<PAGE>
As filed with the Securities and Exchange Commission
on January 29, 1998
Registration No. 33-42927; 811-6419
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Post-Effective Amendment No. 40 [X]
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 41 [X]
(Check appropriate box or boxes)
________________________
STAGECOACH FUNDS, INC.
(Exact Name of Registrant as specified in Charter)
111 Center Street
Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)
__________________________
Registrant's Telephone Number, including Area Code: (800) 643-9691
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With a copy to:
Robert M. Kurucza, Esq.
Marco E. Adelfio, Esq.
Morrison & Foerster LLP
2000 Pennsylvania Ave., N.W.
Washington, D.C. 20006
It is proposed that this filing will become effective (check appropriate box):
<TABLE>
<S> <C>
[_] Immediately upon filing pursuant [_] on _________ pursuant
to Rule 485(b), or to Rule 485(b)
[X] 60 days after filing pursuant [_] on _________ pursuant
to Rule 485(a)(1), or to Rule 485(a)(1)
[_] 75 days after filing pursuant [_] on ___________pursuant
to Rule 485(a)(2), or to Rule 485(a)(2)
</TABLE>
<PAGE>
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
EXPLANATORY NOTE
----------------
This Post-Effective Amendment No. 40 to the Registration Statement (the
"Amendment") of Stagecoach Funds, Inc. (the "Company") is being filed to
register Class C shares of the Company's Asset Allocation, Equity Value, Growth,
and International Equity Funds.
This Amendment does not affect the Registration Statement, prospectuses or
Statements of Additional Information ("SAIs") for the Asset Allocation, Equity
Value, Growth, and International Equity Funds' other classes, or the
Registration Statement, prospectuses or SAIs for any other Fund of the
Company.
<PAGE>
STAGECOACH FUNDS, INC.
---------------------
Cross Reference Sheet
---------------------
Form N-1A Item Number
- ---------------------
<TABLE>
<CAPTION>
Part A Prospectus Captions
- ------ -------------------
<S> <C>
1 Cover Page
2 Summary of Expenses
3 Financial Highlights
How to Read the Financial Highlights
4 General Investment Risks
Key Information
Organization and Management of the Funds
The (Name of) Fund
5 Organization and Management of the Funds
Summary of Expenses
6 Additional Services and Other Information
7 Additional Services and Other Information
Exchanges
Your Account
8 Additional Services and Other Information
Exchanges
Your Account
9 Not Applicable
</TABLE>
<TABLE>
<CAPTION>
Part B Statement of Additional Information Captions
- ------ --------------------------------------------
<S> <C>
10 Cover Page
11 Table of Contents
12 Historical Fund Information
13 Additional Permitted Investment Activities
Appendix
Investment Restrictions
Risk Factors
14 Management
15 Management
16 Fund Expenses
Independent Auditors
Management
17 Portfolio Transactions
Capital Stock
Other
19 Additional Purchase and Redemption Information
Determination of Net Asset Value
20 Federal Income Taxes
21 Management
22 Performance Calculations
23 Financial Information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Part C Other Information
- ------ -----------------
<S> <C>
24-32 Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C of this Document.
</TABLE>
<PAGE>
March 30, 1998
================================================================================
STAGECOACH FUNDS(R)
Stagecoach
Allocation Funds
Prospectus
Asset Please read this Prospectus and keep it
Allocation Fund for future reference. It is designed to
provide you with important information
Index Allocation and to help you decide if the Fund's
Fund goals match your own.
U.S. Government These securities have not been approved
Allocation Fund or disapproved by the U.S. Securities
and Exchange Commission, any state
securities commission or any other
regulatory authority, nor have any of
Class A, Class B and these authorities passed upon the
Class C accuracy or adequacy of this Prospectus.
Any representation to the contrary is a
criminal offense.
Investment Advisor Fund shares are NOT deposits or other
and Administrator: obligations of, or issued, endorsed or
guaranteed by, Wells Fargo Bank, N.A.
Wells Fargo Bank ("Wells Fargo Bank"), Barclays Global
Investors, N.A., or any of their
Investment affiliates. Fund shares are NOT insured
Sub-Advisor: or guaranteed by the U.S. Government,
the Federal Deposit Insurance
Barclays Global Corporation ("FDIC"), the Federal
Fund Advisors Reserve Board or any other governmental
agency. AN INVESTMENT IN A FUND INVOLVES
Distributor and CERTAIN RISKS, INCLUDING POSSIBLE LOSS
Co-Administrator: OF PRINCIPAL.
Stephens Inc.
================================================================================
<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, each Fund's
investment objective and financial highlights are presented. The icons below
tell you where various types of information about a Fund can be found.
Important information you should look for:
- --------------------------------------------------------------------------------
[GRAPHIC] Investment Objective and Investment Policies
What is the Fund trying to achieve? How do we intend to
invest your money? What makes a Fund different from the
other Funds offered in this Prospectus? Look for the
arrow icon to find out.
- --------------------------------------------------------------------------------
[GRAPHIC] Permitted Investment
A summary of a Fund's key permitted investments and
practices.
- --------------------------------------------------------------------------------
[GRAPHIC] Important Risk Factors
What are key risk factors about the Fund? This will
include the factors described in "General Investment
Risks" together with any special risk factors for the
Fund.
- --------------------------------------------------------------------------------
[GRAPHIC] Additional Fund Facts
Provides additional information about the Fund.
- --------------------------------------------------------------------------------
Why is italicized print used throughout the Prospectus?
Words appearing in italicized print and highlighted in color are defined in the
Glossary.
What else do I need to understand these Funds?
Each 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 Funds is also available on the SEC's website
(http://www.sec.gov).
================================================================================
<PAGE>
<TABLE>
Table of Contents
<S> <C> <C>
Key Information 4
Summary of Expenses 6
- --------------------------------------------------------------------------------
The Funds Asset Allocation Fund 10
This section contains Index Allocation Fund 15
important information
about the individual U.S. Government Allocation Fund 22
Funds.
General Investment Risks 27
- --------------------------------------------------------------------------------
Your Account A Choice of Share Classes 31
Turn to this section for Reduced Sales Charges 34
information on how to
open and maintain your Your Account 38
account, including how to
buy, sell and exchange How to Buy Shares 40
Fund shares.
Selling Shares 41
Exchanges 43
Additional Services and
Other Information 44
- --------------------------------------------------------------------------------
Reference Organization and
Management of the Funds 48
Look here for details
on the organization How to Read the Financial Highlights 52
of the Funds and term
definitions. Glossary 54
</TABLE>
<PAGE>
Key Information
- --------------------------------------------------------------------------------
Summary of the Stagecoach Allocation Funds
The Funds described in this Prospectus pursue a strategy of allocating and
reallocating investments among various asset classes to capture returns and
reduce risk. Each Fund has a different investment objective intended to meet
different investment needs. You should consider each Fund's objective,
investment practices, permitted investments and risks carefully before investing
in a Fund. The investment objective of each Fund is fundamental and may not be
changed without the approval of a majority of shareholders.
Should you consider investing in these Funds? Yes, if:
o you are looking for the diversification an asset allocation strategy
provides; and
o you are willing to accept the risks of investing, including the risk that
share prices may rise and fall.
You should not invest in these Funds if:
o you are looking for FDIC insurance coverage or guaranteed rates of return;
o you are unwilling to accept that you may lose money on your investment; or
o you are looking for an investment limited to a single asset class.
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 Funds" further
explains how the Funds are organized.
Who are "You"?
In this Prospectus, "You" means the potential investor or the shareholder.
What are the "Funds"?
In this Prospectus, the "Funds" refers to the Stagecoach Funds listed on the
cover of this Prospectus. The "Funds" also may refer to other mutual funds
offered by Stagecoach Funds, Inc.
Key Terms
An "asset class" is a broad category of investments such as "bonds" or
"equities". "Allocation" refers to the division of investments among two or more
asset classes. The Allocation Funds offered in this Prospectus are managed using
a computer "model" that recommends the allocation of assets according to a
Fund's investment objective and risk tolerance.
4 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Dividends
We pay dividends, if any, quarterly for the Asset Allocation and Index
Allocation Funds. Dividends for the U.S. Government Allocation Fund are declared
daily and paid monthly.
Stagecoach Allocation Funds Prospectus 5
<PAGE>
Allocation Funds 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 a 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 Funds" for more details.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Asset Allocation Index Allocation U.S. Govt. Allocation
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum sales charge on a purchase
(as a percentage of offering price) 4.50% None None 4.50% None None 4.50% None
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum sales charge on reinvested dividends None None None None None None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum sales charge on:
Redemption during first year None 5.00% 1.00% None 5.00% 1.00% None 5.00%
Redemption after first year None 4.00% None None 4.00% None None 4.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Exchange fees None None None None None None None None
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
================================================================================
Expenses shown reflect contract amounts and amounts payable by each Fund. The
expenses shown under "Other Expenses" and "Total Fund Operating Expenses" have
been estimated or restated to reflect current fees. Expenses shown "after
waivers and reimbursements" reflect voluntary fee waivers that may be
discontinued without prior notice. Long-term shareholders may pay more than the
equivalent of the maximum front-end sales charge allowed by the National
Association of Securities Dealers, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Asset Allocation Index Allocation U.S. Govt. Allocation
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rule 12b-1 fee 0.05% 0.70% .75% 0.25% 0.75% 0.75% 0.05% 0.70%
- ------------------------------------------------------------------------------------------------------------------------------------
Management fee 0.36% 0.36% .36% 0.70% 0.70% 0.70% 0.50% 0.50%
- ------------------------------------------------------------------------------------------------------------------------------------
Other expenses (after waivers or reimbursements) 0.56% 0.56% .51% 0.36% 0.60% 0.60% 0.63% 0.63%
====================================================================================================================================
TOTAL FUND OPERATING EXPENSES
(after waivers or reimbursements) 0.97% 1.62% 1.62% 1.31% 2.05% 2.05% 1.18% 1.83%
====================================================================================================================================
Other expenses (before waivers or reimbursement) 0.56% 0.56% .51% 0.49% 0.75% 0.75% 0.76% 1.08%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES
(before waivers or reimbursements) 0.97% 1.62% 1.62% 1.44% 2.20% 2.20% 1.31% 2.28%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Allocation Funds Prospectus 7
<PAGE>
Allocation Funds 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 return and that
you redeem your shares at the end of each period.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Asset Allocation Index Allocation U.S. Govt. Allocation
- ----------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 YEAR $54 $66 $26 $58 $71 $31 $56 $69
- ----------------------------------------------------------------------------------------------------------
3 YEARS $75 $81 $51 $85 $94 $64 $81 $88
- ----------------------------------------------------------------------------------------------------------
5 YEARS $96 $108 $88 $114 $130 $110 $107 $119
- ----------------------------------------------------------------------------------------------------------
10 YEARS $159 $158 $192 $196 $201 $238 $182 $181
==========================================================================================================
</TABLE>
8 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
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 redeem your shares at the end of each period.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Asset Allocation Index Allocation U.S. Govt. Allocation
- ---------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 YEAR $54 $16 $16 $58 $21 $21 $56 $19
- ---------------------------------------------------------------------------------------------------------
3 YEARS $75 $51 $51 $85 $64 $64 $81 $58
- ---------------------------------------------------------------------------------------------------------
5 YEARS $96 $88 $88 $114 $110 $110 $107 $99
- ---------------------------------------------------------------------------------------------------------
10 YEARS $159 $158 $192 $196 $201 $238 $182 $181
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Allocation Funds Prospectus 9
<PAGE>
Asset Allocation Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Barclays Global Fund Advisors
- --------------------------------------------------------------------------------
[GRAPHIC] Investment Objective
The Asset Allocation Fund seeks to earn over the long-term a high
level of total return, including net realized and unrealized capital
gains and net investment income, consistent with reasonable risk.
Investment Policies
We allocate and reallocate assets among common stocks, U.S. Treasury
bonds and money market instruments. This strategy is based on the
premise that asset classes are at times undervalued or overvalued in
comparison to one another and that investing in undervalued asset
classes offers better long-term, risk-adjusted returns.
- --------------------------------------------------------------------------------
[GRAPHIC] Permitted Investments
The asset classes we invest in are composed as follows:
o Stock Investments--We invest in common stocks that comprise the S&P
500 Index. We do not individually select common stocks on the basis of
traditional investment analysis. Instead, stock investments are made
according to a weighted formula intended to match the total return of
the S&P 500 Index as closely as possible; and
o Bond Investments--We invest in U.S. Treasury Bonds with maturities
greater than 20 years. We generally maintain an average maturity of
between 22 and 28 years for the bond portion of the Fund; and
o Money Market Investments--We invest this portion of the Fund in
high-quality money market instruments, including U.S. Government
obligations, obligations of foreign and domestic banks, short-term
corporate debt instruments and repurchase agreements.
In addition, under normal market conditions, we may invest:
o In call and put options on stock indexes, stock index futures,
options on stock index futures, interest rate and interest rate
futures contracts as a substitute for a comparable market position in
stocks;
o In interest rate and index swaps; and
o Up to 25% of total assets in foreign obligations qualifying as money
market investments.
10 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
We manage the allocation of investments in the Fund's portfolio based
on the assumption that the Fund's "normal" allocation is 60% stocks
and 40% bonds. This is not a "target" allocation but a measure of risk
tolerance. This is in contrast to the normal allocation for the Index
Allocation Fund, which is generally a more aggressive Fund with a
higher allocation in stocks.
We are not required to keep a minimum investment in any of the three
asset classes described above, nor are we prohibited from investing
substantially all of our assets in a single class. The allocation may
shift at any time. In addition, we may temporarily hold assets in cash
or in money market instruments, including U.S. Government obligations,
repurchase agreements and other short-term investments, to maintain
liquidity or when we believe it is in the best interest of
shareholders to do so. The Fund is a diversified portfolio.
- --------------------------------------------------------------------------------
[GRAPHIC] Important Risk Factors
You should consider both the General Investment Risks listed on page
28 and the specific risks listed below. They are equally important to
your investment choice.
You should consider that we may incur a higher than average portfolio
turnover ratio due to allocation shifts recommended by the model.
Foreign obligations may entail additional risks. The value of
investments in options on stock indexes is affected by price level
movements for a particular index, rather than price movements for an
individual security.
- --------------------------------------------------------------------------------
[GRAPHIC] Additional Fund Facts
Barclays Global Fund Advisors, as the Sub-Advisor, uses a proprietary
investment model that analyzes extensive financial data from numerous
sources and recommends a portfolio allocation for the Fund. The model
incorporates assumptions about expected risks and returns and investor
attitudes about risk. The Fund is run daily and recommendations are
made in 5% increments. No single person is primarily responsible for
recommending either the asset mix or the mix of securities within a
class. The Fund is not designed to profit from short-term market
changes. Instead, it is designed for investors with investment
horizons of three to five years.
For information on Fund fees and expenses, see "Summary of Expenses"
on page 6.
Stagecoach Allocation Funds Prospectus 11
<PAGE>
Asset Allocation Fund Financial Highlights
See "Historical Fund Information" on page 45.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
For the period ended: CLASS A SHARES -- COMMENCED
ON NOVEMBER 13, 1986
- ------------------------------------------------------------------------------------------------------------------------------------
Sept. 30, Mar. 31, Sept. 30, Dec. 31,
1997(1) 1997(2) 1996(3) 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $20.30 $21.24 $20.74 $16.73
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.42 0.41 0.57 0.74
Net realized and unrealized gain (loss)
on investments 3.16 0.65 0.50 4.07
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.58 1.06 1.07 4.81
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.42) (0.41) (0.57) (0.74)
Distributions from net realized gain 0.00 (1.59) 0.00 (0.06)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.42) (2.00) (0.57) (0.80)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.46 $20.30 $21.24 $20.74
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 17.63% 4.94% 5.14% 29.18%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $1,168,661 $1,041,622 $1,057,346 $1,077,935
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 0.94%(4) 0.92%(4) 0.90%(4) 0.84%
Ratio of net investment income to
average net assets 3.67%(4) 3.91%(4) 3.53%(4) 3.81%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 31%(6) 5%(6) 1% 15%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid ($) $0.029(6) $0.0277(6) $0.0320(5) --
- ------------------------------------------------------------------------------------------------------------------------------------
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 N/A N/A N/A N/A
expenses
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS A SHARES CALENDAR YEAR RETURNS 1996 1995
====================================================================================================================================
<S> <C> <C>
Returns for other share classes may vary due to
different fees and expenses. These returns reflect 11.65% 29.18%
fee waivers and reimbursements, do not reflect
sales loads and are not a guarantee of future
performance.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Unaudited financial statements.
(2) The Fund changed its fiscal year-end from September 30 to March 31.
(3) The fund changed its fiscal year-end from December 31 to September 30.
(4) Ratio includes income and expenses charged to the Master Portfolio.
12 Stagecoach Allocation Funds Prospectus
<PAGE>
See "How to Read the Financial Highlights" on page 52.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
================================================================================
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1994 1993 1992 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$18.80 $17.89 $17.65 $14.45 $13.42 $12.00 $10.93 $10.07
- ------------------------------------------------------------------------------------------------------------------------------------
0.77 0.77 0.87 0.92 0.91 0.93 0.72 0.72
(1.31) 1.88 0.31 2.28 0.12 0.49 0.35 0.14
- ------------------------------------------------------------------------------------------------------------------------------------
(0.54) 2.65 1.18 3.20 1.03 1.42 1.07 0.86
- ------------------------------------------------------------------------------------------------------------------------------------
(0.77) (0.87) 0.00 0.00 0.00 0.00 0.00 0.00
(0.76) (0.97) (0.07) 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
(1.53) (1.74) (0.94) 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
$16.73 $18.80 $17.89 $17.65 $14.45 $13.42 $12.00 $10.93
- ------------------------------------------------------------------------------------------------------------------------------------
(2.82)% 15.00% 7.00% 22.13% 7.68% 11.83% 9.79% 8.54%
- ------------------------------------------------------------------------------------------------------------------------------------
$896,943 $1,048,667 $542,226 $367,251 $261,881 $229,211 $172,326 $111,025
- ------------------------------------------------------------------------------------------------------------------------------------
0.84% 0.86% 0.95% 0.95% 0.96% 1.02% 1.00% 1.04%
4.30% 4.20% 5.22% 5.88% 6.59% 7.35% 6.23% 6.79%
- ------------------------------------------------------------------------------------------------------------------------------------
49% 40% 5% 25% 88% 117% 94% 81%
- ------------------------------------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
N/A 0.86% 0.97% N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
N/A 4.20% 5.20% N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
====================================================================================================================================
1994 1993 1992 1991 1990 1989 1988 1987
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
-2.82% 15.00% 7.00% 22.13% 7.68% 11.83% 9.79% 8.54%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(5) Represents portfolio activity for the Fund's stand-alone period only. The
portfolio turnover and average commission rates for the period from April,
1996 to September 30, 1996 were 28% and $0.0261, respectively.
(6) Represents activity from the Master Portfolio.
Stagecoach Allocation Funds Prospectus 13
<PAGE>
Asset Allocation Fund Financial Highlights
See "How to Read the Financial Highlights" on page 52.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
======================================================================================================================
FOR A SHARE OUTSTANDING
======================================================================================================================
For a period ended: CLASS B SHARES - COMMENCED
ON JANUARY 1, 1995
---------------------------------------------------------------
Sept. 30, March 31, Sept. 30, Sept. 30,
1997 1997(1) 1996(2) 1995(3)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $12.29(1) $12.84(2) $12.50(3) $10.00
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18 0.19 0.28 0.22
Net realized and unrealized gain
on investments 1.93 0.41 0.34 2.53
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.11 0.60 0.62 2.75
- ----------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.18) (0.19) (0.28) (0.22)
Distributions from net realized gain 0.00 (0.96) 0.00 (0.03)
- ----------------------------------------------------------------------------------------------------------------------
Total from distributions (0.18) (1.15) (0.28) (0.25)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.22 $12.29 $12.84 $12.50
- ----------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 17.25% 4.62% 4.96% 27.72%
- ----------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $159,075 $89,252 $63,443 $26,271
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.58%(4) 1.53%(4) 1.14%(4) 1.53%
Ratio of net investment income to
average net assets 2.98%(4) 3.30%(4) 3.37%(4) 2.71%
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover 31%(6) 5%(6) 1%(5) 15%
- ----------------------------------------------------------------------------------------------------------------------
Average commission rate paid ($) $0.0290(6) $0.0277(4) $0.0320(5) N/A
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior
to waived fees and reimbursed expenses 1.58%(4) 1.58%(4) 1.56%(4) 1.76%
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and 2.98%(4) 3.25%(4) 2.95%(4) 2.48%
reimbursed expenses
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
14 Stagecoach Allocation Funds Prospectus
<PAGE>
Index Allocation Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Barclays Global Fund Advisors
- --------------------------------------------------------------------------------
[GRAPHIC] Investment Objective
The Index Allocation Fund seeks to earn over the long-term a high
level of total return, that is, income and capital appreciation
combined, consistent with the assumption of reasonable risk, by
pursuing an "asset allocation" strategy whereby its investments are
allocated, based on changes in market conditions, among three asset
classes common stocks in the S&P 500 Index, U.S. Treasury Bonds and
money market instruments.
Investment Policies
We allocate and reallocate assets among common stocks, U.S. Treasury
bonds and money market instruments. This strategy is based on the
premise that, from time to time, certain asset classes are more
attractive long-term investments than others and that timely shifts
based on the relative over or under-valuation of these classes can
produce superior investment returns.
- --------------------------------------------------------------------------------
[GRAPHIC] Permitted Investments
We invest in the following asset classes:
o Stock Investments--We invest in common stocks representative of the
S&P 500 Index. We do not individually select common stock on the basis
of traditional investment analysis. Instead stock investments are made
according to a weighted formula intend to match the total return of
the S&P 500 Index as closely as possible; and
o Bond Investments--We invest in U.S. Treasury Bonds representative of
the Lehman Brothers 20+ Bond Index. Bonds on this Index will have
maturities of 20 years or more; and
o Money Market Investments--We invest this portion of the Fund in
high-quality money market instruments, including U.S. Government
obligations, obligations of foreign and domestic banks, short-term
corporate debt instruments and repurchase agreements.
In addition, under normal market conditions, we invest:
o at least 65% of assets in stocks representative of the S&P Index,
the Lehman Brothers 20+ Bond Index or a combination of both;
o in call and put options on stock indexes, stock index futures,
Stagecoach Allocation Funds Prospectus 15
<PAGE>
- --------------------------------------------------------------------------------
options on stock index futures, interest rate and interest rate
futures contracts as a substitute for a comparable market position in
stocks;
o in interest rate and index swaps; and
o up to 25% of total assets in obligations of foreign banks qualifying
as money market investments.
We manage the allocation of investments in the Fund's portfolio based
on the assumption that the Fund's "normal" allocation is 100% stocks
and no bonds. This is not a "target" allocation but a measure of our
risk tolerance. This is in contrast to the normal allocation for the
Asset Allocation Fund, which is generally a more conservative Fund,
with less of an allocation in stocks. The Fund is a diversified
portfolio.
We are not required to keep a minimum investment in any of the three
asset classes, nor are we prohibited from investing substantially all
of our assets in a single class. The asset allocation may shift at any
time. In addition, we may temporarily hold assets in cash or in money
market instruments, including U.S. Government obligations, repurchase
agreements and other short-term investments, to maintain liquidity or
when we believe it is in the best interest of shareholders to do so.
- --------------------------------------------------------------------------------
[GRAPHIC] Important Risk Factors
You should consider both the General Investment Risks listed on page
27 and the specific risks listed below. They are equally important to
your investment choice.
We may incur a higher than average portfolio turnover ratio due to
allocation shifts recommended by the model. Foreign obligations may
entail additional risks. Investments in options on stock indexes
depend on movements in the market in general, or price level movements
for a particular index, rather than price movements for an individual
issue.
- --------------------------------------------------------------------------------
[GRAPHIC] Additional Fund Facts
Barclays Global Fund Advisors, as the Sub-Advisor, uses a proprietary
investment model that analyzes extensive financial data from numerous
sources and recommends a portfolio allocation for the Fund. The model
incorporates assumptions about expected risks and returns and investor
attitudes about risk. The model is run daily and recommendations are
made in 5% increments. No person is primarily responsible for
recommending either the asset mix or the mix of
16 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
securities within a class. The Fund is not designed to profit from
short-term market changes. Instead, it is designed for investors with
investment horizons of three to five years. We allocate investments
among the asset classes described above. The Fund does not attempt to
replicate the performance of a single index and is not an index fund.
For information on Fund fees and expenses, see "Summary of Expenses"
on page 6.
Stagecoach Allocation Funds Prospectus 17
<PAGE>
Index Allocation Fund Financial Highlights
See "Historical Fund Information" on page 45.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===================================================================================
FOR A SHARE OUTSTANDING
===================================================================================
For the period ended: CLASS A SHARES --
COMMENCED ON APRIL 7, 1988
---------------------------
June 30, Dec. 31,
1997(1) 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $13.99 $13.76
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18 0.29
Net realized and unrealized gain (loss)
on investments 1.70 2.02
- -----------------------------------------------------------------------------------
Total from investment operations (loss) 1.88 2.31
- -----------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.18) (0.29)
Distributions from net realized gain 0.00 (1.79)
- -----------------------------------------------------------------------------------
Total from distributions (0.18) (2.08)
- -----------------------------------------------------------------------------------
Net asset value, end of period $15.69 $13.99
- -----------------------------------------------------------------------------------
Total return (not annualized) 13.52% 17.04%
- -----------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $72,691 $60,353
- -----------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.29% 1.31%
Ratio of net investment income to
average net assets 2.49% 2.06%
- -----------------------------------------------------------------------------------
Portfolio turnover 36% 67%
- -----------------------------------------------------------------------------------
Average commission rate paid($) $0.0341 $0.0227
- -----------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.35% 1.44%
- -----------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed 2.43% 1.93%
expenses
- -----------------------------------------------------------------------------------
</TABLE>
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
===================================================================================
CLASS A SHARES CALENDAR YEAR RETURNS 1996
===================================================================================
<S> <C>
Returns for other share classes may vary due to 17.04%
different fees and expenses. These returns
reflect fee waivers and reimbursements, do not
reflect sales loads and are not a guarantee of
future performance.
- -----------------------------------------------------------------------------------
(1) Unaudited financial statements.
</TABLE>
18 Stagecoach Allocation Funds Prospectus
<PAGE>
See "How to Read the Financial Highlights" on page 52.
- --------------------------------------------------------------------------------
================================================================================
================================================================================
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$10.67 $11.90 $11.45 $11.95 $10.31 $10.39 $10.17 $10.00
- ----------------------------------------------------------------------------------------------------------------------
0.28 0.31 0.30 0.47 0.57 0.63 0.67 0.28
3.42 (0.39) 1.12 0.36 1.51 0.10 0.33 0.18
- ----------------------------------------------------------------------------------------------------------------------
3.70 (0.08) 1.42 0.83 2.08 0.73 1.00 0.46
- ----------------------------------------------------------------------------------------------------------------------
(0.28) (0.31) (0.30) (0.63) (0.44) (0.61) (0.63) (0.27)
(0.33) (0.84) (0.67) (0.70) 0.00 (0.20) (0.15) (0.02)
- ----------------------------------------------------------------------------------------------------------------------
(0.61) (1.15) (0.97) (1.33) (0.44) (0.81) (0.78) (0.29)
- ----------------------------------------------------------------------------------------------------------------------
$13.76 $10.67 $11.90 $11.45 $11.95 $10.31 $10.39 $10.17
- ----------------------------------------------------------------------------------------------------------------------
34.71% (0.68)% 12.54% 7.44% 20.69% 7.08% 10.23% 4.60%
- ----------------------------------------------------------------------------------------------------------------------
$52,007 $40,308 $53,124 $41,165 $38,663 $27,689 $23,814 $13,220
- ----------------------------------------------------------------------------------------------------------------------
1.30% 1.30% 1.36% 1.25% 1.38% 1.59% 1.76% 1.76%
2.07% 2.41% 2.64% 4.08% 5.23% 6.01% 6.44% 4.69%
- ----------------------------------------------------------------------------------------------------------------------
47% 50% 53% 38% 18% 94% 62% 200%
- ----------------------------------------------------------------------------------------------------------------------
N/A N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
1.35% 1.38% 1.47% 1.71% 1.56% 1.74% 2.37% 3.02%
- ----------------------------------------------------------------------------------------------------------------------
2.02% 2.33% 2.53% 3.62% 5.05% 5.86% N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
[THE FOLLWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
======================================================================================================================
1995 1994 1993 1992 1991 1990 1989
======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
34.71% -0.68% 12.54% 7.44% 20.69% 7.08% 10.23%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Allocation Funds Prospectus 19
<PAGE>
Index Allocation Fund Financial Highlights
See "Historical Fund Information" on page 45.
See "How to Read the Financial Highlights" on page 52.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
For the period ended: CLASS C SHARES -- COMMENCED
ON JULY 7, 1988
--------------------------------------------------------
June 30, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1997/1/ 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $17.42 $17.10 $13.26 $14.75 $15.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15 0.22 0.20 0.25 0.07
Net realized and unrealized gain (loss)
on investments 2.12 2.54 4.24 (0.45) 0.61
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (loss) 2.27 2.76 4.44 (0.20) 0.68
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.15) (0.22) (0.20) (0.25) (0.10)
Distributions from net realized gain 0.00 (2.22) (0.40) (1.04) (0.83)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from distributions (0.15) (2.44) (0.60) (1.29) (0.93)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.54 $17.42 $17.10 $13.26 $14.75
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized)2 13.08% 16.37% 33.72% (1.38)% 4.56%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $33,278 $24,655 $16,075 $9,798 $8,996
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 2.04% 2.05% 2.05% 2.01% 0.96%
Ratio of net investment income to
average net assets 1.75% 1.35% 1.30% 1.75% 0.53%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 36% 67% 47% 50% 53%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid($) $0.0341 $0.0227 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 2.11% 2.20% 2.17% 2.20% 1.12%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed
expenses 1.68% 1.20% 1.18% 1.56% 0.37%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Unaudited financial statements.
20 & 21 Stagecoach Allocation Funds Prospectus
<PAGE>
U.S. Government Allocation Fund
- --------------------------------------------------------------------------------
Advisor: Wells Fargo Bank
Sub-Advisor: Barclays Global Fund Advisors
- --------------------------------------------------------------------------------
Investment Objective
[GRAPHIC] The U.S. Government Allocation Fund seeks over the long-term a high
level of total return, including net realized and unrealized capital
gains and net investment income, consistent with reasonable risk.
Investment Policies
We allocate and reallocate assets among long-term U.S. Treasury bonds,
intermediate-term U.S. Treasury notes, and short-term money market
instruments. This strategy is based on the premise that asset classes
are at times undervalued or overvalued in comparison to one another
and that investing in undervalued asset classes offers better
long-term, risk-adjusted returns.
- --------------------------------------------------------------------------------
[GRAPHIC] Permitted Investments
The asset classes we invest in are composed as follows:
o Long-Term Investments -- We invest in U.S. Treasury bonds with
maturities greater than 20 years. We generally maintain an average
maturity of between 22 and 28 years for this portion of the portfolio;
and
o Intermediate-Term Investments -- We invest in U.S. Treasury notes
with maturities ranging from 5 to 7 years. We generally maintain an
average maturity of approximately 6 years for this portion of the
portfolio; and
o Short-Term Investments -- We invest this portion of the Fund in
high-quality money market instruments, including U.S. Government
obligations, obligations of foreign and domestic banks, short-term
corporate debt instruments and repurchase agreements.
In addition, under normal market conditions, we invest:
o At least 65% of total assets in U.S. Government obligations; and
o Up to 25% of total assets in foreign obligations qualifying as
money market investments.
As long as we keep 65% of assets in U.S. Government obligations, we
are not required to keep a minimum investment in any of the three
asset classes, nor are we prohibited from investing substantially all
of our assets in a single asset class. The allocation may shift at any
time. In addition, we may temporarily hold assets in cash or in money
mar-
22 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
ket instruments, including U.S. Government obligations, repurchase
agreements and other short-term investments, to maintain liquidity or
when we believe it is in the best interest of shareholders to do so.
The Fund is a diversified portfolio.
- --------------------------------------------------------------------------------
[GRAPHIC] Important Risk Factors
You should consider both the General Investment Risks beginning on
page 27 and the specific risks listed below. They are equally
important to your investment choice.
We may incur a higher than average portfolio turnover ratio due to
allocation shifts recommended by the model. Foreign obligations may
entail additional risks.
- --------------------------------------------------------------------------------
[GRAPHIC] Additional Fund Facts
Barclays Global Fund Advisors, as the Sub-Advisor, uses a proprietary
investment model that analyzes extensive financial data from numerous
sources and recommends a portfolio allocation. The model incorporates
assumptions about expected risks and returns and investor attitudes
about risk. The model is run daily and recommendations are made in 5%
increments. No person is primarily responsible for recommending either
the asset mix or the mix of securities within a class. The Fund is not
designed to profit from short-term market changes. Instead, it is
designed for investors with investment horizons of three to five
years.
For information on Fund fees and expenses, see "Summary of Expenses"
on page 6.
Stagecoach Allocation Funds Prospectus 23
<PAGE>
U.S. Government Allocation Fund Financial Highlights
See "Historical Fund Information" on page 45.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=======================================================================================================
FOR A SHARE OUTSTANDING
=======================================================================================================
For the period ended: CLASS A SHARES -- COMMENCED
ON MARCH 31, 1987
------------------------------------------------------
Sept. 30, March 31, Sept. 30, Dec. 31,
1997(1) 1997(2) 1996(3) 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $14.32 $14.48 $14.98 $13.76
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.41 0.42 0.59 0.79
Net realized and unrealized gain (loss)
on investments 0.44 (0.16) (0.50) 1.22
- -------------------------------------------------------------------------------------------------------
Total from investment operations 0.85 0.26 0.09 2.01
- -------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.41) (0.42) (0.59) (0.79)
Distributions from net realized gain 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------
Total from distributions (0.41) (0.42) (0.59) (0.79)
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.76 $14.32 $14.48 $14.98
- -------------------------------------------------------------------------------------------------------
Total return (not annualized) 6.00% 1.75% 0.69% 14.91%
- -------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $82,684 $86,930 $98,741 $135,577
- -------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.14%(4) 1.00%(4) 1.12%(4) 1.04%
Ratio of net investment income to
average net assets 5.61%(4) 5.70%(4) 5.45%(4) 5.41%
- -------------------------------------------------------------------------------------------------------
Portfolio turnover N/A 113%(6) 31%(5) 292%
- -------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.23%(4) 1.31%(4) 1.20%(4) 1.07%
- -------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed 5.52%(4) 5.39%(4) 5.37%(4) 5.38%
expenses
- -------------------------------------------------------------------------------------------------------
</TABLE>
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
=======================================================================================================
CLASS A SHARES CALENDAR YEAR RETURNS 1996 1995
=======================================================================================================
<S> <C> <C>
Returns for other share classes may vary due to 17.46% 14.91%
different fees and expenses. These returns
reflect fee waivers and reimbursements, do not
reflect sales loads and are not a guarantee of
future performance.
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Unaudited financial statements.
(2) The Fund changed its fiscal year-end from September 30 to March 31.
(3) The Fund changed its fiscal year-end from December 31 to September 30.
24 Stagecoach Allocation Funds Prospectus
<PAGE>
See "How to Read the Financial Highlights" on page 52.
- --------------------------------------------------------------------------------
================================================================================
================================================================================
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1994 1993 1992 1991 1990 1989 1988 1987
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$15.71 $15.41 $15.41 $13.14 $12.49 $11.05 $10.34 $10.00
- -----------------------------------------------------------------------------------------------------
0.87 0.96 0.87 0.94 0.92 0.93 0.87 0.64
(1.95) 1.69 0.04 1.33 (0.27) 0.51 (0.16) (0.30)
- -----------------------------------------------------------------------------------------------------
(1.08) 2.65 0.91 2.27 0.65 1.44 0.71 0.34
- -----------------------------------------------------------------------------------------------------
(0.87) (0.96) (0.87) 0.00 0.00 0.00 0.00 0.00
0.00 (1.39) (0.04) 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------
(0.87) (2.35) (0.91) 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------
$13.76 $15.71 $15.41 $15.41 $13.14 $12.49 $11.05 $10.34
- -----------------------------------------------------------------------------------------------------
(6.99)% 17.46% 6.30% 17.21% 5.20% 13.03% 6.87% 3.50%
- -----------------------------------------------------------------------------------------------------
$140,066 $283,206 $127,504 $30,098 $19,777 $14,367 $10,330 $7,469
- -----------------------------------------------------------------------------------------------------
1.01% 0.99% 1.00% 1.01% 1.03% 1.05% 0.99% 0.99%
5.94% 5.92% 6.06% 6.77% 7.34% 7.90% 8.04% 6.33%
- -----------------------------------------------------------------------------------------------------
112% 150% 33% 147% 558% 17% 42% 21%
- -----------------------------------------------------------------------------------------------------
1.08% 1.02% 1.08% N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
5.87% 5.89% 5.98% N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
</TABLE>
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
=====================================================================================================
1994 1993 1992 1991 1990 1989 1988
=====================================================================================================
<S> <C> <C> <C> <C> <C> <C>
-6.99% 17.46 6.30% 17.21% 5.20% 13.03% 6.87%
- -----------------------------------------------------------------------------------------------------
</TABLE>
(4) Ratio includes income and expenses charged to the Master Portfolio.
(5) Represents portfolio activity for the Fund's stand-alone period only. The
portfolio turnover for the period from April 1996 to September 30, 1996 was
87%.
(6) Reflects activity of the Master Portfolio
Stagecoach Allocation Funds Prospectus 25
<PAGE>
U.S. Government Fund Financial Highlights
Allocation Fund
See "Historical Fund Information" on page 45.
See "How to Read the Financial Highlights" on page 52.
<TABLE>
- ----------------------------------------------------------------------------------------------------
====================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================
<CAPTION>
For a period ended: CLASS B SHARES -- COMMENCED
ON JANUARY 1, 1995
- ----------------------------------------------------------------------------------------------------
Sept. 30, March 31, Sept. 30, Dec. 31,
1997(1) 1997(2) 1996(3) 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.42 $10.54 $10.91 $10.00
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.26 0.27 0.36 0.49
Net realized and unrealized gain (loss)
on investments 0.33 (0.12) (0.37) 0.91
- ----------------------------------------------------------------------------------------------------
Total from investment operations 0.59 0.15 (0.01) 1.40
- ----------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.26) (0.27) (0.36) (0.49)
Distributions from net realized gain 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------
Total from distributions (0.26) (0.27) (0.36) (0.49)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $10.75 $10.42 $10.54 $10.91
- ----------------------------------------------------------------------------------------------------
Total return (not annualized) 5.74% 1.42% 0.11% 14.11%
- ----------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $8,97(2) $7,221 $6,406 $4,077
- ----------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.79%(4) 1.61%(4) 1.92%(4) 1.65%
Ratio of net investment income to
average net assets 4.88%(4) 5.12%(4) 4.60%(4) 4.31%
- ----------------------------------------------------------------------------------------------------
Portfolio turnover N/A 113%(6) 31%(5) 292%
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior
to waived fees and reimbursed expenses 2.10%(4) 2.28%(4) 2.21%(4) 2.36%
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and 4.57%(4) 4.45%(4) 4.31%(4) 3.60%
reimbursed expenses
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Unaudited financial statements.
(2) The Fund changed its fiscal year-end from September 30 to March 31.
(3) The Fund changed its fiscal year-end from December 31 to September 30.
(4) Ratio includes income and expenses charged to the Master Portfolio.
(5) Represents portfolio activity for the Fund's stand-alone period only. The
portfolio turnover for the period from April 1996 to September 30, 1996 was
87%.
(6) Reflects activity of the Master Portfolio.
26 Stagecoach Allocation Funds Prospectus
<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:
o Unlike bank deposits such as CDs or savings accounts, mutual funds are not
insured by the FDIC.
o We cannot guarantee that we will meet our investment objectives.
o We do not guarantee the performance of a 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.
o 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.
o Investing in any mutual fund, including those deemed conservative, involves
risk, including the possible loss of any money you invest.
o An investment in a single Fund, by itself, does not constitute a complete
investment plan.
