurred in forward contract prices.
Should forward prices decline during the period between the Fund's entering into
a forward contract for the sale of a currency and the date it enters into an
offsetting contract for the purchase of the currency, the Fund will realize a
gain to the extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices
increase, the Fund will suffer a loss to the extent the price of the currency it
has agreed to purchase exceeds the price of the currency it has agreed to sell.
The cost to the Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because transactions in currency exchange
usually are conducted on a principal basis, no fees or commissions are involved.
Wells Fargo Bank or BGFA, as appropriate, considers on an ongoing basis the
creditworthiness of the institutions with which the Fund enters into foreign
currency transactions. The use of forward currency exchange contracts does not
eliminate fluctuations in the underlying prices of the securities, but it does
establish a rate of exchange that can be achieved in the future. If a
devaluation generally is anticipated, the Fund may not be able to contract to
sell the currency at a price above the devaluation level it anticipates.
The purchase of options on currency futures allows the Fund, for the price
of the premium it must pay for the option, to decide whether or not to buy (in
the case of a call option) or to sell (in the case of a put option) a futures
contract at a specified price at any time during the period before the option
expires.
Foreign Obligations and Securities
----------------------------------
The Fund may invest up to 25% of its assets in high-quality, short-term
debt obligations of foreign branches of U.S. banks or U.S. branches of foreign
banks that are denominated in and pay interest in U.S. dollars, and similar
obligations of foreign governmental and private issuers. The Fund also may
invest in foreign securities through American Depositary Receipts ("ADRs"),
Canadian Depositary Receipts ("CDRs"), European Depositary Receipts ("EDRs"),
International Depositary Receipts ("IDRs") and Global Depositary Receipts
("GDRs") or other similar securities convertible into securities of foreign
issuers. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs (sponsored or
unsponsored) are receipts typically issued by a U.S. bank or trust company and
traded on a U.S. stock exchange, and CDRs are receipts typically issued by a
Canadian bank or trust
6
<PAGE>
company that evidence ownership of underlying foreign securities. Issuers of
unsponsored ADRs are not contractually obligated to disclose material
information in the U.S. and, therefore, such information may not correlate to
the market value of the unsponsored ADR. EDRs and IDRs are receipts typically
issued by European banks and trust companies, and GDRs are receipts issued by
either a U.S. or non-U.S. banking institution, that evidence ownership of the
underlying foreign securities. Generally, ADRs in registered form are designed
for use in U.S. securities markets and EDRs and IDRs in bearer form are
designed primarily for use in Europe.
Investments in foreign securities involve certain considerations that are
not typically associated with investing in domestic securities. There may be
less publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to the same accounting,
auditing and financial reporting standards or governmental supervision as
domestic issuers. In addition, with respect to certain foreign countries, taxes
may be withheld at the source under foreign tax laws, and there is a possibility
of expropriation or confiscatory taxation, political, social and monetary
instability or diplomatic developments that could adversely affect investments
in, the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries.
Forward Commitments, When-Issued Purchases 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. 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. Securities purchased on a when-issued or forward commitment basis may
expose the relevant Fund to risk because they may experience price fluctuations
prior to their actual delivery. Purchasing securities on a when-issued or
forward commitment basis can involve the additional risk that the yield
available in the market when the delivery takes place actually may be higher
than that obtained in the transaction itself.
The Fund will segregate cash, U.S. Government obligations or other high-
quality debt instruments in an amount at least equal in value to the Fund's
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will segregate additional liquid assets on a daily basis so
that the value of the segregated assets is equal to the amount of such
commitments.
7
<PAGE>
Futures Contracts and Options Transactions
------------------------------------------
In General. The Fund may engage in futures and options transactions as
discussed below. A futures transaction involves a firm agreement to buy or sell
a commodity or financial instrument at a particular price on a specified future
date, while an option transaction generally involves a right, which may or may
not be exercised, to buy or sell a commodity of financial instrument at a
particular price on a specified future date. Futures contracts and options are
standardized and exchange-traded, where the exchange serves as the ultimate
counterparty for all contracts. Consequently, the only credit risk on futures
contracts is the creditworthiness of the exchange. Futures contracts, however,
are subject to market risk (i.e., exposure to adverse price changes).
The Fund may trade futures contracts and options on futures contracts in
U.S. domestic markets, such as the Chicago Board of Trade and the International
Monetary Market of the Chicago Mercantile Exchange.
The Fund's futures transactions must constitute permissible transactions
pursuant to regulations promulgated by the Commodity Futures Trading Commission.
In addition, the Fund may not engage in futures transactions if the sum of the
amount of initial margin deposits and premiums paid for unexpired options on
futures contracts, other than those contracts entered into for bona fide hedging
purposes, would exceed 5% of the liquidation value of the Fund's assets, after
taking into account unrealized profits and unrealized losses on such contracts;
provided, however, that in the case of an option on a futures contract that is
in-the money at the time of purchase, the in-the money amount may be excluded in
calculating the 5% liquidation amount. Pursuant to regulations and/or published
positions of the U.S. Securities and Exchange Commission ("SEC"), the Fund may
be required to segregate cash, U.S. Government obligations or other high-quality
debt instruments in connection with its futures transactions in an amount
generally equal to the entire value of the underlying commitment.
Initially, when purchasing or selling futures contracts the Fund will be
required to deposit with its custodian in the broker's name an amount of cash or
cash equivalents up to approximately 10% of the contract amount. This amount is
subject to change by the exchange or board of trade on which the contract is
traded, and members of such exchange or board of trade may impose their own
higher requirements. This amount is known as "initial margin" and is in the
nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures position, assuming all
contractual obligations have been satisfied. Subsequent payments, known as
"variation margin", to and from the broker will be made daily as the price of
the index or securities underlying the futures contract fluctuates, making the
long and short positions in the futures contract more or less valuable. At any
time prior to the expiration of a futures contract, the Fund may elect to close
the position by taking an opposite position, at the then prevailing price,
thereby terminating its existing position in the contract.
8
<PAGE>
Although the Fund intends to purchase or sell futures contracts only if
there is an active market for such contracts, no assurance can be given that a
liquid market will exist for any particular contract at any particular time.
Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades may be made
that day at a price beyond that limit or trading may be suspended for specified
periods during the trading day. Futures contracts prices could move to the
limit for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and potentially subject the
Fund to substantial losses. If it is not possible, or the Fund determines not
to close a futures position in anticipation of adverse price movements, the Fund
will be required to make daily cash payments of variation margin.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. The
writer (i.e. seller) of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of the option, the assumption
of offsetting futures positions by both the writer and the holder of the option
will be accompanied by delivery of the accumulated cash balance in the writer's
futures margin account in the amount by which the market price of the futures
contract, at exercise, exceeds (in the case of a call) or is less than (in the
case of a put) the exercise price of the option on the futures contract.
The Fund may enter into futures contracts and may purchase and write
options thereon. Upon the exercise, the writer of the option delivers to the
holder of the option the futures position and the accumulated balance in the
writer's futures margin account, which represents the amount by which the market
price of the futures contract exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the futures contract.