The Funds invest in securities that involve particular kinds of risk.
o The Asset Allocation and Index Allocation Funds invest in equities which
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 a 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.
o The Funds invest in debt instruments, such as notes and bonds, that are
subject to credit risk and interest rate risk. Credit risk is the
possibility that an issuer of a security will be unable to make interest
payments or repay principal. Changes in the financial strength of an issuer
or changes in the credit rating of a security may affect its value.
Interest rate risk is the possibility that interest rates may increase and
reduce the resale value of securities in a Fund's portfolio. Debt
instruments with longer maturities are generally more sensitive to interest
rate changes than those with shorter maturities. Changes in market interest
rates do not affect the rate payable on debt instruments held in a Fund,
unless the instrument has
Stagecoach Allocation Funds Prospectus 27
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
adjustable or variable rate features. Changes in market interest rates may
also extend or shorten the duration of certain types of instruments, such
as asset-backed securities, thereby affecting their value and the return on
your investment.
o The Asset Allocation and Index Allocation Funds invest in smaller
companies, foreign companies (including investments made through American
Depository Receipts and similar instruments), and emerging markets that are
subject to additional risks, including less liquidity and greater
volatility. A Fund's investment in foreign and emerging markets may also be
subject to special risks associated with international trade, including
currency, political, regulatory and diplomatic risk.
o The Funds may invest a portion of their 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.
o The Funds may also use certain derivative instruments, such as options or
futures contracts. The term "derivatives" covers a wide number of
investments, but in general it refers to any financial instrument whose
value is derived, at least in part, from the price of another security or a
specified index, asset or rate. Some derivatives may be more sensitive to
interest rate changes or market moves, and some may be susceptible to
changes in yields or values due to their structure or contract terms.
What follows is a general list of the types of risks (some of which are
described above) that may apply to a given Fund and a table showing some of the
additional investment practices that each Fund may use. Additional information
about these practices is available in the Statement of Additional
Information.
Counter-Party Risk-- The risk that the other party in a repurchase agreement or
other transaction will not fulfill its contract obligation.
Credit Risk-- The risk that the issuer of a debt security will be unable to make
interest payments or repay principal on schedule. If an issuer does default, the
affected security could lose all of its value, or be renegotiated at a lower
interest rate or principal amount. Affected securities might also lose
liquidity. Credit risk also includes the risk that a party in a transaction may
not be able to complete the transaction as agreed.
Currency Risk-- The risk that a change in the exchange rate between U.S. dollars
and a foreign currency may reduce the value of an investment made in a security
denominated in that foreign currency.
28 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Diplomatic Risk-- The risk that an adverse change in the diplomatic relations
between the United States and another country might reduce the value or
liquidity of investments in either country.
Experience Risk-- The risk presented by a new or innovative security. The risk
is that insufficient experience exists to forecast how the security's value
might be affected by various economic conditions.
Information Risk-- The risk that information about a security is either
unavailable, incomplete or is inaccurate.
Interest Rate Risk-- The risk that changes in interest rates can reduce the
value of an existing security. Generally, when interest rates increase, the
value of a debt security decreases. The effect is usually more pronounced for
securities with longer dates to maturity.
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 permit inappropriate trading practices.
- --------------------------------------------------------------------------------
Investment Practice/Risk
The following table lists some of the additional investment practices of
the Funds, including some not disclosed in the Investment Objective and
Investment Policies sections 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
each Fund or the Statement of Additional Information for more information
on these practices.
Remember, each Fund is designed to meet different investment needs and has
a different investment objective and investment policy. Each Fund engages
in the investment practices described below to varying degrees.
In addition to the general risks discussed above, you should carefully
consider and evaluate any special risks that may apply to investing in a
particular Fund. See the "Important Risk Factors" in the summary for each
Fund. You should also see the Statement of Additional Information for
additional information about the investment practices and risks particular
to each Fund.
Investment practices and risk levels are carefully monitored. We attempt to
ensure that the risk exposure for each Fund remains within the parameters
of its objective.
- --------------------------------------------------------------------------------
Stagecoach Allocation Funds Prospectus 29
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET INDEX U.S.
ALLOCATION ALLOCATION GOVERNMENT
=================================================================================================================
INVESTMENT PRACTICE: RISK:
=================================================================================================================
<S> <C> <C> <C> <C>
Floating and Variable Rate Debt
Instruments with interest Interest Rate and X X X
rates that are adjusted Credit Risk
either on a schedule or
when an index or benchmark
changes.
- -----------------------------------------------------------------------------------------------------------------
Repurchase Agreements
A transaction in which Credit and X X X
the seller of a security Counter-Party Risk
agrees to buy back a
security at an agreed
upon time and price,
usually with interest.
- -----------------------------------------------------------------------------------------------------------------
Other Mutual Funds
The temporary investment Market Risk X X X
in shares of another
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.
- -----------------------------------------------------------------------------------------------------------------
Foreign Securities
Securities in a dollar- Information, Political, X X X
denominated debt of non- Regulatory, Liquidity,
U.S. companies or foreign Diplomatic and Currency
governments. Risk
- -----------------------------------------------------------------------------------------------------------------
Options
The right or obligation to Credit, Information and
receive or deliver a security Liquidity Risk
or cash payment depending on
the security's price or the
performance of an index or
benchmark.
------------------------------------------------------------------------------------------------------------
Stock Index Futures X X
Options on Stock Index Futures X X
Index Swaps X X X
Interest Rate futures X X X
Interest Rate Futures Options X X X
Interest Rate Swaps X X X
- -----------------------------------------------------------------------------------------------------------------
Loans of Portfolio Securities
The practice of loaning Credit and X X X
securities to brokers, Counter-Party Risk
dealers and financial
institutions to increase
return on those securities.
Loans may be made in
accordance with existing
investment policies.
- -----------------------------------------------------------------------------------------------------------------
Borrowing Policies
The ability to borrow an Counter-Party Risk X X X
equivalent of 20% (10% for
Index Allocation) of assets
from banks for temporary
purposes to meet shareholder
redemptions.
- -----------------------------------------------------------------------------------------------------------------
Illiquid Securities
A security that cannot be Liquidity Risk X X X
readily sold, or cannot be
readily sold without
negatively affecting its fair
price. Limited to 15% of
assets for Asset Allocation
and U.S. Government Allocation
Funds and 10% of assets for
Index Allocation Fund.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
30 Stagecoach Allocation Funds 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:
o Class A Shares - with a front-end sales charge, volume reductions and lower
on-going expenses than Class B and Class C shares.
o Class B Shares - with a contingent deferred sales charge (CDSC) that
diminishes over time, and higher on-going expenses than Class A shares.
o Class C Shares - with a 1.00% contingent deferred sales charge (CDSC) on
redemptions made within one year of purchase, 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 or Class C 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.
Class C shares are available for the Asset Allocation and Index Allocation Funds
only. They are similar to Class B shares, with some important differences.
Unlike Class B shares, Class C shares do not convert to Class A shares. The
higher on-going expenses will be assessed as long as you hold the shares. The
choice between Class B and Class C shares may depend on how long you intend to
hold Fund shares before redeeming them.
Please see the expenses listed for each Fund and the following load tables
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.
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.
Stagecoach Allocation Funds Prospectus 31
<PAGE>
A Choice of Share Classes
- --------------------------------------------------------------------------------
<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 $249,000 3.50% 3.63% 3.125%
- -------------------------------------------------------------------------------------------------------------------
$250,000 to $499,999 2.50% 2.56% 2.00%
- -------------------------------------------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 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 and Class C 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:
================================================================================
REDEMPTIONS 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 B shares are converted to A shares to reduce
your future on-going expenses.
32 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Class C Share CDSC Schedule
If you choose Class C shares, you buy them at NAV and agree that if you redeem
your shares within one year of the purchase date, you will pay a contingent
deferred sales charge (CDSC) of 1.00%.
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 1.00% of the purchase price of Class C 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. Class C shares do not
convert to Class A shares, and therefore continue to pay the higher on-going
expenses.
Stagecoach Allocation Funds Prospectus 33
<PAGE>
Reduced Sales Charges
- --------------------------------------------------------------------------------
Generally, we offer more sales charge reductions for Class A shares than for
Class B and Class C 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:
o You pay no sales charges on Fund shares you buy with reinvested
distributions.
o 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.
o 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.
o 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.
o 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.
o 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.
34 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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:
o a family unit, consisting of a husband and wife and children under the age
of twenty-one or single trust estate;
o a trustee or fiduciary purchasing for a single fiduciary relationship; or
o 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 a Stagecoach 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 $50,000, then 4.00% on the next $49,999!
- --------------------------------------------------------------------------------
Stagecoach Allocation Funds Prospectus 35
<PAGE>
Reduced Sales Charges
- --------------------------------------------------------------------------------
Class B and Class C Share CDSC Reductions:
o You pay no CDSC on Funds shares you purchase with reinvested distributions.
o 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.)
o 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.)
o We waive the CDSC for redemptions made at the Company's direction 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:
o Current and retired employees, directors and officers of:
o Stagecoach Funds and its affiliates;
o Wells Fargo Bank and its affiliates;
o Stephens Inc. and its affiliates; and
o Broker-Dealers who act as selling agents.
o 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 the
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 supercede the terms and
conditions discussed here.
36 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Special Notice
If you owned Class B shares prior to March 3, 1997 they are subject to a CDSC if
they are redeemed within four years of purchase. For as long as you hold Class B
shares of such a Fund, any new Class B shares of that Fund that you acquire will
also be subject to a CDSC if redeemed within four years. The CDSC schedule for
these shares is below:
<TABLE>
<CAPTION>
================================================================================
CLASS B SHARES LISTED IN THIS PROSPECTUS HAVE THE FOLLOWING CHARGE SCHEDULE:
================================================================================
REDEMPTIONS 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 schedule does 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.
Stagecoach Allocation Funds Prospectus 37
<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:
o By opening an account directly with the Fund (simply complete and return a
Stagecoach Funds application with proper payment);
o Through a brokerage account with an approved selling agent; or
o Through certain retirement, benefits and pension plans, or through certain
packaged investment products (please see the providers of the plan for
instructions).
Minimum Investments:
o $1,000 per Fund minimum initial investment; or
o $100 per Fund minimum initial investment if you use the AutoSaver option.
o $100 per Fund for all investments after your first.
o 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.
38 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Important Information:
o 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.
o 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.
o 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.
o We determine the Net Asset Value (NAV) of each class of the Funds' shares
each business day as of the close of regular trading on the New York Stock
Exchange. We determine the NAV by subtracting the Fund class' liabilities
from its total assets, and then dividing the result by the total number of
outstanding shares of that class. Each Fund's assets are generally valued
at current market prices. See the Statement of Additional Information for
further disclosure.
o We will process all requests to buy and sell shares at the first NAV
calculated after the request in proper form is received.
o 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.
o Once an account has been opened, you can add additional Funds under the
same registration without requiring a new application.
o We reserve the right to cancel any purchase order or delay redemption if
your check does not clear.
Stagecoach Allocation Funds Prospectus 39
<PAGE>
Your Account
- --------------------------------------------------------------------------------
How to Buy Shares
The following section explains how you can buy shares directly from Stagecoach
Funds. For Funds held through brokerage and other types of accounts, please
consult your selling agent.
================================================================================
BY MAIL
================================================================================
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
- --------------------------------------------------------------------------------
Complete a Stagecoach Funds application. Be sure to indicate the Fund name and
the share class into which you intend to invest.
- --------------------------------------------------------------------------------
Enclose a check for at least $1,000 made out in the full name and share class of
the Fund. For example, "Stagecoach Strategic Growth Fund, Class B".
- --------------------------------------------------------------------------------
You may start your account with $100 if you elect the AutoSaver option on the
application.
- --------------------------------------------------------------------------------
Mail to:
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-9201
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF YOU ARE BUYING ADDITIONAL SHARES:
- --------------------------------------------------------------------------------
Make a check payable to the full name and share class of your Fund for at least
$100. Be sure to write your account number on the check as well.
- --------------------------------------------------------------------------------
Enclose the payment stub/card from your statement if available.
- --------------------------------------------------------------------------------
Mail to:
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-9201
- --------------------------------------------------------------------------------
================================================================================
BY WIRE
================================================================================
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
- --------------------------------------------------------------------------------
If you do not currently have an account, complete a Stagecoach Funds
application. You must wire at least $1,000. Be sure to indicate the Fund
name and the share class into which you intend to invest.
- --------------------------------------------------------------------------------
Mail the completed application.
- --------------------------------------------------------------------------------
You may also fax the completed application (with original to follow).
- --------------------------------------------------------------------------------
Mail to:
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-9201
Fax to:
1-415-546-0280
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF YOU ARE BUYING ADDITIONAL SHARES:
- --------------------------------------------------------------------------------
Instruct your wiring bank to transmit at least $100 according to the
instructions given to the right. Be sure to have the wiring bank include your
current account number and the name your account is registered in.
- --------------------------------------------------------------------------------
Wire to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number:
121000248
Wire Purchase Account Number:
4068-000587
Attention:
Stagecoach Funds (Name of Fund and Share Class)
Account Name:
(Registration Name Indicated on Application)
- --------------------------------------------------------------------------------
40 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
BY PHONE
================================================================================
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
- --------------------------------------------------------------------------------
You can only make your first purchase of a Fund by phone if you already have
an existing Stagecoach Account.
- --------------------------------------------------------------------------------
Call Investor Services and instruct the representative to either:
o transfer at least $1,000 from a linked settlement account, or
o exchange at least $1,000 worth of shares from an existing Stagecoach Fund.
Please see "Exchanges" for special rules.
- --------------------------------------------------------------------------------
Call:
1-800-222-8222
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF YOU ARE BUYING ADDITIONAL SHARES:
- --------------------------------------------------------------------------------
Call Investor Services and instruct the representative to either:
o transfer at least $100 from a linked settlement account, or
o exchange at least $100 worth of shares from another Stagecoach Fund.
- --------------------------------------------------------------------------------
Call:
1-800-222-8222
- --------------------------------------------------------------------------------
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, or by wire ($5,000 minimum). Please call
Investor Services regarding requirements for linking bank accounts or for
wiring funds. We reserve the right to charge a fee for wiring funds although
it is not currently our practice to do so.
- --------------------------------------------------------------------------------
Signature Guarantees are required for mailed redemption requests over $5,000.
You can get a signature guarantee at financial institutions such as a bank or
brokerage house. We do not accept notarized signatures.
- --------------------------------------------------------------------------------
Mail to:
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-9201
- --------------------------------------------------------------------------------
Stagecoach Allocation Funds Prospectus 41
<PAGE>
Your Account
- --------------------------------------------------------------------------------
================================================================================
BY PHONE
================================================================================
Call Investor Services to request a redemption of at least $100.
Be prepared to provide your account number and Tax Identification Number.
- --------------------------------------------------------------------------------
Unless you have instructed us otherwise, only one account owner needs to call in
redemption requests.
- --------------------------------------------------------------------------------
You may request that redemption proceeds be sent to you by check, by transfer
into an ACH-linked bank account, or by wire ($5,000 minimum). Please call
Investor Services regarding requirements for linking bank accounts or for wiring
funds. We reserve the right to charge a fee for wiring funds although it is not
currently our practice to do so.
- --------------------------------------------------------------------------------
Telephone privileges are automatically made available to you unless you
specifically decline them on your application or subsequently in writing.
- --------------------------------------------------------------------------------
Phone privileges allow us to accept transaction instructions by anyone
representing themselves as the shareholder and who provides reasonable
confirmation of their identity, such as providing the Taxpayer Identification
Number on the account. We will not be liable for any losses incurred if we
follow telephone instructions we reasonably believe to be genuine.
- --------------------------------------------------------------------------------
Call:
1-800-222-8222
- --------------------------------------------------------------------------------
================================================================================
GENERAL NOTES FOR SELLING SHARES
================================================================================
We will process requests to sell shares at the first NAV calculated after a
request in proper form is received. Requests received before the close of
trading on the New York Stock Exchange are processed on the same business
day.
- --------------------------------------------------------------------------------
Your redemptions are net of any applicable CDSC.
- --------------------------------------------------------------------------------
If you purchased shares through a packaged investment product or retirement
plan, read the directions for selling shares provided by the product or plan.
There maybe special requirements that supercede the directions in this
Prospectus.
- --------------------------------------------------------------------------------
We reserve the right to delay payment of a redemption for up to ten days so
that we may be reasonably certain that investments made by check have been
collected. Payments of redemptions also may be delayed under extraordinary
circumstances or as permitted by the Securities and Exchange Commission in
order to protect remaining shareholders. Payments of redemptions also may be
delayed up to seven days under normal circumstances, although it is not our
policy to delay such payments.
- --------------------------------------------------------------------------------
Generally, we pay redemption requests in cash, unless the redemption request
is for more than $250,000 or 1% of the net assets of the Fund by a single
shareholder over any ninety-day period. If a request for a redemption is over
these limits, it may be to the detriment of existing shareholders to pay such
redemption in cash. Therefore, we may pay all or part of the redemption in
securities of equal value.
- --------------------------------------------------------------------------------
42 Stagecoach Allocation Funds Prospectus
<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:
o You should carefully read the Prospectus for the Fund into which you wish
to exchange.
o Every exchange involves selling Fund shares and that sale may produce a
capital gain or loss for federal income tax purposes.
o 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).
o 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.
o Any exchange between Funds you already own must meet the minimum redemption
and subsequent purchase amounts for the Funds involved.
o 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.
o Exchanges between Class B shares, between Class C shares or between either
Class B or Class C 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.
o Exchanges from any share class to a money market fund can only be
re-exchanged for the original share class.
o 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.
o You may make exchanges between like share classes. You may also exchange
between A, B or C share classes and non-institutional class shares of a
money market fund.
Stagecoach Allocation Funds Prospectus 43
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Automatic Programs:
These programs help you conveniently purchase or redeem shares each month:
o AutoSaver Plan - you need only specify an amount of at least $100 and a day
of the month. We will automatically transfer that amount from your linked
bank account each month to purchase additional shares. We will transfer the
amount on or about the day you specify, or on or about the 20th of each
month if you have not specified a day. Please call Stagecoach Investor
Services at 1-800-222-8222 if you wish to change or add linked accounts.
o 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:
o must have a Fund account valued at $10,000 or more;
o must have distributions reinvested; and
o may not be 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:
o 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.
o 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.
o 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.
44 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
o 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 a Fund as dividend distributions. These are taxable to you as ordinary
income.
We will pass on to you any net capital gains earned by a Fund as a capital gain
distribution. In general, these distributions will be taxable to you as
long-term capital gains and are taxable when paid. However, distributions
declared in October, November and December and distributed by the following
January will be taxable as if they were paid on December 31 of the year in which
they were declared. We will notify you as to the status of your Fund
distributions.
Your redemptions, including exchanges, will ordinarily result in a taxable
capital gain or loss, depending on the amount you receive for your shares and
the amount you paid for them. Foreign shareholders may be subject to different
tax treatment, including withholding. In certain circumstances, U.S. residents
will be subject to back-up withholding.
Historical Fund Information
Index Allocation Fund--Commenced operations on April 7, 1988 as the Asset
Allocation Fund of Overland Express Funds, Inc., another investment company
advised by Wells Fargo Bank. In February of 1997, the Fund changed its name
Stagecoach Allocation Funds Prospectus 45
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
to the "Index Allocation Fund". On December 12, 1997, the Overland Express Fund
was reorganized as a Fund of Stagecoach Funds. Performance for the period prior
to December 15, 1997, reflects the performance of the Overland Fund. The Fund's
manager has voluntarily waived or reimbursed expenses to the Fund; without these
reduction, the Fund's performance would have been lower.
Asset Allocation and U.S. Government Allocation Funds--Financial information for
fiscal periods prior to, and including, 1991 is based on the financial
information for the Asset Allocation Fund of the Wells Fargo Investment Trust
for Retirement Programs and the Fixed-Income Strategy Fund of the Trust, which
were reorganized into the Asset Allocation and U.S. Government Allocation Funds,
respectively, on January 2, 1992. From the period from April 28, 1996 to
December 15, 1997, the Asset Allocation Fund and the U.S. Government Allocation
Fund invested all of their assets in Master Portfolios with corresponding
investment objectives. The Funds no longer invest in a Master Portfolio.
Currently, and for periods prior to April 28, 1996, the Funds invest directly in
a portfolio of securities.
Share Class - This Prospectus contains information about Class A, Class B and
Class C shares. Some of the Funds 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 same Fund will have the same NAV on a given
date, the conversion is on a dollar-value basis, not a share-for-share basis.
Minimum Account Value - Due to the expense involved in maintaining low-balance
accounts, we reserve the right to close accounts that have fallen below the
$1,000 minimum balance due to redemptions (as opposed to market conditions). You
will be given an opportunity to make additional investments to prevent account
closure before any action is taken.
Statements - We mail statements after any account activity, including
transactions, dividends or capital gains, and at year-end. We do not send
statements for Funds held in brokerage, retirement or other similar accounts.
You must check with the administrators of these accounts for statement policies.
46 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
The Fund will also send any necessary tax reporting documents in January, and
will send Annual and Semi-Annual Reports each year.
Dealer Concessions and Rule 12b-1 fees - Stephens Inc., as the Fund's
distributor, will pay the portion of the Class 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 A shares of Index Allocation, Class B and
Class C 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, Class B and Class C shares of the same 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
each 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 Funds 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 Funds have equal voting rights and are voted
in the aggregate, rather than by series or class, unless the matter affects only
one series or class. A shareholder of record is entitled to one vote for each
share owned and fractional votes for each fractional share owned. For a detailed
description of voting rights, see the "Capital Stock" section of the Statement
of Additional Information.
Stagecoach Allocation Funds Prospectus 47
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
A number of different entities provide services to the Funds. This section shows
how the Funds are organized, the entities that perform different services, and
how they are compensated. Further information is available in the Statement of
Additional Information for each Fund.
About Stagecoach
Each 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 Funds' activities and
approves the selection of various companies hired to manage the Funds'
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.
================================================================================
SHAREHOLDERS
================================================================================
================================================================================
FINANCIAL SERVICES FIRMS AND SELLING AGENTS
================================================================================
Advise current and prospective shareholders on their Fund investments
- --------------------------------------------------------------------------------
================================================================================
DISTRIBUTOR &
CO-ADMINISTRATOR ADMINISTRATOR
================================================================================
Stephens Inc. Wells Fargo Bank
111 Center St. 525 Market St.
Little Rock, AR San Francisco, CA
Markets the Funds, Manages the Funds'
distributes shares, business activities
and manages the Funds'
business activities
- --------------------------------------------------------------------------------
================================================================================
TRANSFER AND SHAREHOLDER
DIVIDEND DISBURSING AGENT SERVICING AGENTS
================================================================================
Wells Fargo Bank Various Agents
525 Market St.
San Francisco, CA
Maintains records of Provide services
shares and supervises to customers
the paying of dividends
- --------------------------------------------------------------------------------
================================================================================
INVESTMENT SUB-ADVISOR
================================================================================
Barclay Global Fund Advisors 45 Freement Street San Francisco, CA
Manages the Fund's investment activities
- --------------------------------------------------------------------------------
================================================================================
INVESTMENT ADVISOR CUSTODIAN
================================================================================
Wells Fargo Bank, 525 Market St., Barclay's Global Investors, N.A.
San Francisco, CA 45 Fremont
San Francisco, CA
Manages the Funds' Provides safekeeping for
investment activities the Funds' assets
- --------------------------------------------------------------------------------
================================================================================
BOARD OF DIRECTORS
================================================================================
Supervises the Funds' activities
- --------------------------------------------------------------------------------
48 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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, amending fundamental investment strategies or policies.
In the following sections, the percentages shown are the percentages of the
average daily net assets of each Fund class paid on an annual basis for the
services described. The Statement of Additional Information has more detailed
information about the Investment Advisor and the other service providers and
plans described here.
The Investment Advisor
Wells Fargo Bank is the advisor for each of the Funds. 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 Funds paid Wells Fargo Bank the following for advisory services
(after fee waivers) for the last fiscal year:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Asset Allocation Fund .36%
- --------------------------------------------------------------------------------
Index Allocation Fund .70%
- --------------------------------------------------------------------------------
U.S. Government Allocation Fund .50%
- --------------------------------------------------------------------------------
</TABLE>
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 each of the Funds. 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 providing sub-advisory services to
the Asset Allocation and Index Allocation Funds, BGFA is entitled to receive
from Wells Fargo Bank .20% of each Fund's assets up to $500 million, .15% from
$500 million to $1 billion, and .10% of assets in excess of $1 billion. For
providing sub-advisory services to the U.S. Government Allocation Fund, BGFA is
entitled to receive from Wells Fargo Bank .05% of the Fund's assets up to $100
million, .04%, from $100 million up to $150 million, and
Stagecoach Allocation Funds Prospectus 49
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
.03% of the Fund's assets in excess of $150 million. The Funds paid BGFA the
following for sub-advisory services for the last fiscal year:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Asset Allocation Fund .20%
- --------------------------------------------------------------------------------
Index Allocation Fund .28%
- --------------------------------------------------------------------------------
U.S. Government Allocation Fund .19%
- --------------------------------------------------------------------------------
</TABLE>
The Administrator
Wells Fargo Bank is the administrator of the Funds. Wells Fargo Bank is paid
.03% of each Fund's assets for these services. Prior to February 1, 1998, Wells
Fargo Bank was entitled to receive .04% of each Fund's assets for administration
services.
The Distributor and Co-Administrator
Stephens Inc. is the Fund's distributor and co-administrator. Stephens Inc.
receives .04% of each 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 Funds' shares. Prior to February 1, 1998, Stephens Inc. was
entitled to receive .02% of each Fund's assets for co-administration
services.
Distribution Plan
We have adopted distribution plans for the Funds. For Class A shares of Asset
Allocation and U.S. Government Allocation Funds, these plans are used to defray
all or part of the cost of preparing and distributing prospectuses and
promotional materials. For Class A shares of Index Allocation, Class B and Class
C shares, these plans are used to pay for distribution-related services,
including on-going compensation to selling agents. Each 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 fees paid under these plans
are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Allocation Fund .05% .70% .75%
- --------------------------------------------------------------------------------
Index Allocation Fund .25% .75% .75%
- --------------------------------------------------------------------------------
U.S. Government Allocation Fund .05% .70% N/A
- --------------------------------------------------------------------------------
</TABLE>
Shareholder Servicing Plan
We have Shareholder Servicing Plans for each Fund class. We have agreements with
various shareholder servicing agents to process purchase and
50 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
redemption requests, to service shareholder accounts, and to provide other
related services.
For these services each Fund pays as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Allocation Fund .30% .30% .25%
- --------------------------------------------------------------------------------
Index Allocation Fund .25% .25% .25%
- --------------------------------------------------------------------------------
U.S. Government Allocation Fund .30% .30% N/A
- --------------------------------------------------------------------------------
</TABLE>
Stagecoach Allocation Funds Prospectus 51
<PAGE>
How to Read the Financial Highlights
- --------------------------------------------------------------------------------
After the description of each Fund, there are charts showing important financial
information about the Fund. The charts are called the "Financial Highlights" and
are designed to help you understand the past performance of the Fund. The
financial statements from which these Financial Highlights were derived were
audited by KPMG Peat Marwick LLP, except as indicated. The financial statements
are included in each Fund's most recent Annual Report and are available free of
charge by calling 1-800-222-8222. Other auditors audited statements 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 a 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 Gains (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 a 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
a 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.
52 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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 Fund with a 50% portfolio turnover has sold and bought
half of its investment portfolio during the given period.
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.
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 Allocation Funds Prospectus 53
<PAGE>
Glossary
- --------------------------------------------------------------------------------
ACH
Refers to the "Automated Clearing House" system maintained by the Federal
Reserve System which allows banks to process checks, transfer funds and perform
other tasks.
Annual Report
A document that provides certain financial and other important information for
the most recent reporting period and each Fund's portfolio of investments.
Business Day
Any day the New York Stock Exchange is open is a business day for the Fund.
Current Income
Earnings in the form of dividends or interest as opposed to capital growth. See
also "Total Return".
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.
Dollar-Denominated
Securities issued by foreign banks, companies or governments in U.S. dollars.
FDIC
The Federal Deposit Insurance Corporation. This is the company that provides
federally-sponsored insurance covering bank deposits such as savings accounts
and CDs. Mutual funds are not FDIC insured.
Illiquid Security
A security which cannot be readily sold, or cannot be readily sold without
negatively affecting its fair price.
Investment Grade Debt
A type of bond rated in the top four investment categories by a nationally
recognized ratings organization. Generally these are bonds whose issuers are
54 Stagecoach Allocation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
considered to have a strong ability to pay interest and repay principal,
although some investment grade bonds may have some speculative characteristics.
Lehman Brothers 20+ Bond Index
An unmanaged index composed of U.S. Treasury bonds with 20 years or longer dates
to maturity.
Liquidity
The ability to readily sell a security at its fair price.
Moody's
One of the largest nationally recognized ratings organizations.
Nationally Recognized Rating Organization (NRRO)
A company that examines the ability of a bond issuer to meet its obligations and
which rates the bonds accordingly.
Net Asset Value (NAV)
The value of a single Fund share. It is determined by adding together all of 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.
Non-Diversified
Any fund that does not have a policy as described under "diversified" in this
Glossary.
Options
An option is the right to buy or sell a security based on an agreed upon price
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 Agreement
An agreement between a buyer and seller of a security in which the seller agrees
to repurchase the security at an agreed upon price and time.
Stagecoach Allocation Funds Prospectus 55
<PAGE>
Glossary
- --------------------------------------------------------------------------------
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.
S&P, S&P 500 Index
One of the largest nationally recognized ratings organizations. Standard and
Poor's also publishes various indexes or lists of companies representative of
sectors of the U.S. economy. The S&P 500 Index is one of the most commonly used
indexes used to measure the equity market. It is composed of 500 companies
representing a variety of economic sectors.
Statement of Additional Information
A document that supplements the disclosures made in this Prospectus.
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.
56 Stagecoach Allocation Funds Prospectus
<PAGE>
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- --------------------------------------------------------------------------------
<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 each 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:
- --------------------------------------------------------------------------------
o are not insured by the FDIC
o are not obligations or deposits of Wells Fargo Bank, nor guaranteed by the
Bank
o involve investment risk, including possible loss of principal.
- --------------------------------------------------------------------------------
[RECYCLE LOGO] SC AAP (12/97)
Printed on recycled paper
<PAGE>
March 30, 1998
================================================================================
STAGECOACH FUNDS(R)
Stagecoach
Equity Funds
Prospectus
Balanced Fund Please read this Prospectus and keep it for
future reference. It is designed to provide
Diversified Equity you with important information and to help
Income Fund you decide if a Fund's goals match your own.
Equity Value Fund
Growth Fund These securities have not been approved or
disapproved by the U.S. Securities and
Small Cap Fund Exchange Commission, any state securities
commission or any other regulatory authority,
Strategic nor have any of these authorities passed upon
Growth Fund the accuracy or adequacy of this Prospectus.
Any representation to the contrary is a
Class A, Class B and criminal offense.
Class C
Fund shares are NOT deposits or other
obligations of, or issued, endorsed or
Investment Advisor guaranteed by, Wells Fargo Bank, N.A. ("Wells
and Administrator: Fargo Bank"), or any of its affiliates. Fund
shares are NOT insured or guaranteed by the
Wells Fargo Bank U.S. Government, the Federal Deposit
Insurance Corporation ("FDIC"), the Federal
Distributor and Reserve Board or any other governmental
Co-Administrator: agency. AN INVESTMENT IN A FUND INVOLVES
CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
Stephens Inc. 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, each Fund's
investment objective and financial highlights are presented. The icons below
tell you where various types of information about a Fund can be found.
Important information you should look
for:
- --------------------------------------------------------------------------------
[GRAPHIC] Investment Objective and Investment Policies
What is the Fund trying to achieve? How do we
intend to invest your money? What makes a
Fund different from the other Funds offered
in this Prospectus? Look for the arrow icon
to find out.
- --------------------------------------------------------------------------------
[GRAPHIC] Permitted Investments
A summary of the Fund's key permitted
investments and practices.
- --------------------------------------------------------------------------------
[GRAPHIC] Important Risk Factors
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.
- --------------------------------------------------------------------------------
[GRAPHIC] Additional Fund Facts
Provides additional information about the
Fund.
- --------------------------------------------------------------------------------
Why is italicized print used throughout this Prospectus?
Words appearing in italicized print and highlighted in color are defined in the
Glossary.
What else do I need to understand these Funds?
Each 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 Funds is also available on the SEC's website
(http://www.sec.gov).
================================================================================
<PAGE>
<TABLE>
Table of Contents
<S> <C> <C>
Key Information 4
Summary of Expenses 6
- --------------------------------------------------------------------------------
The Funds Balanced Fund 10
This section contains Diversified Equity Income Fund 14
important information Equity Value Fund 18
about the individual Growth Fund 22
Funds. Small Cap Fund 26
Strategic Growth Fund 30
General Investment Risks 34
- --------------------------------------------------------------------------------
Your Account A Choice of Share Classes 38
Turn to this section for Reduced Sales Charges 41
information on how to Your Account 45
open and maintain How to Buy Shares 47
your account, including Selling Shares 48
how to buy, sell and Exchanges 50
exchange Fund shares. Additional Services and
Other Information 51
- --------------------------------------------------------------------------------
Reference Organization and
Look here for Management of the Funds 56
details on the How to Read the Financial Highlights 60
organization of Glossary 62
the Funds and
term definitions.
</TABLE>
<PAGE>
Key Information
- --------------------------------------------------------------------------------
Summary of the Stagecoach Equity Fund
The Funds described in this Prospectus invest primarily in equity securities,
except as indicated. As described, they may seek long-term capital appreciation,
total return, current income or a combination of these objectives. The
investment objective of each Fund is fundamental and may not be changed without
the approval of a majority of shareholders.
Should you consider investing in these Funds? Yes, if:
o you are looking to add equity investments to your portfolio;
o you have an investment horizon of at least three to five years; and
o 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 these Funds if:
o you are looking for FDIC insurance coverage or guaranteed rates of return;
o you are unwilling or unable to accept that you may lose money on your
investment;
o you are unwilling to accept the risks involved in the securities markets;
or
o 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 Funds" further
explains how the Funds are organized.
Who are "You"?
In this Prospectus, "You" means the potential investor or the shareholder.
What are the "Funds"?
In this Prospectus, the "Funds" refers to the Stagecoach Funds listed on the
cover of this Prospectus. The "Funds" also may refer to other mutual funds
offered by Stagecoach Funds, Inc.
Dividends
We pay dividends, if any, quarterly for the Funds listed in this Prospectus
except for the Small Cap and Strategic Growth Funds, which pay annual dividends.
4 Stagecoach Equity Funds Prospectus
<PAGE>
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- --------------------------------------------------------------------------------
<PAGE>
Equity Funds 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 a 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 Funds" for more details.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Balanced Fund Diversified Equity
Income Fund
-----------------------------------
CLASS A CLASS B CLASS A CLASS B
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on a purchase
(as a percentage of offering price) 5.25% None 5.25% None
- --------------------------------------------------------------------------------
Maximum sales charge on reinvested
dividends None None None None
- --------------------------------------------------------------------------------
Maximum sales charge on a:
Redemption during first year None 5.00% None 5.00%
Redemption after first year None 4.00% None 4.00%
- --------------------------------------------------------------------------------
Exchange fees None None None None
================================================================================
</TABLE>
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
================================================================================
Expenses shown "after waivers" reflect amounts paid by each Fund during the
prior fiscal period. They have been restated to reflect current expenses and
fee waivers. Expenses shown "before waivers" reflect contract amounts and
amounts paid during the prior fiscal period. Expense waivers and
reimbursements are voluntary and may be discontinued without prior notice.
Long-term shareholders may pay more than the equivalent of the maximum
front-end sales charge allowed by the National Association of Securities
Dealers, Inc.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Balanced Fund Diversified Equity
Income Fund
-----------------------------------
CLASS A CLASS B CLASS A CLASS B
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rule 12b-1fee 0.10% 0.75% 0.05% 0.70%
- --------------------------------------------------------------------------------
Management fee
(after waivers) 0.54% 0.54% 0.50% 0.50%
- --------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.63% 0.63% 0.64% 0.63%
================================================================================
TOTAL FUND OPERATING EXPENSES
(after waivers or reimbursements) 1.27% 1.92% 1.19% 1.83%
================================================================================
Management fee
(before waivers) 0.60% 0.60% 0.50% 0.50%
- --------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 0.63% 6.50% 0.64% 0.67%
- --------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES
(before waivers or reimbursements) 1.33% 7.85% 1.19% 1.87%
- --------------------------------------------------------------------------------
</TABLE>
6 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
========================================================================================================
========================================================================================================
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Equity Value Fund Growth Fund Small Cap Fund Strategic Growth Fund
- --------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.25% None None 5.25% None None 5.25% None None 5.25% None None
- --------------------------------------------------------------------------------------------------------
None None None None None None None None None None None None
- --------------------------------------------------------------------------------------------------------
None 5.00% 1.00% None 5.00% 1.00% None 5.00% 1.00% None 5.00% 1.00%
None 4.00% None None 4.00% None None 4.00% None None 4.00% None
- --------------------------------------------------------------------------------------------------------
None None None None None None None None None None None None
- --------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Equity Value Fund Growth Fund Small Cap Fund Strategic Growth Fund
- --------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.10% 0.75% 0.75% 0.05% 0.70% 0.75% 0.10% 0.75% 0.75% 0.10% 0.75% 0.75%
- --------------------------------------------------------------------------------------------------------
0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.60% 0.60% 0.60% 0.50% 0.50% 0.50%
- --------------------------------------------------------------------------------------------------------
0.57% 0.57% 0.57% 0.56% 0.58% 0.53% 0.65% 0.75% 0.75% 0.68% 0.75% 0.75%
========================================================================================================
1.17% 1.82% 1.82% 1.11% 1.78% 1.78% 1.35% 2.10% 2.10% 1.28% 2.00% 2.00%
========================================================================================================
0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.60% 0.60% 0.60% 0.50% 0.50% 0.50%
- --------------------------------------------------------------------------------------------------------
0.52% 0.94% 0.94% 0.59% 0.69% 0.64% 1.44% 2.20% 1.54% 0.70% 0.79% 0.75%
- --------------------------------------------------------------------------------------------------------
1.12% 2.19% 2.19% 1.14% 1.89% 1.89% 2.14% 3.55% 2.89% 1.30% 2.04% 2.00%
- --------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Equity Funds Prospectus 7
<PAGE>
Equity Funds Summary of Expenses (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
================================================================================
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 Balanced Fund Diversified Equity
$1,000 investment assuming a 5% annual Income Fund
return and that you redeem your shares at -----------------------------------
the end of each period. CLASS A CLASS B CLASS A CLASS B
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
1 YEAR $65 $69 $64 $69
- --------------------------------------------------------------------------------
3 YEARS $91 $90 $88 $88
- --------------------------------------------------------------------------------
5 YEARS $119 $124 $114 $119
- --------------------------------------------------------------------------------
10 YEARS $198 $191 $189 $182
================================================================================
<CAPTION>
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 Balanced Fund Diversified Equity
$1,000 investment assuming a 5% annual Income Fund
return and that you do not redeem your -----------------------------------
shares at the end of each period. CLASS A CLASS B CLASS A CLASS B
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year $65 $19 $64 $19
- --------------------------------------------------------------------------------
3 YEARS $91 $60 $88 $58
- --------------------------------------------------------------------------------
5 YEARS $119 $104 $114 $99
- --------------------------------------------------------------------------------
10 YEARS $198 $191 $189 $182
- --------------------------------------------------------------------------------
</TABLE>
8 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
========================================================================================================
========================================================================================================
Equity Value Fund Growth Fund Small Cap Fund Strategic Growth Fund
- --------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
$64 $68 $28 $63 $68 $28 $66 $71 $31 $65 $70 $31
- --------------------------------------------------------------------------------------------------------
$88 $87 $57 $86 $86 $56 $93 $96 $66 $92 $93 $63
- --------------------------------------------------------------------------------------------------------
$113 $119 $99 $110 $116 $96 $123 $133 $113 $120 $128 $108
- --------------------------------------------------------------------------------------------------------
$187 $180 $214 $181 $175 $209 $206 $205 $243 $201 $196 $233
========================================================================================================
<CAPTION>
========================================================================================================
Equity Value Fund Growth Fund Small Cap Fund Strategic Growth Fund
- --------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$64 $18 $18 $63 $18 $48 $66 $21 $21 $65 $21 $21
- --------------------------------------------------------------------------------------------------------
$88 $57 $57 $86 $56 $56 $93 $66 $66 $92 $63 $63
- --------------------------------------------------------------------------------------------------------
$113 $99 $99 $110 $96 $96 $123 $113 $113 $120 $108 $108
- --------------------------------------------------------------------------------------------------------
$187 $180 $214 $181 $175 $209 $206 $205 $243 $201 $196 $233
- --------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Equity Funds Prospectus 9
<PAGE>
Balanced Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Rex Wardlaw (since 2/97)
Tamyra Thomas (since 9/96)
- --------------------------------------------------------------------------------
[GRAPHIC] Investment Objective
The Balanced Fund seeks to provide investors with
both capital appreciation and current income
resulting in a high total investment return
consistent with prudent investment risk and a
balanced investment approach.