The potential loss related to the purchase of options on futures contracts is
limited to the premium paid for the option (plus transaction costs). Because
the value of the option is fixed at the time of sale, there are no daily cash
payments to reflect changes in the value of the underlying contract; however,
the value of the option may change daily, and that change would be reflected in
the net asset value of the Fund.
Options. The Fund may purchase or sell options on individual securities or
options on indices of securities as described below. The purchaser of an option
risks a total loss of the premium paid for the option if the price of the
underlying security does not increase or decrease sufficiently to justify
exercise. The seller of an option, on the other hand, will recognize the premium
as income if the option expires unrecognized but foregoes any capital
appreciation in excess of the exercise price in the case of a call option and
may be required to pay a price in excess of current market value in the case of
a put option.
9
<PAGE>
The Fund may engage in unlisted over-the-counter options with
broker/dealers deemed creditworthy by the advisor. Closing transactions for such
options are usually effected directly with the same broker/dealer that effected
the original option transaction. The Fund bears the risk that the broker/dealer
will fail to meet its obligations. There is no assurance that a liquid secondary
trading market exists for closing out an unlisted option position. Furthermore,
unlisted options are not subject to the protections afforded purchasers of
listed options by the Options Clearing Corporation, which performs the
obligations of its members who fail to perform in connection with the purchase
or sale of options.
Stock Index Options. The Fund may purchase call and put options and write
covered call options on stock indices listed on national securities exchanges or
traded in the over-the-counter market to the extent of 15% of the value of its
net assets. The Fund may purchase and write (i.e., sell) put and call options
on stock indices as a substitute for comparable market positions in the
underlying securities. A stock index fluctuates with changes in the market
values of the stocks included in the index. The aggregate premiums paid on all
options purchased may not exceed 20% of the Fund's total assets and the value of
the options written may not exceed 10% of the value of the Fund's total assets.
The effectiveness of purchasing or writing stock index options will depend
upon the extent to which price movements in the Fund's portfolio correlate with
price movements of the stock index selected. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether the Fund will realize a gain or loss from purchasing
or writing stock index options depends upon movements in the level of stock
prices in the stock market generally or, in the case of certain indices, in an
industry or market segment, rather than movements in the price of particular
stock.
When the Fund writes an option on a stock index, the Fund will place in a
segregated account with the Fund's custodian cash or liquid securities in an
amount at least equal to the market value of the underlying stock index and will
maintain the account while the option is open or otherwise will cover the
transaction.
Stock Index Futures and Options on Stock Index Futures. The Fund may
invest in stock index futures and options on stock index futures as a substitute
for a comparable market position in the underlying securities. A stock index
future obligates the seller to deliver (and the purchaser to take), effectively,
an amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. No physical delivery of
the underlying stocks in the index is made. With respect to stock indices that
are permitted investments, the Fund intends to purchase and sell futures
contracts on the stock index for which it can obtain the best price with
consideration also given to liquidity. There can be no assurance that a liquid
market will exist at the time
10
<PAGE>
when a Fund seeks to close out a futures contract or a futures option
position. Lack of a liquid market may prevent liquidation of an unfavorable
position.
Interest-Rate Futures Contracts and Options on Interest-Rate Futures
Contracts. The Fund may invest in interest-rate futures contracts and options
on interest-rate futures contracts as a substitute for a comparable market
position in the underlying securities. The Fund may also sell options on
interest-rate futures contracts as part of closing purchase transactions to
terminate its options positions. No assurance can be given that such closing
transactions can be effected or as to the degree of correlation between price
movements in the options on interest rate futures and price movements in the
Fund's portfolio securities which are the subject of the transaction.
Interest-Rate and Index Swaps. The Fund may enter into interest-rate and
index swaps in pursuit of its investment objective. Interest-rate swaps involve
the exchange by the Fund with another party of their respective commitments to
pay or receive interest (for example, an exchange of floating-rate payments for
fixed-rate payments). Index swaps involve the exchange by the Fund with another
party of cash flows based upon the performance of an index of securities or a
portion of an index of securities that usually include dividends or income. In
each case, the exchange commitments can involve payments to be made in the same
currency or in different currencies. The Fund will usually enter into swaps on
a net basis. In so doing, the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. If the Fund enters into a swap, it will maintain a segregated account
on a gross basis, unless the contract provides for a segregated account on a net
basis. If there is a default by the other party to such a transaction, the Fund
will have contractual remedies pursuant to the agreements related to the
transaction.
The use of interest-rate and index swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio security transactions. There is no limit, except as
provided below, on the amount of swap transactions that may be entered into by
the Fund These transactions generally do not involve the delivery of securities
or other underlying assets or principal. Accordingly, the risk of loss with
respect to swaps generally is limited to the net amount of payments that the
Fund is contractually obligated to make. There is also a risk of a default by
the other party to a swap, in which case the Fund may not receive net amount of
payments that the Fund contractually is entitled to receive. The Fund may
invest up to 10% of its respective net assets in interest-rate and index swaps.
Future Developments. The Fund may take advantage of opportunities in the
areas of options and futures contracts and options on futures contracts and any
other derivative investments which are not presently contemplated for use by the
Fund or which are not currently available but which may be developed, to the
extent such opportunities are both consistent with the Fund's investment
objective and legally permissible for the Fund.
11
<PAGE>
Before entering into such transactions or making any such investment, the Fund
would provide appropriate disclosure in its Prospectus or this SAI.
Loans of Portfolio Securities
-----------------------------
The Fund may lend securities from its portfolio to brokers, dealers and
financial institutions (but not individuals) if cash, U.S. Government
obligations or other high-quality debt instruments equal to at least 100% of the
current market value of the securities loan (including accrued interest thereon)
plus the interest payable to such Fund with respect to the loan is maintained
with the Fund. In determining whether to lend a security to a particular
broker, dealer or financial institution, Wells Fargo Bank will consider all
relevant facts and circumstances, including the creditworthiness of the broker,
dealer, or financial institution. Any loans of portfolio securities will be
fully collateralized based on values that are marked to market daily. The Fund
will not enter into any portfolio security lending arrangement having a duration
of longer than one year. The principal risk of portfolio lending is potential
default or insolvency of the borrower. In either of these cases, the Fund could
experience delays in recovering securities or collateral or could lose all or
part of the value of the loaned securities. Any securities that the Fund may
receive as collateral will not become part of the Fund's portfolio at the time
of the loan and, in the event of a default by the borrower, the Fund will, if
permitted by law, dispose of such collateral except for such part thereof that
is a security in which the Fund is permitted to invest. During the time
securities are on loan, the borrower will pay the Fund any accrued income on
those securities, and the Fund may invest the cash collateral and earn
additional income or receive an agreed-upon fee from a borrower that has
delivered cash-equivalent collateral. The Fund will not lend securities having
a value that exceeds one third of the current value of its total assets. Loans
of securities by the Fund will be subject to termination at the Fund's or the
borrower's option. The Fund may pay reasonable administrative and custodial
fees in connection with a securities loan and may pay a negotiated portion of
the interest or fee earned with respect to the collateral to the borrower or the
placing broker. Borrowers and placing brokers may not be affiliated, directly
or indirectly, with the Company, its Advisor, or its Distributor.