Investment Policies
We pursue a balanced and diversified investment
approach by investing generally between 30% and
70% of our assets in common stocks and the
remainder in fixed-income securities. By actively
managing both the equity and fixed-income portion
of the Fund's portfolio and the allocation mix, we
hope to achieve a high total return, including
both distributions and growth in share values. We
invest the equity portion of our portfolio in
equity securities that we believe are selling for
less than their intrinsic or true value and that
generally exhibit the following characteristics:
above-average financial strength, a strong
position in their industry and a history of steady
profit growth. We invest the fixed-income portion
of our portfolio in corporate bonds, commercial
paper, and mortgage-backed and asset-backed
securities based on their relatively greater
stability of income and principal.
- --------------------------------------------------------------------------------
[GRAPHIC] Permitted Investments
Under normal market conditions, we invest:
o between 30% and 70% of our assets in common
stocks, with the remainder invested in debt
securities.
Under normal market conditions we invest the
equity portion of the Fund's portfolio in:
o both large, well-established companies and
smaller companies with market capitalization
exceeding $50 million; and
o in foreign companies through American Depository
Receipts and similar instruments, up to 25% of
total assets.
Under normal market conditions we invest the
fixed-income portion of the Fund's portfolio in:
o commercial paper rated "A-2" (S&P) or "Prime-2"
(Moody's) or better;
o corporate debt securities rated "BBB" (S&P) or
"Baa" (Moody's) or better; and
10 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
o mortgage-backed and asset-backed securities
rated "AA" (S&P) or "Aa" (Moody's) or better.
We may also invest in zero coupon bonds.
We may temporarily hold assets in cash or in money
market instruments, including U.S. Government
obligations, shares of other mutual funds and
repurchase agreements, or make other short-term
investments, either to maintain liquidity or for
short-term defensive purposes when we believe it
is in the best interest of shareholders to do so.
- --------------------------------------------------------------------------------
[GRAPHIC] Important Risk Factors
You should consider both the General Investment
Risks listed on page 36 and the specific risks
listed below. They are equally important to your
investment choice.
Historically, stock and bond markets have often
had different cycles, with one asset class rising
when the other is falling. A balanced objective
attempts to reduce the volatility associated with
investing in a single market. There is no
guarantee, however, that market cycles will move
in opposition to one another or that a balanced
investment program will successfully reduce
volatility. Also, stocks of the smaller and
medium-sized companies in which the Fund may
invest may be more volatile than larger company
stocks. Investments in foreign markets may also
present special risks, including currency,
political, diplomatic, regulatory and liquidity
risks.
- --------------------------------------------------------------------------------
[GRAPHIC] Additional Fund Facts
Tamyra Thomas is the manager of the income portion
of the Fund and Rex Wardlaw is the manager of the
equity portion. They jointly determine the
portfolio's asset allocation.
For information on Fund fees and expenses, see
"Summary of Expenses" on page 6.
Stagecoach Equity Funds Prospectus 11
<PAGE>
Balanced Fund Financial Highlights
See "Historical Fund Information" on page 52.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================================
For the period ended: CLASS A SHARES -- COMMENCED
ON JULY 2, 1990
---------------------------------------------------------------
Sept. 30, March 31, Sept. 30, Sept. 30,
1997(1) 1997(2) 1996(3) 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $12.01 $11.46 $11.84 $11.67
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.20 0.19 0.36 0.46(4)
Net realized and unrealized gain (loss)
on investments 1.70 0.74 0.89 0.68(4)
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.90 0.93 1.25 1.14
- -----------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.20) (0.19) (0.35) (0.47)
Distributions from net realized gain 0.00 (0.19) (1.28) (0.50)
- -----------------------------------------------------------------------------------------------------------------------
Total from distributions: (0.20) (0.38) (1.63) (0.97)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.71 $12.01 $11.46 $11.84
- -----------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 15.88% 8.15% 10.51% 10.62%
- -----------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $35,360 $31,632 $32,640 $89,034
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.05% 1.05% 1.31% 1.03%
Ratio of net investment income to
average net assets 3.03% 3.20% 2.98% 4.05%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover 27% 43% 131% 90%
- -----------------------------------------------------------------------------------------------------------------------
Average commission rate paid ($) 0.0666 0.0802 0.0603 --
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.41% 1.30% 1.48% 1.05%
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed 2.67% 2.95% 2.81% 4.03%
expenses (loss)
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
=======================================================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS 1996 1995
=======================================================================================================================
<S> <C> <C>
Returns for other share classes may vary due to different 15.99% 17.63%
fees and expenses. These returns reflect fee waivers and
reimbursements, do not reflect sales loads and are not a
guarantee of future performance.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Unaudited financial statements.
(2) The Fund changed its fiscal year-end from September 30 to March 31.
12 Stagecoach Equity Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
See "How to Read the Financial Highlights" on page 60.
- ------------------------------------------------------------------------------------------------------------------------
========================================================================================================================
========================================================================================================================
CLASS B SHARES -- COMMENCED
ON SEPTEMBER 6, 1996
- ---------------------------------------------------------------- ------------------------------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30, Mar. 31, Sept. 30,
1994 1993 1992 Sept. 30, 1991 1990 1997(1) 1997(2) 1996
- ---------------------------------------------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$12.71 $11.18 $10.80 $9.50 $10.00 $10.79 $10.24 $10.00
- ---------------------------------------------------------------- ------------------------------------------------------
0.43(4) 0.44(4) 0.42(4) 0.52 0.14 0.09 0.08 0.00
(0.13)4 1.72(4) 0.53(4) 1.40 (0.64) 1.58 0.72 0.24
- ---------------------------------------------------------------- ------------------------------------------------------
0.30 2.16 0.95 1.92 (0.50) 1.67 0.80 0.24
- ---------------------------------------------------------------- ------------------------------------------------------
(0.146) (0.43) (0.43) (0.62) -- (0.09) (0.08) 0.00
(0.88) (0.20) (0.14) -- -- 0.00 (0.17) 0.00
- ---------------------------------------------------------------- ------------------------------------------------------
(1.34) (0.63) (0.57) (0.62) -- (0.09) (0.25) 0.00
- ---------------------------------------------------------------- ------------------------------------------------------
$11.67 $12.71 $11.18 $10.80 $9.50 $12.37 $10.79 $10.24
- ---------------------------------------------------------------- ------------------------------------------------------
2.30% 19.83% 9.03% 20.78% (5.00)% 15.52% 7.84% 2.40%
- ---------------------------------------------------------------- ------------------------------------------------------
$108,290 $104,434 $65,226 $50,038 $33,185 $3,998 $297 $2
- ---------------------------------------------------------------- ------------------------------------------------------
1.09% 1.01% 1.02% 0.96% 0.93% 1.70% 1.70% 0.00%
3.55% 3.62% 3.76% 5.88% 5.87% 2.29% 2.48% 3.09%
- ---------------------------------------------------------------- ------------------------------------------------------
35% 60% 49% 30% 12% 27% 43% 131%
- ---------------------------------------------------------------- ------------------------------------------------------
-- -- -- -- -- 0.0666 0.0802 0.0603
- ---------------------------------------------------------------- ------------------------------------------------------
1.11% 1.06% 1.10% 1.18% 1.60% 2.54% 7.85% 0.66%
- ---------------------------------------------------------------- ------------------------------------------------------
3.53% 3.157% 3.68% 5.66% 5.20% 1.45% (3.67)% 2.43%
- ---------------------------------------------------------------- ------------------------------------------------------
<CAPTION>
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
========================================================================================================================
1994 1993 1992 1991
========================================================================================================================
<S> <C> <C> <C>
-3.80% 18.71% 8.79% 18.53%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(3) The Fund changed its Investment Advisor during this fiscal year.
(4) Per share data are based upon average monthly shares outstanding.
Stagecoach Equity Funds Prospectus 13
<PAGE>
Diversified Equity Income Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Allen Wisniewski (since 11/92)
Rex Wardlaw (since 2/97)
- --------------------------------------------------------------------------------
[GRAPHIC] Investment Objective
The Diversified Equity Income Fund seeks to earn
current income and a growing stream of income over
time, consistent with the preservation of capital.
Investment Policies
We actively manage a diversified portfolio of
income-producing equity securities. In selecting
stocks we emphasize dividend histories and trends.
We look for stocks that are trading at low
price-to-earnings ratios, as measured against
either the stock market as a whole or against a
particular stock's own price history. We also look
for common stock of issuers that pay above-average
dividends.
We may also invest in the following income
producing debt securities:
o U.S. Government obligations;
o a broad range of debt instruments, including
bonds and other debt obligations of domestic
corporations;
o U.S. dollar-denominated debt instruments of
foreign issuers, including foreign governments and
companies; and
o various asset-backed securities.
- --------------------------------------------------------------------------------
[GRAPHIC] Permitted Investments
Under normal market conditions, we invest:
o at least 65% of our total assets in equity
securities;
o at least 90% of our equity portfolio in issues
of companies with market capitalization that falls
within the range of the Russell 1000 Index (As of
July 1997, this range was from $1.1 billion to
198.3 billion. The range is expected to change
frequently);
o up to 25% of our assets in foreign companies
through American Depository Receipts and similar
instruments;
o up to 15% of our assets in emerging markets;
o most of our debt portfolio in companies and
government entities located within the United
States;
14 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
o generally all of our debt portfolio in
instruments rated at the time of acquisition in
the four highest credit categories by one or more
nationally recognized ratings organizations, or in
unrated instruments determined by Wells Fargo Bank
to be of comparable quality; and
o up to 20% of our nonconvertible debt portfolio
in instruments rated at the time of purchase in
the lowest four credit categories.
We may temporarily hold assets in cash or in money
market instruments, including U.S. Government
obligations, shares of other mutual funds and
repurchase agreements, or make other short-term
investments, either to maintain liquidity or for
short-term defensive purposes when we believe it
is in the best interests of shareholders to do so.
- --------------------------------------------------------------------------------
[GRAPHIC] Important Risk Factors
You should consider both the General Investment
Risks listed on page 36 and the specific risks
listed below. They are equally important to your
investment choice.
You should also consider that stocks selected for
their high dividend yields may be more sensitive
to changes in interest rates than other stocks.
Also, stocks of smaller and medium-sized companies
selected for their earnings growth potential may
be more volatile than larger company stocks.
Investments in foreign and emerging markets may
also present special risks, including currency,
political, diplomatic, regulatory and liquidity
risks.
- --------------------------------------------------------------------------------
[GRAPHIC] Additional Fund Facts
We have a quarterly dividend policy. You should
not invest in the Fund if you are looking for
monthly income, nor should you invest if you are
looking for higher than average levels of capital
growth. Before December 15, 1997, the Fund was
called the "Diversified Income Fund."
For information on Fund fees and expenses, see
"Summary of Expenses" on page 6.
Stagecoach Equity Funds Prospectus 15
<PAGE>
Diversified Equity Income Fund Financial Highlights
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
=====================================================================================================
FOR A SHARE OUTSTANDING
=====================================================================================================
For the period ended: CLASS A SHARES -- COMMENCED
ON NOVEMBER 18, 1992
---------------------------------------------
Sept. 30, Mar. 31, Sept. 30,
1997(1) 1997(1) 1996(3)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $14.52 $14.73 $13.34
- -----------------------------------------------------------------------------------------------------
income from investment operations:
Net investment income (loss) 0.15 0.14 0.25
Net realized and unrealized gain (loss)
on investments 3.14 0.64 1.39
- -----------------------------------------------------------------------------------------------------
Total from investment operations 3.29 0.78 1.64
- -----------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.15) (0.14) (0.25)
Distributions from net realized gain 0.00 (0.85) 0.00
- -----------------------------------------------------------------------------------------------------
Total from distributions: (0.15) (0.99) (0.25)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $17.66 $14.52 $14.73
- -----------------------------------------------------------------------------------------------------
Total return (not annualized) 22.68% 5.25% 12.35%
- -----------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $188,051 $154,502 $134,648
- -----------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.10% 1.10% 1.10%
Ratio of net investment income to
average net assets 1.78% 1.91% 2.57%
- -----------------------------------------------------------------------------------------------------
Portfolio turnover 30% 33% 43%
- -----------------------------------------------------------------------------------------------------
Average commission rate paid $0.0666 $0.0780 $0.0793
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.19% 1.17% 1.26%
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed 1.69% 1.84% 2.41%
expenses
- -----------------------------------------------------------------------------------------------------
<CAPTION>
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
=====================================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS 1996
=====================================================================================================
<S> <C>
Returns for other share classes may vary due to different 22.11%
fees and expenses. These returns reflect fee waivers and
reimbursements, do not reflect sales loads and are not a
guarantee of future performance.
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Unaudited financial statements.
(2) The Fund changed its fiscal year-end from September 30 to March 31.
16 Stagecoach Equity Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
See "How to Read the Financial Highlights" on page 60.
- -----------------------------------------------------------------------------------------------------------------------------
=============================================================================================================================
=============================================================================================================================
CLASS B SHARES -- COMMENCED
ON JANUARY 1, 1995
------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Sept. 30, Mar. 31, Sept. 30, Dec. 31,
1995 1994 1993 1992 1997(1) 1997(2) 1996(3) 1995
- ------------------------------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$10.76 $11.08 $10.29 $10.00 $13.60 $13.79 $12.49 $10.00
- ------------------------------------------------------------- ------------------------------------------------------------
0.35 0.33 0.30 0.02 0.08 0.08 0.17 0.20
2.86 (0.32) 0.96 0.29 2.94 0.60 1.30 2.75
- ------------------------------------------------------------- ------------------------------------------------------------
3.21 0.01 1.26 0.31 3.02 0.68 1.47 2.95
- ------------------------------------------------------------- ------------------------------------------------------------
(0.35) (0.33) (0.30) (0.02) (0.08) (0.08) (0.17) (0.20)
(0.28) 0.00 (0.17) 0.00 0.00 (0.79) 0.00 (0.26)
- ------------------------------------------------------------- ------------------------------------------------------------
(0.63) (0.33) (0.47) (0.02) (0.08) (0.87) (0.17) (0.46)
- ------------------------------------------------------------- ------------------------------------------------------------
$13.34 $10.76 $11.08 $10.29 $16.54 $13.60 $13.79 $12.49
- ------------------------------------------------------------- ------------------------------------------------------------
30.17% 0.08% 12.33% 3.10% 22.25% 4.91% 11.76% 29.64%
- ------------------------------------------------------------- ------------------------------------------------------------
$79,977 $45,178 $26,704 $1,379 $56,307 $32,632 $17,045 $5,339
- ------------------------------------------------------------- ------------------------------------------------------------
1.10% 1.06% 0.46% 0.00% 1.74% 1.74% 1.74% 1.73%
3.02% 3.16% 3.51% 4.09% 1.15% 1.29% 2.01% 2.40%
- ------------------------------------------------------------- ------------------------------------------------------------
70% 62% 46% 1% 30% 33% 43% 70%
- ------------------------------------------------------------- ------------------------------------------------------------
-- -- -- -- $0.0666 $0.0780 $0.0793 --
- ------------------------------------------------------------- ------------------------------------------------------------
1.31% 1.34% 1.66% 3.49% 1.84% 1.87% 2.08% 2.57%
- ------------------------------------------------------------- ------------------------------------------------------------
2.81% 2.88% 2.31% 0.60% 1.05% 1.16% 1.67% 1.56%
- ------------------------------------------------------------- ------------------------------------------------------------
<CAPTION>
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
=============================================================================================================================
1995 1994 1993
=============================================================================================================================
<S> <C> <C>
30.17% 0.08% 12.33%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(3) The Fund changed its fiscal year-end from December 31 to September 30.
Stagecoach Equity Funds Prospectus 17
<PAGE>
Equity Value Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Rex Wardlaw (since 1/97)
Allen Wisniewski (since 9/96)
- --------------------------------------------------------------------------------
[GRAPHIC] Investment Objective
The Equity Value Fund seeks to provide investors
with long-term capital appreciation.
Investment Policies
We seek long-term capital appreciation by
investing in a diversified portfolio composed
primarily of equity securities that we believe are
selling for less than their intrinsic or true
value and that generally exhibit the following
characteristics: above-average financial strength,
a strong position in their industry and a history
of steady profit growth. We use both quantitative
and qualitative analysis to identify possible
investments. Dividends are a secondary
consideration when selecting stock. We may
purchase particular stocks when we believe that a
history of strong dividends may increase their
market value.
- --------------------------------------------------------------------------------
[GRAPHIC] Permitted Investments
Under normal market conditions, we invest:
o primarily in common stocks of both large,
well-established companies and smaller companies
with market capitalizations exceeding $50 million;
o in debt instruments that may be converted into
the common stock of both U.S. and foreign
companies; and
o up to 25% of our assets in foreign companies
through American Depository Receipts and similar
instruments.
We may also purchase convertible securities with
the same characteristics as common stock, as well
as in preferred stock and warrants. We may
temporarily hold assets in cash or in money market
instruments, including U.S. Government
obligations, shares of other mutual funds and
repurchase agreements, or make short-term
investments, either to maintain liquidity or for
short-term defensive purposes when we believe it
is in the best interests of shareholders.
18 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
[GRAPHIC] Important Risk Factors
You should consider both the General Investment
Risks listed on page 36 and the specific risks
listed below. They are equally important to your
investment.
Stocks of smaller and medium-sized companies may
be more volatile than larger company stocks.
Investments in foreign markets may also present
special risks, including currency, political,
diplomatic, regulatory and liquidity risks.
- --------------------------------------------------------------------------------
[GRAPHIC] Additional Fund Facts
Our strategy of buying attractive stocks which
appear to be selling for less than their intrinsic
value is commonly known as a value strategy.
For information on Fund fee and expenses, see
"Summary of Expenses" on page 6.
Stagecoach Equity Funds Prospectus 19
<PAGE>
<TABLE>
<CAPTION>
Equity Value Fund Financial Highlights
See "Historical Fund Information" on page 52.
- --------------------------------------------------------------------------------------------------------------------
====================================================================================================================
FOR A SHARE OUTSTANDING
====================================================================================================================
For the period ended: CLASS A SHARES -- COMMENCED
ON JULY 2, 1990
-------------------------------------------------------------
Sept. 30, March 31, Sept. 30, Sept. 30,
1997(1) 1997(2) 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $14.43 $12.66 $13.27 $12.36
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.08 0.08 0.20 0.24(3)
Net realized and unrealized gain (loss)
on investments 3.48 1.89 1.60 1.63(3)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.56 1.97 1.80 1.87
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.08) (0.06) (0.19) (0.25)
Distributions from net realized gain 0.00 (0.12) (2.22) (0.71)
- --------------------------------------------------------------------------------------------------------------------
Total from distributions: (0.08) (0.20) (2.41) (0.96)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.91 $14.43 $12.55 $13.27
- --------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 24.69% 15.63% 14.27% 16.58%
- --------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $35,420 $20,798 $18,453 $170,406
- --------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.05% 1.05% 1.18% 0.96%
Ratio of net investment income to
average net assets 1.01% 1.14% 1.73% 1.97%
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover 21% 45% 91% 75%
- --------------------------------------------------------------------------------------------------------------------
Average commission rate paid ($) 0.0656 0.0800 0.0558 N/A
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses 1.20% 1.12% 1.22% 0.98%
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed 0.86% 1.07% 1.69% 1.95%
expenses (loss)
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
====================================================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS 1996 1995
====================================================================================================================
<S> <C> <C>
Returns for other share classes may vary due to different 26.46% 24.20%
fees and expenses. These returns reflect fee waivers and
reimbursements, do not reflect sales loads and are not a
guarantee of future performance.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Unaudited financial statements.
(2) The Fund changed its fiscal year-end from September 30 to March 31.
20 Stagecoach Equity Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
See "How to Read the Financial Highlights" on page 60.
- --------------------------------------------------------------------------------------------------------------------------------
================================================================================================================================
================================================================================================================================
CLASS B SHARES -- COMMENCED
ON SEPTEMBER 6, 1996
- ----------------------------------------------------------------------------------- ------------------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30, Mar. 31, Sept. 30,
1994 1993 1992 1991 1990 1997(1) 1997(2) 1996
- ----------------------------------------------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$13.17 $10.73 $10.45 $8.48 $10.00 $11.81 $10.34 $10.00
- ----------------------------------------------------------------------------------- ------------------------------------------
0.20(3) 0.21(3) 0.20 0.28 0.08 0.02 0.01 0.00
0.74(3) 2.75(3) 0.49(3) 1.98 (1.60) 2.86 1.57 0.34
- ----------------------------------------------------------------------------------- ------------------------------------------
0.94 2.96 0.69 2.26 (1.52) 2.88 1.58 0.34
- ----------------------------------------------------------------------------------- ------------------------------------------
(0.21) (0.23) (0.22) (0.29) -- (0.02) (0.01) 0.00
(1.54) (0.29) (0.19) -- -- 0.00 (0.10) 0.00
- ----------------------------------------------------------------------------------- ------------------------------------------
(1.75) (0.52) (0.41) (0.29) -- (0.02) (0.11) 0.00
- ----------------------------------------------------------------------------------- ------------------------------------------
$12.35 $13.17 $10.73 $10.45 $8.48 $14.67 $11.81 $10.34
- ----------------------------------------------------------------------------------- ------------------------------------------
7.49% 28.22% 6.81% 27.05% (15.20)% 24.36% 15.31% 3.40%
- ----------------------------------------------------------------------------------- ------------------------------------------
$168,852 $140,551 $92,915 $68,412 $26,100 $26,099 $2,542 $0
- ----------------------------------------------------------------------------------- ------------------------------------------
0.99% 0.98% 1.02% 0.98% 0.91% 1.70% 1.70% 0.00%
1.60% 1.73% 1.86% 2.69% 3.38% 0.354% 0.34% 1.83%
- ----------------------------------------------------------------------------------- ------------------------------------------
41% 82% 78% 36% 21% 21% 45% 91%
- ----------------------------------------------------------------------------------- ------------------------------------------
N/A N/A N/A N/A N/A 0.0656 0.0800 0.0558
- ----------------------------------------------------------------------------------- ------------------------------------------
1.01% 0.99% 1.02% 1.11% 1.86% 1.88% 2.19% N/A
- ----------------------------------------------------------------------------------- ------------------------------------------
1.58% 1.172% 1.86% 2.56% 2.43% 0.16% (0.15)% N/A
- ----------------------------------------------------------------------------------- ------------------------------------------
<CAPTION>
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
=============================================================================================================================
1994 1993 1992 1991
=============================================================================================================================
<S> <C> <C> <C>
-1.71% 25.82% 10.54% 20.79%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Equity Funds Prospectus 21
<PAGE>
Growth Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Allen Ayvazian (since 12/97)
Kelli Hill (since 2/97)
- --------------------------------------------------------------------------------
[GRAPHIC] Investment Objective
The Growth Fund seeks to earn current income and
achieve long-term capital appreciation by
investing primarily in common stocks and preferred
stocks and debt securities that are convertible
into common stocks.
Investment Policies
We actively manage a diversified portfolio of
common stock and other equities. We look for
companies that have a strong earnings growth trend
that we believe have above-average prospects for
future growth, or have above-average dividends
yields. We look for common stocks that are trading
at low price-to-earnings ratios, as measured
against either the stock market as a whole or
against the stock's own price history. We may also
invest in the stocks of medium- to smaller-size
companies that we believe have the potential to
produce high levels of future earnings growth or
when we believe the stock is undervalued.
- --------------------------------------------------------------------------------
[GRAPHIC] Permitted Investments
Under normal market conditions, we invest:
o at least 65% of our total assets in equity
securities, including common and preferred stock,
and securities convertible into common stocks;
o at least 65% of our total assets in income
producing securities;
o the majority of our assets in issues of
companies with market capitalization that falls
within the range of the Russell 1000 Index (As of
July 1997, this range was from $1.1 billion to
198.3 billion. The range is expected to change
frequently);
o up to 25% of our assets in American Depositary
Receipts and similar instruments; and
o up to 15% of our assets in emerging markets.
We may temporarily hold assets in cash or in money
market instruments, including U.S. Government
obligations, shares of other mutual funds and
repurchase agreements, or make 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.
22 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
[GRAPHIC] Important Risk Factors
You should consider both the General Investment
Risks listed on page 36 and the specific risks
listed below They are equally important to your
investment choice.
Smaller and medium-sized companies selected for
their earnings growth potential may be more
volatile than larger company stocks. Investments
in foreign and emerging markets may also present
special risks, including currency, political,
diplomatic, regulatory and liquidity risks.
- --------------------------------------------------------------------------------
[GRAPHIC] Additional Fund Facts
We have a quarterly dividend policy. The Fund is
not suitable for investors requiring monthly
income. Prior to December 15, 1997, the Fund was
known as the "Growth and Income Fund".
For information on Fund fees and expenses, see
"Summary of Expenses" on page 6.
Stagecoach Equity Funds Prospectus 23
<PAGE>
Growth Fund Financial Highlights
See "Historical Fund Information" on page 52.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
==============================================================================================================================
FOR A SHARE OUTSTANDING
==============================================================================================================================
For the period ended: CLASS A SHARES -- COMMENCED
ON AUGUST 2, 1990
--------------------------------------------------------------------------------
Sept. 30, March 31, Sept. 30, Dec. 31, Dec. 31,
1997(1) 1997(2) 1996(3) 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $19.20 $17.91 $17.26 $14.10 $14.75
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.06 0.06 0.07 0.19 0.22
Net realized and unrealized gain
(loss) on investments 3.95 1.34 2.00 3.87 (0.27)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.01 1.40 2.07 4.06 (0.05)
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
Investment income (0.06) (0.06) (0.07) (0.19) (0.22)
Distributions from net realized gain 0.00 (0.05) (1.35) (0.71) (0.38)
- ------------------------------------------------------------------------------------------------------------------------------
Total from distributions: (0.06) (0.11) (1.42) (0.90) (0.60)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.15 $19.20 $17.91 $17.26 $14.10
- ------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 20.90% 7.86% 12.45% 28.90% (0.29)%
- ------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $326,951 $283,468 $254,498 $178,488 $113,525
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets
(annualized):
Ratio of expenses to
average net assets 1.13% 1.14% 1.18% 1.18% 1.11%
Ratio of net investment
income to average net assets 0.54% 0.65% 0.56% 1.23% 1.51%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 51% 40% 83% 100% 71%
- ------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid ($) 0.0633 0.0799 0.0702 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets prior to waived fees and 1.14% N/A 1.19% 1.21% 1.15%
reimbursed expenses
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets prior to waived 0.53% N/A 0.55% 1.20% 1.47%
fees and reimbursed expenses (loss)
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
==============================================================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS 1996 1995 1994
==============================================================================================================================
<S> <C> <C> <C>
Returns for other share classes may vary due to different 21.72% 28.90% -0.29%
fees and expenses. These returns reflect fee waivers and
reimbursements, do not reflect sales loads and are not a
guarantee of future performance.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Unaudited financial statements.
(2) The Fund changed its fiscal year-end from September 30 to March 31.
24 Stagecoach Equity Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
See "How to Read the Financial Highlights" on page 60.
- -------------------------------------------------------------------------------------------------------------------------
=========================================================================================================================
=========================================================================================================================
CLASS B SHARES -- COMMENCED
ON JANUARY 1, 1995
- ----------------------------------------------------------- ------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Sept. 30, Mar. 31, Sept. 30, Dec. 31,
1993 1992 1991 1990 1997(1) 1997(2) 1996(3) 1995
- ----------------------------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$13.88 $12.84 $10.29 $10.00 $13.64 $12.74 $12.29 $10.00
- ----------------------------------------------------------- ------------------------------------------------------------
0.23 0.27 0.41 0.26 (0.01) 0.00 (0.01) 0.05
0.93 1.44 2.14 0.03 2.81 0.94 1.42 2.79
- ----------------------------------------------------------- ------------------------------------------------------------
1.15 1.71 2.55 0.29 2.80 0.94 1.41 2.84
- ----------------------------------------------------------- ------------------------------------------------------------
(0.23) (0.27) 0.00 0.00 0.00 0.00 0.00 (0.05)
(0.06) (0.40) 0.00 0.00 0.00 (0.04) (0.96) (0.50)
- ----------------------------------------------------------- ------------------------------------------------------------
(0.29) (0.67) 0.00 0.00 0.00 (0.04) (0.96) (0.55)
- ----------------------------------------------------------- ------------------------------------------------------------
$14.75 $13.88 $12.84 $10.29 $16.44 $13.64 $12.74 $12.29
- ----------------------------------------------------------- ------------------------------------------------------------
8.44% 13.45% 24.77% 2.90% 20.53% 7.36% 11.89% 28.47%
- ----------------------------------------------------------- ------------------------------------------------------------
$112,236 $44,883 $10,323 $430 $40,950 $23,010 $12,832 $4,682
- ----------------------------------------------------------- ------------------------------------------------------------
0.93% 0.42% 0.05% 0.00% 1.80% 1.86% 1.93% 1.87%
1.72% 2.31% 3.50% 2.51% (0.14)% (0.06)% (0.12)% 0.43%
- ----------------------------------------------------------- ------------------------------------------------------------
55% 80% 13% 0% 51% 40% 83% 100%
- ----------------------------------------------------------- ------------------------------------------------------------
-- -- -- -- 0.0633 0.0799 0.0702 --
- ----------------------------------------------------------- ------------------------------------------------------------
1.11% 1.10% 1.16% N/A 1.82% 1.89% 2.03% 2.21%
- ----------------------------------------------------------- ------------------------------------------------------------
1.54% 1.63% 2.39% N/A (0.16)% (0.09)% (0.22)% 0.09%
- ----------------------------------------------------------- ------------------------------------------------------------
<CAPTION>
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
=========================================================================================================================
1993 1992 1991
=========================================================================================================================
<S> <C> <C>
8.44% 13.45% 24.77%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(3) The Fund changed fiscal year-end from December 31 to September 30.
Stagecoach Equity Funds Prospectus 25
<PAGE>
Small Cap Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Jon Hickman (since 9/96)
Kenneth Lee (since 6/97)
- --------------------------------------------------------------------------------
[GRAPHIC] Investment Objective
The Small Cap Fund seeks above-average, long-term
capital appreciation in order to provide investors
with a rate of total return exceeding that of the
Russell 2000 Index, before fees and expenses, over
a time horizon of three to five years.
Investment Policies
We actively manage a diversified portfolio of the
common stock of growth-oriented smaller companies.
We define smaller companies as those whose market
capitalizations fall within the range of the
Russell 2000 Index. As of July 1997, that range
was between $171.1 million and $1.1 billion. This
range is expected to change frequently and we may
sometimes invest in companies whose market
capitalizations are smaller or larger than the
range. We will, however, sell the stock of
companies whose market capitalization grows above
$2 billion.
We invest in the common stock of domestic and
foreign companies we believe have above-average
prospects for capital growth, and that are
involved in new or innovative products, services
and processes.
- --------------------------------------------------------------------------------
[GRAPHIC] Permitted Investments
Under normal market conditions, we invest:
o in an actively managed, broadly-diversified
portfolio of growth-oriented common stocks;
o in at least 20 common stock issues spread across
multiple industry groups and sectors of the
economy;
o up to 40% of our assets in initial public
offerings or recent start-ups and newer issues;
o no more than 25% of our assets in foreign
companies through American Depository Receipts or
similar issues; and
o up to 15% of our portfolio in emerging markets.
We may invest in preferred stock or
investment-grade debt securities that are
convertible into common stock, and in money market
instruments to maintain liquidity, to meet
expected redemption requests or as a temporary
defensive measure when we believe that the basic
26 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
investment strategy is not in the best interest of
shareholders. Generally, these defensive
investments are temporary and will not exceed 35%
of total assets.
- --------------------------------------------------------------------------------
[GRAPHIC] Important Risk Factors
You should consider both the General Investment
Risks listed on page 36 and the specific risks
listed below. They are equally important to your
investment choice.
This Fund is designed for investors willing to
assume above-average risk. We may invest in
companies that:
o pay low or no dividends;
o have smaller market capitalizations;
o have less market liquidity;
o have no or relatively short operating histories,
or are newly public companies or are initial
public offerings;
o have aggressive capital structures including
high debt levels; or
o are involved in rapidly growing or changing
industries and/or new technologies.
Because we invest in such aggressive securities,
share prices may rise and fall more than the share
prices of other funds. In addition, our active
trading investment strategy may result in
higher-than-average portfolio turnover ratio,
increased trading expenses, and higher short-term
capital gains.
- --------------------------------------------------------------------------------
[GRAPHIC] Additional Fund Facts
We have an annual dividend policy. You should not
invest in the Fund if you are looking for monthly
income.
For information on Fund fees and expenses, see
"Summary of Expenses" on page 6.
Stagecoach Equity Funds Prospectus 27
<PAGE>
Small Cap Fund Financial Highlights
See "Historical Fund Information" on page 52.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
=================================================================================================================================
FOR A SHARE OUTSTANDING
=================================================================================================================================
For the period ended: CLASS A SHARES -- COMMENCED
ON SEPTEMBER 16, 1996
------------------------------------------------------
Sept. 30, Mar. 31, Sept. 30,
1997(1) 1997(2) 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $18.98 $22.45 $22.01
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03) (0.01) 0.00
Net realized and unrealized gain (loss) on investments 9.18 (3.46) 0.44
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 9.15 (3.47) 0.44
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income 0.00 0.00 0.00
Distributions from net realized gain 0.00 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------------------
Total from distributions: 0.00 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $28.13 $18.98 $22.45
- ---------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 48.21% (15.46)% 2.00%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $9,102 $3,107 $96
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.10%(3) 1.10%(3) 1.03%(3)
Ratio of net investment income (loss) to average net assets(3) (0.47)%(3) (0.23)%(3) (0.59)%(3)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 120%(5) 69%(5) N/A(4)
- ---------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid $0.0597(5) $0.0265(5) N/A(4)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses(3) 1.63%(3) 2.80%(3) 38.54%(3)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets
prior to waived fees and reimbursed expenses(3) (1.00)%(3) (1.93)%(3) (38.10)%(3)
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
=================================================================================================================================
CLASS A SHARE ANNUAL RETURNS 1996 1995 1994
=================================================================================================================================
<S> <C> <C> <C>
Returns for other share classes may vary due to different 20.89% 69.10% 5.50%
fees and expenses. These returns reflect fee waivers and
reimbursements, do not reflect sales loads and are not a
guarantee of future performance.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Unaudited financial statements.
(2) The Fund changed its fiscal year-end to March 31.
(3) Ratio includes income and expenses allocated from the Master Portfolio.
28 Stagecoach Equity Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
See "How to Read the Financial Highlights" on page 60.
- ---------------------------------------------------------------------------------------------------------------------------------
=================================================================================================================================
FOR A SHARE OUTSTANDING
=================================================================================================================================
For the period ended: CLASS A SHARES -- COMMENCED
ON SEPTEMBER 16, 1996
------------------------------------------------------
Sept. 30, Mar. 31, Sept. 30,
1997(1) 1997(2) 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $18.93 $22.46 $22.02
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06) (0.04) 0.00
Net realized and unrealized gain (loss) on investments 9.10 (3.49) 0.44
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 9.04 (3.53) 0.44
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income 0.00 0.00 0.00
Distributions from net realized gain 0.00 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------------------
Total from distributions: 0.00 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $27.97 $18.93 $22.46
- ---------------------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 47.75% (15.72)% 2.00%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $7,649 $1,905 $0
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 1.75%(3) 1.75%(3) 0.00%
Ratio of net investment income (loss) to average net assets(3) (1.12)%(3) (0.85)%(3) 0.00%(3)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 120%(5) 69%(5) N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Average commission rate paid $0.0597(5) $0.0265(5) N/A(4)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses(3) 2.26%(3) 3.55%(3) 0.00%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets
prior to waived fees and reimbursed expenses(3) (1.63)%(3) (2.65)%(3) 0.00%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(4) The portfolio turnover and average commission rates for the Small Cap
Master Portfolio during the period were 10% and $0.800, respectively.
(5) Reflects activity of the Master Portfolio.
Stagecoach Equity Funds Prospectus 29
<PAGE>
Strategic Growth Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Jon Hickman (since 1/93)
Steve Enos (since 9/96)
Chris Greene (since 9/97)
- --------------------------------------------------------------------------------
[GRAPHIC] Investment Objective
The Strategic Growth Fund seeks to provide
investors with an above-average level of long-term
capital appreciation.
Investment Policies
We seek an above-average level of capital
appreciation for investors willing to assume
above-average risk. We actively manage a broadly
diversified equity portfolio of companies expected
to have strong growth in revenues, earnings and
assets. We select a range of companies from
different industry groups, with the majority of
our holdings consisting of established growth
companies, turnaround or acquisition candidates,
or attractive larger capitalization companies.
- --------------------------------------------------------------------------------
[GRAPHIC] Permitted Investments
Under normal market conditions, we invest:
o in at least 20 common stock issues spread across
a number of different industry groups;
o at least 65% of our assets in common stocks and
securities which are convertible into common
stocks that we believe have better-than-average
prospects to increase in value;
o up to 40% of our assets in initial public
offerings and/or small and newer equity issues;
o more than 50% of our assets in companies whose
market capitalization at the time we buy their
stock is within the capitalization range of the
companies listed on the Russell MidCap(TM) Index.
(As of July, 1997 this range was from $1.1 billion
to $8 billion. The range is expected to change
frequently);
o up to 15% of our assets in emerging markets; and
o up to 15% of our assets in call and put options
for certain securities.
We may invest in preferred stock or
investment-grade debt securities that are
convertible into common stock, and in money market
instruments to maintain liquidity, to meet
expected redemption requests or as a defensive
measure when we believe that the basic investment
strategy is not in the best interest of
shareholders. Generally, these defensive
investments are temporary and will not exceed 30%
of total assets.
30 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
[GRAPHIC] Important Risk Factors
You should consider both the General Investment
Risks listed on page 36 and the specific risks
listed below. They are equally important to your
investment choice. This Fund is designed for
investors willing to assume above average risk. We
may invest in companies that:
o pay low or no dividends;
o have smaller market capitalizations;
o have less market liquidity;
o have no or relatively short operating histories
or are newly public;
o have aggressive capital structures, including
high debt levels; or
o are involved in rapidly growing or changing
industries and/or new technologies.
The Fund's share price may rise and fall more than
the share prices of other funds. Investments in
foreign and emerging markets may also present
special risks, including currency, political,
diplomatic, regulatory and liquidity risks. In
addition, our active trading investment strategy
may result in a higher-than-average portfolio
turnover ratio, increased trading expenses, and
short-term capital gains that pass through to the
Fund's shareholders.
- --------------------------------------------------------------------------------
[GRAPHIC] Additional Fund Facts
We have an annual dividend policy. You should not
invest in the Fund if you are seeking current
income. Prior to December 15, 1997, the Fund was
known as the "Aggressive Growth Fund."
For information on Fund fees and expenses, see
"Summary of Expenses" on page 6.
Stagecoach Equity Funds Prospectus 31
<PAGE>
<TABLE>
<CAPTION>
Strategic Growth Fund Financial Highlights
See "Historical Fund Information" on page 52.