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, a Fund's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Fund's net assets with respect to any one
investment company and (iii) 10% of such Fund's net assets in 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.
12
<PAGE>
Pass-Through Obligations
------------------------
The Fund may invest in pass-through obligations that are supported by the
full faith and credit of the U.S. Government (such as those issued by the
Government National Mortgage Association) or those that are guaranteed by an
agency or instrumentality of the U.S. Government or government-sponsored
enterprise (such as the Federal National Mortgage Association or the Federal
Home Loan Mortgage Corporation) or bonds collateralized by any of the foregoing.
Privately Issued Securities
---------------------------
The Fund may invest in privately issued securities, including those which
may be resold only in accordance with Rule 144A under the Securities Act of 1933
("Rule 144A Securities"). Rule 144A Securities are restricted securities that
are not publicly traded. Accordingly, the liquidity of the market for specific
Rule 144A Securities may vary. Delay or difficulty in selling such securities
may result in a loss to the Fund. Privately issued or Rule 144A Securities that
are determined by the investment advisor to be "illiquid" are subject to each
Fund's policy of not investing more than 15% of its net assets in illiquid
securities.
The Company's investment advisor, pursuant to guidelines established by the
Board of Directors of the Company will evaluate the liquidity characteristics of
each Rule 144A Security proposed for purchase by the Fund on a case-by-case
basis and will consider the following factors, among others, in their
evaluation: (1) the frequency of trades and quotes for the Rule 144A Security;
(2) the number of dealers willing to purchase or sell the Rule 144A Security and
the number of other potential purchasers; (3) dealer undertakings to make a
market in the Rule 144A Security; and (4) the nature of the Rule 144A Security
and the nature of the marketplace trades (e.g., the time needed to dispose of
the Rule 144A Security, the method of soliciting offers and the mechanics of
transfer). The Fund does not intend to invest more than 15% of its net assets
in privately issued securities or Rule 144A Securities that may be considered
illiquid during the coming year.
Money Market Instruments
------------------------
The Fund may invest in the following types of high quality money market
instruments that have remaining maturities not exceeding one year: (i) U.S.
Government obligations; (ii) negotiable certificates of deposit, bankers'
acceptances and fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1 billion in total assets at
the time of investment and are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are insured by the
Federal Deposit Insurance Corporation ("FDIC"); (iii) commercial paper rated at
the date of purchase "Prime-1" by Moody's or "A-1" or "A-1--" by S&P, or, if
unrated, of comparable quality as determined by Wells Fargo Bank, as investment
advisor; (iv) repurchase agreements; and (v) non-convertible corporate debt
securities (e.g., bonds and debentures) with remaining maturities
13
<PAGE>
at the date of purchase of no more than one year that are rated at least "Aa"
by Moody's or "AA" by S&P. The Fund also may invest in short-term U.S. dollar-
denominated obligations of foreign banks (including U.S. branches) that at the
time of investment: (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) are among the 75 largest foreign banks in
the world as determined on the basis of assets; (iii) have branches or
agencies in the United States; and (iv) in the opinion of Wells Fargo Bank, as
investment advisor, are of comparable quality to obligations of U.S. banks
which may be purchased by the Fund.
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 the
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,
14
<PAGE>
a security may cease to be rated or its rating may be reduced below the
minimum required for purchase by the Fund. Neither event will require a sale
of such security by the Fund. To the extent the ratings given by Moody's or
S&P may change as a result of changes in such organizations or their rating
systems, the Fund will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in its
Prospectus and in this SAI. The ratings of Moody's and S&P are more fully
described in the 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 Government National Mortgage Association ("GNMA") certificates) or
(ii) may be backed solely by the issuing or guaranteeing agency or
instrumentality itself (as with Federal National Mortgage Association ("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.
Warrants
--------
The Fund may invest in warrants (other than those that have been acquired
in units or attached to other securities). Warrants represent rights to
purchase securities at a specific price valid for a specific period of time.
The price of warrants do not necessarily correlate with the prices of the
underlying securities.
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 equity securities of the Fund are subject to equity market
risk. Equity market risk is the risk that stock prices will fluctuate or decline
over short or even extended
15
<PAGE>
periods. Throughout most of 1997, the stock market, as measured by the S&P 500
Index and other commonly used indices, has been trading at or close to record
levels. There can be no guarantee that these performance levels will continue.
The portfolio debt instruments of the Fund are subject to credit and interest-
rate risk. Credit risk is the risk that issuers of the debt instruments in
which the Fund invests may default on the payment of principal and/or
interest. Interest-rate risk is the risk that increases in market interest
rates may adversely affect the value of the debt instruments in which the Fund
invests and hence the value of your investment in the Fund.
There may be some additional risks associated with investments in smaller
and/or newer companies because their shares tend to be less liquid than
securities of larger companies. Further, shares of small and new companies are
generally more sensitive to purchase and sale transactions and changes in the
issuer's financial condition and, therefore, the prices of such stocks may be
more volatile than those of larger company stocks and may be subject to more
abrupt price movements than securities of larger companies.
The Fund may invest in the securities of issuers in any foreign country,
including American Depository Receipts ("ADRs") and European Depository Receipts
("EDRs") and similar securities, in order to replicate the S&P 500 Index. Such
securities involve special risks and considerations not typically associated
with investing in U.S. companies. These include differences in accounting,
auditing and financial reporting standards; generally higher commission rates on
foreign portfolio transactions; the possibility of nationalization,
expropriation or confiscatory taxation; adverse changes in investment or
exchange control regulations (which may include suspension of the ability to
transfer currency from a country); and political, social and monetary or
diplomatic developments that could affect U.S. investments in foreign countries.
Additionally, dispositions of foreign securities and dividends and interest
payable on those securities may be subject to foreign taxes, including
withholding taxes. Foreign securities often trade with less frequency and volume
than domestic securities and, therefore, may exhibit greater price volatility.
Additional costs associated with an investment in foreign securities may include
higher custodial fees than apply to domestic custodial arrangements and
transaction costs of foreign currency conversions. Changes in foreign exchange
rates also will affect the value of securities denominated or quoted in
currencies other than the U.S. dollar. The Fund's performance may be affected
either unfavorably or favorably by fluctuations in the relative rates of
exchange between the currencies of different nations, by exchange control
regulations and by indigenous economic and political developments.
Illiquid securities, which may include certain restricted securities, may
be difficult to sell promptly at an acceptable price. Certain restricted
securities may be subject to legal restrictions on resale. Delay or difficulty
in selling securities may result in a loss or be costly to the Fund.
The advisor may use certain derivative investments or techniques, such as
buying and selling options and futures contracts and entering into currency
exchange contracts or
16
<PAGE>
swap agreements, to adjust the risk and return characteristics of the Fund's
portfolio. Derivatives are financial instruments whose value is derived, at
least in part, from the price of another security or a specified asset, index
or rate. Some derivatives may be more sensitive than direct securities to
changes in interest rates or sudden market moves. Some derivatives also may be
susceptible to fluctuations in yield or value due to their structure or
contract terms. If the Fund's advisor judges market conditions incorrectly,
the use of certain derivatives could result in a loss, regardless of the
advisor's intent in using the derivatives.
There is, of course, no assurance that the Fund will achieve its investment
objective or be successful in preventing or minimizing the risk of loss that is
inherent in investing in particular types of investment products.
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
Chairman and Stephens Inc.; President of
President Stephens Insurance Services
Inc.; Senior Vice President
of Stephens Sports
Management Inc.; and
President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of
321 Beechcliff Court Finance of the School of
Winston-Salem, NC 27104 Business and Accounting at
Wake Forest University since
1982.
Peter G. Gordon, 54 Director Chairman and Co-Founder of
Crystal Geyser Water Co. Crystal Geyser Water Company
55 Francisco Street and President of Crystal
San Francisco, CA 94133 Geyser Roxane Water
Company since 1977.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Joseph N. Hankin, 57 Director President of Westchester
75 Grasslands Road Community College since 1971;
Valhalla, N.Y. 10595 Adjunct Professor of Columbia
University Teachers College
since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*J. Tucker Morse, 53 Director Private Investor; Chairman of
4 Beaufain Street Home Account Network, Inc.
Charleston, SC 29401 Real Estate Developer;
Chairman of Renaissance
Properties Ltd.; President
of Morse Investment
Corporation; and Co-Managing
Partner of Main Street
Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens Inc.;
Officer, Secretary Director of Stephens Sports
and Treasurer Management Inc.; and
Director of Capo Inc.
</TABLE>
Compensation Table
Year Ended March 31, 1997
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
----------------- --------------- ----------------
<S> <C> <C>
Jack S. Euphrat $11,250 $33,750
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $11,250 $33,750
Director
Joseph N. Hankin $ 8,750 $26,250
Director
W. Rodney Hughes $ 9,250 $27,750
Director
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Robert M. Joses $11,250 $33,750
Director
J. Tucker Morse $ 9,250 $27,750
Director
</TABLE>
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, Wells Fargo Bank is entitled to
receive a monthly fee at the annual rate of 0.25% of the Fund's average daily
net assets.
19
<PAGE>
Prior to April 29, 1996, the Fund invested directly in a portfolio of
securities and Wells Fargo Bank provided investment advisory services directly
to the Fund. On April 29, 1996 the Fund was converted to a "master/feeder
structure" and began to invest all of its assets in a corresponding Master
Portfolio, which had an identical investment objective, of Master Investment
Trust, another open-end management investment company. The Master Portfolio was
advised by Wells Fargo Bank and Wells Fargo Bank was entitled to receive a
monthly fee equal to an annual rate of 0.50% of the first $250 million of the
Fund's average daily net assets, 0.40% of the next $250 million, and 0.30% of
the average daily net assets in excess of $500 million. The Fund operated as
part of the master/feeder structure from April 29, 1996 to December 12, 1997, at
which time the master/feeder structure was dissolved.
For the period indicated below, the Master Portfolio paid to Wells Fargo
Bank the following advisory fees and Wells Fargo Bank waived the indicated
amounts:
Six-Month
Period Ended
3/31/97
--------
Fees Paid Fees Waived
--------- -----------
$933,448 $ 0
For the periods indicated below, the Fund paid to Wells Fargo Bank the
advisory fees indicated. No advisory fees were waived during these periods.
For the period between April 29, 1996 and December 15, 1997, these amounts
represent advisory fees paid by the Master Portfolio on behalf of the Fund.
Nine-Month
Period Ended Year Ended Year Ended
9/30/96 12/31/95 12/31/94
------------- ---------- ----------
$1,249,048 $1,398,439 $1,259,739
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.
20
<PAGE>
INVESTMENT SUB-ADVISOR. Wells Fargo Bank has engaged BGFA to serve as
----------------------
Investment Sub-Advisor to the Fund. Subject to the direction of the Company's
Board of Directors and the overall supervision and control of Wells Fargo Bank
and the Company, BGFA makes recommendations regarding the investment and
reinvestment of the Fund's assets. BGFA furnishes to Wells Fargo Bank periodic
reports on the investment activity and performance of the Fund, and also
furnishes such additional reports and information as Wells Fargo Bank and the
Company's Board of Directors and officers may reasonably request.
As compensation for its sub-advisory services, BGFA is entitled to receive
a monthly fee equal to an annual rate of 0.02% of the first $500 million of the
Fund's average daily net assets and 0.01% of net assets over $500 million.
This fee may be paid by Wells Fargo Bank or directly by the Fund. If the sub-
advisory fee is paid directly by the Fund, the compensation paid to Wells
Fargo Bank for advisory fees will be reduced accordingly. The predecessor
Master Portfolio was also sub-advised by BGFA, and from October 30, 1997 to
December 12, 1997, was entitled to receive the fee described above. Prior to
October 30, 1997 BGFA was entitled to receive a monthly fee equal to an annual
rate of 0.08% of the Master Portfolio's average daily net assets plus an
annual payment of $40,000.
BGFA was created by the reorganization of Wells Fargo Nikko Investment
Advisors ("WFNIA"), a former affiliate of Wells Fargo Bank, with and into an
affiliate of Wells Fargo Institutional Trust Company, N.A. Prior to January 1,
1996, WFNIA served as sub-advisor to the Fund and the predecessor portfolio
under substantially similar terms to the 0.08%/$40,000 annual payment
arrangement described above.
For the six-month period ended March 31, 1997, the Master Portfolio paid to
BGFA $182,725 in sub-advisory fees. No sub-advisory fees were waived during this
period.
For the periods indicated below, Wells Fargo paid the following sub-
advisory fees to WFNIA/BGFA. No sub-advisory fees were waived during this
period.
Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
------------ --------- ---------
$242,005 $ 269,787 $ 241,489
General. The Fund's Sub-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 (ii) by the Company's Board of Directors, including a majority of
the Directors of the Company who are not parties to the Sub-Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. The Sub-
Advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells Fargo
----------------------------------
Bank as Administrator and Stephens Inc. ("Stephens") as Co-Administrator on
behalf of the Fund. Under
21
<PAGE>
the 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 SEC and state securities commissions; and preparation of
proxy statements and shareholder reports for the Fund; and (ii) general
supervision relative to the compilation of data required for the preparation
of periodic reports distributed to the Company's officers and Board of
Directors. Wells Fargo Bank and Stephens also furnish office space and certain
facilities required for conducting the Funds' 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.