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
FOR A SHARE OUTSTANDING
===================================================================================================================
For the period ended: CLASS A SHARES -- COMMENCED
ON JANUARY 20, 1993
--------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31,
Jun. 30, 1997(1) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $18.42 $16.82 $13.29 $13.20
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08) (0.03) (0.04) (0.11)
Net realized and unrealized gain (loss)
on investments 0.14 1.77 5.66 0.67
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.06 1.74 5.62 0.56
- -------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income 0.00 0.00 0.00 0.00
Distributions from net realized gain 0.00 (0.14) (2.09) (0.33)
- -------------------------------------------------------------------------------------------------------------------
Tax return of capital 0.00 0.00 0.00 (0.14)
- -------------------------------------------------------------------------------------------------------------------
Total from distributions: 0.00 (0.14) (2.09) (0.47)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.48 $18.42 $16.82 $13.29
- -------------------------------------------------------------------------------------------------------------------
Total return (not annualized) 0.33% 10.32% 42.51% 4.23%
- -------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s) $121,542 $131,226 $59,016 $26,744
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets (annualized):
Ratio of expenses to average net assets 21.20% 1.24% 1.28% 1.20%
Ratio of net investment income to
average net assets(2) (0.95)% (0.82)% (0.76)% (0.81)%
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover(2) N/A 10%(3) 171% 149%
- -------------------------------------------------------------------------------------------------------------------
Average commission rate paid ($)(2) N/A 0.0760 N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to
waived fees and reimbursed expenses(2) 1.20% 1.27% 1.38% 1.55%
- -------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets prior to waived fees and reimbursed (0.95)% (0.85)% (0.86)% (1.16)%
expenses (loss)(1)
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
===================================================================================================================
CLASS A SHARE CALENDAR-YEAR RETURNS 1996 1995 1994
===================================================================================================================
<S> <C> <C> <C>
Returns for other share classes may vary due to different 10.29% 42.51% 4.23%
fees and expenses. These returns reflect fee waivers and
reimbursements, do not reflect sales loads and are not a
guarantee of future performance.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Unaudited financial statements.
(2) Reflects activity of the Master Portfolio for periods from February 20,
1996 through September 30, 1997.
32 Stagecoach Equity Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
See "How to the Read Financial Highlights" on page 60.
- ------------------------------------------------------------------------------------------------------------------
==================================================================================================================
============= =========================== ======================================================================
CLASS B SHARE -- COMMENCED CLASS C SHARE -- COMMENCED
ON MARCH 5, 1996 ON JULY 1, 1993
- ------------- --------------------------- ----------------------------------------------------------------------
Dec. 31, Mar. 31, Sept. 30, Jun. 30, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1993 1997 1996 1997(1) 1996 1995 1994 1993
- ------------- --------------------------- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$10.00 $23.86 $21.90 $22.59 $20.79 $16.54 $16.55 $15.00
- ------------- --------------------------- ----------------------------------------------------------------------
(0.03) (0.15) (0.10) (0.18) (0.08) (0.16) (0.24) (0.43)
3.68 (4.45) 2.06 0.18 2.05 6.99 0.81 2.51
- ------------- --------------------------- ----------------------------------------------------------------------
3.65 (4.60) 1.96 0.00 1.97 6.83 0.57 2.08
- ------------- --------------------------- ----------------------------------------------------------------------
(0.03) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
(0.41) 0.00 0.00 0.00 (0.17) (2.58) (0.40) (0.53)
- ------------- --------------------------- ----------------------------------------------------------------------
(0.01) 0.00 0.00 0.00 0.00 0.00 (0.18) 0.00
- ------------- --------------------------- ----------------------------------------------------------------------
(0.45) 0.00 0.00 0.00 (0.17) (2.58) (0.58) (0.53)
- ------------- --------------------------- ----------------------------------------------------------------------
$13.20 $19.26 $23.86 $22.59 $22.59 $20.79 $16.54 $16.55
- ------------- --------------------------- ----------------------------------------------------------------------
36.56% (19.28)% 9.50% 0.00% 9.46% 41.54% 3.46% 13.84%
- ------------- --------------------------- ----------------------------------------------------------------------
$25,413 $14,509 $14,544 $42,434 $5,063 $26,326 $15,335 $11,932
- ------------- --------------------------- ----------------------------------------------------------------------
0.66% 1.94% 1.91% 1.93% 2.00% 2.02% 1.95% 0.61%
(0.01)% (1.65)% (1.45)% (1.68)% (1.58)% (1.49)% (1.56)% (1.00)%
- ------------- --------------------------- ----------------------------------------------------------------------
182% N/A N/A N/A 10%3 171% 149% 182%
- ------------- --------------------------- ----------------------------------------------------------------------
N/A N/A N/A N/A 0.0760 N/A N/A N/A
- ------------- --------------------------- ----------------------------------------------------------------------
1.64% 2.04% 2.29% 1.95% 2.02% 2.09% 2.23% 2.14%
- ------------- --------------------------- ----------------------------------------------------------------------
(0.99)% (1.75)% (1.83)% (1.70)% (1.60)% (1.56)% (1.84)% (2.53)%
- ------------- --------------------------- ----------------------------------------------------------------------
<CAPTION>
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
==================================================================================================================
1993
==================================================================================================================
<S>
36.56%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(3) The portfolio turnover and average commission rates for the Capital
Appreciation Master Portfolio from its inception on February 20, 1996 to
December 31, 1996, were 137% and $0.0781, respectively. The information
shown reflects the stand-alone period only.
Stagecoach Equity Funds Prospectus 33
<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:
o Unlike bank deposits such as CDs or savings accounts, mutual funds are not
insured by the FDIC.
o We cannot guarantee that we will meet our investment objectives.
o We do not guarantee the performance of a 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.
o 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.
o Investing in any mutual fund, including those deemed conservative, involves
risk, including the possible loss of any money you invest.
o An investment in a single Fund, by itself, does not constitute a complete
investment plan.
The Funds invest in securities that involve particular kinds of risk.
o The Funds invest 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 a 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.
o The Funds invest in debt instruments, such as notes and bonds, that are
subject to credit risk and interest rate risk. Credit risk is the
possibility that an issuer of a security will be unable to make interest
payments or repay principal. Changes in the financial strength of an issuer
or changes in the credit rating of a security may affect its value.
Interest rate risk is the possibility that interest rates may increase and
reduce the resale value of securities in a Fund's portfolio. Debt
instruments with longer maturities are generally more sensitive to interest
rate changes than those with shorter maturities. Changes in market interest
rates do not affect the rate payable on debt instruments held in a Fund,
unless the instrument has
34 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
adjustable or variable rate features. Changes in market interest rates may
also extend or shorten the duration of certain types of instruments, such
as asset-backed securities, thereby affecting their value and the return on
your investment.
o The Funds that invest in smaller companies, foreign companies (including
investments made through American Depository Receipts and similar
instruments), and in emerging markets are subject to additional risks,
including less liquidity and greater volatility. A Fund's investment in
foreign and emerging markets may also be subject to special risks
associated with international trade, including currency, political,
regulatory and diplomatic risk.
o The Funds may invest a portion of their 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.
o The Funds may also use certain derivative instruments, such as options or
futures contracts. The term "derivatives" covers a wide number of
investments, but in general it refers to any financial instrument whose
value is derived, at least in part, from the price of another security or a
specified index, asset or rate. Some derivatives may be more sensitive to
interest rate changes or market moves, and some may be susceptible to
changes in yields or values due to their structure or contract terms.
What follows is a general list of the types of risks (some of which are
described above) that may apply to a given Fund and a table showing some of the
additional investment practices that each Fund may use. Additional information
about these practices is available in the Statement of Additional Information.
Counter-Party Risk-- The risk that the other party in a repurchase agreement or
other transaction will not fulfill its contract obligation.
Credit Risk-- The risk that the issuer of a debt security will be unable to
make interest payments or repay principal on schedule. If an issuer does
default, the affected security could lose all of its value, or be renegotiated
at a lower interest rate or principal amount. Affected securities might also
lose liquidity. Credit risk also includes the risk that a party in a transaction
may not be able to complete the transaction as agreed.
Currency Risk-- The risk that a change in the exchange rate between U.S.
dollars and a foreign currency may reduce the value of an investment made in a
security denominated in that foreign currency.
Stagecoach Equity Funds Prospectus 35
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
Diplomatic Risk-- The risk that an adverse change in the diplomatic relations
between the United States and another country might reduce the value or
liquidity of investments in either country.
Experience Risk-- The risk presented by a new or innovative security. The risk
is that insufficient experience exists to forecast how the security's value
might be affected by various economic conditions.
Information Risk-- The risk that information about a security is either
unavailable, incomplete or is inaccurate.
Interest Rate Risk-- The risk that changes in interest rates can reduce the
value of an existing security. Generally, when interest rates increase, the
value of a debt security decreases. The effect is usually more pronounced for
securities with longer dates to maturity.
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 permit inappropriate trading practices.
- --------------------------------------------------------------------------------
Investment Practice/Risk
The following table lists some of the additional investment practices of
the Funds, including some not disclosed in the Investment Objective and
Investment Policies sections 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
each Fund or the Statement of Additional Information for more information
on these practices.
Investment practices and risk levels are carefully monitored. We attempt to
ensure that the risk exposure for each Fund remains within the parameters
of its objective.
Remember, each Fund is designed to meet different investment needs and
objectives.
In addition to the general risks discussed above, you should carefully
consider and evaluate any special risks that may apply to investing in a
particular Fund. See the "Important Risk Factors" in the summary for each
Fund. You should also see the Statement of Additional Information for
additional information about the investment practices and risks particular
to each Fund.
- --------------------------------------------------------------------------------
36 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVERSIFIED EQUITY SMALL STRATEGIC
BALANCED EQUITY VALUE GROWTH CAP GROWTH
====================================================================================================================================
INVESTMENT PRACTICE: RISK:
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Floating and Variable Rate Debt
Instruments with interest Interest Rate and X X X X X X
rates that are adjusted Credit Risk
either on a schedule or
when an index or benchmark
changes.
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements
A transaction in which Credit and X X X X X X
the seller of a security Counter-Party Risk
agrees to buy back a
security at an agreed
upon time and price,
usually with interest.
- ------------------------------------------------------------------------------------------------------------------------------------
Other Mutual Funds
The temporary investment Market Risk X X X X X X
in shares of another
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.
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign Securities
Securities issued by a Information, Political, X X X X X X
non-U.S. company or debt Regulatory, Diplomatic
of a foreign government Liquidity and Currency
in the form of an American Risk
Depositary Receipt or
similar instrument. Limited
to 25% of assets.
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Markets
Investments in companies Information, Political, X X X X
located or operating in Regulatory, Diplomatic
countries considered and Currency Risk
developing or to have
"emerging" stock markets.
Generally, these investments
have the same type of risks
as Foreign Securities, but
to a higher degree. Limited
to 15% of assets.
- ------------------------------------------------------------------------------------------------------------------------------------
Options
The right or obligation to Credit, Information and
receive or deliver a security Liquidity Risk
or cash payment depending on
the security's price or the
performance of an index or
benchmark.
-----------------------------------------------------------------------------------------------------------------------------------
Options on Specific
Securities X X X X
Options on a Stock Index X
Stock Index Futures and X X
options on Stock Index
Futures to protect
liquidity and portfolio
value.
- ------------------------------------------------------------------------------------------------------------------------------------
Privately Issued Securities
Securities that are not Liquidity Risk X X X X X X
publicly traded but which may
be resold in accordance with
Rule 144A of the Securities
Act of 1933.
- ------------------------------------------------------------------------------------------------------------------------------------
Loans of Portfolio Securities
The practice of loaning Credit and X X X X X X
securities to brokers, Counter-Party Risk
dealers and financial
institutions to increase
return on those securities.
Loans may be made in
accordance with existing
investment policies and
may not exceed 33 1/3% of
assets.
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowing Policies
The ability to borrow an Counter-Party Risk X X X X X X
equivalent of 10% of total
assets from banks for
temporary purposes to meet
shareholder redemptions.
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid Securities
A security that cannot be Liquidity Risk X X X X X X
readily sold, or cannot be
readily sold without
negatively affecting its fair
price. Limited to 10% of
assets for the Diversified
Equity Income and Growth
Funds, and limited to 15% of
assets for the other Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stagecoach Equity Funds Prospectus 37
<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:
o Class A Shares - with a front-end sales charge, volume reductions and lower
on-going expenses than Class B and Class C shares.
o Class B Shares - with a contingent deferred sales charge (CDSC) that
diminishes over time, and higher on-going expenses than Class A shares.
o Class C Shares - with a 1.00% contingent deferred sales charge (CDSC) on
redemptions made within one year of purchase, 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 or Class C 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.
Class C shares are available for the Strategic Growth, Small Cap, Equity Value,
and Growth Funds only. They are similar to Class B shares, with some important
differences. Unlike Class B shares, Class C shares do not convert to Class A
shares. The higher on-going expenses will be assessed as long as you hold the
shares. The choice between Class B and Class C shares may depend on how long you
intend to hold Fund shares before redeeming them.
Please see the expenses listed for each Fund and the following load tables
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.
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
38 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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 OF FRONT-END SALES CHARGE AS FRONT-END SALES CHARGE AS FRONT-END SALES CHARGE AS %
PURCHASE % OF PUBLIC OFFERING PRICE % 0F NET AMOUNT INVESTED OF PUBLIC OFFERING PRICE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.25% 5.54% 4.75%
- -----------------------------------------------------------------------------------------------------------------
$50,000 to $99,999 4.50% 4.71% 3.75%
- -----------------------------------------------------------------------------------------------------------------
$100,000 to $249,000 3.50% 3.63% 2.75%
- -----------------------------------------------------------------------------------------------------------------
$250,000 to $499,999 2.50% 2.56% 2.00%
- -----------------------------------------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% 1.75%
- -----------------------------------------------------------------------------------------------------------------
$1,000,000 and over(1) 0.00% 0.00% 1.00%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) We will assess Class A shares 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 and Class C 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 B shares are converted to A shares to reduce
your future on-going expenses.
Stagecoach Equity Funds Prospectus 39
<PAGE>
A Choice of Share Classes
- --------------------------------------------------------------------------------
Class C Share CDSC Schedule
If you choose Class C shares, you buy them at NAV and agree that if you redeem
your shares within one year of the purchase date, you will pay a contingent
deferred sales charge (CDSC) of 1.00%.
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 1.00% of the purchase price of Class C 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. Class C shares do not
convert to Class A shares, and therefore continue to pay the higher on-going
expenses.
40 Stagecoach Equity Funds Prospectus
<PAGE>
Reduced Sales Charges
- --------------------------------------------------------------------------------
Generally, we offer more sales charge reductions for Class A shares than for
Class B and Class C 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:
o You pay no sales charges on Fund shares you buy with reinvested
distributions.
o 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.
o 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.
o 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.
o 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.
o 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 Funds Prospectus 41
<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:
o a family unit, consisting of a husband and wife and children under the age
of twenty-one or single trust estate;
o a trustee or fiduciary purchasing for a single fiduciary relationship; or
o 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 a Stagecoach 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 5.25% on the first $50,000, then 4.50% on the next $49,999!
- --------------------------------------------------------------------------------
42 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Class B and Class C Share CDSC Reductions:
o You pay no CDSC on Funds shares you purchase with reinvested distributions.
o 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.)
o 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.)
o We waive the CDSC for redemptions made at the direction of Stagecoach
Funds, Inc. in order to, for example, complete a merger or close an account
whose value has fallen below the minimum balance.
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:
o Current and retired employees, directors and officers of:
o Stagecoach Funds and its affiliates;
o Wells Fargo Bank and its affiliates;
o Stephens Inc. and its affiliates; and
o Broker-Dealers who act as selling agents.
o 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 supercede the terms and
conditions discussed here.
Stagecoach Equity Funds Prospectus 43
<PAGE>
Reduced Sales Charge
- --------------------------------------------------------------------------------
Special Notice
If you owned Class A shares of a Fund on February 28, 1997, and you have owned
Class A shares continuously since that date, you may make additional investments
into that Fund according to the following sales load schedules:
<TABLE>
<CAPTION>
============================================================================================================
IF YOU HELD CLASS A SHARES:
============================================================================================================
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 $249,000 3.50% 3.63% 3.125%
- ------------------------------------------------------------------------------------------------------------
$250,000 to $499,999 2.50% 2.56% 2.00%
- ------------------------------------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% 1.75%
- ------------------------------------------------------------------------------------------------------------
$1,000,000 and over(1) 0.00% 0.00% 1.00%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) We will charge a 1.00% CDSC on Class A share purchases of $1,000,000 or
more if they are redeemed within one year of their purchase. Charges are
based on the lower of the NAV on the day of purchase or the date of
redemption.
Class B shares you purchased prior to March 3, 1997 are subject to a CDSC if
they are redeemed within four years of purchase. For as long as you hold Class B
shares of such a Fund, any new Class B shares of that Fund that you acquire will
also be subject to a CDSC if redeemed within four years. The CDSC schedule for
these shares is below:
<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 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.
44 Stagecoach Equity Funds 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:
o By opening an account directly with the Fund (simply complete and return a
Stagecoach Funds application with proper payment);
o Through a brokerage account with an approved selling agent; or
o Through certain retirement, benefits and pension plans, or through certain
packaged investment products (please see the providers of the plan for
instructions).
Minimum Investments:
o $1,000 per Fund minimum initial investment; or
o $100 per Fund minimum initial investment if you use the AutoSaver option.
o $100 per Fund for all investments after your first.
o 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 Funds Prospectus 45
<PAGE>
Your Account
- --------------------------------------------------------------------------------
Important Information:
o 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.
o 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.
o 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.
o We determine the Net Asset Value (NAV) of each class of the Funds' shares
each business day as of the close of regular trading on the New York Stock
Exchange. We determine the NAV by subtracting the Fund class' liabilities
from its total assets, and then dividing the result by the total number of
outstanding shares of that class. Each Fund's assets are generally valued
at current market prices. See the Statement of Additional Information for
further disclosure.
o We will process all requests to buy and sell shares at the first NAV
calculated after the request in proper form is received.
o 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.
o Once an account has been opened, you can add additional Funds under the
same registration without requiring a new application.
o We reserve the right to cancel any purchase order or delay redemption if
your check does not clear. We also 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.
46 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
How to Buy Shares
The following section explains how you can buy shares directly from Stagecoach
Funds. For Funds held through brokerage and other types of accounts, please
consult your selling agent.
================================================================================
BY MAIL
================================================================================
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
- --------------------------------------------------------------------------------
Complete a Stagecoach Funds application. Be sure to indicate the Fund name and
the share class into which you intend to invest.
- --------------------------------------------------------------------------------
Enclose a check for at least $1,000 made out in the full name and share class of
the Fund. For example, "Stagecoach Strategic Growth Fund, Class B".
- --------------------------------------------------------------------------------
You may start your account with $100 if you elect the AutoSaver option on the
application.
- --------------------------------------------------------------------------------
Mail to:
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-9201
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF YOU ARE BUYING ADDITIONAL SHARES:
- --------------------------------------------------------------------------------
Make a check payable to the full name and share class of your Fund for at least
$100. Be sure to write your account number on the check as well.
- --------------------------------------------------------------------------------
Enclose the payment stub/card from your statement if available.
- --------------------------------------------------------------------------------
Mail to:
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-9201
- --------------------------------------------------------------------------------
================================================================================
BY WIRE
================================================================================
IF YOU ARE BUYING SHARES FOR THE FIRST TIME:
- --------------------------------------------------------------------------------
If you do not currently have an account, complete a Stagecoach Funds
application. You must wire at least $1,000. Be sure to indicate the Fund
name and the share class into which you intend to invest.
- --------------------------------------------------------------------------------
Mail the completed application.
- --------------------------------------------------------------------------------
You may also fax the completed application (with original to follow)
- --------------------------------------------------------------------------------
Mail to:
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-9201
Fax to:
1-415-546-0280
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF YOU ARE BUYING ADDITIONAL SHARES:
- --------------------------------------------------------------------------------
Instruct your wiring bank to transmit at least $100 according to the
instructions given to the right. Be sure to have the wiring bank include your
current account number and the name your account is registered in.
- --------------------------------------------------------------------------------
Wire to:
Wells Fargo Bank, N.A.
San Francisco, California
Bank Routing Number:
121000248
Wire Purchase Account Number:
4068-000587
Attention:
Stagecoach Funds (Name of Fund and Share Class)
Account Name:
(Registration Name Indicated on Application)
- --------------------------------------------------------------------------------
Stagecoach Equity Funds Prospectus 47
<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 to either:
o transfer at least $1,000 from a linked settlement account, or
o exchange at least $1,000 worth of shares from an existing Stagecoach Fund.
Please see "Exchanges" for special rules.
- --------------------------------------------------------------------------------
Call:
1-800-222-8222
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF YOU ARE BUYING ADDITIONAL SHARES:
- --------------------------------------------------------------------------------
Call Investor Services and instruct the representative to either:
o transfer at least $100 from a linked settlement account, or
o exchange at least $100 worth of shares from another Stagecoach Fund.
- --------------------------------------------------------------------------------
Call:
1-800-222-8222
- --------------------------------------------------------------------------------
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, or by wire ($5,000 minimum). Please call
Investor Services regarding requirements for linking bank accounts or for
wiring funds. We reserve the right to charge a fee for wiring funds although
it is not currently our practice to do so.
- --------------------------------------------------------------------------------
Signature Guarantees are required for mailed redemption requests over $5,000.
You can get a signature guarantee at financial institutions such as a bank or
brokerage house. We do not accept notarized signatures.
- --------------------------------------------------------------------------------
Mail to:
Stagecoach Funds
PO Box 7066
San Francisco, CA
94120-9201
- --------------------------------------------------------------------------------
48 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
BY PHONE
================================================================================
Call Investor Services to request a redemption of at least $100.
Be prepared to provide your account number and Tax Identification Number.
- --------------------------------------------------------------------------------
Unless you have instructed us otherwise, only one account owner needs to call in
redemption requests.
- --------------------------------------------------------------------------------
You may request that redemption proceeds be sent to you by check, by transfer
into an ACH-linked bank account, or by wire ($5,000 minimum). Please call
Investor Services regarding requirements for linking bank accounts or for wiring
funds. We reserve the right to charge a fee for wiring funds although it is not
currently our practice to do so.
- --------------------------------------------------------------------------------
Telephone privileges are automatically made available to you unless you
specifically decline them on your application or subsequently in writing.
- --------------------------------------------------------------------------------
Phone privileges allow us to accept transaction instructions by anyone
representing themselves as the shareholder and who provides reasonable
confirmation of their identity, such as providing the Taxpayer Identification
Number on the account. We will not be liable for any losses incurred if we
follow telephone instructions we reasonably believe to be genuine.
- --------------------------------------------------------------------------------
Call:
1-800-222-8222
- --------------------------------------------------------------------------------
================================================================================
GENERAL NOTES FOR SELLING SHARES
================================================================================
We will process requests to sell shares at the first NAV calculated after a
request in proper form is received. Requests received before the close of
trading on the New York Stock Exchange are processed on the same business
day.
- --------------------------------------------------------------------------------
Your redemptions are net of any applicable CDSC.
- --------------------------------------------------------------------------------
If you purchased shares through a packaged investment product or retirement
plan, read the directions for selling shares provided by the product or plan.
There maybe special requirements that supercede the directions in this
Prospectus.
- --------------------------------------------------------------------------------
We reserve the right to delay payment of a redemption for up to ten days so
that we may be reasonably certain that investments made by check have been
collected. Payments of redemptions also may be delayed under extraordinary
circumstances or as permitted by the Securities and Exchange Commission in
order to protect remaining shareholders. Payments of redemptions also may be
delayed up to seven days under normal circumstances, although it is not our
policy to delay such payments.
- --------------------------------------------------------------------------------
Generally, we pay redemption requests in cash, unless the redemption request
is for more than $250,000 or 1% of the net assets of the Fund by a single
shareholder over any ninety-day period. If a request for a redemption is over
these limits, it may be to the detriment of existing shareholders to pay such
redemption in cash. Therefore, we may pay all or part of the redemption in
securities of equal value.
- --------------------------------------------------------------------------------
Stagecoach Equity Funds Prospectus 49
<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:
o You should carefully read the Prospectus for the Fund into which you wish
to exchange.
o Every exchange involves selling Fund shares and that sale may produce a
capital gain or loss for federal income tax purposes.
o 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).
o 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.
o Any exchange between Funds you already own must meet the minimum redemption
and subsequent purchase amounts for the Funds involved.
o 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.
o Exchanges between Class B shares, between Class C shares or between either
Class B or Class C 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.
o Exchanges from any share class to a money market fund can only be
re-exchanged for the original share Class.
o 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.
o You may make exchanges between like share classes. You may also exchange
between A, B or C share classes and non-Institutional class shares of a
money market fund.
50 Stagecoach Equity Funds Prospectus
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Automatic Programs:
These programs help you conveniently purchase or redeem shares each month:
o AutoSaver Plan - you need only specify an amount of at least $100 and a day
of the month. We will automatically transfer that amount from your linked
bank account each month to purchase additional shares. We will transfer the
amount on or about the day you specify, or on or about the 20th of each
month if you have not specified a day. Please call Stagecoach Investor
Services at 1-800-222-8222 if you wish to change or add linked accounts.
o 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:
o must have a Fund account valued at $10,000 or more;
o you must have distributions reinvested; and
o you may not be simultaneously participating 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:
o 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.
o 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.
o 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 Funds Prospectus 51
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
o 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 a Fund as dividend distributions. These are taxable to you as ordinary
income.
We will pass on to you any net capital gains earned by a Fund as a capital gain
distribution. In general, these distributions will be taxable to you as
long-term capital gains and are taxable when paid. However, distributions
declared in October, November and December and distributed by the following
January will be taxable as if they were paid on December 31 of the year in which
they were declared. We will notify you as to the status of your Fund
distributions.
Your redemptions, including exchanges, will ordinarily result in a taxable
capital gain or loss, depending on the amount you receive for your shares and
the amount you paid for them. Foreign shareholders may be subject to different
tax treatment, including withholding. In certain circumstances, U.S. residents
will be subject to back-up withholding.
Historical Fund Information
Balanced Fund--The Fund operated as a series of Pacifica Funds Trust from its
commencement of operations until it was reorganized as a series of
52 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Stagecoach Funds, Inc. on September 6, 1996. In conjunction with the
reorganization, existing Investor Shares were converted into Class A shares of
the Fund. Prior to April 1, 1996, the Fund was advised by First Interstate
Capital Management, Inc. ("FICM") In connection with the merger of First
Interstate Bancorp into Wells Fargo & Company on April 1, 1996, FICM was renamed
Wells Fargo Investment Management, Inc.
Equity Value Fund--The Fund operated as a series of Pacifica Funds Trust from
its commencement of operations until it was reorganized as a series of
Stagecoach Funds on September 6, 1996. In connection with the reorganization,
existing Investor Shares were converted into Class A shares of the Fund. Prior
to April 1, 1996, the Fund was advised by First Interstate Capital Management,
Inc. ("FICM"). In connection with the merger of First Interstate Bancorp into
Wells Fargo & Company on April 1, 1996, FICM was renamed Wells Fargo Investment
Management, Inc.
Growth Fund--The financial information for the fiscal periods prior to, and
including, 1991 is based on the financial information for the Select Stock Fund
of the Wells Fargo Investment Trust for Retirement Programs which was
reorganized into the Growth Stock Fund on January 2, 1992.
Small Cap Fund--On December 12, 1997, the Overland Express Small Cap Strategy
Fund was merged into the Small Cap Fund of the Stagecoach Funds, Inc. The
Stagecoach Small Cap Fund commenced operations on September 16, 1996. Prior to
December 15, 1997 the Fund invested in a Master Portfolio with a corresponding
investment objective. The Fund no longer invests in a Master Portfolio.
Currently the Fund invests directly in a portfolio of securities.
Strategic Growth Fund--On December 12, 1997, the Class A and Class D shares of
the Overland Express Strategic Growth Fund were reorganized as the Class A and
Class C shares of the Strategic Growth Fund of Stagecoach Funds. For accounting
purposes, the Overland Express Fund is considered the surviving entity and the
financial highlights shown for the Stagecoach Class A and Class C shares are for
the Class A and D shares of the Overland Fund, respectively. The Overland Fund
did not offer Class B shares. The Financial Highlights for the Class B shares
reflect prior performance of the Stagecoach Class B shares and are no longer
part of the Fund's formal financial statements. Prior to December 15, 1997 the
Fund invested in a Master Portfolio with a corresponding investment objective.
The Fund no longer invests in a Master Portfolio. Currently the Fund invests
directly in a portfolio of securities.
Stagecoach Equity Funds Prospectus 53
<PAGE>
Additional Services And Other Information
- --------------------------------------------------------------------------------
Share Class - This Prospectus contains information about Class A, Class B and
Class C shares. Some of the Funds 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
Class B shares. The conversion is done at NAV and, since it is unlikely that
Class A and Class B shares of the same Fund will have the same NAV on a given
date, the conversion is on a dollar-value basis, not a share-for-share basis.
Minimum Account Value - Due to the expense involved in maintaining low-balance
accounts, we reserve the right to close accounts that have fallen below the
$1,000 minimum balance due to redemptions (as opposed to market conditions). You
will be given an opportunity to make additional investments to prevent account
closure before any action is taken.
Statements - We mail statements after any account activity, including
transactions, dividends or capital gains, and at year-end. We do not send
statements for Funds held in brokerage, retirement or other similar accounts.
You must check with the administrators of these accounts for statement policies.
The Fund will also send any necessary tax reporting documents in January, and
will send Annual and Semi-Annual Reports each year.
Dealer Concessions and Rule 12b-1 fees - Stephens Inc., as the Fund's
distributor, will pay the portion of the Class A share sales charge shown as the
Dealer Allowance to the selling agent, if any. Stephens also compensates selling
agents for the sale of Class B and Class C 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, Class B and Class C shares of the
same 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
each 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.
54 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Glass-Steagall Act - Morrison & Foerster LLP, counsel to the Funds 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 Funds have equal voting rights and are voted
in the aggregate, rather than by series or class, unless the matter affects only
one series or class. A shareholder of record is entitled to one vote for each
share owned and fractional votes for each fractional share owned. For a detailed
description of voting rights, see the "Capital Stock" section of the Statement
of Additional Information.
Stagecoach Equity Funds Prospectus 55
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
A number of different entities provide services to the Funds. This section shows
how the Funds are organized, the entities that perform different services, and
how they are compensated. Further information is available in the Statement of
Additional Information for each Fund.
About Stagecoach
Each 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 Funds' activities and
approves the selection of various companies hired to manage the Funds'
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, amending fundamental investment strategies or policies.
================================================================================
SHAREHOLDERS
================================================================================
================================================================================
FINANCIAL SERVICES FIRMS AND SELLING AGENTS
================================================================================
Advise current and prospective shareholders on their Fund investments
- --------------------------------------------------------------------------------
================================================================================
DISTRIBUTOR &
CO-ADMINISTRATOR ADMINISTRATOR
================================================================================
Stephens Inc. Wells Fargo Bank
111 Center St. 525 Market St.
Little Rock, AR San Francisco, CA
Markets the Funds, Manages the Funds'
distributes shares, business activities
and manages the Funds'
business activities
- --------------------------------------------------------------------------------
================================================================================
TRANSFER AND SHAREHOLDER
DIVIDEND DISBURSING AGENT SERVICING AGENTS
================================================================================
Wells Fargo Bank Various Agents
525 Market St.
San Francisco, CA
Maintains records of Provide services
shares and supervises to customers
the paying of dividends
- --------------------------------------------------------------------------------
================================================================================
INVESTMENT ADVISOR CUSTODIAN
================================================================================
Wells Fargo Bank, 525 Market St., Wells Fargo Bank, 525 Market St.,
San Francisco, CA San Francisco, CA
Manages the Funds' Provides safekeeping for
investment activities the Funds' assets
- --------------------------------------------------------------------------------
================================================================================
BOARD OF DIRECTORS
================================================================================
Supervises the Funds' activities
- --------------------------------------------------------------------------------
56 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
In the following sections, the percentages shown are the percentages of the
average daily net assets of each Fund class paid on an annual basis for the
services described. The Statement of Additional Information has more detailed
information about the Investment Advisor and the other service providers and
plans described here.
The Investment Advisor
Wells Fargo Bank is the advisor for each of the Funds. 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 Funds paid Wells Fargo Bank the following for advisory services
(after fee waivers) for the last fiscal year:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Balanced Fund .54%
- --------------------------------------------------------------------------------
Diversified Equity Income Fund .50%
- --------------------------------------------------------------------------------
Equity Value Fund .50%
- --------------------------------------------------------------------------------
Growth Fund .50%
- --------------------------------------------------------------------------------
Small Cap Fund* .60%
- --------------------------------------------------------------------------------
Strategic Growth Fund* .50%
- --------------------------------------------------------------------------------
</TABLE>
* Prior to December 15, 1997, the Strategic Growth Fund and the Small Cap
Fund each invested all of its assets in a master portfolio with the same
investment objective. The management fee shown was charged to and paid by
the master portfolio.
The Administrator
Wells Fargo Bank is the administrator of the Funds. Wells Fargo Bank is paid
.03% of each Fund's assets for these services. Prior to February 1, 1998, Wells
Fargo Bank was entitled to receive .04% of each Fund's assets for administration
services.
The Distributor and Co-Administrator
Stephens Inc. is the Funds' distributor and co-administrator. Stephens Inc.
receives .04% of each Funds' 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 Funds' shares. Prior to February 1, 1998, Stephens Inc. was
entitled to receive .02% of each Fund's assets for co-administration
services.
Distribution Plan
We have adopted distribution plans for each class of the Funds. For the Class A
shares of the Diversified Equity Income and Growth Funds, these plans are used
to defray all or part of the cost of preparing and distributing prospec-
Stagecoach Equity Funds Prospectus 57
<PAGE>
Organization and Management of the Funds
- --------------------------------------------------------------------------------
tuses and promotional materials. For Class A shares of the Balanced, Equity
Value, Small Cap and Strategic Growth Funds, and the Class B and Class C shares
of each Fund, these plans are used to pay for distribution-related services
including ongoing compensation to Selling Agents. Each 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 assets
levels pay a higher proportion of these costs. The fees paid under these plans
are as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balanced Fund .10% .75% N/A
- --------------------------------------------------------------------------------
Diversified Equity Income Fund .05% .70% N/A
- --------------------------------------------------------------------------------
Equity Value Fund .10% .75% .75%
- --------------------------------------------------------------------------------
Growth Fund .05% .70% .75%
- --------------------------------------------------------------------------------
Small Cap Fund .10% .75% .75%
- --------------------------------------------------------------------------------
Strategic Growth Fund .10% .75% .75%
- --------------------------------------------------------------------------------
</TABLE>
Shareholder Servicing Plan
We have Shareholder Servicing Plans for each Fund class. 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 each Fund pays as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balanced Fund .25% .25% N/A
- -----------------------------------------------------------------------------
Diversified Equity Income Fund .30% .30% N/A
- --------------------------------------------------------------------------------
Equity Value Fund .25% .25% .25%
- --------------------------------------------------------------------------------
Growth Fund .30% .30% .25%
- --------------------------------------------------------------------------------
Small Cap Fund .25% .25% .25%
- --------------------------------------------------------------------------------
Strategic Growth Fund .25% .25% .25%
- --------------------------------------------------------------------------------
</TABLE>
58 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Managers
The following is a list of portfolio managers identified within the various
Funds' summaries. More detailed biographical information is available in the
Statement of Additional Information.
o Allen J. Ayvazian
Managing Director and Chief Equity Officer
With Wells Fargo since 1989.
o Jon R. Hickman
Managing Director
Member of Wells Fargo Equity Strategy Committee
Over 16 years of experience, he has been with Wells Fargo since 1986.
o Tamrya D. Thomas, CFA
Managing Director and Chief Fixed Income Officer
Chief Fixed Income Strategies and Chair of the Fixed Income
Policy Committee
With Wells Fargo since 1988.
o Kenneth Lee
With Wells Fargo since 1993. Was with Wells Fargo Nikko Investment Advisors
and Dean Witter prior to 1993.
o Chris Greene
Joined Wells Fargo in 1997. Worked for Hambrecht & Quist from 1994-97 and
for GB Capital Management for two years prior to that. Worked for Wood
Island Associates prior to GB Capital.
o Kelli Hill
With Wells Fargo since 1987.
o Rex Wardlaw, CFA
With Wells Fargo since 1986.
o Allen Wisniewski, CFA
Member of Los Angeles Society of Financial Analysts
With Wells Fargo since 1987.
Stagecoach Equity Funds Prospectus 59
<PAGE>
How to Read the Financial Highlights
- --------------------------------------------------------------------------------
After the description of each Fund, there are charts showing important financial
information about the Fund. The charts are called "Financial Highlights" and are
designed to help you understand the past performance of the Fund. The financial
statements, from which these Financial Highlights were derived, were audited by
KPMG Peat Marwick LLP except as indicated. The financial statements are included
in each Fund's most recent Annual or Semi-Annual Report and are available free
of charge by calling 1-800-222-8222. Other auditors audited statements for the
Equity Value Fund for periods prior to October 1, 1995 and for the Growth Fund
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 a 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 a 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
a 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.
60 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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 Fund with a 50% portfolio turnover has sold and bought
half of its investment portfolio during the given period.
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.
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 Funds Prospectus 61
<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.
American Depository Receipts
Receipts for non-U.S. company stocks. The stocks underlying ADRs are typically
held in bank vaults. The ADR's owner is entitled to any capital gains or
dividends. ADRs are one way of owning an equity interest in foreign companies.
Annual Report
A document that provides certain financial and other important information for
the most recent reporting period and each Fund's portfolio of investments.
Business Day
Any day the New York Stock Exchange is open is a business day for the Fund.
Capital Appreciation, Capital Growth
The increase in the value of a security. See also "total return".
Capitalization
When referring to the size of a company, capitalization means the total number
of a company's outstanding shares of stock multiplied by the price per share.
This is an accepted method of determining a company's size and is sometimes
referred to as "market capitalization".
Capital Structure
Refers to how a company has raised money to operate. Can include, for example,
borrowing or selling stock.
Commercial Paper
Debt instruments issued by banks, corporations and other issuers to finance
short-term credit needs. Commercial paper typically is of high credit quality
and offers below market interest rates.
Convertible Debt Securities
Bonds or notes that are exchangeable for equity securities at a set price on a
set date or at the election of the holder.
Current Income
Earnings in the form of dividends or interest as opposed to capital growth. See
also "Total Return".
62 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Debt Securities
Generally, a promise to pay interest and repay principal by an individual or
group of individuals sold as a security. The owner of the security is entitled
to receive any such payments. Examples include bonds and mortgage-backed
securities and can include securities in which the right to receive interest and
principal repayment have been sold separately.
Derivatives
Securities whose values are derived in part from the value of another security
or index. An example is a stock option.
Distributions
Dividends and/or capital gains paid by 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.
Dollar-Denominated
Securities issued by foreign banks, companies or governments in U.S. dollars.
Duration
A measure of a security's or portfolio's sensitivity to changes in interest
rates. Duration is usually expressed in years, with longer durations typically
more sensitive to interest rate changes than shorter durations.
Emerging Markets
Markets associated with a country that is considered by the International
Finance Corporation, the International Bank for Reconstruction and Development
and the international financial community to have an "emerging" stock market.
Such markets may be under-capitalized, have less-developed legal and financial
systems or may have less stable currencies than markets in the developed world.
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.
Stagecoach Equity Funds Prospectus 63
<PAGE>
Glossary
- --------------------------------------------------------------------------------
Illiquid Security
A security which cannot be readily sold, or cannot be readily sold without
negatively affecting its fair price.
Initial Public Offering
The first time a company's stock is offered for sale to the public.
Investment-Grade Debt
A type of bond rated in the top four investment categories by a nationally
recognized ratings organization. Generally these are bonds whose issuers are
considered to have a strong ability to pay interest and repay principal,
although some investment-grade bonds may have some speculative characteristics.
Liquidity
The ability to readily sell a security at its fair price.
Moody's
One of the largest nationally recognized ratings organizations.
Nationally Recognized Rating Organization (NRRO)
A company that examines the ability of a bond issuer to meet its obligations and
which rates the bonds accordingly.
Net Asset Value (NAV)
The value of a single fund share. It is determined by adding together all of 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.
Non-Diversified
Any fund that does not have a policy as described under "diversified" in this
glossary.
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.
64 Stagecoach Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Public Offering Price (POP)
The NAV with the sales load added.
Price-to-Earnings Ratio
The ratio between a stock's price and its historical, current or anticipated
earnings. Low P/E ratios typically indicate a high yield. High P/E ratios are a
characteristic of growth stocks which generally have low current yields.
Repurchase Agreement
An agreement between a buyer and seller of a security in which the seller agrees
to repurchase the security at an agreed upon price and time.