From February 1, 1997 until February 1, 1998, the Administrator and
Co-Administrator were entitled to receive 0.04% and 0.02%, respectively, of the
average daily net assets of the Fund for administration services.
Prior to February 1, 1997 Stephens served as sole Administrator to the
Fund. Stephens performed substantially the same services now provided by
Stephens and Wells Fargo Bank and was entitled to receive for its services a fee
of 0.05% of the Fund's average daily net assets.
For the period indicated below, the Fund paid the following dollar amounts
to Wells Fargo Bank and Stephens for administration and co-administration fees:
Six-Month
Period Ended
3/31/97
------------
Total Wells Fargo Stephens
------------ ------------ -------------
$80,775 $16,155 $64,620
For the periods indicated below, the Fund paid the following dollar amounts
to Stephens for administration fees:
Nine-Month
Period Ended Year Ended Year Ended
9/30/96 12/31/95 12/31/94
-------------- --------- ---------
$ 79,533 $ 92,555 $ 75,748
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
22
<PAGE>
and Rule 12b-1 thereunder (the "Rule") on behalf of its 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 any agreement related to the Plan (the "Non-Interested
Directors").
Prior to October 30, 1997, the Fund had a distribution Plan on behalf of
its Class A shares. Under the Plan for the Fund's Class A shares, and pursuant
to the related Distribution Agreement, the Fund may have defrayed all or part of
the cost of preparing and printing prospectuses and other promotional materials
and of delivering prospectuses and promotional materials to prospective
shareholders by paying on an annual basis up to 0.05% of the Fund's average
daily net assets. The Plan for the Fund provided only for reimbursement of
actual expenses.
Under the Plan in effect for the Fund's Class B shares, and pursuant to the
related Distribution Agreement, the Fund may pay Stephens on an annual basis up
to 0.75% of the Fund's average daily net assets attributable to Class B shares.
The Plan for the Class B shares of the Fund provides for compensation of
distribution-related services or reimbursement for distribution-related
expenses.
The actual fee payable to the Distributor by the Class B shares 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 their
customers. The Distributor may retain any portion of the total distribution fee
payable thereunder to compensate it for distribution-related services provided
by it or to reimburse it for other distribution-related expenses.
For the six-month period ended March 31, 1997, the Fund's Distributor
received the following fees for distribution-related services, as set forth
below, under the Plan for the Fund's Class A shares:
Printing & Compensation
Mailing Marketing to
Total Prospectus Brochures Underwriters
-------- ------------ ------------- --------------
$54,055 $28,870 $25,185 N/A
23
<PAGE>
For the nine-month period ended September 30, 1996, the Distributor
received the following fees for distribution related services, as set forth
below, under the Fund's Plan for the Fund's Class A shares.
Printing & Compensation
Mailing Marketing to
Total Prospectus Brochures Underwriters
--------- ------------- ------------- --------------
$174,041 $10,228 $163,813 N/A
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 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 amendments to the Plan may be made except by a vote of 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 a selling agreement 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 is designed to serve.
These relationships and distribution channels are believed by the Board to
provide potential for increased Fund assets and ultimately corresponding
economic efficiencies (i.e., lower per-share transaction costs and fixed
expenses) that are generated by increased assets under management.
24
<PAGE>
SHAREHOLDER SERVICING AGENT. The Fund has approved a Servicing Plan and
---------------------------
related form of Servicing Agreement, and has entered into a Shareholder
Servicing Agreement with Wells Fargo Bank on behalf of the Class A and Class B
shares, and may enter into agreements with other servicing agents. Under the
agreement, Shareholder Servicing Agents (including Wells Fargo Bank) agree to
perform, as agents for their customers, administrative services, with respect to
Fund shares, which include aggregating and transmitting shareholder orders for
purchases, exchanges and redemptions; maintaining shareholder accounts and
records; and providing such other related services as the Company or a
shareholder may reasonably request. For providing shareholder services, a
Servicing Agent is entitled to a fee of up to 0.25%, on an annualized basis, of
the average daily net assets of the Class A shares and the Class B shares during
the period for which payment is being made. The Servicing Agreement was approved
by the Company's Board of Directors and provides that the Fund shall not be
obligated to make any payments under such Agreements that exceed the maximum
amounts payable under the Conduct Rules of the NASD.
For the periods indicated below, the dollar amount of shareholder servicing
fees paid by the Class A shares of the Fund to Wells Fargo Bank or its
affiliates were as follows:
Six-Month Nine-Month
Period Ended Period Ended
3/31/97 9/30/96
------------- ---------
$606,930 $793,396
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 Funds ("Non-Interested Directors"). Any form of
Servicing Agreement related to the 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. Barclays Global Investors, N.A. ("BGI") 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
25
<PAGE>
account of the assets of the Fund, and pays all expenses of the Fund. For its
services as Custodian, BGI is not entitled to receive a fee so long as its
subsidiary, BGFA, receives fees for sub-advisory services.
For the six-month period ended March 31, 1997, and the nine-month period
ended September 30, 1996, the Fund did not pay any custody fees.
FUND ACCOUNTANT
---------------
The Fund Accountant, among other things, computes net asset values on a daily
basis and performance calculations on a regular basis and as requested by the
Funds. For providing such services, Wells Fargo Bank is entitled to receive a
monthly base fee of $2,000, plus a fee equal to an 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 and the nine-month
period ended September 30, 1996, the Fund did not pay any fund accounting
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 each of the Class A and Class B of
shares. Prior to January 16, 1997, Wells Fargo Bank was entitled to receive, for
agency services on behalf of the Class A shares, a per account fee plus
transaction fees and reimbursement of out-of-pocket expenses, with a minimum of
$3,000 per month per Fund, unless net assets of the Fund were under $20 million.
For as long as a Fund's assets remained under $20 million, the Fund was not be
charged any transfer agency fees.
For the six-month period ended March 31, 1997 and the nine-month period
ended September 30, 1996, the Class A shares of Fund paid the following dollar
amounts in transfer and dividend disbursing agency fees, after waivers, to Wells
Fargo Bank:
Six-Month Nine-Month
Period Ended Period Ended
3/31/97 9/30/96
------- -------
$53,681 $153,589
UNDERWRITING COMMISSIONS. For the six-month period ended March 31, 1997,
------------------------
the aggregate amount of underwriting commissions paid to Stephens on
sales/redemptions of the Company's Class A shares was $2,296,243. Stephens
retained $241,806 of such commissions. WFSI and its registered representatives
retained $1,719,000 and $335,437, respectively, of such commissions.
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
26
<PAGE>
Class A 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 Class A
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 Class A shares. For the fiscal
year ended December 31, 1994, Wells Fargo Securities Inc. ("WFSI"), and its
registered representatives received $904,274, in underwriting commissions in
connection with the purchase or redemption of the Company's Class A 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 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 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 such Fund or Class of shares and for
providing a basis for comparison with investment alternatives. The performance
of a Fund and the performance of a Class of shares in a 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.
Performance shown or advertised for the Class A shares of the Stagecoach
Equity Index Fund reflects performance of the Stagecoach Corporate Stock Fund, a
predecessor portfolio with the same investment objective and policies as the
Stagecoach Equity Index Fund. Prior to January 1, 1992, performance shown or
advertised for the Class A shares of the Stagecoach Equity Index Fund reflects
performance of the Corporate Stock Fund of the Wells Fargo Investment Trust for
Retirement Programs, a predecessor portfolio of the Stagecoach Corporate Stock
Fund.
Performance shown or advertised for the Class B shares has been calculated
based on performance information for the Class A shares, as described above,
adjusted to reflect Class B share expenses and sales charges.
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") will be computed by using the redeemable value at
the end of a specified period ("ERV") of a hypothetical initial investment in
shares of the Fund ("P") over a period of years ("n") according to the following
formula: P(1+T)n = ERV.
27
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return for the Applicable Period Ended September 30, 1997
------------------------------------------------------------------------------
Inception/1/ Inception Five Year Five Year Three Year Three Year One Year One Year
With Sales No Sales With Sales No Sales With Sales No Sales With Sales No Sales
Charge Charge Charge Charge Charge Charge Charge Charge
---------- ---------- ---------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A 15.53% 15.92% 18.41% 19.50% 26.54% 28.49% 32.62% 38.88%
Class B/2/ 15.17% 15.17% 18.69% 18.89% 27.21% 27.82% 33.00% 38.00%
</TABLE>
/1/ The Class A shares of the Fund commenced operations 1/25/84.
/2/ The performance of the Class B shares, which commenced operations 2/17/98,
has been calculated based on performance information for the Class A shares
adjusted to reflect Class B share expenses and sales charges.
CUMULATIVE TOTAL RETURN: In addition to the above performance information,
------------------------
the Fund may advertise the cumulative total return for one-month, three month,
six-month and year-to-date periods. The cumulative total return for such
periods is based on the overall percentage change in value of a hypothetical
investment in the Fund, assuming all Fund dividends and capital gain
distributions are reinvested, without reflecting the effect of any sales
charge that would be paid by an investor, and is not annualized.
<TABLE>
<CAPTION>
Cumulative Total Return for the Applicable Period Ended September 30, 1997
--------------------------------------------------------------------------
Inception/1/ Inception Five Year Five Year Three Year Three Year One Year One Year
With Sales No Sales With Sales No Sales With Sales No Sales With Sales No Sales
Charge Charge Charge Charge Charge Charge Charge Charge
---------- ---------- ---------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A 619.35% 653.16% 132.78% 143.72% 102.62% 112.15% 32.62% 38.88%
Class B/2/ 588.83% 588.83% 135.51% 137.51% 105.85% 108.85% 33.00% 38.00%
</TABLE>
/1/ The Class A shares of the Fund commenced operations 1/25/84.
/2/ The performance of the Class B shares, which commenced operations 2/17/98,
has been calculated based on performance information for the Class A shares
adjusted to reflect Class B share expenses and sales charges.
From time to time and only to the extent the comparison is appropriate for
the Fund or Class of shares, the Company may quote the performance or price-
earning ratio of the Fund or Class in advertising and other types of literature
as compared to the performance of the S&P Index, the Dow Jones Industrial
Average, the Lehman Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year
Treasury Index, Donoghue's Money Fund Averages, Real Estate Investment Averages
(as reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by the World Gold Council), Bank Averages (which
is calculated from figures supplied by the U.S. League of Savings Institutions
based on
28
<PAGE>
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 Class, as
appropriate, also may be compared to those of other mutual funds having similar
objectives. This comparative performance could be expressed as a ranking
prepared by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.,
Bloomberg Financial Markets or Morningstar, Inc., independent services which
monitor the performance of mutual funds. The performance of the Fund will be
calculated by relating net asset value per share at the beginning of a stated
period to the net asset value of the investment, assuming reinvestment of all
gains, distributions and dividends paid, at the end of the period. The Fund's
comparative performance will be based on a comparison of yields or total return,
as reported by Lipper, Survey Publications, Donoghue or Morningstar, Inc.
Any such comparisons may be useful to investors who wish to
compare the past performance of the Fund with that of its competitors. Of
course, past performance cannot be a guarantee of future results. The Company
also may include, from time to time, a reference to certain marketing approaches
of the Distributor, including, for example, a reference to a potential
shareholder being contacted by a selected broker or dealer. General mutual fund
statistics provided by the Investment Company Institute may also be used.
In addition, the Company also may use, in advertisements and other types of
literature, information and statements: (1) showing that bank savings accounts
offer a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth; and (2) describing Wells Fargo Bank, and its
affiliates and predecessors, as one of the first investment managers to advise
investment accounts using asset allocation and index strategies. The Company
also may include in advertising and other types of literature information and
other data from reports and studies prepared by the Tax Foundation, including
information regarding federal and state tax levels and the related "Tax Freedom
Day."
29
<PAGE>
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
the Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in the Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of the Fund or the general economic, business,
investment, or financial environment in which the Fund operates; (iii) the
effect of tax-deferred compounding on the investment returns of the Fund or a
Class of shares, or on returns in general, may be illustrated by graphs, charts,
etc., where such graphs or charts would compare, at various points in time, the
return from an investment in the Fund (or returns in general) on a tax-deferred
basis (assuming reinvestment of capital gains and dividends and assuming one or
more tax rates) with the return on a taxable basis; and (iv) the sectors or
industries in which the Fund invests may be compared to relevant indices of
stocks or surveys (e.g., S&P Industry Surveys) to evaluate the Fund's historical
performance or current or potential value with respect to the particular
industry or sector.
The Company also may discuss in advertising and other types of literature
that the Fund has been assigned a rating by an NRSRO, such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to purchase,
sell or hold the Fund's shares since the rating would not comment on the market
price of the Fund's shares or the suitability of the Fund for a particular
investor. In addition, the assigned rating would be subject to change,
suspension or withdrawal as a result of changes in, or unavailability of,
information relating to the Fund or its investments. The Company may compare the
Fund's performance with other investments which are assigned ratings by NRSROs.
Any such comparisons may be useful to investors who wish to compare the Fund's
past performance with other rated investments.
30
<PAGE>
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 Fund through ATMs and the availability of combined
Wells Fargo Bank and Stagecoach Funds account statements."
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells Capital Management (formerly
"Wells Fargo Investment Management"), a division 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 may also disclose in advertising and
other types of sales literature the assets and categories of assets under
management by its investment advisor or sub-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 also may disclose in sales literature the distribution rate on
the shares of a Fund. Distribution rate, which may be annualized, is the amount
determined by dividing the dollar amount per share of the most recent dividend
by the most recent NAV or maximum offering price per share as of a date
specified in the sales literature. Distribution rate will be accompanied by the
standard 30-day yield as required by the SEC.