Russell 2000 Index
An index comprised of the 2000 smallest firms listed on the Russell 3000 Index.
The Russell 3000 Index is a listing of 3000 corporations by the Frank Russell
Company that is intended to be representative of the U.S. economy. The Russell
2000 is considered a "small cap" index.
Selling Agent
A person who has an agreement with the Fund's distributor that allows them to
sell a Fund's shares.
Senior Securities
A security that has a priority claim to a company's assets. For example, a
bondholder has the right to receive a share of a company's assets before a
common stock holder does in the event of a company's liquidation.
Shareholder Servicing Agent
Anyone 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.
S&P
One of the largest nationally recognized ratings organizations. Standard and
Poor's also publishes various indexes or lists of companies representative of
sectors of the US economy.
Statement of Additional Information
A document that supplements the disclosures made in the Prospectus.
Stagecoach Equity Funds Prospectus 65
<PAGE>
Glossary
- --------------------------------------------------------------------------------
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.
Undervalued
Describes a stock that is believed to be worth more than its current selling
price.
U.S. Government Obligations
Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Value Strategy
A type of investing which tries to identify and buy undervalued stocks under the
assumption that the stock will eventually rise to its true value.
Warrants
The right to buy a stock at a set price for a set time.
Zero Coupon Bonds
Bonds that make no periodic interest payments and which are usually sold at a
discount of their face value. Zero coupon bonds are subject to interest rate and
credit risk.
66 Stagecoach Equity Funds Prospectus
<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 each 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:
- --------------------------------------------------------------------------------
o are not insured by the FDIC
o are not obligations or deposits of Wells Fargo Bank, nor guaranteed by the
Bank
o involve investment risk, including possible loss of principal.
- --------------------------------------------------------------------------------
[RECYCLE LOGO] SC EQ P (12/97)
Printed on Recycled Paper
<PAGE>
March 30, 1998
-------------------------------------------------------------------------
STAGECOACH FUNDS
Stagecoach
International
Equity Fund
Prospectus
Class A, Class B and Please read this Prospectus and keep it for
Class C 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
disapproved by the U.S. Securities and Exchange
Wells Fargo Bank Commission, any state securities commission or
any other regulatory authority, nor have any of
Distributor and these authorities passed upon the accuracy or
Co-Administrator: adequacy of this Prospectus. Any representation
to the contrary is a criminal offense.
Stephens Inc. Fund shares are NOT deposits or other
obligations of, or issued, endorsed or
guaranteed by, Wells Fargo Bank, N.A. ("Wells
Fargo Bank"), or any of its affiliates. Fund
shares are NOT insured or guaranteed by the U.S.
Government, the Federal Deposit Insurance
Corporation ("FDIC"), the Federal Reserve Board
or any other governmental agency. AN INVESTMENT
IN 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 this Fund can be
found.
Important information you should look for:
Investment Objective and Investment Policies
[LOGO OF
ARROW] What is the Fund trying to achieve? How do we intend to
invest your money? Look for the arrow icon to find
out.
Permitted Investments
[LOGO OF
PERCENTAGE A summary of the Fund's key permitted investments and
SIGN] practices.
Important Risk Factors
[LOGO OF
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 about the
Fund.
[LOGO OF Additional Fund Facts
ADDITION SIGN]
Provides additional information about the Fund.
Why is italicized print used throughout this Prospectus?
Words appearing in italicized print and highlighted in color are defined in
the Glossary.
What else do I need to understand 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).
---------------------------------------------------------------------------
<PAGE>
Table of Contents
Key Information 4
Summary of Expenses 5
- --------------------------------------------------------------------------------
The Fund International Equity Fund 7
This section contains
important information General Investment Risks 9
about the Fund.
- --------------------------------------------------------------------------------
Your Account A Choice of Share Classes 14
Turn to this section Reduced Sales Charges 16
for information on how
to open and maintain Your Account 19
your account, including
how to buy, sell and How to Buy Shares 21
exchange Fund shares.
Selling Shares 22
Exchanges 24
Additional Services and
Other Information 25
- --------------------------------------------------------------------------------
Reference Organization and Management
of the Fund 29
Look here for details
on the organization of Glossary 32
the Fund and term
definitions.
<PAGE>
Key Information
- --------------------------------------------------------------------------------
Summary of the Stagecoach International Equity Fund
The Fund described in this Prospectus invests primarily in equity securities
of non-U.S. companies.
Should you consider investing in this Fund? Yes, if:
* you are looking to add international investments 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 and international
investing, including the risk that share prices may fluctuate
significantly.
You should not consider investing in this Fund if:
* you are looking for a domestic equity investment;
* you are looking for FDIC insurance coverage or guaranteed rates of
return;
* you 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 unwilling or unable to accept the special risks of
international investing; 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 International Equity
Fund. The "Funds" also may refer to other mutual funds offered by Stagecoach
Funds, Inc.
Dividends
We pay dividends, if any, annually for the Fund.
4 Stagecoach International Equity Fund Prospectus
<PAGE>
International Equity 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.
- --------------------------------------------------------------------------------
International Equity
--------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge on a purchase
(as a percentage of offering price) 5.25% None NONE
- --------------------------------------------------------------------------------
Maximum sales charge on reinvested
dividends None None None
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
Redemption during first year None 5.00% 1.00%
Redemption after first year None 4.00% None
- --------------------------------------------------------------------------------
Exchange fees None None None
================================================================================
Annual Fund Operating Expenses (as a percentage of average net assets)
================================================================================
Expenses shown reflect contract amounts and amounts payable by the Fund. The
expenses shown under "Other Expenses" and "Total Fund Operating Expenses"
reflect estimated expenses and, where indicated, voluntary fee waivers and
reimbursements that may be discontinued without prior notice. Long-term
shareholders may pay more than the equivalent of the maximum front-end
sales charge allowed by the National Association of Securities Dealers, Inc.
- --------------------------------------------------------------------------------
International Equity
--------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Rule 12b-1 fee 0.10% 0.75% .75%
- --------------------------------------------------------------------------------
Management fee 1.00% 1.00% 1.00%
- --------------------------------------------------------------------------------
Other expenses
(after waivers or reimbursements) 0.65% 0.65% 0.65%
- --------------------------------------------------------------------------------
Total fund operating expenses
(after waivers or reimbursements) 1.75% 2.40% 2.40%
- --------------------------------------------------------------------------------
Other expenses
(before waivers or reimbursements) 1.40% 1.40% 1.40%
- --------------------------------------------------------------------------------
Total fund operating expenses
(before waivers or reimbursements) 2.50% 3.15% 3.15%
- --------------------------------------------------------------------------------
Stagecoach International Equity Fund Prospectus 5
<PAGE>
International Equity 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 return and that you redeem your shares at the end of each period.
- --------------------------------------------------------------------------------
International Index
---------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
1 year $69 $74 $34
- --------------------------------------------------------------------------------
3 years $105 $105 $75
- --------------------------------------------------------------------------------
5 years $142 $148 $128
- --------------------------------------------------------------------------------
10 years $248 $242 $274
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment assuming a 5%
annual return and that you do not redeem your shares at the end of each
period.
- --------------------------------------------------------------------------------
International Index
----------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
1 year $69 $24 $24
- --------------------------------------------------------------------------------
3 years $105 $75 $75
- --------------------------------------------------------------------------------
5 years $142 $128 $128
- --------------------------------------------------------------------------------
10 years $248 $242 $274
- --------------------------------------------------------------------------------
6 Stagecoach International Equity Fund Prospectus
<PAGE>
International Equity Fund
- --------------------------------------------------------------------------------
Portfolio Managers: Katherine Schapiro (since 9/97)
Stacy Ho (since 9/97)
- --------------------------------------------------------------------------------
[LOGO OF Investment Objective
ARROW]
The International Equity Fund seeks to earn total return, with an
emphasis on capital appreciation, over the long-term, by
investing primarily in equity securities of non-U.S. companies.
Investment Policies
We actively manage a diversified portfolio of equity securities
of companies located or operating in major non-U.S. countries and
emerging markets of the world. We expect that the securities we
hold will be traded on a stock exchange or other market in the
country in which the issuer is based, but they also may be traded
in other countries, including the United States.
We apply a fundamentals-driven, value-oriented analysis to
identify companies with above-average potential for long-term
growth. The financial data we examine includes both the company's
historical returns and its projected future returns. Among other
key criteria we consider are a company's local, regional or
global franchise; history of effective management demonstrated by
expanding revenues and earnings growth; prudent financial and
accounting policies and ability to take advantage of a changing
business environment.
- --------------------------------------------------------------------------------
[LOGO OF Permitted Investments
PERCENTAGE
SIGN] Under normal market conditions, we invest:
* at least 80% of our assets in equity securities of
companies located or operating outside the United States;
* in a minimum of five countries exclusive of the U.S.;
* up to 50% of our assets in any one country;
* up to 25% of our portfolio in emerging markets;
* in issuers with an average market capitalization of US$10
billion or more, although we may invest in equity securities of
issuers with market capitalization as low as US$250 million; and
* in equity securities including common stocks, preferred
stocks, warrants, convertible debt securities, ADRs, GDRs (and
similar instruments) and shares of other mutual funds.
Although it is not our intention to do so, we reserve the right
to hedge the portfolio's foreign currency exposure by purchasing
or
Stagecoach International Equity Fund Prospectus 7
<PAGE>
International Equity Fund
- --------------------------------------------------------------------------------
selling foreign currency futures and forward foreign currency
contracts.
We may temporarily hold assets in cash or in money market
instruments, including U.S. Government obligations, shares of
other mutual funds and repurchase agreements, or make other
short-term investments, either to maintain liquidity or for
short-term defensive purposes when we believe it is in the best
interest of shareholders to do so. We may also, for defensive
purposes, invest without limit in cash, short-term debt and
equity securities of U.S. companies 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 listed on
page 9 and the specific risks listed below. They are equally
important to your investment choice.
Investments in foreign and emerging markets present special
risks, including currency, political, diplomatic, regulatory and
liquidity risks. These risks are defined beginning on page 9. In
addition, certain fees, such as custodial, transaction and
registration fees may be higher than similar fees incurred by
funds investing solely within the U.S.
- --------------------------------------------------------------------------------
[LOGO OF Additional Fund Facts
ADDITION
SIGN] In allocating among countries, regions and industry sectors, we
consider factors such as economic growth prospects, monetary and
fiscal policies, political stability, currency trends, market
liquidity and investor sentiment. We do not expect our turnover
ratio to exceed 100% under normal market conditions, but this
target will not limit our discretion in buying or selling
securities. Higher turnover will result in high transaction
costs, which are passed on to shareholders.
For information on Fund fees and expenses, see "Summary of
Expenses" on page 5.
8 Stagecoach International Equity Fund Prospectus
<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 objective.
* 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 the investment advisor, 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 invests in debt instruments, such as notes and bonds, that
are subject to credit risk and interest rate risk. Credit risk is the
possibility that an issuer of a security will be unable to make
interest payments or repay principal. Changes in the financial
strength of an issuer or changes in the credit rating of a security
may affect its value. Interest rate risk is the possibility that
interest rates may increase and reduce the resale value of securities
in a Fund's portfolio. Debt instruments with longer maturities are
generally more sensitive to interest rate changes than those with
shorter maturities. Changes in market interest rates do not affect
the rate payable on debt instruments held in a Fund, unless the
instrument has
Stagecoach International Equity Fund Prospectus 9
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
adjustable or variable rate features. Changes in market interest
rates may also extend or shorten the duration of certain types of
instruments, such as asset-backed securities, thereby affecting their
value and the return on your investment.
* The Fund invests in smaller companies, foreign companies (including
investments made through American Depositary Receipts and similar
instruments), and in emerging markets that are subject to additional
risks, including less liquidity and greater volatility. A Fund's
investment in foreign and emerging markets may also be subject to
special risks associated with international trade, including
currency, political, regulatory and diplomatic risk.
The Fund may also use certain derivative instruments such as options or
futures contracts. The term "derivatives" covers a wide number of investments,
but in general it refers to any financial instrument whose value is derived, at
least in part, from the price of another security or a specified index, asset
or rate. Some derivatives may be more sensitive to interest rate changes or
market moves, and some may be susceptible to changes in yields or values due
to their structure or contract terms.
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 following list describes risks considerations of particular importance
to an investor considering adding international exposure to a portfolio. Since
the International Equity Fund has a much greater exposure to non-U.S.
investments, including the use of non-U.S. stock exchanges, the following risks
are present in a much greater degree than they are in other Stagecoach Funds.
Please consider these additional risks carefully.
Counter-Party Risk - The risk that the other party in a repurchase agreement
or other transaction will not fulfill its contract obligation.
Currency Risk - The risk that a change in the exchange rate between U.S.
dollars and a foreign currency may reduce the value of an investment made in a
security denominated in that foreign currency.
Diplomatic Risk - The risk that an adverse change in the diplomatic relations
between the United States and another country might reduce the value or
liquidity of investments in either country.
10 Stagecoach International Equity Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Emerging Market Risk - The risk that the emerging market, as defined in the
glossary, may be more sensitive to certain economic changes. For example,
emerging market countries are often dependent on international trade and are
therefore often vulnerable to recessions in other countries. They may have
obsolete financial systems, have volatile currencies and may be more sensitive
than more mature markets to a variety of economic factors. Emerging market
securities may also be less liquid than securities of more developed countries
and could be difficult to sell, particularly during a market downturn.
Information Risk - The risk that information about a security is either
unavailable, incomplete or is inaccurate.
Political Risk - The risk that political actions, events or instability may
be unfavorable for investments made in a particular nation's or region's
industry, government or markets.
Regulatory Risk - The risk that changes in government regulations will
adversely affect the value of a security. Also the risk that an insufficiently
regulated market might permit inappropriate trading practices.
What follows is a general list of the types of risks that may apply to the
Fund (some of which are described above) and a table showing some of the
additional investment practices that the Fund may use. Additional information
about these practices is available in the Statement of Additional Information.
Counter-Party Risk - The risk that the other party in a repurchase agreement
or other transaction will not fulfill its contract obligation.
Credit Risk - The risk that the issuer of a debt security will be unable to
make interest payments or repay principal on schedule. If an issuer does
default, the affected security could lose all of its value, or be renegotiated
at a lower interest rate or principal amount. Affected securities might also
lose liquidity. Credit risk also includes the risk that a party in a
transaction may not be able to complete the transaction as agreed.
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.
Interest Rate Risk - The risk that changes in interest rates can reduce the
value of an existing security. Generally, when interest rates increase, the
value of a debt security decreases. The effect is usually more pronounced for
securities with longer dates to maturity.
Stagecoach International Equity Fund Prospectus 11
<PAGE>
General Investment Risks
- --------------------------------------------------------------------------------
Liquidity Risk - The risk that a security cannot be sold, or cannot be sold
without adversely affecting its fair price.
Market Risk - The risk that the value of a stock, bond or other security will
be reduced by market activity. This is a basic risk associated with all
securities.
------------------------------------------------------------------------------
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 sections 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.
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.
Remember, the Fund is designed to meet different investment needs and has a
different investment objective and investment policies. The Fund engages in
the investment practices described below to varying degrees.
In addition to the general risks discussed above, you should carefully
consider and evaluate any special risks that may apply to investing in a
particular Fund. See the "Important Risk Factors" in the summary for The Fund.
You should also see the Statement of Additional Information for additional
information about the investment practices and risks particular to the Fund.
The Investment Objective described for the Fund is not fundamental and may
be changed without approval by vote of a majority of shareholders.
------------------------------------------------------------------------------
12 Stagecoach International Equity Fund Prospectus
<PAGE>
International Equity
================================================================================
INVESTMENT PRACTICE: RISK:
================================================================================
Hedging and Related Strategies
The attempt to protect the U.S. dollar Currency Risk *
equivalent of investments by buying and
selling foreign currency contracts.
- --------------------------------------------------------------------------------
Warrants
The right to buy securities at a specific Market Risk *
price for a specific time. We can only buy
warrants on securities that are permitted
investments according to the Investment
Objective and Policies. Limited to 5%
of assets.
- --------------------------------------------------------------------------------
Repurchase Agreements
A transaction in which the seller of a Credit and *
security agrees to buy back a security at Counter-Party Risk
an agreed upon time and price, usually
with interest.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Foreign Securities
Securities of a non-U.S. company or debt of Information, Political, *
a foreign government including those in the Regulatory, Diplomatic
form of an American Depository Receipt. Liquidity and Currency
Risk
- --------------------------------------------------------------------------------
Non-U.S. Stock Exchanges
The buying and selling of securities on Information, Political, *
foreign exchanges that may be less mature, Regulatory, Diplomatic
more volatile, poorly regulated or and Currency Risk
comparatively antiquated.
- --------------------------------------------------------------------------------
Emerging Markets
Investments in companies located or operating Information, Liquidity, *
in countries considered developing or to have Political, Regulatory,
"emerging" stock markets. Generally, these Diplomatic and Currency
investments have the same type of risks as Risk
Foreign Securities but to a higher degree.
Limited to 25% of assets.
- --------------------------------------------------------------------------------
Loans of Portfolio Securities
The practice of loaning securities to brokers, Credit and *
dealers and financial Credit and institutions Counter-Party Risk
to increase return on those securities. Loans
may be made in Counter-Party Risk accordance
with existing investment policies. Limited to
33 1/3% of assets.
- --------------------------------------------------------------------------------
Borrowing Policies
The ability to borrow money from banks for Counter-Party Risk *
temporary purposes to meet shareholder
redemptions.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Illiquid Securities
A security that cannot be readily sold, or Liquidity Risk *
cannot be readily sold without negatively
affecting the fair price. Limited to 15% of
total assets.
- --------------------------------------------------------------------------------
Stagecoach International Equity Fund Prospectus 13
<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:
o Class A Shares - with a front-end sales charge, volume reductions and lower
on-going expenses than Class B and Class C shares.
o Class B Shares - with a contingent deferred sales charge (CDSC) that
diminishes over time, and higher on-going expenses than Class A shares.
o Class C Shares - with a 1.00% contingent deferred sales charge (CDSC) on
redemptions made within one year of purchase, 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 or Class C 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.
Class C shares are available for the International Equity Fund. They are similar
to Class B shares, with some important differences. Unlike Class B shares, Class
C shares do not convert to Class A shares. The higher on-going expenses will be
assessed as long as you hold the shares. The choice between Class B and Class C
shares may depend on how long you intend to hold Fund shares before redeeming
them.
Please see the expenses listed for each Fund and the following load tables
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.
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.
Stagecoach International Equity Funds Prospectus 14
<PAGE>
A Choice of Share Classes
- --------------------------------------------------------------------------------
<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 $249,000 3.50% 3.63% 3.125%
- -------------------------------------------------------------------------------------------------------------------
$250,000 to $499,999 2.50% 2.56% 2.00%
- -------------------------------------------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 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 and Class C 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:
================================================================================
REDEMPTIONS 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 B shares are converted to A shares to reduce
your future on-going expenses.
15 Stagecoach International Equity Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Class C Share CDSC Schedule
If you choose Class C shares, you buy them at NAV and agree that if you redeem
your shares within one year of the purchase date, you will pay a contingent
deferred sales charge (CDSC) of 1.00%.
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 1.00% of the purchase price of Class C 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. Class C shares do not
convert to Class A shares, and therefore continue to pay the higher on-going
expenses.
Stagecoach International Equity Funds Prospectus 16
<PAGE>
Reduced Sales Charges
- --------------------------------------------------------------------------------
Generally, we offer more sales charge reductions for Class A shares than for
Class B and Class C 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.
17 Stategecoach International Equity Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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 International Equity 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
5.25% on the first $50,000, then 4.50% on the next $49,999!
------------------------------------------------------------------------------
Stategecoach International Equity Fund Prospectus 18
<PAGE>
Reduced Sales Charges
- --------------------------------------------------------------------------------
Class B and Class C 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 supercede the terms and
conditions discussed here.
20 Stategecoach International Equity 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.
Stategecoach International Equity Fund Prospectus 20
<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.
21 Stategecoach International Equity Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
How to Buy Shares
The following section explains how you can buy 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:
Stagecoach Funds
PO Box 7066
Enclose a check for at least $1,000 made out in the San Francisco, CA
full name and share class of the Fund. For example, 94120-9201
"Stagecoach International Equity Fund, Class B".
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 Mail to:
class of your Fund for at least $100. Be sure to Stagecoach Funds
write your account number on the check as well. PO Box 7066
San Francisco, CA
94120-9201
Enclose the payment stub/card from your statement
if available.
- -------------------------------------------------------------------------------
===============================================================================
By Wire
===============================================================================
If you are buying shares for the first time:
- -------------------------------------------------------------------------------
If you do not currently have an account, complete
a Stagecoach Funds application. You must wire at Mail to:
least $1,000. Be sure to indicate the Fund name Stagecoach Funds
and the share class into which you intend to invest. PO Box 7066
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 instructions Wells Fargo Bank, N.A.
given to the right. Be sure to have the San Francisco, California
wiring bank include your current account Bank Routing Number: 121000248
number and the name your account is Wire Purchase Account Number:
registered in. 4068-000587
Attention: Stagecoach Funds
(Name of Fund and Share Class)
Account Name: (Registration Name
Indicated on Application)
- -------------------------------------------------------------------------------
Stagecoach International Equity Fund Prospectus 22
<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:
1-800-222-8222
Call Investor Services and instruct the
representative to either:
* transfer at least $1,000 from a linked
settlement account, or
* exchange at least $1,000 worth of shares
from an existing Stagecoach Fund. Please
see "Exchanges" for special rules.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If you are buying additional shares:
- --------------------------------------------------------------------------------
Call Investor Services and instruct the representative to either:
* transfer at least $100 from a linked Call:
settlement 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 by mail or telephone. For Fund shares held
through brokerage and other types of accounts, please consult your selling
agent.
================================================================================
By Mail
================================================================================
Write a letter stating your account
registration, your account number, the
Fund you wish to redeem and the dollar
amount ($100 or more) of the redemption
you wish to receive (or write "Full Redemption").
Make sure all the account owners sign the request.
You may request that redemption proceeds be sent Mail to:
to you by check, by ACH transfer into a bank Stagecoach Funds
account, or by wire ($5,000 minimum). Please PO Box 7066
call Investor Services regarding requirements San Francisco, CA
for linking bank accounts or for wiring funds. 94120-9201
We reserve the right to charge a fee for wiring
funds although it is not currently our practice
to do so.
Signature Guarantees are required for mailed
redemption requests over $5,000. You can get
a signature guarantee at financial institutions
such as a bank or brokerage house. We do not
accept notarized signatures.
- --------------------------------------------------------------------------------
23 Stagecoach International Equity 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 Call:
an ACH-linked bank account, or by wire 1-800-222-8222
($5,000 minimum). Please call Investor
Services regarding requirements for linking
bank accounts or for wiring funds. We
reserve the right to charge a fee for wiring
funds although it is not currently our practice
to do so.
Telephone privileges are automatically made
available to you unless you specifically
decline them on your application or subsequently
in writing.
Phone privileges allow us to accept transaction
instructions by anyone representing themselves
as the shareholder and who provides reasonable
confirmation of their identity, such as
providing the Taxpayer Identification Number
on the account. We will not be liable for any
losses incurred if we follow telephone
instructions we reasonably believe to be genuine.
- --------------------------------------------------------------------------------
================================================================================
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 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 maybe special requirements that supercede the directions in this
Prospectus.
- --------------------------------------------------------------------------------
We reserve the right to delay payment of a redemption for up to ten days so
that we may be reasonably certain that investments made by check have been
collected. Payments of redemptions also may be delayed under extraordinary
circumstances or as permitted by the Securities and Exchange Commission in
order to protect remaining shareholders. Payments of redemptions also may be
delayed up to seven days under normal circumstances, although it is not our
policy to delay such payments.
- --------------------------------------------------------------------------------
Generally, we pay redemption requests in cash, unless the redemption request
is for more than $250,000 or 1% of the net assets of the Fund by a single
shareholder over any ninety-day period. If a request for a redemption is over
these limits, it may be to the detriment of existing share-
holder to pay such redemption in cash. Therefore, we may pay all or part of
the redemption in securities of equal value.
- --------------------------------------------------------------------------------
Stagecoach International Equity Fund Prospectus 24
<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:
o You should carefully read the Prospectus for the Fund into which you wish
to exchange.
o Every exchange involves selling Fund shares and that sale may produce a
capital gain or loss for federal income tax purposes.
o 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).
o 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.
o Any exchange between Funds you already own must meet the minimum redemption
and subsequent purchase amounts for the Funds involved.
o 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.
o Exchanges between Class B shares, between Class C shares or between either
Class B or Class C 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.
o Exchanges from any share class to a money market fund can only be
re-exchanged for the original share class.
o 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.
o You may make exchanges between like share classes. You may also exchange
between A, B or C share classes and non-institutional class shares of a
money market fund.
Stagecoach International Equity Funds Prospectus 25
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
Automatic Programs:
These programs help you conveniently purchase or redeem shares each month:
* AutoSaver Plan - you need only specify an amount of at least $100 and a
day of the month. We will automatically transfer that amount from your
linked bank account each month to purchase additional shares. We will
transfer the amount on or about the day you specify, or on or about the
20th of each month if you have not specified a day. Please call
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;
* you 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 International Equity Fund Prospectus 26
<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 Fund and you as a
shareholder. It is not intended as a substitute for careful tax planning. You
should consult your tax advisor about your specific tax situation. Federal
income tax considerations are discussed further in the Statement of Additional
Information.
We will pass on to you net investment income and net short-term capital
gains earned by the Fund as dividend distributions. These are taxable to you as
ordinary income.
We will pass on to you any net capital gains earned by the Fund as a capital
gain distribution. In general, these distributions will be taxable to you as
long-term capital gains and are taxable when paid. However, distributions
declared in October, November and December and distributed by the following
January will be taxable as if they were paid on December 31 of the year in
which they were declared. We will notify you as to the status of your Fund
distributions.
Your redemptions, including exchanges, will ordinarily result in a taxable
capital gain or loss, depending on the amount you receive for your shares and
the amount you paid for them. Foreign shareholders may be subject to different
tax treatment, including withholding. In certain circumstances, U.S. residents
will 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
27 Stagecoach International Equity 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.
Share Class - This Prospectus contains information about Class A and Class B,
and Class C 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.
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 and Class C 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, Class B and Class C
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
Stagecoach International Equity Fund Prospectus 28
<PAGE>
Additional Services and Other Information
- --------------------------------------------------------------------------------
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.
29 Stagecoach International Equity 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 each 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.
<TABLE>
<CAPTION>
Shareholders
- -------------------------------------------------------------------------------------
Financial Services Firms and Selling Agents
- --------------------------------------------------------------------------------------
Advise current and prospective shareholders on their Fund investments
=======================================================================================
Transfer and
Distributor & Dividend Disbursing Shareholder
Co-administrator Administrator Agent Servicing Agents
========================================================================================
<S> <C> <C> <C>
Stephens Inc. Wells Fargo Bank Wells Fargo Bank Various Agents
111 Center St. 525 Market St. 525 Market St.
Little Rock, AR San Francisco, CA San Francisco, CA Provide services
Markets the Fund, Manages the Fund's Maintains records of to customers
distributes shares, business activities shares and supervises
and manages the Fund's the paying of dividends
business activities
- ----------------------------------------------------------------------------------------
<CAPTION>
========================================================================================
Investment Advisor Custodian
========================================================================================
<S> <C>
Wells Fargo Bank, 525 Market St., Investors Bank & Trust Company
San Francisco, CA 89 South Street
Manages the Fund's investment activities Boston, MA 02111
Provides safekeeping for the Fund's
assets
- ----------------------------------------------------------------------------------------
<CAPTION>
========================================================================================
Board of Directors
========================================================================================
Supervises the Fund's activities
- ----------------------------------------------------------------------------------------
</TABLE>
Stagecoach International Equity Fund Prospectus 30
<PAGE>
Organization and Management of the Fund
- --------------------------------------------------------------------------------
In the following sections, the percentages shown are the percentages of the
average daily net assets of each Fund class paid on an annual basis for the
services described. The Statement of Additional Information has more detailed
information about the Investment Advisor and the other service providers and
plans described here.
The Investment Advisor
Wells Fargo Bank is the advisor for the Fund. Wells Fargo Bank, founded in
1852, is the oldest bank in the Western United States and is one of the largest
banks in the United States. Wells Fargo Bank is a wholly owned subsidiary of
Wells Fargo & Company, a national bank holding company. As of December 31, 1997,
Wells Fargo Bank and its affiliates managed over $62 billion in assets.
The Administrator
Wells Fargo Bank is the administrator of the Fund. Wells Fargo Bank is paid .03%
of the Fund's assets for these services. Prior to February 1, 1998, Wells Fargo
Bank was entitled to receive .06% of the Fund's assets for administration
services.
The Distributor and Co-Administrator
Stephens Inc. is the Fund's distributor and co-administrator. Stephens Inc.
receives .04% of the Fund's assets for its role as co-administrator. Stephens
Inc. also receives all loads, CDSCs and distribution plan fees. It uses a
portion of these amounts to compensate selling agents for their role in
marketing the Fund's shares. Prior to February 1, 1998, Stephens, Inc. was
entitled to receive .04% of the Fund's assets for co-administration
services.
Distribution Plan
We have adopted distribution plans for Class A and Class B shares that are
used to pay for distribution-related services including ongoing compensation to
Selling Agents. The Fund may participate in joint distribution activities with
other Stagecoach Funds. The cost of these activities is generally allocated
among the Funds. Funds with higher assets levels pay a higher proportion of
these costs. The fees paid under these plans are as follows:
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
International Equity Fund .10% .75% .75%
- --------------------------------------------------------------------------------
Shareholder Servicing Plan
We have Shareholder Servicing Plans for each Fund class. We have agreements
with various shareholder servicing agents to process purchase and redemption
requests, to service shareholder accounts, and to provide other related
services.
31 Stagecoach International Equity Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
For these services the Fund pays as follows:
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
International Equity Fund .25% .25% .25%
- --------------------------------------------------------------------------------
Portfolio Managers - The following is a list of portfolio managers
identified within the Fund's summary. More detailed biographical information is
available in the Statement of Additional Information.
Katherine Schapiro, CFA
Member of Wells Fargo Equity Strategy Committee
With Wells Fargo since 1992.
Stacey Ho
Foreign Stock Analyst
With Wells Fargo since 1997 after working for Clemente Capital Management
from 1995 to 1996, and Edison International from 1990 through 1995.
Stagecoach International Equity Fund Prospectus 32
<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.
American Depository Receipts (ADRs)
Receipts for non-U.S. company stocks. The stocks underlying ADRs are
typically held in bank vaults. The ADR's owner is entitled to any capital gains
or dividends. ADRs are one way of owning an equity interest in foreign
companies.
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.
Capital Appreciation
The increase in the value of a security. See also "total return".
Capitalization
When referring to the size of a company, capitalization means the total
number of a company's outstanding shares of stock multiplied by their price per
share. This is an accepted method of determining a company's size and is
sometimes referred to as "market capitalization".
Capital Structure
Refers to how a company has raised money to operate. Can include, for
example, borrowing or selling stock.
Convertible Debt Securities
Bonds or notes that are exchangeable for common stock at a set price on a
set date or at the election of the holder.
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.
33 Stagecoach International Equity Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Diversified
A diversified fund, as defined by the Investment Company Act, is one that
has a policy of investing in cash, Government securities 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.
Dollar-Denominated
Securities issued by foreign banks, companies or governments in U.S.
dollars.
Duration
A measure of a security's or portfolio's sensitivity to changes in interest
rates. Duration is usually expressed in years, with longer durations typically
more sensitive to interest rate changes than shorter durations.
Emerging Markets
Markets associated with a country that is considered by the International
Finance Corporation, the International Bank for Reconstruction and Development
and the international financial community to have an "emerging" stock market.
Such markets may be under-capitalized, have less-developed legal and financial
systems or may have less stable currencies than markets in the developed
world.
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 the fair price.
Initial Public Offering
The first time a company's stock is offered for sale to the public.
Liquidity
The ability to readily sell a security at its fair price.
Nationally Recognized Ratings Organization (NRRO)
A company that examines the ability of a bond issuer to meet its obligations
and which rates the bonds accordingly.
Stagecoach International Equity Fund Prospectus 34
<PAGE>
Glossary
- --------------------------------------------------------------------------------
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 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.
Price-to-earnings ratio
The ratio between a stock's price and its historical, current or anticipated
earnings. Low P/E ratios typically indicate a high yield. High P/E ratios are a
characteristic of growth stocks which generally have low current yields.
Repurchase Agreement
An agreement between a buyer and seller of a security in which the seller
agrees to repurchase the security at an agreed upon price and time.
Selling Agent
A person who has an agreement with the Fund's distributor that allows them
to sell a Fund's shares.
Shareholder Servicing Agent
Anyone 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.
S&P
One of the largest nationally recognized ratings organizations. Standard and
Poor's also publishes various indexes or lists of companies representative of
sectors of the US economy.
35 Stagecoach International Equity Fund Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Statement of Additional Information
A document that supplements the disclosures made in the Prospectus.
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.
Undervalued
Describes a stock that is believed to be worth more than its current selling
price.
U.S. Government Obligations
Obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Value-Oriented Analysis
A type of analysis which tries to identify and buy undervalued stocks under
the assumption that the stock will eventually rise to its true value.
Warrants
The right to buy a stock at a set price for a set time.
Stagecoach International Equity Fund Prospectus 36
<PAGE>
--------------------------------------------------------------------------
STAGECOACH FUNDS
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.
==========================================================================
[LOGO OF RECYCLED PAPER]
Printed on Recycled Paper SC IL P (12/97)
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated March 30, 1998
ASSET ALLOCATION FUND
INDEX ALLOCATION FUND
U.S. GOVERNMENT ALLOCATION FUND
CLASS A, CLASS B AND CLASS C
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about three funds in the Stagecoach Family of Funds
(each, a "Fund" and collectively, the "Funds") -- the ASSET ALLOCATION, INDEX
ALLOCATION and U.S. GOVERNMENT ALLOCATION FUNDS. Each Fund offers Class A
shares and Class B shares. The Asset Allocation and Index Allocation Funds also
offer Class C shares. This SAI relates to all such classes of shares.
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectus, dated March 30, 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 for the Funds may be obtained without charge by writing
Stephens Inc. ("Stephens"), the Company's sponsor, co-administrator and
distributor, at 111 Center Street, Little Rock, Arkansas 72201, or by calling
the Company's Transfer Agent at 1-800-222-8222.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information..................................... 2
Investment Restrictions......................................... 2
Investment Models............................................... 6
Additional Permitted Investment Activities...................... 10
Risk Factors.................................................... 21
Management...................................................... 22
Performance Calculations........................................ 37
Determination of Net Asset Value................................ 44
Additional Purchase and Redemption Information.................. 45
Portfolio Transactions.......................................... 46
Fund Expenses................................................... 48
Federal Income Taxes............................................ 49
Capital Stock................................................... 55
Other........................................................... 57
Independent Auditors............................................ 58
Financial Information........................................... 58
Appendix........................................................ A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The Company's Asset Allocation Fund commenced operations on January 2,
1992, as successor to the Asset Allocation Fund of the Wells Fargo Investment
Trust for Retirement Programs. The predecessor fund's commencement of
operations was November 13, 1986.
The Company's U.S. Government Allocation Fund commenced operations on
January 2, 1992 as successor to the Fixed-Income Strategy Fund of the Wells
Fargo Investment Trust for Retirement Programs. The predecessor fund's
commencement of operations was March 31, 1987.
The Company's Index Allocation Fund was originally organized on April 7,
1988 as the Asset Allocation Fund of Overland Express Funds, Inc. ("Overland"),
another open-end management investment company advised by Wells Fargo Bank. The
Overland Asset Allocation Fund changed its name to the Index Allocation Fund on
February 14, 1997. On July 23, 1997, the Boards of the Directors of the Company
and Overland approved an Agreement and Plan of Consolidation providing for,
among other things, the transfer of the assets and stated liabilities of the
predecessor Overland portfolio to the Fund. Prior to December 12, 1997, the
effective date of the consolidation of the Company and Overland (the
"Consolidation"), the Fund had only nominal assets. As a result of the
Consolidation, the Overland Index Allocation Fund was reorganized as the
Company's Index Allocation Fund on December 12, 1997, and shareholders of the
Overland Index Allocation Fund's Class A and Class D shares became Class A and
Class C shareholders, respectively, of the Company's Index Allocation Fund.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies
-------------------------------
Each Fund has adopted the following investment restrictions, all of which
are fundamental policies; that is, they may not be changed without approval by
the vote of the holders of a majority (as defined in the Investment Company Act
of 1940, as amended (the "1940 Act")) of the outstanding voting securities of
such Fund.
The Asset Allocation Fund and U.S. Government Allocation Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of any Fund's investments in that industry would be 25% or
more of the current value of its total assets, provided that there is no
limitation with respect to investments in (i) obligations of the United States
Government, its agencies or instrumentalities, (ii) in the case of the Asset
Allocation Fund, any industry in which the S&P 500 Index becomes concentrated to
the same degree during the same period, and (iii) in the case of the Asset
Allocation Fund, money market instruments invested in the banking industry and
in
1
<PAGE>
obligations of the U.S. Government, its agencies or instrumentalities (but the
Fund will not do so unless the U.S. Securities and Exchange Commission ("SEC")
staff confirms that it does not object to the Fund reserving freedom of action
to concentrate investments in the banking industry); and provided further, that
each Fund may invest all of its assets in a diversified, open-end management
investment company, or a series thereof, with substantially the same investment
objective, policies and restrictions as such Fund, without regard to the
limitations set forth in this paragraph (1);
(2) purchase or sell real estate or real estate limited partnerships
(other than securities secured by real estate or interests therein or securities
issued by companies that invest in real estate or interests therein);
(3) purchase or sell commodities or commodity contracts; except that each
Fund may purchase and sell (i.e., write) options, forward contracts, futures
contracts, including those relating to indices, and options on futures contracts
or indices, and may participate in interest rate and index swaps;
(4) purchase interests, leases, or limited partnership interests in oil,
gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions and except for margin payments in connection
with transactions in options, forward contracts, futures contracts, including
those relating to indices, and options on futures contracts or indices) or make
short sales of securities;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with a Fund's investment program may be deemed to be an underwriting;
and provided further, that the purchase by a Fund of securities issued by a
diversified, open-end management investment company, or a series thereof, with
substantially the same investment objective, policies and restrictions as such
Fund shall not constitute an underwriting for purposes of this paragraph (6);
(7) make investments for the purpose of exercising control or management;
(8) issue senior securities, except to the extent the activities permitted
in Investment Restrictions Nos. 3 and 5 may be deemed to give rise to a senior
security but do not violate the provisions of section 18 of the 1940 Act, and
except that each Fund may borrow from banks up to 20% of the current value of
each such Fund's net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 20% of
the current value of each such Fund's net assets (but investments may not be
purchased by such Funds while any such outstanding borrowings exceed 5% of the
respective Fund's net assets);
2
<PAGE>
(9) write, purchase or sell puts, calls, straddles, spreads, warrants,
options or any combination thereof, except that each Fund may engage in options
transactions to the extent permitted in Investment Restrictions Nos. 3 and 5,
and except that each Fund may purchase securities with put rights in order to
maintain liquidity; 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 a Fund's total assets would be invested in
the securities of any one issuer or such Fund's ownership would be more than 10%
of the outstanding voting securities of such issuer, provided that a Fund may
invest all its assets in a diversified, open-end management investment company,
or a series thereof, with substantially the same investment objective, policies
and restrictions as such Fund, without regard to the limitations set forth in
this paragraph (10).
Each of the Asset Allocation and U.S. Government Allocation Funds may make
loans in accordance with its investment policies.
As a fundamental policy, each of the Asset Allocation and U.S. Government
Allocation Funds may invest, notwithstanding any other investment restrictions
(whether or not fundamental), all of its assets in the securities of a single
open-end, management investment company with substantially the same fundamental
investment objectives, policies and restrictions as such Fund. A decision to so
invest all of its assets may, depending on the circumstances applicable at the
time, require approval of shareholders.