The Company 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
31
<PAGE>
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 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 of the Fund may be purchased on any day the Fund is open for
business. The Fund is open for business each day the NYSE is open for trading
(a "Business Day"). Currently, the NYSE is closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any
Holiday falls on a weekend, the NYSE typically is closed on the weekday
immediately before or after such Holiday.
Payment for shares may, in the discretion of the advisor, be made in the
form of securities that are permissible investments for the Fund. For further
information about
32
<PAGE>
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 each Fund's portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Company to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo Bank generally seeks
reasonably competitive spreads or commissions, the Fund will not necessarily be
paying the lowest spread or commission available.
Purchases and sales of equity securities on a securities exchange are
effected through brokers who charge a negotiated commission for their services.
Orders may be directed to any broker including, to the extent and in the manner
permitted by applicable law, Stephens or Wells Fargo Securities Inc. In the
over-the-counter market, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price that includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. The Fund will not deal with Stephens,
Wells Fargo
33
<PAGE>
Bank or their affiliates in any transaction in which any of them acts as
principal without an exemptive order from the SEC.
In placing orders for portfolio securities of the Fund, Wells Fargo Bank is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that Wells Fargo Bank will seek to execute each
transaction at a price and commission, if any, that provide the most favorable
total cost or proceeds reasonably attainable in the circumstances. Commission
rates are established pursuant to negotiations with the broker based on the
quality and quantity of execution services provided by the broker in the light
of generally prevailing rates. The allocation of orders among brokers and the
commission rates paid are reviewed periodically by the Board of Directors.
Wells Fargo Bank, as Investment Advisor to 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 Contract, and the expenses of
Wells Fargo Bank will not necessarily be reduced as a result of the receipt of
this supplemental research information. Furthermore, research services
furnished by dealers through which Wells Fargo Bank places securities
transactions for the Fund may be used by Wells Fargo Bank in servicing its other
accounts, and not all of these services may be used by Wells Fargo Bank in
connection with advising the Fund.
Brokerage Commissions. For the periods indicated below the Fund paid the
---------------------
following for brokerage commissions, none of which were paid to affiliated
brokers:
Six-Month Nine-Month
Period Ended Period Ended Year Ended Year Ended
3/31/97 9/30/96 12/31/95 12/31/94
------- ------- -------- --------
$7,505 $6,233 $8,696 $31,896
Securities of Regular Broker/Dealers. As of March 31, 1997, the Fund owned
------------------------------------
securities of its "regular brokers or dealers" or its parents, as defined in the
1940 Act, as follows:
Goldman Sachs & Co. $9,087,000
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
34
<PAGE>
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 the 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 the 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 the Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of
its custodian, including those for keeping books and accounts and calculating
the NAV per share of the Fund; expenses of shareholders' meetings; expenses
relating to the issuance, registration and qualification of Fund shares;
pricing services, and any extraordinary expenses. Expenses attributable to the
Fund are charged against the Fund's assets. General expenses of the Company
are allocated among all of the funds of the Company, including the Fund, in a
manner proportionate to the net assets of the Fund, on a transactional basis,
or on such other basis as the Company's Board of Directors deems
equitable.
FEDERAL INCOME TAXES
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.
35
<PAGE>
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 investment
companies will generally be applied separately to the Fund, rather than to the
Company as a whole. Accordingly, 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) fat 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 gains
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
36
<PAGE>
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 extent of the portion of market discount which
accrued, but was not previously recognized pursuant to an available election,
during the term the Fund held the debt obligation.
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.
If the Fund purchases shares in a "passive foreign investment company"
("PFIC"), the Fund may be subject to federal income tax and an interest charge
imposed by the IRS upon certain distributions from the PFIC or the Fund's
disposition of its PFIC shares. If the Fund invests in a PFIC, the Fund intends
to make an available election to mark-to-market its interest in PFIC shares.
Under the election, the Fund will be treated as recognizing at the end of each
taxable year the difference, if any, between the fair market value of its
interest in the PFIC shares and its basis in such shares. In some
circumstances, the recognition of loss may be suspended. The Fund will adjust
its basis in the PFIC shares by the amount of income (or loss) recognized.
Although such income (or loss) will be taxable to the Fund as ordinary income
(or loss) notwithstanding any distributions by the PFIC, the Fund will not be
subject to federal income tax or the interest charge with respect to its
interest in the PFIC.
If an option granted by the Fund lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder,
the Fund will realize a short-term capital gain or loss, depending on whether
the premium income is greater or less than the amount paid by the Fund in the
closing transaction. Some realized capital losses may be deferred if they
result from a position which is part of a "straddle," discussed below. If
securities are sold by the Fund pursuant to the exercise of a call option
written by it, the Fund will add the premium received to the sale price of the
securities delivered in determining the amount of gain or loss on the sale.
37
<PAGE>
Under Section 1256 of the Code, the Fund will be required to "mark to
market" its positions in "Section 1256 contracts," which generally include
regulated futures contracts and listed nonequity options. In this regard,
Section 1256 contracts will be deemed to have been sold at market value. Sixty
percent (60%) of any net gain or loss realized on all dispositions of Section
1256 contracts, including deemed dispositions under the mark-to-market regime,
will generally be treated as long-term capital gain or loss, and the remaining
forty percent (40%) will be treated as short-term capital gain or loss.
Transactions that qualify as designated hedges are excepted from the
mark-to-market and 60%/40% rules. (Technical corrects legislation has been
proposed to conform the taxation of Section 1256 contracts with new capital
gains rates established by the Taxpayer Relief Act of 1997, described
below.)
Under Section 988 of the Code, the Fund will generally recognize ordinary
income or loss to the extent gain or loss realized on the disposition of
portfolio securities is attributable to changes in foreign currency exchange
rates. In addition, gain or loss realized on the disposition of a foreign
currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, will generally be treated as
ordinary income or loss. The Funds will attempt to monitor Section 988
transactions, where applicable, to avoid adverse tax impact.
Offsetting positions held by a regulated investment company involving
certain financial forward, futures or options contracts may be considered, for
tax purposes, to constitute "straddles." "Straddles" are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of "straddles" is governed by Section 1092 of the Code which, in certain
circumstances, overrides or modifies the provisions of Section 1256. If a
regulated investment company were treated as entering into "straddles" by
engaging in certain financial forward, futures or option contracts, such
straddles could be characterized as "mixed straddles" if the futures,
forwards, or options comprising a part of such straddles were governed by
Section 1256 of the Code. The regulated investment company may make one or
more elections with respect to "mixed straddles." Depending upon which
election is made, if any, the results with respect to the regulated investment
company may differ. Generally, to the extent the straddle rules apply to
positions established by the regulated investment company, losses realized by
the regulated investment company may be deferred to the extent of unrealized
gain in any offsetting positions. Moreover, as a result of the straddle and
the conversion transaction rules, short-term capital loss on straddle
positions may be recharacterized as long-term capital loss, and long-term
capital gain may be characterized as short-term capital gain or ordinary
income.
If the Fund purchases shares in a "passive foreign investment company"
("PFIC"), the Fund may be subject to federal income tax and an interest charge
imposed by the IRS upon certain distributions from the PFIC or the Fund's
disposition of its PFIC shares. If the Fund invests in a PFIC, the Fund
intends to make an available election to mark-to-market its interest in PFIC
shares. Under the election, the Fund will be treated as recognizing at the end
of each taxable year the difference, if any, between the fair market value of
its interest in the PFIC shares and its basis in such shares. In some
circumstances, the recognition of loss may be suspended. The Fund will adjust
its basis in the PFIC shares by the amount of income (or loss) recognized.
Although such income (or loss) will be taxable to the Fund as ordinary income
(or loss) notwithstanding any distributions by the PFIC, the Fund will not be
subject to federal income tax or the interest charge with respect to its
interest in the PFIC (following the election.)
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 does not expect to be eligible to make such an
election.
38
<PAGE>
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 described in the preceding
paragraph to pass-through entities, including regulated investment companies,
such as the Fund. Until such regulations are issued, an IRS notice describes
the application of the reduced capital gains tax rates to pass-through
entities. In general, the IRS notice permits the Fund to designate all or a
portion of its capital gain distributions as 20% rate gain distribution, to be
treated by noncorporate shareholders as capital gain on the sale of property
held or greater than 18 months, or 28% rate gain distributions, to be treated
by noncorporate shareholders as capital gain on the sale of property held for
more than one year but less than 18 months. (If the Fund invests in real estate
investment trusts, a portion of its distributions may be taxable to
noncorporate shareholders at a maximum 25% rate.) The amount designated by the
Fund as a 20% rate gain distribution cannot exceed its gain realized on the
sale assets held for greater than 18 months, and the amount designated as a
28% rate gain distribution cannot exceed its gain realized on the sale of
assets held for greater than one year but less than 18 months.
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
39
<PAGE>
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 Identification
Number ("TIN") provided is correct
40
<PAGE>
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.
Corporate Shareholders. Corporate shareholders of the Fund may be
----------------------
eligible for the dividends-received deduction on dividends distributed out of
the Fund's net investment income attributable to dividends received from
domestic corporations, which, if received directly by the corporate
shareholder, would qualify for such deduction. The Fund's distribution
attributable to dividends of a domestic corporation will only qualify for the
dividends-received deduction if (i) the corporate shareholder generally holds
the Fund shares upon which the distribution is made for at least 46 days
during the 90 day period beginning 45 days prior to the date upon which the
shareholder becomes entitled to the distribution; and (ii) the Fund generally
holds the shares of the domestic corporation producing the dividend income for
at least 46 days during the 90 day period beginning 45 days prior to the date
upon which the Fund becomes entitled to the dividends.
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 generally will 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 their 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
41
<PAGE>
avoid significant noncash income, such noncash income could be recognized by the
Fund, in which case the Fund may distribute cash derived from other sources in
order to meet the minimum distribution requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the federal 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 the Fund represents an equal, proportionate
interest in the Fund with other shares of the same class. Shareholders of each
class bear their pro rata portion of the Fund's operating expenses, except for
certain class-specific expenses (e.g., any state securities registration fees,
shareholder servicing fees or distribution fees that may be paid under Rule
12b1) that are allocated to a particular class. Please contact Stagecoach
Shareholder Services at 18002228222 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. 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 such
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.
42
<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 represents an equal proportional interest in the Fund
with each other share in the same class and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Fund as
are declared in the discretion of the Directors. In the event of the
liquidation or dissolution of the Company, shareholders of the Fund are entitled
to receive the assets attributable to the Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular investment portfolio that are available for distribution in such
manner and on such basis as the Directors in their sole discretion may
determine.
Set forth below, as of January 2, 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 the voting securities of the Fund as a whole.
5% OWNERSHIP AS OF JANUARY 2, 1998
------------------------------------
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
ADDRESS OF OWNERSHIP OF CLASS OF FUND
- ----------------- --------------- ------------- -------------
<S> <C> <C> <C>
Wells Fargo Bank Class A 93.54% 93.54%
P.O. Box 63015 Record
San Francisco, CA Holder
94163
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of the Fund, or is identified as the holder of record of
more than 25% of the Fund and has voting and/or investment powers, it may be
presumed to control the Fund.
43
<PAGE>
OTHER
The Company's Registration Statements, 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 a Prospectus or the SAI as to the contents of any contract or other
document referred to herein or in a Prospectus are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP serves as the independent auditors for the Company.
KPMG Peat Marwick LLP provides audit services, tax return preparation and
assistance and consultation in connection with review of certain SEC filings.
KPMG Peat Marwick LLP's address is Three Embarcadero Center, San Francisco,
California 94111.
FINANCIAL INFORMATION
The portfolio of investments and unaudited financial statements for the
Equity Index Fund and the Corporate Stock Mater Portfolio 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, financial statements and independent
auditors' report for the Equity Index Fund and the Corporate Stock Master
Portfolio for the six-month period 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.
44
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate bonds and commercial paper.
Corporate Bonds
- ---------------
Moody's: The four highest ratings for corporate bonds are "Aaa," "Aa,"
-------
"A" and "Baa." Bonds rated "Aaa" are judged to be of the "best quality" and
carry the smallest amount of investment risk. Bonds rated "Aa" are of "high
quality by all standards," but margins of protection or other elements make
long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds rated "A"
possess many favorable investment attributes and are considered to be upper
medium grade obligations. Bonds rated "Baa" are considered to be medium grade
obligations; interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1, 2
and 3 in each rating category from "Aa" through "Baa" in its rating system. The
modifier 1 indicates that the security ranks in the higher end of its category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end.
S&P: The four highest ratings for corporate bonds are "AAA," "AA," "A" and
---
"BBB." Bonds rated "AAA" have the highest ratings assigned by S&P and have an
extremely strong capacity to pay interest and repay principal. Bonds rated "AA"
have a "very strong capacity to pay interest and repay principal" and differ
"from the highest rated issued only in small degree." Bonds rated "A" have a
"strong capacity" to pay interest and repay principal, but are "somewhat more
susceptible" to adverse effects of changes in economic conditions or other
circumstances than bonds in higher rated categories. Bonds rated "BBB" are
regarded as having an "adequate capacity" to pay interest and repay principal,
but changes in economic conditions or other circumstances are more likely to
lead to a "weakened capacity" to make such repayments. The ratings from "AA" to
"BBB" may be modified by the addition of a plus or minus sign to show relative
standing within the category.
Corporate Commercial Paper
- --------------------------
Moody's: The highest rating for corporate commercial paper is "P-1"
-------
(Prime-1). Issuers rated "P-1" have a "superior capacity for repayment of
short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
A-1
<PAGE>
S&P: The "A-1" rating for corporate commercial paper indicates that the
---
"degree of safety regarding timely payment is either overwhelming or very
strong." Commercial paper with "overwhelming safety characteristics" will be
rated "A-1+." Commercial paper with a strong capacity for timely payments on
issues will be rated "A-2."
A-2