The Index Allocation Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would exceed 25%
of the current value of its total assets, provided that there is no limitation
with respect to investments in (i) municipal securities (for the purpose of this
restriction, private activity bonds and notes shall not be deemed municipal
securities if the payments of principal and interest on such bonds or notes is
the ultimate responsibility of non-governmental issuers); (ii) obligations of
the United States Government, its agencies or instrumentalities; (iii) any
industry in which the S&P Index becomes concentrated to the same degree during
the same period; and (iv) the obligations of domestic banks;
(2) purchase or sell real estate (other than municipal obligations or
other securities secured by real estate or interests therein or securities
issued by companies that invest in real estate or interests therein),
commodities or commodity contracts; 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 swaps and index swaps;
(3) purchase securities on margin or make short sales of securities
(except for short-term credits necessary for the clearance of transactions and
except that the Fund may make margin payments in connection with transactions in
options, forward contracts, futures contracts, including those relating to
indices, and options on futures contracts or indices);
3
<PAGE>
(4) underwrite securities of other issuers, except to the extent that the
purchase of municipal securities or other permitted investments directly from
the issuer thereof or from an underwriter for an issuer and the later
disposition of such securities in accordance with the Fund's investment program
may be deemed to be an underwriting;
(5) invest more than 10% of the current value of its net assets in
repurchase agreements maturing in more than seven days, restricted securities,
which are securities that must be registered under the Securities Act of 1933
before they may be offered or sold to the public, and illiquid securities;
(6) make investments for the purpose of exercising control or management;
(7) issue senior securities, except to the extent the activities of the
Fund permitted in Investment Restrictions Nos. 2 and 3 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 from banks up to 10% of the
current value of its net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 10% of
the current value of its net assets (but investments may not be purchased while
any such borrowing exists); nor
(8) invest more than 10% of the current value of its net assets in fixed
time deposits that are subject to withdrawal penalties and that have maturities
of more than seven days.
In addition, the Fund may not write, purchase or sell puts, calls, warrants
or options or any combination thereof, except that the Fund may purchase
securities with put rights in order to maintain liquidity, and except that the
Fund may engage in options transactions to the extent permitted in Investment
Restrictions Nos. 2 and 3.
The Fund may not, as to 75% of its total assets, 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
its total assets would be invested in the securities of any one issuer or, with
respect to 100% of its assets, the Fund's ownership would be more than 10% of
the outstanding voting securities of such issuer.
Non-Fundamental Investment Policies
-----------------------------------
Each Fund has adopted the following non-fundamental policies which may be
changed by a majority vote of the Board of Directors of the Company at any time
and without approval of such Fund's shareholders.
(1) Each 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.
(2) Each Fund may not invest more than 15% of its net assets in illiquid
securities. For this purpose, illiquid securities include, among others, (a)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (b) fixed time deposits
that are subject to withdrawal penalties and
4
<PAGE>
that have maturities of more than seven days, and (c) repurchase agreements not
terminable within seven days.
(3) Each 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) Each Fund may lend securities from its portfolio to brokers, dealers
and financial institutions, in amounts not to exceed (in the aggregate) one-
third of a Fund's total assets. Any such loans of portfolio securities will be
fully collateralized based on values that are marked to market daily. The Funds
will not enter into any portfolio security lending arrangement having a duration
of longer than one year.
INVESTMENT MODELS
This section contains supplemental information about the proprietary
investment model used by Barclays Global Fund Advisors ("BGFA") to manage each
Fund's portfolio.
Asset Allocation Model. Barclays Global Fund Advisors ("BGFA") compares
----------------------
the Asset Allocation Fund's investments daily to the Asset Allocation Model's
recommended allocation. The investment model recommends allocations among each
asset class in 5% increments only. Any recommended reallocation will be
implemented in accordance with trading policies that have been designed to take
advantage of market opportunities and to reduce transaction costs. Under current
trading policies employed by BGFA, recommended reallocations may be implemented
promptly upon receipt of recommendations or may not be acted upon for as long as
two or three months thereafter depending on factors such as the percentage
change from previous recommendations and the consistency of recommended
reallocations over a period of time. In addition, the Asset Allocation Fund
generally will invest the net proceeds from the sale of shares of the Fund and
will liquidate existing Fund investments to meet net redemption requirements in
a manner that best allows the Fund's existing asset allocation to follow that
recommended by the Model. Notwithstanding any recommendation of the Model to the
contrary, the Asset Allocation Fund will generally maintain at least that
portion of its assets in money market instruments reasonably considered
necessary to meet redemption requirements. In general, cash maintained for
short-term liquidity needs is only invested in U.S. Treasury bills, shares of
other mutual funds and repurchase agreements. There is no requirement that the
Fund maintain positions in any particular asset class or classes.
Wells Fargo Bank and BGFA manage other portfolios which also invest in
accordance with the Asset Allocation Model. The performance of each of those
other portfolios is likely to vary among themselves and from the performance of
the Fund. Such variation in performance is primarily due to different
equilibrium asset mix assumptions used for the various portfolios, timing
differences in the implementation of the model's recommendations and differences
in expenses and liquidity requirements.
5
<PAGE>
There are 500 common stocks, including Wells Fargo & Company stock, which
make up the S&P 500 Index. S&P occasionally makes changes in the S&P 500 Index
based on its criteria for inclusion of stocks in the S&P 500 Index. The S&P 500
Index is market-capitalization-weighted so that each stock in the S&P 500 Index
represents its proportion of the total market value of all stocks in the S&P 500
Index. In making its stock investments, the policy of the Asset Allocation Fund
is to invest its assets in substantially the same stocks, and in substantially
the same percentages, as the S&P 500 Index, including Wells Fargo & Company
stock.
A key component of the Asset Allocation Model is a set of assumptions
concerning expected risk and return and investor attitudes toward risk which are
incorporated into the asset allocation decision. The principal inputs of
financial data to the Asset Allocation Model currently are (i) consensus
estimates of the earnings, dividends and payout ratios on a broad cross-section
of common stocks as reported by independent financial reporting services which
survey a broad cross-section of Wall Street analysts, (ii) the estimated current
yield to maturity on new long-term corporate bonds rated "AA" by S&P, (iii) the
present yield on money market instruments, (iv) the historical statistical
standard deviation in investment return for each class of asset, and (v) the
historical statistical correlation of investment returns among the various asset
classes in which the Asset Allocation Fund invests. Using these data, the Asset
Allocation Model is run daily to determine the recommended asset allocation.
The model's recommendations are presently made in 5% increments.
Although BGFA intends to use the Model as bases for its investment
decisions, BGFA may change from time to time the criteria and methods it uses to
implement the Model's recommendations if it believes such a change is desirable
for the Fund. Nevertheless, Wells Fargo Bank has continuing and exclusive
authority over the management of the Fund, the conduct of its affairs and the
disposition of the Funds' assets, and Wells Fargo Bank has the right to reject
BGFA's investment decisions for the Fund if Wells Fargo Bank determines that any
such decision is not consistent with the best interests of the Fund.
Index Allocation Model. BGFA compares the Index Allocation Fund's
----------------------
investments daily to the Index Allocation Model's recommended allocation. The
investment model recommends allocations among each asset class in 5% increments
only. Any recommended reallocation will be implemented in accordance with
trading policies that have been designed to take advantage of market
opportunities and to reduce transaction costs. Under current trading policies
employed by BGFA, recommended reallocations may be implemented promptly upon
receipt of recommendations or may not be acted upon for as long as two or three
months thereafter depending on factors such as the percentage change from
previous recommendations and the consistency of recommended reallocations over a
period of time. In addition, the Index Allocation Fund generally will invest
the net proceeds from the sale of shares of the Fund and will liquidate existing
Fund investments to meet net redemption requirements in a manner that best
allows the Fund's existing asset allocation to follow that recommended by the
Model. Notwithstanding any recommendation of the Model to the contrary, the
Index
6
<PAGE>
Allocation Fund will generally maintain at least that portion of its assets in
money market instruments reasonably considered necessary to meet redemption
requirements. In general, cash maintained for short-term liquidity needs is only
invested in U.S. Treasury bills, shares of other mutual funds and repurchase
agreements. There is no requirement that the Fund maintain positions in any
particular asset class or classes.
Wells Fargo Bank and BGFA manage other portfolios which also invest in
accordance with the Index Allocation Model. The performance of each of those
other portfolios is likely to vary among themselves and from the performance of
the Fund. Such variation in performance is primarily due to different
equilibrium asset mix assumptions used for the various portfolios, timing
differences in the implementation of the model's recommendations and differences
in expenses and liquidity requirements.
There are 500 common stocks, including Wells Fargo & Company stock, which
make up the S&P 500 Index. S&P occasionally makes changes in the S&P 500 Index
based on its criteria for inclusion of stocks in the S&P 500 Index. The S&P 500
Index is market-capitalization-weighted so that each stock in the S&P 500 Index
represents its proportion of the total market value of all stocks in the S&P 500
Index. In making its stock investments, the policy of the Index Allocation Fund
is to invest its assets in substantially the same stocks, and in substantially
the same percentages, as the S&P 500 Index, including Wells Fargo & Company
stock. The Lehman Brothers 20+ Treasury Bond Index (the "LBT Bond Index") is an
unmanaged index comprised of U.S. Treasury Securities with remaining maturities
of twenty years or more. The portion of the Fund's portfolio allocated to bonds
is invested so as to replicate the performance characteristics of the LBT Bond
Index.
A key component of the Index Allocation Model is a set of assumptions
concerning expected risk and return and investor attitudes toward risk which are
incorporated into the index allocation decision. The principal inputs of
financial data to the Index Allocation Model currently are (i) consensus
estimates of the earnings, dividends and payout ratios on a broad cross-section
of common stocks as reported by independent financial reporting services which
survey a broad cross-section of Wall Street analysts, (ii) the estimated current
yield to maturity on new long-term corporate bonds rated "AA" by S&P, (iii) the
present yield on money market instruments, (iv) the historical statistical
standard deviation in investment return for each class of asset, and (v) the
historical statistical correlation of investment returns among the various asset
classes in which the Index Allocation Fund invests. Using these data, the Index
Allocation Model is run daily to determine the recommended asset allocation.
Although BGFA intends to use the Model as bases for its investment
decisions, BGFA may change from time to time the criteria and methods it uses to
implement the Model's recommendations if it believes such a change is desirable
for the Fund. Nevertheless, Wells Fargo Bank has continuing and exclusive
authority over the management of the Fund, the conduct of its affairs and the
disposition of the Funds' assets, and Wells Fargo Bank has the right to reject
BGFA's investment decisions for the
7
<PAGE>
Fund if Wells Fargo Bank determines that any such decision is not consistent
with the best interests of the Fund.
U.S. Government Allocation Model. BGFA compares the U.S. Government
--------------------------------
Allocation Fund's investments daily to the U.S. Government Allocation Model's
recommended allocation. The investment model recommends allocations among each
asset class in 5% increments only. Any recommended reallocation will be
implemented in accordance with trading policies that have been designed to take
advantage of market opportunities and to reduce transaction costs. Under current
trading policies employed by BGFA, recommended reallocations may be implemented
promptly upon receipt of recommendations or may not be acted upon for as long as
two to three months thereafter depending on factors such as the percentage
change from previous recommendations and the consistency of recommended
reallocations over a period of time. In addition, the U.S. Government Allocation
Fund generally will invest the net proceeds from the sale of shares of the Fund
and will liquidate existing Fund investments to meet net redemption requirements
in a manner that best allows the Fund's existing asset allocation to follow the
allocation recommended by the computer Model. Notwithstanding any recommendation
of the computer model to the contrary, the Fund will generally maintain at least
that portion of its assets in money market instruments reasonably considered
necessary to meet redemption requirements. In general, cash maintained for
short-term liquidity needs is only invested in U.S. Treasury bills, shares other
mutual funds and repurchase agreements. There is no requirement that the Fund
maintain positions in any particular asset class or classes.
BGFA manages other funds which invest in accordance with a substantially
similar version of the Model. The performance of each of those other funds is
likely to vary among themselves and from the performance of the U.S. Government
Allocation Fund. Such variation in performance is primarily due to timing
differences in the implementation of the Model's recommendations, differences in
expenses and liquidity requirements, and the ability of other funds to invest a
higher portion of their assets in short-term investments that may generate a
higher yield, but are not issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
A key component of the U.S. Government Allocation Model is a set of
assumptions concerning expected risk and return and investor attitudes toward
risk, which are incorporated into the allocation decision. The principal inputs
of financial data to the model currently are: (i) yields on 90-day U.S. Treasury
bills, 5-year U.S. Treasury notes and 30-year U.S. Treasury bonds; (ii) the
expected statistical standard deviation in investment returns for each class of
fixed income instrument; and (iii) the expected statistical correlation of
investment return among the various classes of fixed income instruments. Using
these and other data, the Model is run daily to determine the recommended
allocation. The Model's recommendations are presently implemented in 10%
increments. Because the Fund may shift its investment allocations significantly
from time to time, its performance may differ from funds which invest in one
asset class or from funds with a constant mix of assets.
8
<PAGE>
Although BGFA intends to use the Model as bases for its investment
decisions, BGFA may change from time to time the criteria and methods it uses to
implement the Model's recommendations if it believes such a change is desirable
for the Fund. Nevertheless, Wells Fargo Bank has continuing and exclusive
authority over the management of the Fund, the conduct of its affairs and the
disposition of the Funds' assets, and Wells Fargo Bank has the right to reject
BGFA's investment decisions for the Fund if Wells Fargo Bank determines that any
such decision is not consistent with the best interests of the Fund.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the Funds.
Bonds
-----
The Funds may purchase U.S. Treasury bonds with maturities greater than 20
years. The bond portion of the portfolio of the Funds is generally managed to
attain an average maturity of between 22 and 28 years for the U.S. Treasury
bonds held. This form of debt instrument has been selected by BGFA because of
the relatively low transaction costs of buying and selling U.S. Treasury bonds
and because of the low default risk associated with such instruments.
Derivative Securities
---------------------
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 Funds may
purchase are considered derivatives. The Funds may only purchase or sell these
contracts or options as substitutes for comparable market positions in the
underlying securities. Also, asset-backed securities issued or guaranteed by
U.S. Government agencies or instrumentalities and certain floating- and
variable-rate instruments can be considered derivatives. Some derivatives may
be more sensitive than direct securities to changes in interest rates or sudden
market moves. Some derivatives also may be susceptible to fluctuations in yield
or value due to their structure or contract terms. Wells Fargo Bank and BGFA
use a variety of internal risk management procedures to ensure that derivatives
use is consistent with a Fund's investment objective, does not expose the Fund
to undue risk and is closely monitored. These procedures include providing
periodic reports to the Board of Directors concerning the use of derivatives.
Also, cash maintained by the Index Allocation Fund for short-term liquidity
needs (e.g., to meet anticipated redemption requests) will, as a general matter,
only be invested in U.S. Treasury bills, shares of other mutual funds and
repurchase agreements. The use of derivatives by the Asset Allocation, Index
Allocation and U.S. Government Allocation Funds also is subject to broadly
applicable investment policies. For example, a Fund may not invest more than a
specified percentage of its assets in "illiquid securities," including those
derivatives that do not have active secondary markets. Nor may a Fund use
certain derivatives without establishing adequate "cover" in compliance with
Securities and Exchange Commission ("SEC") rules limiting the use of leverage.
9
<PAGE>
Floating- and Variable-Rate Instruments
---------------------------------------
Certain of the debt instruments in which the Funds may invest bear interest
rates that are periodically adjusted at specified intervals or whenever a
benchmark rate or index change. These adjustments generally limit the increase
or decrease in the amount of interest received on debt instruments. The Fund
may purchase certificates of participation in pools of floating- and variable-
rate instruments from banks and other financial institutions. Wells Fargo Bank,
as investment advisor, monitors on an ongoing basis the ability of an issuer of
a demand instrument to pay principal and interest on demand. Events occurring
between the date a Fund elects to demand payment on a floating- or variable-rate
instrument and the date payment is due may affect the ability of the issuer of
the instrument to make payment when due, and unless such demand instrument
permits same-day settlement, such events may affect a Fund's ability to obtain
payment at par. Demand instruments whose demand feature is not exercisable
within seven days may be treated as liquid, provided that an active secondary
market exists.
Foreign Obligations
-------------------
Each Fund may invest up to 25% of its assets in high-quality, short-term
debt obligations of foreign branches of U.S. banks or U.S. branches of foreign
banks that are denominated in and pay interest in U.S. dollars. Investments by
the Funds in foreign obligations involve certain considerations that are not
typically associated with investing in domestic obligations. There may be less
publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to uniform accounting,
auditing and financial reporting standards or governmental supervision
comparable to those applicable to domestic issuers. In addition, with respect
to certain foreign countries, taxes may be withheld at the source under foreign
income tax laws, and there is a possibility of expropriation or confiscatory
taxation, political or social instability or diplomatic developments that could
adversely affect investments in, the liquidity of, and the ability to enforce
contractual obligations with respect to, securities of issuers located in those
countries.
Forward Commitments, When-Issued Purchases and Delayed-Delivery
---------------------------------------------------------------
Transactions
- ------------
The Funds may purchase or sell securities on a when-issued or delayed-
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Securities purchased or
sold on a when-issued, delayed-delivery or forward commitment basis involve a
risk of loss if the value of the security to be purchased declines, or the value
of the security to be sold increases, before the settlement date. Although the
Funds will generally purchase securities with the intention of acquiring them,
the Funds 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.
10
<PAGE>
The Funds 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 Funds 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.
Futures Contracts and Options Transactions
------------------------------------------
In General. The Funds may enter into and engage in futures contracts 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 or
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
primary 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).
Although the Funds intend to purchase or sell futures contracts only if
there is an active market for such contracts, no assurance can be given that a
liquid market will exist for any particular contract at any particular time.
Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades may be made
that day at a price beyond that limit or trading may be suspended for specified
periods during the trading day. Futures contract prices could move to the limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and potentially subjecting a
Fund to substantial losses. If it is not possible, or a Fund determines not to
close a futures position in anticipation of adverse price movements, the Fund
will be required to make daily cash payments of variation margin.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. The
writer (i.e., seller) of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of the option, the assumption
of offsetting futures positions by both the writer and the holder of the option
will be accompanied by delivery of the accumulated cash balance in the writer's
futures margin account in the amount by which the market price of the futures
contract, at exercise, exceeds (in the case of a call) or is less than (in the
case of a put) the exercise price of the option on the futures contract. The
potential loss related to the purchase of options on futures contracts is
limited to the premium paid for the option (plus transaction costs). Because
the value of the option is fixed at the time of sale, there are no daily cash
payments to reflect changes in the value of the underlying contract; however,
the value of the option may change daily, and that change would be reflected in
the net asset value of the relevant Fund.
The Funds may trade futures contracts and options on futures contracts in
U.S. domestic markets, such as the Chicago Board of Trade and the International
Monetary Market of the Chicago Mercantile Exchange. The Funds' futures
transactions must constitute permissible transactions
11
<PAGE>
pursuant to regulations promulgated by the Commodity Futures Trading Commission
("CFTC"). In addition, the Funds may not engage in futures transactions if the
sum of the amount of initial margin deposits and premiums paid for unexpired
options on futures contracts, other than those contracts entered into for bona
fide hedging purposes, would exceed 5% of the liquidation value of a Fund's
assets, after taking into account unrealized profits and unrealized losses on
such contracts; provided, however, that in the case of an option on a futures
contract that is in-the money at the time of purchase, the in-the money amount
may be excluded in calculating the 5% liquidation amount. Pursuant to
regulations and/or published positions of the SEC, a Fund may be required to
segregate cash or high-quality money-market instruments in connection with its
futures transactions in an amount generally equal to the entire value of the
underlying security.
Initially, when purchasing or selling futures contracts a Fund will be
required to deposit with its custodian in the broker's name an amount of cash or
cash equivalents up to approximately 10% of the contract amount. This amount is
subject to change by the exchange or board of trade on which the contract is
traded, and members of such exchange or board of trade may impose their own
higher requirements. This amount is known as "initial margin" and is in the
nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures position, assuming all
contractual obligations have been satisfied. Subsequent payments, known as
"variation margin", to and from the broker will be made daily as the price of
the index or securities underlying the futures contract fluctuates, making the
long and short positions in the futures contract more or less valuable. At any
time prior to the expiration of a futures contract, a Fund may elect to close
the position by taking an opposite position, at the then prevailing price,
thereby terminating its existing position in the contract.
The Funds may engage in futures contracts sales to maintain the income
advantage from continued holding of a long-term security while endeavoring to
avoid part or all of the loss in market value that would otherwise accompany a
decline in long-term security prices. If, however, securities prices rise, a
Fund would realize a loss in closing out its futures contract sales that would
offset any increases in prices of the long-term securities they hold.
Another risk in employing futures contracts and options thereon to protect
against cash market price volatility is the possibility that futures prices will
correlate imperfectly with the behavior of the prices of the securities in such
portfolio (the portfolio securities will not be identical to the debt
instruments underlying the futures contracts).
Stock Index Options. The Funds may purchase and write (i.e., sell) put and
call options on stock indices only as a substitute for comparable market
positions in the underlying securities. The aggregate premiums paid on all
options purchased by a Fund 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.
A stock index fluctuates with changes of the market values of the stocks
included in the index. The effectiveness of purchasing or writing stock index
options will depend upon the extent to which price movements of the securities
in a Fund's portfolio correlate with price movements of the stock index
selected. Because the value of an index option depends upon movements in the
level of the index rather than the price of a particular stock, whether a Fund
will realize a gain or loss from purchasing or writing stock index options
depends upon movements in the level of stock prices in the stock market
generally or,
12
<PAGE>
in the case of certain indices, in an industry or market segment, rather than
movements in the price of particular stock. When a Fund writes an option on a
stock index, such 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 Funds may
invest in stock index futures and options on stock index futures only as a
substitute for a comparable market position in the underlying securities. A
stock index future obligates the seller to deliver (and the purchaser to take),
effectively, an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the last
trading day of the contract and the price at which the agreement is made. No
physical delivery of the underlying stocks in the index is made. With respect
to stock indices that are permitted investments, each Fund intends to purchase
and sell futures contracts on the stock index for which it can obtain the best
price with consideration also given to liquidity.
Interest-Rate Futures Contracts and Options on Interest-Rate Futures
Contracts. The Funds 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 Funds 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
Funds' portfolio securities which are the subject of the transaction.
The Index Allocation Fund will not enter into interest rate futures
contracts and options thereon, for which the aggregate initial margin and
premiums exceed 5% of the fair market value of its assets, after taking into
account unrealized profits and unrealized losses on any such contracts into
which they have entered; provided, however, that the "in-the-money" amount of an
option that was in-the-money at the time of purchase will be excluded in
computing such 5%.
The Asset Allocation, Index Allocation and U.S. Government Allocation Funds
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 each Fund's investment objective and legally
permissible for the Fund. Before entering into such transactions or making any
such investment, the Fund would provide appropriate disclosure in its Prospectus
or this SAI.
Interest-Rate and Index Swaps. The Funds may enter into interest-rate and
index swaps in pursuit of its investment objectives. Interest-rate swaps
involve the exchange by a Fund with another party of their 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. A 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
13
<PAGE>
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 Funds. 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 a Fund may not receive net
amount of payments that such Fund contractually is entitled to receive. The
Funds may invest up to 10% of their net assets in interest-rate and index swaps.
Foreign Currency Transactions. The Asset Allocation and U.S. Government
Allocation Funds may enter into foreign currency transactions. When a Fund
enters into a foreign currency transaction or forward contract, such Fund
deposits, if required by applicable regulations, with the Fund's custodian cash
or high-grade debt securities in a segregated account 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.
At or before the maturity of a forward contract, a 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 such 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, such
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 a 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 a Fund enters into foreign
currency transactions. The use of forward currency exchange contracts does not
eliminate fluctuations in the underlying prices of the
14
<PAGE>
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 a 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.
Illiquid Securities
-------------------
The Funds may invest in securities not registered under the 1933 Act and
other securities subject to legal or other restrictions on resale. Because such
securities may be less liquid than other investments, they may be difficult to
sell promptly at an acceptable price. Delay or difficulty in selling securities
may result in a loss or be costly to a Fund. Each Fund may invest up to 15% of
its net assets in illiquid securities.
Loans of Portfolio Securities
-----------------------------
The Funds may lend securities from their portfolios to brokers, dealers and
financial institutions (but not individuals) if cash, U.S. Government
obligations or other high-quality debt instruments equal to at least 100% of the
current market value of the securities loan (including accrued interest thereon)
plus the interest payable to such 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 or BGFA will consider
all relevant facts and circumstances, including the creditworthiness of the
broker, dealer, or financial institution. Any loans of portfolio securities
will be fully collateralized based on values that are marked to market daily.
The Funds will not enter into any portfolio security lending arrangement having
a duration of longer than one year. The principal risk of portfolio lending is
potential default or insolvency of the borrower. In either of these cases, a
Fund could experience delays in recovering securities or collateral or could
lose all or part of the value of the loaned securities. Any securities that a
Fund may receive as collateral will not become part of the Fund's portfolio at
the time of the loan and, in the event of a default by the borrower, the Fund
will, if permitted by law, dispose of such collateral except for such part
thereof that is a security in which the Fund is permitted to invest. During the
time securities are on loan, the borrower will pay such Fund any accrued income
on those securities, and the Fund may invest the cash collateral and earn
additional income or receive an agreed-upon fee from a borrower that has
delivered cash-equivalent collateral. None of the Funds will lend securities
having a value that exceeds one-third of the current value of its total assets.
Loans of securities by any of the Funds will be subject to termination at the
Fund's or the borrower's option. The Funds may pay reasonable administrative
and custodial fees in connection with a securities loan and may pay a negotiated
portion of the interest or fee earned with respect to the collateral to the
borrower or the placing broker. Borrowers and placing brokers may not be
affiliated, directly or indirectly, with the Company, its Advisor, or its
Distributor.
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<PAGE>
Money Market Instruments and Temporary Investments
--------------------------------------------------
Each Fund may invest varying percentages of their assets in money market
instruments. In addition, the Funds may invest temporary cash balances in the
following high-quality money market instruments: (i) obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, including
government-sponsored enterprises ("U.S. Government obligations"); (ii)
negotiable certificates of deposit, bankers' acceptances and fixed time deposits
and other obligations of domestic banks (including foreign branches) that have
more than $ 1 billion in total assets at the time of investment and are members
of the Federal Reserve System or are examined by the Comptroller of the Currency
or whose deposits are insured by the FDIC; (iii) commercial paper rated at the
date of purchase "P-1" by Moody's Investors Service, Inc. ("Moody's") or "A-1+"
or "A-1" by S&P, or, if unrated, of comparable quality as determined by Wells
Fargo Bank, as investment advisor; (iv) nonconvertible corporate debt securities
(e.g., bonds and debentures) with remaining maturities at the date of purchase
of no more than one year that are rated at least "Aa" by Moody's or "AA" by S&P;
(v) repurchase agreements; and (vi) short-term, U.S. dollar-denominated
obligations of foreign banks (including U.S. branches) that at the time of
investment have more than $10 billion, or the equivalent in other currencies, in
total assets and 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 a
Fund.
Letters of Credit. Certain of the debt obligations (including municipal
securities, certificates of participation, commercial paper and other short-term
obligations) which the Funds may purchase may be backed by an unconditional and
irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of Wells Fargo Bank
or BGFA, are of comparable quality to issuers of other permitted investments of
such Fund may be used for letter of credit-backed investments.
Repurchase Agreements. Each Fund may enter into repurchase agreements,
wherein the seller of a security to the Fund agrees to repurchase that security
from the Fund at a mutually agreed upon time and price. A 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, a 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.
Each Fund may not enter into a repurchase agreement with a maturity of more
than seven days, if, as a result, more than 15% of the market value of such
Fund's total net assets would be invested in repurchase agreements with
maturities of more than seven days, restricted securities and illiquid
securities. A Fund will only enter into repurchase agreements with primary
broker/dealers
16
<PAGE>
and commercial banks that meet guidelines established by the Board of Directors
and that are not affiliated with the investment advisor. The Funds may
participate in pooled repurchase agreement transactions with other funds advised
by Wells Fargo Bank.
Other Investment Companies
--------------------------
The Funds 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 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 the Funds.
Pass-Through Obligations
------------------------
The Funds may invest in pass-through obligations that are supported by the
full faith and credit of the U.S. Government (such as those issued by the
Government National Mortgage Association) or those that are guaranteed by an
agency or instrumentality of the U.S. Government 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.
Short-Term Corporate Debt Instruments
-------------------------------------
Each Fund may invest in commercial paper (including variable amount master
demand notes), which refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes.
The Funds also may invest in nonconvertible corporate debt securities
(e.g., bonds and debentures) with no more than one year remaining to maturity at
the date of settlement. The Funds will invest only in such corporate bonds and
debentures that are rated at the time of purchase at least "Aa" by Moody's or
"AA" by S&P.
Unrated Investments
-------------------
The Funds, may purchase instruments that are not rated if, in the opinion
of Wells Fargo Bank, such obligations are of investment quality comparable to
other rated investments that are permitted to be purchased by such Fund. After
purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by such Fund. Neither event
will require a sale of such security by such Fund. To the extent the ratings
given by Moody's or S&P may change as a result of
17
<PAGE>
changes in such organizations or their rating systems, each Fund will attempt to
use comparable ratings as standards for investments in accordance with the
investment policies contained in its Prospectus and in this SAI. The ratings of
Moody's and S&P are more fully described in the SAI Appendix.
U.S. Government Obligations
---------------------------
The Funds may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Payment of principal and interest on U.S. Government Obligations (i) may be
backed by the full faith and credit of the United States (as with U.S. Treasury
bills and GNMA certificates) or (ii) may be backed solely by the issuing or
guaranteeing agency or instrumentality itself (as with FNMA notes). In the
latter case investors must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the
U.S. Government will provide financial support to its agencies or
instrumentalities where it is not obligated to do so. In addition, U.S.
Government Obligations are subject to fluctuations in market value due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
Warrants
--------
The Funds each 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.
When-Issued Securities
----------------------
The Funds may purchase or sell securities on a when-issued or delayed-
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Delivery and payment
on such transactions normally take place within 120 days after the date of the
commitment to purchase. Securities purchased or sold on a when-issued, delayed-
delivery or forward commitment basis involve a risk of loss if the value of the
security to be purchased declines, or the value of the security to be sold
increases, before the settlement date. Although each Fund will generally
purchase securities with the intention of acquiring them, a Fund may dispose of
securities purchased on a when-issued, delayed-delivery or a forward commitment
basis before settlement when deemed appropriate by the advisor.
Each Fund will segregate cash, U.S. Government obligations or other high-
quality debt instruments in an amount at least equal in value to such Fund's
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will
18
<PAGE>
segregate additional liquid assets on a daily basis so that the value of the
segregated assets is equal to the amount of such commitments.
RISK FACTORS
Investments in a Fund are not bank deposits or obligations of Wells Fargo
Bank, are not insured by the Federal Deposit Insurance Corporation ("FDIC") and
are not insured against loss of principal. When the value of the securities
that a 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 a Fund.
The portfolio equity securities of each 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 periods. Throughout most of 1997, the stock
market, as measured by the S&P 500 Index and other commonly used indices, was
trading at or close to record levels. There can be no guarantee that these
performance levels will continue. The portfolio debt instruments of a Fund are
subject to credit and interest-rate risk. Credit risk is the risk that issuers
of the debt instruments in which a Fund invests may default on the payment of
principal and/or interest. Interest-rate risk is the risk that increases in
market interest rates may adversely affect the value of the debt instruments in
which a Fund invests and hence the value of your investment in a Fund.
The market value of a Fund's investment in fixed-income securities will
change in response to various factors, such as changes in interest rates and the
relative financial strength of an issuer. During periods of falling interest
rates, the value of fixed-income securities generally rises. Conversely, during
periods of rising interest rates, the value of such securities generally
declines. Debt securities with longer maturities, which tend to produce higher
yields, are subject to potentially greater price fluctuation than obligations
with shorter maturities. Fluctuations in the market value of fixed income
securities can be reduced, but not eliminated, by variable and floating rate
features.
Securities rated in the fourth highest rating category are regarded by S&P
as having an adequate capacity to pay interest and repay principal, but changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make such repayments. Moody's considers such securities as
having speculative characteristics. Subsequent to its purchase by a Fund, an
issue of securities may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by a Fund. Securities rated below the
fourth highest rating category (sometimes called "junk bonds") are often
considered to be speculative and involve greater risk of default or price
changes due to changes in the issuer's credit-worthiness. The market prices of
these securities may fluctuate more than higher quality securities and may
decline significantly in periods of general economic difficulty.
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 swap agreements, to adjust the risk and return
characteristics of the Fund's investments. 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
19
<PAGE>
moves. Some derivatives also may be susceptible to fluctuations in yield,
duration or value due to their structure or contract terms. If the 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 a Fund will achieve its investment
objective or be successful in preventing or minimizing the risk of loss that is
inherent in investing in particular types of investment products.
MANAGEMENT
The following information supplements, and should be read in conjunction
with, the section in the prospectus entitled "Organization and Management of the
Funds." The principal occupations during the past five years of the Directors
and principal executive Officer of the Company are listed below. The address of
each, unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas
72201. Directors deemed to be "interested persons" of the Company for purposes
of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 46 Director, Executive Vice President of Stephens; President of
Chairman and Stephens Insurance Services Inc.; Senior Vice
President President of Stephens Sports Management Inc.;
and President of Investor Brokerage Insurance
Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the School
321 Beechcliff Court of Business and Accounting at Wake Forest
Winston-Salem, NC 27104 University since 1982.
Joseph N. Hankin, 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, N.Y. 10595 University Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Peter G. Gordon, 54 Director Chairman and Co-founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of
55 San Francisco Street
San Francisco, CA 94133
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C>
(As of 1/1/98) Crystal Geyser
Roxane Water Company since 1977.
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.; President of
Morse Investment Corporation; and Co-Managing
Partner of Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens; Director of Stephens Sports
Officer, Management Inc.; and Director of Capo Inc.
Secretary and
Treasurer
</TABLE>
Compensation Table
Year Ended March 31, 1997
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
------------------ --------------- ----------------
<S> <C> <C>
Jack S. Euphrat $11,250 $33,750
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $11,250 $33,750
Director
Joseph N. Hankin $ 8,750 $26,250
Director
W. Rodney Hughes $ 9,250 $27,750
Director
Robert M. Joses $11,250 $33,750
Director
J. Tucker Morse $ 9,250 $27,750
Director
</TABLE>
As of January 1, 1998, Peter G. Gordon replaced Robert M. Joses on the
Board of Directors of the Wells Fargo Fund Complex.
21
<PAGE>
Directors of the Company are compensated annually by the Company and by all
the registrants in each fund complex they serve as indicated above and also are
reimbursed for all out-of-pocket expenses relating to attendance at board
meetings. 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 Funds. As investment advisor, Wells Fargo Bank furnishes investment
guidance and policy direction in connection with the daily portfolio management
of the Funds. Wells Fargo Bank furnishes to the Company's Board of Directors
periodic reports on the investment strategy and performance of each Fund. Wells
Fargo Bank provides the Funds 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, indicated below of each Fund's average
daily net assets:
22
<PAGE>
<TABLE>
<CAPTION>
Annual Rate
Fund (as percentage of net assets)
---- -----------------------------
<S> <C>
Asset Allocation 0.50% up to $250 million
0.40% next $250 million
0.30% over $500 million
Index Allocation 0.70% up to $500 million
0.60% over $500 million
U.S. Government Allocation 0.50% up to $250 million
0.40% next $250 million
0.30% over $500 million
</TABLE>
Asset Allocation and U.S. Government Allocation Funds. Prior to April 29,
-----------------------------------------------------
1996, the Funds each invested directly in a portfolio of securities and Wells
Fargo Bank provided investment advisory services directly to the Funds. On
April 29, 1996, the Funds were converted to a "master/feeder structure" and
began to invest all of their respective assets in a corresponding Master
Portfolio, with an identical investment objective, of Master Investment Trust,
another open-end investment company. The Master Portfolios were advised by
Wells Fargo Bank and Wells Fargo Bank was entitled to receive the same level of
advisory fees from the Master Portfolios as it receives from the Funds. These
Funds operated as part of a master/feeder structure from April 29, 1996 to
December 12, 1997, at which time the master/feeder structure was dissolved.
Index Allocation Fund. Prior to the Consolidation, Wells Fargo Bank served
---------------------
as investment advisor to the Overland Index Allocation predecessor portfolio and
was entitled to receive the same level of advisory fees from the predecessor
portfolio as it now receives from the Index Allocation Fund.
For the period indicated below, the Funds paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
<TABLE>
<CAPTION>
Six-Month
Period Ended
3/31/97/*/
---------
Fees Paid Fees Waived
--------- -----------
<S> <C> <C>
Asset Allocation $2,132,577 $0
U.S. Government Allocation $ 254,002 $0
Index Allocation N/A
</TABLE>
________________________
/*/ For the Asset Allocation and U.S. Government Allocation Funds, these
amounts reflect amounts paid by the corresponding Master Portfolio.
23
<PAGE>
For the periods indicated below, the Funds paid to Wells Fargo Bank the
following advisory fees. Wells Fargo Bank has not waived any advisory fees paid
by the Funds, the predecessor portfolio or Master Portfolios, except that during
1996 it waived $1,324 in advisory fees payable by the Index Allocation
predecessor portfolio.
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended Year Ended
Fund 9/30/96/1/ 12/31/95 12/31/94
- ---- --------- -------- --------
<S> <C> <C> <C>
Asset Allocation $ 3,117,722 $3,814,364 $3,907,880
U.S. Government Allocation $ 539,657 $ 680,049 $1,034,079
Index Allocation/2/ $ 525,093 $ 424,416 $ 424,899
</TABLE>
_______________
/1/ For the Asset Allocation and U.S. Government Allocation Funds, these
amounts include both amounts paid by the Fund for the period from 1/1/96 to
4/28/96 and amounts paid by the corresponding Master Portfolio for the
period from 4/29/96 to 9/30/96.
/2/ These amounts reflect amounts paid by the Overland predecessor portfolio.
For 1996, these amounts are for the year ended December 31, 1996, the
predecessor portfolio's most recently completed fiscal year, and not the
---
period ended September 30, 1996.
General. Each 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 respective Fund's outstanding
voting securities or by the Company's Board of Directors and (ii) by a majority
of the Directors of the Company who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. A Fund's
Advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.
INVESTMENT SUB-ADVISOR. Wells Fargo Bank has engaged BGFA to serve as
----------------------
Investment Sub-Advisor to each 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 Funds' assets. BGFA is responsible for implementing and
monitors the performance of the proprietary investment models employed with
respect to a Fund. BGFA furnishes to Wells Fargo Bank periodic reports on the
investment activity and performance of the Funds. BGFA and also furnishes such
additional reports and information as Wells Fargo Bank and the Company's Board
of Directors and officers may reasonably request.
24
<PAGE>
As compensation for its sub-advisory services, BGFA is entitled to receive
a monthly fee equal to an annual rate of 0.14% of the Asset Allocation and Index
Allocation Fund's average daily net assets, and 0.05% of the U.S. Government
Allocation Fund's average daily net assets. These fees 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 Portfolios were also sub-advised by BGFA and BGFA
was entitled to receive a monthly fee equal to an annual rate of 0.20% of the
Asset Allocation and Index Allocation Funds' average daily net assets, and 0.15%
of the U.S. Government Allocation Fund'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 Funds and the predecessor portfolios
under substantially similar terms as are currently in effect.
For the period indicated below, the Funds paid to BGFA the following sub-
advisory fees, without waiver:
<TABLE>
<CAPTION>
Six-Month
Period Ended
Fund 3/31/97/*/
---- ---------
<S> <C>
Asset Allocation $ 52,443
U.S. Government Allocation $ 9,971
Index Allocation N/A
</TABLE>
________________________
/*/ For the Asset Allocation and U.S. Government Allocation Funds, these
amounts reflect amounts paid by the corresponding Master Portfolio.
For the periods indicated below Wells Fargo Bank paid to BGFA/WFNIA the
sub-advisory fees indicated. No sub-advisory fees were waived during these
periods.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nine-Month
Period Ended Year Ended Year Ended
9/30/96/1/ 12/31/95 12/31/94
Fund --------- -------- --------
----
Asset Allocation $ 1,714,245 $2,043,249 $2,106,980
U.S. Government Allocation $ 192,067 $ 244,478 $ 353,761
Index Allocation/2/ $ 210,226 $ 177,707 $ 424,899
</TABLE>
_______________
/1/ For the Asset Allocation and U.S. Government Allocation Funds, these
amounts include both amounts paid by the Fund for the period from 1/1/96 to
4/28/96 and amounts paid by the corresponding Master Portfolio for the
period from 4/29/96 to 9/30/96.
25
<PAGE>
/2/ These amounts reflect amounts paid by the Overland predecessor portfolio.
For 1996, these amounts are for the year ended December 31, 1996, the
predecessor portfolio's most recently completed fiscal year, and not the
---
period ended September 30, 1996.
General. Each 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 respective Fund's outstanding
voting securities or by the Company's Board of Directors and (ii) 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. A Fund's
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 as Co-Administrator on behalf of each Fund.
Under the respective Administration and Co-Administration Agreements among Wells
Fargo Bank, Stephens and the Company, Wells Fargo Bank and Stephens shall
provide as administration services, among other things: (i) general supervision
of the Funds' operations, including coordination of the services performed by
each 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 each Fund; and (ii) general supervision
relative to the compilation of data required for the preparation of periodic
reports distributed to the Company's officers and Board of Directors. Wells
Fargo Bank and Stephens also furnish office space and certain facilities
required for conducting the 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 each Fund.
Prior to February 1, 1998, the Administrator and Co-Administrator were entitled
to receive a monthly fee of 0.04% and 0.02%, respectively, of the average daily
net assets of each Fund.
Prior to February 1, 1997, Stephens served as sole Administrator to the
Funds. 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 Asset Allocation and U.S. Government Allocation Funds' average
daily net assets. Stephens was entitled to receive a monthly fee from the Index
Allocation predecessor portfolio at the annual rate of 0.10% of its average
daily net assets up to $200 million and 0.05% in excess of $200 million.
For the period indicated below, the Funds paid the following dollar amounts
to Wells Fargo Bank and Stephens for administration and co-administration fees:
26
<PAGE>
<TABLE>
<CAPTION>
Six-Month
Period Ended
3/31/97
------------
Fund Total Wells Fargo Stephens
- ---- ----- ----------- --------
<S> <C> <C> <C>
Asset Allocation $232,506 $ 46,501 $186,005
Index Allocation/*/ $ 75,203 N/A $ 75,203
U.S. Government Allocation $ 18,865 $ 3,773 $ 15,092
</TABLE>
____________________
/*/ Indicates fees paid by or on behalf of the Overland predecessor portfolio
for the year ended December 31, 1996, the predecessor portfolio's most recently
completed fiscal year, and not the period ended March 31, 1997.
---
For the periods indicated below, the Funds and the predecessor portfolio
paid the following dollar amounts to Stephens for administration fees:
<TABLE>
<S> <C> <C> <C>
Nine-Month
Period Ended Year Ended Year Ended
Fund 9/30/96 12/31/95 12/31/94
---- ------------ -------- --------
<S> <C> <C> <C>
Asset Allocation $ 257,419 $ 306,436 $ 315,787
U.S. Government Allocation $ 32,354 $ 40,803 $ 62,168
Index Allocation $ 75,203/*/ $ 60,627 $ 66,524
</TABLE>
____________________
/*/ Indicates fees paid by or on behalf of the Overland predecessor portfolio
for the year ended December 31, 1996, the predecessor portfolio's most recently
completed fiscal year, and not the period ended September 30, 1996.
---
DISTRIBUTOR. Stephens (the "Distributor"), located at 111 Center Street,
-----------
Little Rock, Arkansas 72201, serves as Distributor for the Funds. Each Fund has
adopted a distribution plan (a "Plan") under Section 12(b) of the 1940 Act and
Rule 12b-1 thereunder (the "Rule") for its shares. The Plans were adopted by
the Company's Board of Directors, including a majority of the Directors who were
not "interested persons" (as defined in the 1940 Act) of the Funds and who had
no direct or indirect financial interest in the operation of the Plans or in any
agreement related to the Plans (the "Non-Interested Directors").
Under the Plans, and pursuant to the related Distribution Agreement, the
Funds may pay Stephens the amounts below as compensation for distribution-
related services or as reimbursement for distribution-related expenses. The
fees are expressed as a percentage of the average daily net assets attributable
to each Class.
27
<PAGE>
<TABLE>
<CAPTION>
Fund Fee
---- ---
-------------------------------------------------------
<S> <C>
Asset Allocation
Class B 0.70%
Class C 0.75%
-------------------------------------------------------
Index Allocation
Class A 0.25%
Class B 0.75%
Class C 0.75%
-------------------------------------------------------
U.S. Government Allocation
Class B 0.70%
-------------------------------------------------------
</TABLE>
The actual fee payable to the Distributor by the above-indicated Classes 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.
Under the Plans in effect for the Class A shares of the Asset Allocation
and U.S. Government Allocation Funds, each Fund may defray all or part of the
cost of preparing and printing prospectuses and other promotional materials and
of delivering prospectuses and promotional materials to prospective shareholders
by paying on an annual basis up to 0.05% of the respective Fund's average daily
net assets attributable to Class A shares. The Plans for the Class A shares of
these Funds provide only for the reimbursement of actual expenses.
For the six-month period ended March 31, 1997, the Asset Allocation and
U.S. Government Allocation Funds' Distributor received the following fees for
distribution-related services, as set forth below under each such Fund's Plan
(Class C shares had not yet commenced operations):
28
<PAGE>
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation
Fund Total Prospectus Brochures to Dealers
---- ----- ---------- --------- ----------
<S> <C> <C> <C> <C>
Asset Allocation
Class A $ 59,745 $0 $59,745 N/A
Class B $275,600 N/A N/A $275,600
U.S. Government Allocation
Class A $ 6,166 $0 $ 6,166 N/A
Class B $ 24,275 N/A N/A $ 24,275
</TABLE>
For the nine-month period ended September 30, 1996, the Asset Allocation
and U.S. Government Allocation Funds' Distributor received the following fees
for distribution-related services, as set forth below under each such Fund's
Plan:
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation
Fund Total Prospectus Brochures to Dealers
---- ----- ---------- --------- -----------
<S> <C> <C> <C> <C>
Asset Allocation
Class A $154,937 $10,773 $144,164 N/A
Class B $255,252 N/A N/A $255,252
U.S. Government Allocation
Class A $ 11,912 $ 464 $ 11,448 N/A
Class B $ 27,524 N/A N/A $ 27,524
</TABLE>
For the year ended December 31, 1996, the Index Allocation predecessor
portfolio's Distributor received the following fees for distribution-related
services as set forth below under the Fund's Plan:
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Total Prospectus Brochures Underwriters
----- ---------- --------- ------------
<S> <C> <C> <C> <C>
Class A $137,481 N/A N/A $137,481
Class D $151,575 N/A N/A $151,575
</TABLE>
For the periods indicated above, WFSI and its registered representatives
received no compensation under the Distribution Plans.
General. Each Plan will continue in effect from year to year if such
-------
continuance is approved by a majority vote of both the Directors of the Company
and the Non-Interested Directors. Any Distribution Agreement related to the
Plans also must be
29
<PAGE>
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 outstanding
voting securities of the relevant class of the Fund or by vote of a majority of
the Non-Interested Directors on not more than 60 days' written notice. The Plans
may not be amended to increase materially the amounts payable thereunder without
the approval of a majority of the outstanding voting securities of the Funds,
and no material amendment to the Plans may be made except by a majority of both
the Directors of the Company and the Non-Interested Directors.
The Plans 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 Plans. 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 Funds'
shares pursuant to selling agreements with Stephens authorized under the Plans.
As a selling agent, Wells Fargo Bank has an indirect financial interest in the
operation of the Plans. The Board of Directors has concluded that the Plans are
reasonably likely to benefit the Funds and their shareholders because the Plans
authorize the relationships with selling agents, including Wells Fargo Bank,
that have previously developed distribution channels and relationships with the
retail customers that the Funds are designed to serve. These relationships and
distribution channels are believed by the Board to provide potential for
increased Fund assets and ultimately corresponding economic efficiencies (i.e.,
lower per-share transaction costs and fixed expenses) that are generated by
increased assets under management.
ADMINISTRATIVE SERVICING AGENT. The Index Allocation Fund has adopted a
------------------------------
Shareholder Administrative Servicing Plan (the "Administrative Servicing Plan")
on behalf of its Class A shares. Pursuant to the Administrative Servicing Plan,
the Fund may enter into Administrative Servicing Agreements with administrative
servicing agents (broker/dealers, banks and other financial institutions, which
may include Wells Fargo Bank and its affiliates) who are dealers/holders of
record, or that otherwise have a servicing relationship with the beneficial
owners, of the Fund's Class A shares. Administrative servicing agents agree to
perform shareholder administrative and liaison services which may include, among
other things, maintaining an omnibus account with the Fund, aggregating and
transmitting purchase, exchange and redemption orders from its customers,
answering customer inquiries regarding a shareholder's accounts in the Fund, and
providing such other services as the Company or a customer may reasonably
request. Administrative servicing agents are entitled to a fee which will not
exceed 0.25%, on an annualized basis, of the average daily net assets of the
Class A shares represented by the shares owned of record or beneficially by the
customers of the administrative servicing agent during the period for which
payment is being made. In no case shall shares be sold pursuant to the Class A
distribution plan while being sold pursuant to its Administrative Servicing
Plan.
31
<PAGE>
The Administrative Servicing Plan will continue in effect from year to year
if such continuance is approved from year to year if such continuance is
approved by a majority vote of the Directors of the Company. Any form of
Servicing Agreement related to the plans also must be approved by such vote of
the Directors. Servicing Agreements will terminate automatically if assigned,
and may be terminated at any time, without payment of any penalty, by a vote of
a majority of the outstanding shares of the Class A shares of the fund. The
Administrative Servicing Plans may not be amended to increase materially the
amount payable thereunder without the approval of a majority of the outstanding
shares of the Class A shares of the Fund, and no other material amendment to the
Plan or related Administrative Servicing Agreements may be made except by a
majority of the Directors.
The Administrative 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 Plan.
SHAREHOLDER SERVICING AGENT. The Funds have approved Shareholder Servicing
---------------------------
Plans and have entered into related shareholder servicing agreements with
financial institutions, including Wells Fargo Bank on behalf of their classes of
shares, with the exception of Class A of the Index Allocation Fund which has an
Administrative Servicing Plan and Agreement. Under the agreements, Shareholder
Servicing Agents (including Wells Fargo Bank) agree to perform, as agents for
their customers, administration 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 to a shareholder may reasonably
request. For providing shareholder services, a Servicing Agent is entitled to a
fee from the applicable Fund, on an annualized basis, of the average daily net
assets of the class of shares owned of record or beneficially by the customers
of the Servicing Agent during the period for which payment is being made. The
amounts payable under the Shareholder Servicing Plans are shown below. The
Servicing Plans and related forms of shareholder servicing agreements were
approved by the Company's Board of Directors and provide that a Fund shall not
be obligated to make any payments under such Plans or related Agreements that
exceed the maximum amounts payable under the Conduct Rules of the NASD.
31
<PAGE>
<TABLE>
<CAPTION>
Fund Fee
---- ---
<S> <C>
Asset Allocation
Class A 0.30%
Class B 0.30%
CLASS C 0.25%
Index Allocation
Class B 0.25%
Class C 0.25%
U.S. Government Allocation
Class A 0.30%
Class B 0.30%
</TABLE>
For the period indicated below, the dollar amounts of shareholder servicing
fees (after waivers) paid by the Funds to Wells Fargo Bank or its affiliates
were as follows:
<TABLE>
<CAPTION>
Six-Month Nine-Month
Period Ended Period Ended
Fund 3/31/97 9/30/96
---- ------- -------
<S> <C> <C>
Asset Allocation Fund - Class A $1,648,234 $2,464,701
Asset Allocation Fund - Class B $ 118,374 $ 109,487
Index Allocation - Class C/*/ $ 50,525 N/A
U.S. Government Allocation Fund - Class A $ 76,579 $ 310,872
U.S. Government Allocation Fund - Class B $ 5,608 $ 12,608
</TABLE>
____________________
/*/ Reflects amounts paid by the Class D shares of the Overland predecessor
portfolio. This amount is for the year ended December 31, 1996, the
predecessor portfolio's most recently completed fiscal year, and not the
---
period ended March 31, 1997.
General. Each 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 a Servicing Plan also must be approved by such
vote of the Directors and Non-Interested Directors. Servicing Agreements may be
terminated at any time, without payment of any penalty, by vote of a majority of
the Board of Directors, including a majority of the Non-Interested Directors.
No material amendment to the Servicing Plans or related Servicing Agreements may
be made except by a majority of both the Directors of the Company and the Non-
Interested Directors.
Each Servicing Plan requires that the Administrator shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Servicing Plan.
32
<PAGE>
CUSTODIAN. Barclays Global Investors, N.A. ("BGI") acts as Custodian for
---------
each Fund. The Custodian, among other things, maintains a custody account or
accounts in the name of each Fund; receives and delivers all assets for each
Fund upon purchase and upon sale or maturity; collects and receives all income
and other payments and distributions on account of the assets of each Fund and
pays all expenses of each Fund. For its services as Custodian, BGI is not
entitled to receive compensation so long as its subsidiary, BGFA, is entitled to
receive fees for providing investment advisory services to the Fund. Prior to
the Consolidation, Wells Fargo Bank served as Custodian to the predecessor
portfolio.
For the six-month period ended March 31, 1997, and the nine-month period
ended September 30, 1996, the Asset Allocation and U.S. Government Allocation
Funds did not pay any custody fees. For the year ended December 31, 1996, the
Index Allocation predecessor portfolio did not pay any custody fees.
FUND ACCOUNTANT. Wells Fargo Bank acts as Fund Accountant for each Fund.
---------------
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 will be entitled to
receive from each Fund 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 Funds did not pay any fund accounting fees.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank acts as Transfer
--------------------------------------
and Dividend Disbursing Agent for the Funds. For providing such services, Wells
Fargo Bank is entitled to receive monthly payments at the annual rate of 0.14%
of the average daily net assets attributable to each Fund's Class A, Class B and
(for the Asset Allocation and Index Allocation Funds) Class C shares. Under the
prior transfer agency agreement, Wells Fargo Bank was entitled to receive a per
account fee plus transaction fees and out-of-pocket related costs with a minimum
of $3,000 per month per Fund, unless net assets of a Fund were under $20
million. For as long as a Fund's assets remained under $20 million, the Fund
was not charged any transfer agency fees.
For the periods indicated below, the Funds paid the following dollar
amounts in transfer and dividend disbursing agency fees, after waivers, to Wells
Fargo Bank:
<TABLE>
<CAPTION>
Six-Month Nine-Month
Period Ended Period Ended
Fund 3/31/97 9/30/96
---- ------- ------
<S> <C> <C>
Asset Allocation Fund $ 0 $662,394
U.S. Government Allocation Fund $ 0 $ 77,292
Index Allocation Fund/*/ N/A $ 0
</TABLE>
_________________________
33
<PAGE>
/*/ Indicates fees paid by or on behalf of the Overland predecessor portfolio
for the year ended December 31, 1996, the predecessor portfolio's most recently
completed fiscal year, and not the period ended March 31, 1997.
---
UNDERWRITING COMMISSIONS. For the six month period ended March 31, 1997,
------------------------
the aggregate dollar amount of underwriting commissions paid to Stephens on
sales/redemptions of the Company's shares was $2,296,243. Stephens retained
$241,806 of such commissions. WFSI and its registered representatives received
$1,719,000 and $335,437, respectively, of such commissions.
For the nine-month period ended September 30, 1996, the aggregate amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
shares was $2,917,738. Stephens retained $198,664 of such commissions. WFSI
and its registered representatives received $2,583,027 and $136,047,
respectively, of such commissions.
For the year ended December 31, 1995, the aggregate amount of underwriting
commissions paid to Stephens on sales/redemptions of the Company's shares was
$1,251,311. Stephens retained $162,660 of such commissions. WFSI and its
registered representatives received $399,809 of such commissions.
For the year ended December 31, 1994, Stephens retained $5,415,227, in
underwriting commissions (front-end sales loads and CDSCs, if any) in connection
with the purchase or redemption of the Company's shares. For the year ended
December 31, 1994, Wells Fargo Securities Inc. ("WFSI"), an affiliated broker-
dealer of the Company, and its registered representatives received $904,274 in
underwriting commissions in connection with the purchase or redemption of the
Company's shares.
PERFORMANCE CALCULATIONS
The Funds may advertise certain yield and total return information.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in a Fund or class of shares during the particular time
period shown. Yield and total return vary based on changes in the market
conditions and the level of a Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
In connection with communicating its 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 a Fund or Class of shares in a Fund may be
useful in reviewing the performance of such Fund or Class of shares and for
providing a basis for comparison with investment alternatives. The yield of a
Fund and the yield of a Class of shares in a Fund, however, may not be
comparable to the yields from investment
34
<PAGE>
alternatives because of differences in the foregoing variables and differences
in the methods used to value portfolio securities, compute expenses and
calculate yield.
The IRA Funds of the Wells Fargo Investment Trust for Retirement Programs
were reorganized as the Asset Allocation and U.S. Government Allocation Funds of
the Company on January 2, 1992. Therefore, the performance information for the
Asset Allocation and U.S. Government Allocation Funds for the periods prior to
January 2, 1992, is based on that of the IRA Funds. The Index Allocation Fund
commenced operations on April 7, 1988 as the Asset Allocation Fund of Overland
Express Funds, Inc. (the "predecessor portfolio"). The predecessor portfolio
was reorganized as the Index Allocation Fund of the Company on December 12,
1997. The performance information of the Index Allocation Fund for periods
prior to December 15, 1997, is based on that of the predecessor portfolio. The
Class A and Class C shares of the Index Allocation Fund track the performance of
the predecessor portfolio's Class A and Class D shares, respectively.
AVERAGE ANNUAL TOTAL RETURN: Each Fund may advertise certain total return
----------------------------
information computed in the manner described in its Prospectus. As and to the
extent required by the SEC, an average annual compound rate of return ("T") will
be computed by using the redeemable value at the end of a specified period
("ERV") of a hypothetical initial investment in shares of the Fund ("P") over a
period of years ("n") according to the following formula: P(1+T)/n /= ERV. In
addition, the Funds, at times, may calculate total return based on net asset
value per share (rather than the public offering price), in which case the
figures would not reflect the effect of any sales charges that would have been
paid by an investor, or based on the assumption that a sales charge other than
the maximum sales charge (reflecting a Volume Discount) was assessed, provided
that total return data derived pursuant to the calculation described above also
are presented.
Performance shown or advertised for Class A shares of the Stagecoach Asset
Allocation Fund for periods prior to January 2, 1992, reflects performance of
the shares of the Asset Allocation Fund for the Wells Fargo Investment Trust for
Retirement Programs, a predecessor portfolio with the same investment objective
and policies as the Stagecoach Asset Allocation Fund. Performance shown or
advertised for Class B shares of the Stagecoach Fund for periods prior to
January 1, 1995, reflects performance of the Class A shares of the Stagecoach
Fund, adjusted to reflect Class B sales charges and expenses; for periods prior
to January 2, 1992, Class B share performance reflects performance of the
predecessor portfolio, adjusted to reflect Class B sales charges and expenses.
Performance shown or advertised for the Class A shares of the Stagecoach
Index Allocation Fund, reflects performance of the Class A shares of the
Overland Index Allocation Fund (the accounting survivor of a merger of the Funds
on December 12, 1997). Performance shown or advertised for the Class C shares
of the Stagecoach Index Allocation Fund reflects performance of the Class D
shares of the Overland Index Allocation Fund; for periods prior to July 1,
1993, Class C share performance of the Stagecoach Fund reflects performance of
the Class A shares of the Overland Fund
35
<PAGE>
adjusted to reflect the sales charges and expenses of the Class C shares.
Performance shown or advertised for the Class B shares of the Stagecoach Fund
reflects performance of the Class D shares of the Overland Fund; for periods
prior to July 1, 1993, Class B share performance of the Stagecoach Fund reflects
performance of the Class A shares of the Overland Fund adjusted to reflect sales
charges and expenses of the Class B shares.
Performance shown or advertised for the Class A shares of the Stagecoach
U.S. Government Allocation Fund for periods prior to January 2, 1992, reflects
performance of the shares of the Fixed Income Strategy Fund of the Wells Fargo
Investment Trust for Retirement Programs, a predecessor portfolio with the same
investment objective and policies as the Stagecoach Fund. Performance shown or
advertised for Class B shares of the Stagecoach Fund for periods between January
2, 1992, and January 1, 1995, reflects performance of the Class A shares of the
Stagecoach Fund; adjusted to reflect sales charges and expenses of the Class B
shares; for periods prior to January 2, 1992, performance shown or advertised
for Class B shares of the Stagecoach Fund, reflects performance of the
predecessor portfolio with expenses adjusted to reflect Class B sales charges
and expenses.
Average Annual Total Return for the Applicable Period Ended September 30, 1997
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ten Year/ Ten Year/
Inception/1/ Inception Five Year Five Year Three Year Three Year One Year One Year
With No With No With No With No
Sales Sales Sales Sales Sales Sales Sales Sales
Fund Charge/2/ Charge Charge Charge Charge Charge Charge Charge
---- -------- ------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Allocation
Class A [___]% [___]% 12.81% 13.86% 17.49% 19.30% 17.89% 23.44%
Class B 12.70% 12.70% 13.12% 13.32% 17.97% 18.58% 17.67% 22.67%
Index Allocation
Class A 12.85% 13.41% 15.63% 16.71% 21.03% 22.89% 17.44% 23.02%
Class B 12.66% 12.66% 15.77% 15.99% 21.38% 22.05% 17.05% 22.05%
Class C 12.66% 12.66% 15.99% 15.99% 22.05% 22.05% 21.05% 22.05%
U.S. Government
Allocation
Class A
Class B [___]% [___]% 5.62% 6.60% 5.85% 7.48% 3.02% 7.85%
8.02% 8.02% 5.87% 6.10% 6.10% 6.81% 2.24% 7.24%
</TABLE>
_________________________
/1/ Shown are `ten year' figures for the Asset Allocation and U.S. Government
Allocation Funds and 'since inception' figures for the Index Allocation
Fund. Each Fund commenced operations as follows: Asset Allocation Class A -
11/13/86, Class B - 1/2/95; U.S. Government Allocation Class A - 3/31/87,
Class B - 1/2/95. The Index Allocation predecessor portfolio's Class A
shares commenced operations on April 7, 1988 and it's Class D shares
commenced operations on July 1, 1993.
/2/ The term "Sales Charge" for Class A Shares reflects a front-end sales load
of 4.50%, and for Class B and Class C Shares reflects the maximum
applicable Contingent Deferred Sales Charge ("CDSC").
CUMULATIVE TOTAL RETURN: In addition to the above performance information,
------------------------
the Funds may advertise the cumulative total return for one-month, three-month,
six-month and
36
<PAGE>
year-to-date periods. The cumulative total return for such periods is based on
the overall percentage change in value of a hypothetical investment in the Fund,
assuming all Fund dividends and capital gain distributions are reinvested,
without reflecting the effect of any sales charge that would be paid by an
investor, and is not annualized.
Cumulative Total Return for the Applicable Period Ended September 30, 1997
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Inception/1/ Inception Ten Year Ten Year Five Year Five Year Three Year Three Year
With No With No With No With No
Sales Sales Sales Sales Sales Sales Sales Sales
Fund Charge/2/ Charge Charge Charge Charge Charge Charge Charge
---- --------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset
Allocation
Class A 237.79% 253.67% 232.71% 248.44% 82.73% 91.36% 62.17% 69.78%
Class B 233.93% 233.93% 230.63% 230.63% 85.20% 86.86% 64.17% 66.72%
Index
Allocation
Class A 205.86% 220.24% N/A N/A 106.70% 116.52% 77.28% 85.61%
Class B 201.19% 201.19% N/A N/A 107.96% 109.96% 78.81% 81.81%
Class C 201.19% 201.19% N/A N/A 109.96% 109.96% 81.81% 81.81%
U.S.
Government
Allocation
Class A 113.17% 123.19% 118.17% 128.44% 31.46% 37.64% 18.58% 24.15%
Class B 110.74% 110.74% 116.37% 116.37% 33.02% 34.45% 19.45% 21.86%
</TABLE>
/1/ Each Fund commenced operations as follows: Asset Allocation Class A -
11/13/86, Class B - 1/2/95; U.S. Government Allocation Class A - 3/31/87,
Class B - 1/2/95. The Index Allocation predecessor portfolio's Class A
shares commenced operations on April 7, 1988. The predecessor portfolio's
Class D shares commenced operations on July 1, 1993.
/2/ The term "Sales Charge" for Class A Shares reflects a front-end sales load
of 4.50%, and for Class B and Class C Shares reflects the maximum
applicable Contingent Deferred Sales Charge ("CDSC").
YIELD CALCULATIONS: The Funds may, from time to time, include their yields
------------------
and effective yields in advertisements or reports to shareholders or prospective
investors. Quotations of yield for the Funds are based on the investment income
per share earned during a particular seven-day or thirty-day period, less
expenses accrued during a period ("net investment income") and are computed by
dividing net investment income by the offering price per share on the last date
of the period, according to the following formula:
YIELD = 2[(a - b + 1)/6/ -1]
-----
Cd
where a = dividends and interest earned during the period, b = expenses
accrued for the period (net of any reimbursements), c = the average daily number
of shares outstanding during the period that were entitled to receive dividends,
and d = the maximum offering price per share on the last day of the period.
37
<PAGE>
EFFECTIVE YIELD: Effective yields for the Funds are based on the change in
---------------
the value of a hypothetical investment (exclusive of capital changes) over a
particular thirty-day period, less a pro-rata share of each Fund's expenses
accrued over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The base
period return is then annualized multiplying by 365/30, with the resulting yield
figure carried to at least the nearest hundredth of one percent. "Effective
yield" for the Funds assumes that all dividends received during the period have
been reinvested. Calculation of "effective yield" begins with the same "base
period return" used in the calculation of yield, which is then annualized to
reflect weekly compounding pursuant to the following formula:
Effective Thirty-Day Yield = [(Base Period Return +1)365/30]-1.
Yield for the Year Ended September 30, 1997/*/
----------------------------------------------
<TABLE>
<CAPTION>
Fund Thirty Day Yield
---- ----------------
<S> <C>
Asset Allocation
Class A 2.25%
Class B 1.84%
Index Allocation
Class A 1.42%
Class B 0.73%
Class C 0.73%
U.S. Government Allocation
Class A 4.05%
Class B 3.92%
</TABLE>
______________________
/*/ This figure reflects the maximum front-end sales load of 4.50% and the
maximum applicable CDSC.
The yield on each Class of the U.S. Government Allocation Fund will
fluctuate from time to time, unlike bank deposits or other investments that pay
a fixed yield for a stated period of time, and does not provide a basis for
determining future yields since it is based on historical data. Yield is a
function of portfolio quality, composition, maturity and market conditions as
well as the expenses allocated to the Fund.
In addition, investors should recognize that changes in the net asset
values of shares of each Class of the U.S. Government Allocation Fund will
affect the yield of each such Class for any specified period, and such changes
should be considered together with the yield of each Class in ascertaining the
total return for the period to shareholders of each Fund. Yield information for
the Fund or each Class of shares of the Fund, as the case may be, may be useful
in reviewing the performance of such Fund and for providing a basis for
comparison with investment alternatives. The yield of the Fund or each Class of
a Fund, however, may not be comparable to the yields from investment
alternatives
38
<PAGE>
because of differences in the foregoing variables and differences in the methods
used to value portfolio securities, compute expenses and calculate yield.
From time to time and only to the extent the comparison is appropriate for
a Fund or Class of shares, the Company may quote the performance or price-
earning ratio of a Fund or Class in advertising and other types of literature as
compared to the performance of the S&P Index, the Dow Jones Industrial Average,
the Lehman Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year Treasury
Index, Donoghue's Money Fund Averages, Real Estate Investment Averages (as
reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by the World Gold Council), Bank Averages (which
is calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the Federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), other managed or unmanaged indices or
performance data of bonds, municipal securities, stocks or government securities
(including data provided by Ibbotson Associates), or by other services,
companies, publications or persons who monitor mutual funds on overall
performance or other criteria. The S&P Index and the Dow Jones Industrial
Average are unmanaged indices of selected common stock prices. The performance
of a Fund or Class of shares, as appropriate, also may be compared to those of
other mutual funds having similar objectives. This comparative performance
could be expressed as a ranking prepared by Lipper Analytical Services, Inc.,
CDA Investment Technologies, Inc., Bloomberg Financial Markets or Morningstar,
Inc., independent services which monitor the performance of mutual funds. The
Funds' performance will be calculated by relating net asset value per share at
the beginning of a stated period to the net asset value of the investment,
assuming reinvestment of all gains, distributions and dividends paid, at the end
of the period. The Funds' comparative performance will be based on a comparison
of yields, as described above, or total return, as reported by Lipper, Survey
Publications, Donoghue or Morningstar, Inc.
Any such comparisons may be useful to investors who wish to compare the
past performance of a Fund or Class of shares with that of its competitors. Of
course, past performance cannot be a guarantee of future results. The Company
also may include, from time to time, a reference to certain marketing approaches
of the Distributor, including, for example, a reference to a potential
shareholder being contacted by a selected broker or dealer. General mutual fund
statistics provided by the Investment Company Institute may also be used.
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
a Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in a Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of a Fund or the general economic, business,
investment, or financial environment in which a Fund operates; (iii) the effect
of tax-deferred compounding on the investment returns of a Fund or a
39
<PAGE>
Class of shares, or on returns in general, may be illustrated by graphs, charts,
etc., where such graphs or charts would compare, at various points in time, the
return from an investment in a Fund or Class of shares (or returns in general)
on a tax-deferred basis (assuming reinvestment of capital gains and dividends
and assuming one or more tax rates) with the return on a taxable basis; and (iv)
the sectors or industries in which a Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate a Fund's
historical performance or current or potential value with respect to the
particular industry or sector.
The Company also may use, in advertisements and other types of literature,
information and statements: (1) showing that bank savings accounts offer a
guaranteed return of principal and a fixed rate of interest, but no opportunity
for capital growth; and (2) describing Wells Fargo Bank, and its affiliates and
predecessors, as one of the first investment managers to advise investment
accounts using asset allocation and index strategies. The Company also may
include in advertising and other types of literature information and other data
from reports and studies prepared by the Tax Foundation, including information
regarding federal and state tax levels and the related "Tax Freedom Day."
From time to time, the Company also may include in advertisements or other
marketing materials a discussion of certain of the objectives of the investment
strategy of the Funds and a comparison of this strategy with other investment
strategies. In particular, the responsiveness of these Funds as to changing
market conditions may be discussed. For example, the Company may describe the
benefits derived by having Wells Fargo Bank monitor and reallocate investments
among the asset categories described in the Prospectus of each Fund and Fund.
The Company's advertising or other marketing material also might set forth
illustrations depicting examples of recommended allocations in different market
conditions. It may state, for example, that when the model indicates that
stocks represent a better value than bonds or money market instruments, the
Asset Allocation Fund or Index Allocation Fund might consist of 70% stocks, 25%
bonds and 5% money market instruments and that when the model indicates that
bonds represent a better value than stocks or money market instruments, the
balance of assets might shift to 60% bonds, 20% stocks and 20% money market
instruments.
The Company also may discuss in advertising and other types of literature
that a Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as Standard & Poor's Corporation ("S&P").
Such rating would assess the creditworthiness of the investments held by the
Fund. The assigned rating would not be a recommendation to purchase, sell or
hold the Fund's shares since the rating would not comment on the market price of
the Fund's shares or the suitability of the Fund for a particular investor. In
addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or unavailability of, information relating
to the Fund or its investments. The Company may compare a Fund's performance
with other investments which are assigned ratings by NRSROs. Any such
comparisons may be useful to investors who wish to compare the Fund's past
performance with other rated investments.
40
<PAGE>
From time to time, the Funds may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Stagecoach Funds, provides
various services to its customers that are also shareholders of the Funds.
These services may include access to Stagecoach Funds' account information
through Automated Teller Machines ("ATMs"), the placement of purchase and
redemption requests for shares of the Funds through ATMs and the availability of
combined Wells Fargo Bank and Stagecoach Funds account statements."
The Company also may disclose, in advertising and other types of
literature, information and statements that Wells 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 each class of the Asset or Government Allocation Funds.
Distribution rate, which may be annualized, is the amount determined by dividing
the dollar amount per share of the most recent dividend by the most recent NAV
or maximum offering price per share as of a date specified in the sales
literature. Distribution rate will be accompanied by the standard 30-day yield
as required by the SEC.
The Company also may discuss in advertising and other types of literature
the features, terms and conditions of Wells Fargo Bank accounts through which
investments in the Funds may be made via a "sweep" arrangement, including,
without limitation, the Managed Sweep Account, Money Market Checking Account,
California Tax-Free Money Market Checking Account, Money Market Access Account
and California Tax-Free Money Market Access Account (collectively, the "Sweep
Accounts"). Such advertisements and other literature may include, without
limitation, discussions of such terms and conditions as the minimum deposit
required to open a Sweep Account, a description of the yield earned on shares of
the Funds through a Sweep Account, a description of any monthly or other service
charge on a Sweep Account and any minimum required balance to waive such service
charges, any overdraft protection plan offered in connection with a Sweep
Account, a description of any ATM or check privileges offered in connection with
a Sweep Account and any other terms, conditions, features or plans offered in
connection with a Sweep Account. Such advertising or other literature may also
include a discussion of the advantages of establishing and maintaining a Sweep
Account, and may include statements from customers as to the reasons why such
customers have established and maintained a Sweep Account.
41
<PAGE>
The Company may disclose in advertising and other types of literature that
investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each class of the Funds 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 Funds' shares.
Securities of a Fund for which market quotations are available are valued
at latest prices. Any security for which the primary market is an exchange is
valued at the last sale price on such exchange on the day of valuation or, if
there was no sale on such day, the latest bid price quoted on such day. In the
case of other securities, including U.S. Government securities but excluding
money market instruments maturing in 60 days or less, the valuations are based
on latest quoted bid prices. Money market instruments and debt securities
maturing in 60 days or less are valued at amortized cost. The assets of a Fund,
other than money market instruments or debt securities maturing in 60 days or
less, are valued at latest quoted bid prices. 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 a Fund for which current market quotations are not readily
available are valued at fair value as determined in good
42
<PAGE>
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 Funds may be purchased on any day the Funds are open for
business. The Funds are open for business each day the NYSE is open for trading
(a "Business Day"). Currently, the NYSE is closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any
Holiday falls on a weekend, the NYSE typically is closed on the weekday
immediately before or after such Holiday.
Payment for shares may, in the discretion of the advisor, be made in the
form of securities that are permissible investments for the Funds. For further
information about this form of payment please contact Stephens. In connection
with an in-kind securities payment, the Funds will require, among other things,
that the securities be valued on the day of purchase in accordance with the
pricing methods used by a Fund and that such Fund receives satisfactory
assurances that (i) it will have good and marketable title to the securities
received by it; (ii) that the securities are in proper form for transfer to the
Fund; and (iii) adequate information will be provided concerning the basis and
other matters relating to the securities.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit. The Company may 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
43
<PAGE>
generally seeks reasonably competitive spreads or commissions, the Funds will
not necessarily be paying the lowest spread or commission available.
Purchases and sales of non-equity securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or
to dealers serving as market makers for the securities at a net price. Each of
the Funds also will purchase portfolio securities in underwritten offerings and
may purchase securities directly from the issuer. Generally, municipal
obligations and taxable money market securities are traded on a net basis and do
not involve brokerage commissions. The cost of executing a Fund's portfolio
securities transactions will consist primarily of dealer spreads and
underwriting commissions. Under the Act, persons affiliated with the Company
are prohibited from dealing with the Company as a principal in the purchase and
sale of securities unless an exemptive order allowing such transactions is
obtained from the SEC or an exemption is otherwise available. The Fund may
purchase securities from underwriting syndicates of which Stephens or Wells
Fargo Bank is a member under certain conditions in accordance with the
provisions of a rule adopted under the Act and in compliance with procedures
adopted by the Board of Directors.
Wells Fargo Bank, as the Investment Advisor to each of the Funds, may, in
circumstances in which two or more dealers are in a position to offer comparable
results for a Fund portfolio transaction, give preference to a dealer that has
provided statistical or other research services to Wells Fargo Bank. By
allocating transactions in this manner, Wells Fargo Bank is able to supplement
its research and analysis with the views and information of securities firms.
Information so received will be in addition to, and not in lieu of, the services
required to be performed by Wells Fargo Bank under the Advisory Contracts, and
the expenses of Wells Fargo Bank will not necessarily be reduced as a result of
the receipt of this supplemental research information. Furthermore, research
services furnished by dealers through which Wells Fargo Bank places securities
transactions for a Fund may be used by Wells Fargo Bank in servicing its other
accounts, and not all of these services may be used by Wells Fargo Bank in
connection with advising the Funds.
Asset Allocation and Index Allocation Funds. Purchases and sales of equity
-------------------------------------------
securities on a securities exchange are effected through brokers who charge a
negotiated commission for their services. Orders may be directed to any broker
including, to the extent and in the manner permitted by applicable law, Stephens
or Wells Fargo Securities Inc. In the over-the-counter market, securities are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission, although the price of the security usually
includes a profit to the dealer. In underwritten offerings, securities are
purchased at a fixed price that includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
The Asset Allocation Fund will not deal with Stephens, Wells Fargo Bank or their
affiliates in any transaction in which any of them acts as principal without an
exemptive order from the Commission.
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<PAGE>
Brokerage Commissions. For the periods indicated below, the Funds paid the
---------------------
following amounts as brokerage commissions, none of which were paid to
affiliated brokers.
<TABLE>
<CAPTION>
Six-Month Nine-Month
Period Ended Year Ended Period Ended Year Ended Year Ended
Fund 3/31/97 12/31/96 9/30/96 12/31/95 12/31/94
- ---- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Asset Allocation N/A N/A $6,561 $34,488 $99,002
Index Allocation N/A $2,317 N/A $ 0 $ 0
U.S. Government N/A N/A $ 0 $ 0 $ 0
Allocation
</TABLE>
Securities of Regular Broker/Dealers. As of March 31, 1997, neither the
------------------------------------
Asset Allocation Fund nor the U.S. Government Allocation Fund owned securities
of their "regular brokers or dealers" or their parents, as defined in the 1940
Act. The predecessor portfolio to the Index Allocation Fund did not own
securities of its "regular brokers or dealers" as of December 31, 1996.
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
Funds whenever such changes are believed to be in the best interests of the
Funds and their shareholders. The portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities by the average
monthly value of the Fund's portfolio securities. For purposes of this
calculation, portfolio securities exclude all securities having a maturity when
purchased of one year or less. Portfolio turnover generally involves some
expenses to the Funds, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gain tax
consequences. Portfolio turnover rate is not a limiting factor when Wells Fargo
Bank deems portfolio changes appropriate.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees from the
Funds in whole or in part. Any such waiver will reduce expenses and,
accordingly, have a favorable impact on a Fund's performance.
Except for the expenses borne by Wells Fargo Bank and Stephens, the Company
bears all costs of its operations, including the compensation of its Directors
who are not affiliated with Stephens or Wells Fargo Bank or any of their
affiliates; advisory, shareholder servicing and administration fees; payments
pursuant to any Plan; interest charges; taxes; fees and expenses of its
independent accountants, legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming shares; expenses of preparing and printing
Prospectuses (except the expense of printing and mailing prospectuses used for
promotional purposes, unless otherwise payable pursuant to a
45
<PAGE>
Plan), shareholders' reports, notices, proxy statements and reports to
regulatory agencies; insurance premiums and certain expenses relating to
insurance coverage; trade association membership dues; brokerage and other
expenses connected with the execution of portfolio transactions; fees and
expenses of its custodian, including those for keeping books and accounts and
calculating the NAV per share of a Fund; expenses of shareholders' meetings;
expenses relating to the issuance, registration and qualification of Fund
shares; pricing services, and any extraordinary expenses. Expenses attributable
to a Fund are charged against a Fund's assets. General expenses of the Company
are allocated among all of the funds of the Company, including a Fund, in a
manner proportionate to the net assets of each Fund, on a transactional basis,
or on such other basis as the Company's Board of Directors deems equitable.
FEDERAL INCOME TAXES
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 Funds. This section of the
SAI includes additional information concerning income taxes.
General. The Company intends to qualify each 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. Each Fund will be treated as a separate entity for tax
purposes and thus the provisions of the Code applicable to regulated investment
companies will generally be applied to each Fund, rather than to the Company as
a whole. In addition, net capital gain, net investment income, and operating
expenses will be determined separately for each Fund. As a regulated investment
company, each 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) each Fund derive at least 90% of its annual gross
income from dividends, interest, certain payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related to
the regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) the Fund diversify its holdings
so that, at the end of each quarter of the taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, government securities
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
obligations and the securities of other regulated investment companies), or in
two or more issuers which the Fund controls and which are determined to be
engaged in the same or similar trades or businesses.
46
<PAGE>
The Funds must also distribute or be deemed to distribute to their
shareholders at least 90% of their 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 Funds intend to pay out
substantially all of their net investment income and net realized capital gains
(if any) for each year.
In addition, a regulated investment company must, in general, derive less
than 30% of its gross income from the sale or other disposition of securities or
options thereon held for less than three months. However, this restriction has
been repealed with respect to a regulated investment company's taxable years
beginning after August 5, 1997.
Excise Tax. A 4% nondeductible excise tax will be imposed on each 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. Each Fund intends to actually or be deemed to distribute
substantially all of its net investment income and net capital gains by the end
of each calendar year and, thus, expects not to be subject to the excise tax.
Taxation of Fund Investments. Except as provided herein, gains and losses
----------------------------
on the sale of portfolio securities by a 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 an option granted by a Fund lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder, the
Fund will realize a short-term capital gain or loss, depending on whether the
premium income is greater or less than the amount paid by the Fund in the
closing transaction. Some realized capital losses may be deferred if they
result from a position which is part of a "straddle," discussed below. If
securities are sold by a Fund pursuant to the exercise of a call option written
by it, the Fund will add the premium received to the sale price of the
securities delivered in determining the amount of gain or loss on the sale.
Under Section 1256 of the Code, a Fund will be required to "mark to market"
its positions in "Section 1256 contracts," which generally include regulated
futures contracts and listed 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
47
<PAGE>
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.
Under Section 988 of the Code, a 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 a 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 a Fund purchases shares in a "passive foreign investment company"
("PFIC"), the Fund may be subject to federal income tax and an interest charge
imposed by the IRS upon certain distributions from the PFIC or the Fund's
disposition of 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
48
<PAGE>
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.
Foreign Taxes. Income and dividends received by a 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 Funds do not expect to be eligible to make such an election.
Capital Gain Distributions. Distributions which are designated by a Fund
--------------------------
as capital gain distributions will be taxed to shareholders as long-term capital
gain (to the extent such dividends do exceed the Fund's actual net capital gain
for the taxable year), regardless of how long a shareholder has held Fund
shares. Such distributions will be designated as capital gain distributions in
a written notice mailed by the Fund to its shareholders not later than 60 days
after the close of the Fund's taxable year.
The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers were generally taxed at a maximum rate of 28% on net
capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers are now generally taxed at a
maximum rate of 20% on net capital gain attributable to gains realized on the
sale of property held for greater than 18 months, and a maximum rate of 28% on
net capital gain attributable to gain realized on the sale of property held for
greater than one year and not more than 18 months. The 1997 Act retains the
treatment of short term capital gain or loss (generally, gain or loss
attributable to capital assets held for 1 year or less) and did not affect the
taxation of capital gains in the hands of corporate taxpayers.
Under the 1997 Act, the Treasury is authorized to issue regulations for
application of the reduced capital gains tax rates to pass-through entities,
including regulated investment companies, such as the Funds. The Internal
Revenue Service has published a notice describing temporary Regulations to be
issued pursuant to such authority, permitting the application of the reduced
capital gains tax rates to pass-through entities such as the Funds. Under the
Regulations to be issued, if a regulated investment company designates a
dividend as a capital gain dividend for a taxable year ending on or after May 7,
1997, then such regulated investment company may also designate the dividends as
one of two classes: a 20% rate gain distribution, or a 28% rate gain
distribution. Thus, noncorporate shareholders of the Funds may qualify for the
reduced rate of tax on capital gain dividends paid by the Funds, subject only to
the limitation as to the maximum amounts which may be designated in each class.
Such maximum amount for each class is determined by performing the computation
required by section 1(h) of the Code as if the Fund were an individual whose
ordinary income is subject to a marginal rate of at least 28%.
49
<PAGE>
Disposition of Fund Shares. A disposition of Fund shares pursuant to
--------------------------
redemption (including a redemption in-kind) or exchanges will ordinarily result
in a taxable capital gain or loss, depending on the amount received for the
shares (or are deemed to receive in the case of an exchange) and the cost of the
shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as long-term capital loss to the extent of the designated capital gain
distribution. The foregoing loss disallowance rule does not apply to losses
realized under a periodic redemption plan.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.6% (marginal tax rates
may be higher for some individuals to reduce or eliminate the benefit of
exemptions and deductions); the maximum individual marginal tax rate applicable
to net capital gain is 28% (however, see "Capital Gain Distributions" above);
and the maximum corporate tax rate applicable to ordinary income and net capital
gain is 35% (marginal tax rates may be higher for some corporations to reduce or
eliminate the benefit of lower marginal income tax rates). Naturally, the
amount of tax payable by an individual or corporation will be affected by a
combination of tax laws covering, for example, deductions, credits, deferrals,
exemptions, sources of income and other matters.
Corporate Shareholders. Corporate shareholders of the Funds may be
----------------------
eligible for the dividends-received deduction on dividends distributed out of a
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. A 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.
50
<PAGE>
Backup Withholding. The Company may be required to withhold, subject to
------------------
certain exemptions, at a rate of 31% ("backup withholding") on dividends,
capital gain distributions, and redemption proceeds (including proceeds from
exchanges 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 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 Funds
(described below) are generally not subject to backup withholding.
Foreign Shareholders. Under the Code, distributions of net investment
--------------------
income by a 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 a Fund to a
foreign shareholder is "effectively connected" with a U.S. trade or business
(or, if an income tax treaty applies, is attributable to a U.S. permanent
establishment of the foreign shareholder), in which case the reporting and
withholding requirements applicable to U.S. residents will apply. Distributions
of net capital gain are generally not subject to U.S. income tax withholding.
New Regulations. On October 6, 1997, the Treasury Department issued new
---------------
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S. income tax withholding and information reporting rules
applicable to foreign shareholders. The New Regulations will generally be
effective for payments made after December 31, 1998, subject to certain
transition rules. Among other things, the New Regulations will permit the Funds
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 Funds 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.
51
<PAGE>
Other Matters. Investors should be aware that the investments to be made
-------------
by a Fund may involve sophisticated tax rules that may result in income or gain
recognition by the Fund without corresponding current cash receipts. Although
the Funds will seek to avoid significant noncash income, such noncash income
could be recognized by a 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 a 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 Funds are three of the funds in the Stagecoach Family of Funds. The
Company was organized as a Maryland corporation on September 9, 1991, and
currently offers shares of over thirty funds.
Most of the Company's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, classes subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Company's funds also are authorized to
issue other classes of shares, which are sold primarily to institutional
investors. Each class of shares in a fund represents an equal, proportionate
interest in a fund with other shares of the same class. Shareholders of each
class bear their pro rata portion of the fund's operating expenses, except for
certain class-specific expenses (e.g., any state securities registration fees,
shareholder servicing fees or distribution fees that may be paid under Rule 12b-
1) that are allocated to a particular class. Please contact Stagecoach
Shareholder Services at 1-800-222-8222 if you would like additional information
about other funds or classes of shares offered.
With respect to matters affecting one class but not another, shareholders
vote as a class; for example, the approval of a Plan. Subject to the foregoing,
all shares of a Fund have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by a series is required by law
or where the matter involved only affects one series. For example, a change in
a Fund's fundamental investment policy affects only one series and would be
voted upon only by shareholders of the Fund involved. Additionally, approval of
an advisory contract, since it affects only one Fund, is a matter to be
determined separately by series. Approval by the shareholders of one Series is
effective as to that Series whether or not sufficient votes are received from
the shareholders of the other Series to approve the proposal as to those series.
As used in the Prospectus and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of a Class of shares of
a Fund, means the vote of the lesser of (i) 67% of the shares of 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
52
<PAGE>
"majority," when referring to approvals to be obtained from shareholders of the
Fund, means the vote of the lesser of (i) 67% of the shares of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of the Fund are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of the Fund. The term "majority," when referring to the
approvals to be obtained from shareholders of the Company as a whole, means the
vote of the lesser of (i) 67% of the Company's shares represented at a meeting
if the holders of more than 50% of the Company's outstanding shares are present
in person or by proxy, or (ii) more than 50% of the Company's outstanding
shares.
Shareholders are not entitled to any preemptive rights or subscription.
All shares, when issued, will be fully paid and non-assessable by the Company
for the consideration described in the Prospectus.
The Company may dispense with an annual meeting of shareholders in any year
in which it is not required to elect Directors under the 1940 Act.
Each share of a class of a Fund represents an equal proportional interest
in the Fund with each other share of the same class and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
the Fund as are declared in the discretion of the Directors. In the event of
the liquidation or dissolution of the Company, shareholders of a Fund are
entitled to receive the assets attributable to that Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular 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 a class of a Fund or 5% or more of the voting
securities of a Fund as a whole. The term "N/A" is used where a shareholder
holds 5% or more of a class, but less than 5% of a Fund as a whole.
5% OWNERSHIP AS OF JANUARY 2, 1998
----------------------------------
<TABLE>
<CAPTION>
Name and Class; Type Percentage Percentage
Fund Address of Ownership of Class of Fund
---- ------- ------------ -------- -------
<S> <C> <C> <C> <C>
ASSET ALLOCATION Wells Fargo Bank Class A 71.66% 56.29%
P.O. Box 63015 Beneficially Owned
San Francisco, CA 94163
</TABLE>
53
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
INDEX Merrill Lynch Pierce Fenner & Class A 10.38% 7.09%
ALLOCATION Smith, Inc. Record Holder for Record Holder
Exclusive Benefit of Customers
Attn: Fund Administration
4800 Deer Lake East,
3rd Floor
Jacksonville, FL 32246
Sister Therose and Sister Ruth Class B 7.78% N/A
Trees of the Anna M Schwalenberg Record Holder
5200 Crest Road
Rancho Palos Verdes, CA 90275
Stephens Inc Class B 20.61% N/A
A/C 74535655 Record Holder
Little Rock, AR 72201
Stephens Inc Class B 12.08% N/A
A/C 74571993 Record Holder
Little Rock, AR 72201
Dean Willer Reynolds Cust for Class B 29.28% N/A
Marlene D. Fuents Beneficially Owned
12345 Califa Street
North Hollywood, CA 91607
Merrill Lynch Pierce Fenner & Class C 29.53% 9.28%
Smith, Inc. for Exclusive Beneficially Owned
Benefit of Customers Attn:
Fund Admin.
4800 Deer Lake East,
3rd Floor
Jacksonville, FL 32246
Stephens Inc. Class C 50.31% 42.44%
For Exclusive Benefit of Beneficially Owned
Customers
P.O. Box 34127
Little Rock, AR 72203
U.S. GOVERNMENT Wells Fargo Bank Class A 51.90% 47.10%
ALLOCATION P.O. Box 63015 Beneficially Owned
San Francisco, CA 94163
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund), or is identified as the holder of
record of more than 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
OTHER
The Company's Registration Statement, including the Prospectus and SAI for
the Funds and the exhibits filed therewith, may be examined at the office of the
U.S. Securities and Exchange Commission in Washington, D.C. Statements
contained in the Prospectus or the SAI as to the contents of any contract or
other document referred to herein or in the Prospectus are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
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.
54
<PAGE>
FINANCIAL INFORMATION
The portfolio of investments and unaudited financial statements for the
Asset Allocation and U.S. Government Allocation Funds and the Asset Allocation
and U.S. Government Allocation Master Portfolios 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 and unaudited financial statements for the
Overland Index Allocation Fund, the predecessor portfolio to the Company's Index
Allocation Fund, for the six-month period ended June 30, 1997, are hereby
incorporated by reference to the Overland Semi-Annual Reports as filed with the
SEC on September 3, 1997.
The portfolio of investments, financial statements and independent
auditors' report for the Asset Allocation and U.S. Government Allocation Funds
and the Asset Allocation and U.S. Government Allocation Master Portfolios for
the year ended March 31, 1997, are hereby incorporated by reference to the
Company's Annual Reports as filed with the SEC on June 4, 1997.
The portfolio of investments, audited financial statements and independent
auditors' report for the Overland Index Allocation Fund for the year ended
December 31, 1996, are hereby incorporated by reference to the Overland Annual
Reports as filed with the SEC on March 11, 1997.
Annual and Semi-Annual Reports may be obtained by calling 1-800-222-8222.
55
<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.
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
A-1
<PAGE>
paper with "overwhelming safety characteristics" will be rated "A-1+."
Commercial paper with a strong capacity for timely payments on issues will be
rated "A-2."
CORPORATE AND MUNICIPAL BONDS
Moody's: The four highest ratings for corporate and municipal bonds are
"Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest amount of investment risk. Bonds rated "Aa" are
of "high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds rated
"A" possess many favorable investment attributes and are considered to be upper
medium grade obligations. Bonds rated "Baa" are considered to be medium grade
obligations; interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Moody's applies numerical modifiers in its rating
system: 1, 2 and 3 in each rating category from "Aa" through "Baa" in its rating
system. The modifier 1 indicates that the security ranks in the higher end of
its category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are "AAA,"
"AA," "A" and "BBB." Bonds rated "AAA" have the "highest rating" assigned by S&P
and have "an extremely strong capacity" to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity" to pay interest and repay
principal and "differ from the highest rated obligations only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having "adequate protection parameters" to pay
interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of a
plus or minus sign to show relative standing within the category.
CORPORATE AND MUNICIPAL NOTES
Moody's: The highest rating for state and municipal short-term obligations
are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG 3" in the
case of an issue having a variable rate demand feature). Notes rated "MIG 1" or
"VMIG 1" are judged to be of the "best quality." Notes rated "MIG 2" or "VMIG 2"
are of "high quality," with margins of protections "ample although not as large
as in the preceding group." Notes rated "MIG 3" or "VMIG 3" are of "favorable
quality," with all security elements accounted for, but lacking the strength of
the preceding grades.
S&P: The two highest ratings for corporate, state and municipal notes are
"SP-1" and "SP-2." The "SP-1" rating reflects a "very strong or strong capacity
to pay principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
A-2
<PAGE>
CORPORATE AND MUNICIPAL COMMERCIAL PAPER
Moody's: The highest rating for corporate, state and municipal commercial
paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior ability for
repayment of senior short-term debt obligations." Issuers rated "P-2" (Prime-2)
"have a strong capacity for repayment of senior short-term debt obligations,"
but earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate, state and municipal commercial paper
is rated "in the highest category" by S&P and "the obligor's capacity to meet
its financial commitment on the obligation is strong." The "A-1+" rating
indicates that said capacity is "extremely strong." The A-2 rating indicates
that said capacity is "satisfactory," but that corporate and municipal
commercial paper rated "A-2" is "more susceptible" to the adverse effects of
changes in economic conditions or other circumstances than commercial paper
rated in higher rating categories.
A-3
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated March 30, 1998
BALANCED FUND
DIVERSIFIED EQUITY INCOME FUND
EQUITY VALUE FUND
GROWTH FUND
SMALL CAP FUND
STRATEGIC GROWTH FUND
CLASS A, CLASS B AND CLASS C
Stagecoach Funds, Inc. (the "Company") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about six funds in the Stagecoach Family of Funds (each,
a "Fund" and collectively, the "Funds") -- the BALANCED, DIVERSIFIED EQUITY
INCOME, EQUITY VALUE, GROWTH, SMALL CAP and STRATEGIC GROWTH FUNDS. Each Fund
offers Class A Shares and Class B Shares. The Equity Value, Growth, Small Cap
and Strategic Growth Funds also offer Class C shares. This SAI relates to all
such classes of shares.
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectus, dated March 30, 1998. All terms used in this SAI that are
defined in the Prospectus have the meanings assigned in the Prospectus. A copy
of the Prospectus may be obtained without charge by writing Stephens Inc.
("Stephens"), the Company's sponsor, co-administrator and distributor, at 111
Center Street, Little Rock, Arkansas 72201 or by calling the Transfer Agent at
1-800-222-8222.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information............................... 1
Investment Restrictions................................... 1
Additional Permitted Investment Activities................ 8
Risk Factors.............................................. 26
Management................................................ 28
Performance Calculations.................................. 48
Determination of Net Asset Value.......................... 54
Additional Purchase and Redemption Information............ 55
Portfolio Transactions.................................... 56
Fund Expenses............................................. 59
Federal Income Taxes...................................... 59
Capital Stock............................................. 65
Other..................................................... 68
Independent Auditors...................................... 68
Financial Information..................................... 69
Appendix.................................................. A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The Balanced and Equity Value Funds were originally organized as the
Pacifica Balanced and Equity Value Funds, investment portfolios of Pacifica
Funds Trust ("Pacifica"). On September 6, 1996, the Pacifica Balanced Fund and
Pacifica Equity Value Fund were reorganized as the Company's Balanced Fund and
Equity Value Fund, respectively.
The Diversified Equity Income Fund was originally organized as the
Company's Diversified Equity Income Fund. The Class A shares of the Fund
commenced operations on November 18, 1992. The Class B shares of the Fund
commenced operations on January 1, 1995. Prior to December 12, 1997, the Fund
was known as the "Diversified Equity Income Fund."
The Growth Fund commenced operations on January 1, 1992, as the successor
to the Select Stock Fund of the Wells Fargo Investment Trust for Retirement
Programs. The predecessor fund's date of inception was August 2, 1990. Prior to
December 12, 1997, the Growth Fund was known as the "Growth and Income Fund."
The Small Cap Fund commenced operations on September 16, 1996, as the
successor to the Small Capitalization Growth Fund for Employee Retirement Plans,
an unregistered bank collective investment Fund. The inception date of the
predecessor fund was November 1, 1994.
The Strategic Growth Fund commenced operations on March 5, 1996. Prior to
December 12, 1997, the Strategic Growth Fund was known as the "Aggressive Growth
Fund." On December 12, 1997, the Strategic Growth Fund of Overland Express
Funds, Inc. ("Overland"), another investment company advised by Wells Fargo
Bank, was reorganized with and into the Company's Strategic Growth Fund (the
"Consolidation"). For accounting purposes, the Overland Fund is considered the
survivor of the Consolidation. The Class A shares and the Class D shares of the
Overland Fund (which correspond to the Class A and Class C shares, respectively,
of the Stagecoach Fund) commenced operations on January 20, 1993 and July 1,
1993, respectively. Although the Class B shares were in operation prior to
December 12, 1997, for accounting purposes the Class B shares are considered a
new class of of shares that commenced operations on December 15, 1997. The
Overland Fund is sometimes referred to throughout this SAI as the "predecessor
portfolio" to the Company's Strategic Growth Fund.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies
-------------------------------
Each Fund has adopted the following investment restrictions, all of which
are fundamental policies; that is, they may not be changed, without approval by
the holders of a majority (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the outstanding voting securities of such Fund.
1
<PAGE>
The Balanced Fund and Equity Value Fund may not:
(1) borrow money or pledge or mortgage its assets, except that each Fund
may borrow from banks up to 10% of the current value of its total net assets for
temporary or emergency purposes and those borrowings may be secured by the
pledge of not more than 15% of the current value of its total net assets (but
investments may not be purchased by a Fund while any such borrowings exist);
(2) make loans, except loans of portfolio securities and except that a
Fund may enter into repurchase agreements with respect to its portfolio
securities and may purchase the types of debt instruments described in the
Prospectus or this SAI. Neither Fund will invest in repurchase agreements
maturing in more than seven days (unless subject to a demand feature) if any
such investment, together with any illiquid securities (including securities
which are subject to legal or contractual restrictions on resale) held by a
Fund, exceeds 10% of the value of its total assets;
(3) invest in companies for the purpose of exercising control or
management;
(4) knowingly purchase securities of other investment companies, except
(i) in connection with a merger, consolidation, acquisition, or reorganization;
and (ii) the Funds may invest up to 10% of their net assets in shares of other
investment companies;
(5) invest in real property (including limited partnership interests),
commodities, commodity contracts, or oil, gas and other mineral resource,
exploration, development, lease or arbitrage transactions;
(6) acquire securities subject to restrictions on disposition imposed by
the Securities Act of 1933, if, immediately after and as a result of such
acquisition, the value of such restricted securities and all other illiquid
securities held by a Fund would exceed 10% of the value of the Fund's total
assets;
(7) engage in the business of underwriting securities of other issuers,
except to the extent that the disposal of an investment position may technically
cause it to be considered an underwriter as that term is defined under the
Securities Act of 1933;
(8) sell securities short, except to the extent that a Fund
contemporaneously owns or has the right to acquire at no additional cost
securities identical to those sold short;
(9) purchase securities on margin, except that a Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities;
(10) mortgage, pledge, or hypothecate any of its assets, except as
described in fundamental investment policy (1);
(11) purchase or retain the securities of any issuer, if those individual
officers and Directors of the Company, its advisor, the sponsor, or the
distributor, each owning beneficially more than 1/2 of 1% of the securities of
such issuer, together own more than 5% of the securities of such issuer;
(12) invest more than 5% of its net assets in warrants which are unattached
to securities, included within that amount, no more than 2% of the value of a
Fund's net assets, may be warrants that are not listed on the New York or
American Stock Exchanges;
2
<PAGE>
(13) write, purchase or sell puts, calls or combinations thereof, except
that the Funds may purchase or sell puts and calls as otherwise described in the
Prospectus or this SAI; however, neither Fund will invest more than 5% of its
total assets in these classes of securities; nor
(14) invest more than 5% of the current value of its total assets in the
securities of companies that, including predecessors, have a record of less than
three years' continuous operation.
The Diversified Equity Income Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would equal or
exceed 25% of the current value of the Fund's total assets, provided that there
is no limitation with respect to investments in securities issued or guaranteed
by the United States Government, its agencies or instrumentalities;
(2) purchase or sell real estate (other than securities secured by real
estate or interests therein or securities issued by companies that invest in
real estate or interests therein), commodities or commodity contracts or
interests in oil, gas, or other mineral exploration or development programs;
(3) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting;
(5) make investments for the purpose of exercising control or management;
(6) issue senior securities, except that the Fund may borrow from banks up
to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets, but investments may not be
purchased while any such outstanding borrowings exceed 5% of its net assets;
(7) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities) if, as a
result, with respect to 75% of its total assets, more than 5% of the value of
its total assets would be invested in the securities of any one issuer or, with
respect to 100% of its total assets, the Fund would own more than 10% of the
outstanding voting securities of such issuer; nor
(8) write, purchase or sell puts, calls or options or any combination
thereof, except that the Fund may purchase securities with put rights in order
to maintain liquidity.
3
<PAGE>
The Growth Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would be 25% or
more of the current value of the Fund's total assets, provided that there is no
limitation with respect to investments in obligations of the United States
Government, its agencies or instrumentalities;
(2) purchase or sell real estate or real estate limited partnerships
(other than securities secured by real estate or interests therein or securities
issued by companies that invest in real estate or interests therein);
(3) purchase commodities or commodity contracts (including futures
contracts), except that the Fund may purchase securities of an issuer which
invests or deals in commodities or commodity contracts;
(4) purchase interests, leases, or limited partnership interests in oil,
gas, or other mineral exploration or development programs;
(5) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions and except for margin payments in connection
with options, futures and options on futures) or make short sales of securities;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting;
(7) make investments for the purpose of exercising control or management;
(8) issue senior securities, except the Fund may borrow from banks up to
10% of the current value of its net assets for temporary purposes only in order
to meet redemptions, and these borrowings may be secured by the pledge of up to
10% of the current value of 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 purchase securities
with put rights in order to maintain liquidity and may invest up to 5% of its
net assets in warrants in accordance with its investment policies as stated
below; 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.
The Fund may make loans in accordance with its investment policies.
4
<PAGE>
The Small Cap Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would equal or
exceed 25% of the current value of the Fund's total assets, provided that there
is no limitation with respect to investments in securities issued or guaranteed
by the United States Government, its agencies or instrumentalities; and provided
further, that the Fund may invest all its assets in a diversified, open-end
management investment company, or a series thereof, with substantially the same
investment objective, policies and restrictions as the Fund, without regard to
the limitations set forth in this paragraph (1);
(2) purchase or sell real estate (other than securities secured by real
estate or interests therein or securities issued by companies that invest in
real estate or interests therein, including mortgage pass through securities),
commodities or commodity contracts or interests in oil, gas, or other mineral
exploration or development programs;
(3) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting; and provided further, that the purchase by the Fund of securities
issued by a diversified, open-end management investment company, or a series
thereof, with substantially the same investment objective, policies and
restrictions as the Fund shall not constitute an underwriting for purposes of
this paragraph (4);
(5) make investments for the purpose of exercising control or management;
provided that the Fund may invest all its assets in a diversified, open-end
management company, or a series thereof, with substantially the same investment
objective, policies and restrictions as the Fund, without regard to the
limitations set forth in this paragraph (5);
(6) issue senior securities, except that the Fund may borrow from banks up
to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowings exceed 5% of its net assets);
(7) make loans of portfolio securities having a value that exceeds 33 1/3%
of the current value of its total assets, provided that, this restriction does
not apply to the purchase of fixed time deposits, repurchase agreements,
commercial paper and other types of debt instruments commonly sold in a public
or private offering; nor
(8) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if, as a
result, with respect to 75% of its total assets, more than 5% of the value of
its total assets would be invested in the securities of any one issuer or, with
respect to 100% of its total assets, the Fund's ownership would be more than 10%
of the outstanding voting securities of such issuer, provided that the Fund may
invest all its
5
<PAGE>
assets in a diversified, open-end management investment company, or a series
thereof, with substantially the same investment objective, policies and
restrictions as such Fund, without regard to the limitations set forth in this
paragraph (8).
As a matter of non-fundamental policy, the Small Cap Fund will not hold in
its portfolio the securities of issuers whose market capitalization exceeds $2
billion for a period greater than 60 consecutive days. The Small Cap Fund will
sell any such securities in an orderly manner to obtain optimal value for the
securities.
The Strategic Growth Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would be 25% or
more of the current value of the Fund's total assets, provided that there is no
limitation with respect to investments in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities; and provided further, that
the Fund may invest all its assets in a diversified, open-end management
investment company, or a series thereof, with substantially the same investment
objective, policies and restrictions as such Fund, without regard to the
limitations set forth in this paragraph (1);
(2) purchase or sell real estate or real estate limited partnerships
(other than securities secured by real estate or interests therein or securities
issued by companies that invest in real estate or interests therein),
commodities or commodity contracts, or interests in oil, gas, or other mineral
exploration or development programs;
(3) purchase securities on margin (except for short-term credits necessary
for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting; and provided further, that the purchase by the Fund of securities
issued by a diversified, open-end management investment company, or a series
thereof, with substantially the same investment objective, policies and
restrictions as such Fund shall not constitute an underwriting for purposes of
this paragraph (4);
(5) make investments for the purpose of exercising control or management,
provided that the Fund may invest all its assets in a diversified open-end
management company, or a series thereof, with substantially the same investment
objective, policies and restrictions as such Fund, without regard to the
limitations set forth in this paragraph (5);
(6) issue senior securities except that the Fund may borrow from banks up
to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowings exceed 5% of its net assets);
6
<PAGE>
(7) make loans of portfolio securities having a value that exceeds 50% of
the current value of its total assets, provided that, this restriction does not
apply to the purchase of fixed time deposits, repurchase agreements, commercial
paper and other types of debt instruments commonly sold in a public or private
offering; nor
(8) purchase securities of any issuer (except securities issued by the
U.S. Government, its agencies or instrumentalities ) if, as a result, with
respect to 75% of its total assets, more than 5% of the value of its total
assets would be invested in the securities of any one issuer or, with respect to
100% of its total assets, the Fund's ownership would be more than 10% of the
outstanding voting securities of such issuer, provided that the Fund may invest
all its assets in a diversified, open-end management investment company, or a
series thereof, with substantially the same investment objective, policies and
restrictions as such Fund, without regard to the limitations set forth in this
paragraph (8).
With respect to fundamental investment policy (7), the Fund does not intend
to loan its portfolio securities during the coming year.
Non-Fundamental Investment Policies
-----------------------------------
Each Fund has adopted the following non-fundamental policies which may be
changed by a vote of a majority of the Directors of the Company or at any time
without approval of such Fund's shareholders.
(1) Each 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) Each Fund may not invest more than 15% (10% for the Balanced and
Equity Value Funds), 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) Each 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) Each Fund may lend securities from its portfolio to brokers, dealers
and financial institutions, in amounts not to exceed (in the aggregate) one-
third of each Fund's total assets. Any such loans of portfolio securities will
be fully collateralized based on values that are marked to market daily. The
Funds will not enter into any portfolio security lending arrangement having a
duration of longer than one year.
7
<PAGE>
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the Funds.
Bank Obligations
----------------
The Funds may invest in bank obligations, including certificates of
deposit, time deposits, bankers' acceptances and other short-term obligations of
domestic banks, foreign subsidiaries of domestic banks, foreign branches of
domestic banks, and domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. With respect to
such securities issued by foreign branches of domestic banks, foreign
subsidiaries of domestic banks, and domestic and foreign branches of foreign
banks, a Fund may be subject to additional investment risks that are different
in some respects from those incurred by a Fund which invests only in debt
obligations of U.S. domestic issuers. Such risks include possible future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on the securities, the possible
establishment of exchange controls or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
on these securities and the possible seizure or nationalization of foreign
deposits. In addition, foreign branches of U.S. banks and foreign banks may be
subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping standards than those applicable to
domestic branches of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation ("FDIC"). Bankers' acceptances are
credit instruments evidencing the obligation of a bank to pay a draft drawn on
it by a customer. These instruments reflect the obligation both of the bank and
of the drawer to pay the face amount of the instrument upon maturity. The other
short-term obligations may include uninsured, direct obligations, bearing fixed,
floating- or variable-interest rates.
Commercial Paper
----------------
The Funds may invest in commercial paper (including variable amount master
demand notes) which refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations which permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes.
Investments by the Funds in commercial paper (including variable rate demand
notes and variable rate master demand notes issued by domestic and foreign bank
holding companies, corporations and financial institutions, as well as similar
instruments issued by government agencies and instrumentalities) will consist of
issues that are rated in one of the two
8
<PAGE>
highest rating categories by a NRSRO. Commercial paper may include variable- and
floating-rate instruments.
Convertible Securities (Lower Rated Securities)
-----------------------------------------------
The Funds may invest in convertible securities that are not rated in one of
the four highest rating categories by a NRSRO. The yields on such lower rated
securities, which include securities also known as junk bonds, generally are
higher than the yields available on higher-rated securities. However,
investments in lower rated securities and comparable unrated securities
generally involve greater volatility of price and risk of loss of income and
principal, including the probability of default by or bankruptcy of the issuers
of such securities. Lower rated securities and comparable unrated securities
(a) will likely have some quality and protective characteristics that, in the
judgment of the rating organization, are outweighed by large uncertainties or
major risk exposures to adverse conditions and (b) are predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. Accordingly, it is possible that
these types of factors could, in certain instances, reduce the value of
securities held in a Fund's portfolio, with a commensurate effect on the value
of the Fund's shares.
While the market values of lower rated securities and comparable unrated
securities tend to react less to fluctuations in interest rate levels than the
market values of higher-rated securities, the market values of certain lower
rated securities and comparable unrated securities also tend to be more
sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, lower rated securities
and comparable unrated securities generally present a higher degree of credit
risk. Issuers of lower rated securities and comparable unrated securities often
are highly leveraged and may not have more traditional methods of financing
available to them so that their ability to service their debt obligations during
an economic downturn or during sustained periods of rising interest rates may be
impaired. The risk of loss due to default by such issuers is significantly
greater because lower rated securities and comparable unrated securities
generally are unsecured and frequently are subordinated to the prior payment of
senior indebtedness. The Funds may incur additional expenses to the extent that
it is required to seek recovery upon a default in the payment of principal or
interest on their portfolio holdings. The existence of limited markets for
lower rated securities and comparable unrated securities may diminish a Fund's
ability to (a) obtain accurate market quotations for purposes of valuing such
securities and calculating its net asset value and (b) sell the securities at
fair value either to meet redemption requests or to respond to changes in the
economy or in financial markets.
Certain lower rated debt securities and comparable unrated securities
frequently have call or buy-back features that permit their issuers to call or
repurchase the securities from their holders, such as a Fund. If an issuer
exercises these rights during periods of declining interest rates, a Fund may
have to replace the security with a lower yielding security, thus resulting in a
decreased return to the Fund.
The market for certain lower rated securities and comparable unrated
securities is relatively new and has not weathered a major economic recession.
The effect that such a recession might have on such securities is not known.
Any such recession, however, could
9
<PAGE>
disrupt severely the market for such securities and adversely affect the value
of such securities. Any such economic downturn also could adversely affect the
ability of the issuers of such securities to repay principal and pay interest
thereon.
The Funds may invest in convertible securities that provide current income
and are issued by companies with the characteristics described above for each
Fund and that have a strong earnings and credit record. The Funds may purchase
convertible securities that are fixed-income debt securities or preferred
stocks, and which may be converted at a stated price within a specified period
of time into a certain quantity of the common stock of the same issuer.
Convertible securities, while usually subordinate to similar nonconvertible
securities, are senior to common stocks in an issuer's capital structure.
Convertible securities offer flexibility by providing the investor with a steady
income stream (which generally yield a lower amount than similar nonconvertible
securities and a higher amount than common stocks) as well as the opportunity to
take advantage of increases in the price of the issuer's common stock through
the conversion feature. Fluctuations in the convertible security's price can
reflect changes in the market value of the common stock or changes in market
interest rates. At most, 5% of each Fund's net assets will be invested, at the
time of purchase, in convertible securities that are not rated in the four
highest rating categories by one or more NRSROs, such as Moody's 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 Funds may invest in securities for which a tender or exchange offer has
been made or announced, and in securities of companies for which a merger,
consolidation, liquidation or similar reorganization proposal has been announced
if, in the judgment of Wells Fargo Bank, there is a reasonable prospect of
capital appreciation significantly greater than the added portfolio turnover
expenses inherent in the short term nature of such transactions. The principal
risk associated with such investments is that such offers or proposals may not
be consummated within the time and under the terms contemplated at the time of
the investment, in which case, unless such offers or proposals are replaced by
equivalent or increased offers or proposals which are consummated, the Funds may
sustain a loss.
Custodial Receipts for Treasury Securities
------------------------------------------
The Funds may purchase participations in trusts that hold U.S. Treasury
securities (such as TIGRs and CATS) or other obligations where the trust
participations evidence ownership in either the future interest payments or the
future principal payments on the obligations. These participations are normally
issued at a discount to their "face value," and can exhibit greater price
volatility than ordinary debt securities because of the way in which their
principal and interest are returned to investors. Investments by a Fund in such
participations will not exceed 5% of the value of that Fund's total assets.
Emerging Markets
----------------
The Diversified Equity Income, Growth, Small Cap and Strategic Growth Funds
each may invest up to 15% of its assets in equity securities of companies in
"emerging markets." The Funds consider countries with emerging markets to
include the following: (i) countries with an emerging stock market as defined by
the International Finance Corporation; (ii) countries with low- to middle-income
economies according to the International Bank for Reconstruction and Development
(more commonly referred to as the World Bank); and (iii) countries listed in
World Bank publications as developing. The advisor may
10
<PAGE>
invest in those emerging markets that have a relatively low gross national
product per capita, compared to the world's major economies, and which exhibit
potential for rapid economic growth. The advisor believes that investment in
equity securities of emerging market issuers offers significant potential for
long-term capital appreciation.
Equity securities of emerging market issuers may include common stock,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Funds may invest in American Depository Receipts ("ADRs"),
Canadian Depository Receipts ("CDRs"), European Depository Receipts ("EDRs"),
Global Depository Receipts ("GDRs") and International Depository Receipts
("IDRs") of such issuers.
Emerging market countries include, but are not limited to: Argentina,
Brazil, Chile, China, the Czech Republic, Columbia, Ecuador, Greece, Hong Kong,
Indonesia, India, Malaysia, Mexico, the Philippines, Poland, Portugal, Peru,
Russia, Singapore, South Africa, Thailand, Taiwan and Turkey. A company is
considered in a country, market or region if it conducts its principal business
activities there, namely, if it derives a significant portion (at least 50%) of
its revenues or profits from goods produced or sold, investments made, or
services performed therein or has at least 50% of its assets situated in such
country, market or region.
There are special risks involved in investing in emerging-market countries.
Many investments in emerging markets can be considered speculative, and their
prices can be much more volatile than in the more developed nations of the
world. This difference reflects the greater uncertainties of investing in less
established markets and economies. The financial markets of emerging markets
countries are generally less well capitalized and thus securities of issuers
based in such countries may be less liquid. Most are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity prices.
Some countries may still have obsolete financial systems, economic problems or
archaic legal systems. In addition, many of these nations are experiencing
political and social uncertainties.
Floating- and Variable-Rate Obligations
---------------------------------------
The Funds may purchase floating- and variable-rate obligations. Each Fund
may purchase floating- and variable-rate demand notes and bonds. Variable-rate
demand notes include master demand notes that are obligations that permit a Fund
to invest fluctuating amounts, which may change daily without penalty, pursuant
to direct arrangements between the Fund, as lender, and the borrower. The
interest rates on these notes may fluctuate from time to time. The issuer of
such obligations ordinarily has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal amount of the obligations
plus accrued interest upon a specified number of days' notice to the holders of
such obligations. The interest rate on a floating-rate demand obligation is
based on a known lending rate, such as a bank's prime rate, and is adjusted
automatically each time such rate is adjusted. The interest rate on a variable-
rate demand obligation is adjusted automatically at specified intervals.
Frequently, such obligations are secured by letters of credit or other credit
support arrangements provided by banks. Because these obligations are direct
lending arrangements between the lender and borrower, it is not contemplated
that such instruments generally will be traded, and there generally is no
established secondary market for these obligations, although they are redeemable
at face value.
11
<PAGE>
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, a Fund's right to redeem is dependent on the
ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and each Fund may
invest in obligations which are not so rated only if Wells Fargo Bank determines
that at the time of investment the obligations are of comparable quality to the
other obligations in which such Fund may invest. Wells Fargo Bank, on behalf of
each Fund, considers on an ongoing basis the creditworthiness of the issuers of
the floating- and variable-rate demand obligations in such Fund's portfolio. No
Fund will invest more than 15% of the value of its total net assets in floating-
or variable-rate demand obligations whose demand feature is not exercisable
within seven days. Such obligations may be treated as liquid, provided that an
active secondary market exists. Floating- and variable-rate instruments are
subject to interest-rate risk and credit risk.
The floating- and variable-rate instruments that the Funds may purchase
include certificates of participation in such instruments.
The Balanced and Equity Value Funds may also hold floating- and variable-
rate instruments that have interest rates that re-set inversely to changing
current market rates and/or have embedded interest rate floors and caps that
require the issuer to pay an adjusted interest rate if market rates fall below
or rise above a specified rate. These instruments represent relatively recent
innovations in the bond markets, and the trading market for these instruments is
less developed than the markets for traditional types of debt instruments. It is
uncertain how these instruments will perform under different economic and
interest-rate scenarios. The market value of these instruments may be more
volatile than other types of debt instruments and may present greater potential
for capital-gain or loss. In some cases, it may be difficult to determine the
fair value of a structured or derivative instrument because of a lack of
reliable objective information and an established secondary market for some
instruments may not exist.
Foreign Obligations
-------------------
The Funds may invest in foreign securities through American Depository
Receipts ("ADRs"), Canadian Depository Receipts ("CDRs"), European Depository
Receipts ("EDRs"), International Depository Receipts ("IDRs") and Global
Depository Receipts ("GDRs") or other similar securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs (sponsored or unsponsored) are receipts typically issued by a
U.S. bank or trust company and traded on a U.S. stock exchange, and CDRs are
receipts typically issued by a Canadian bank or trust company that evidence
ownership of underlying foreign securities. Issuers of unsponsored ADRs are not
contractually obligated to disclose material information in the U.S. and,
therefore, such information may not correlate to the market value of the
unsponsored ADR. EDRs and IDRs are receipts typically issued by European banks
and trust companies, and GDRs are receipts issued by either a U.S. or non-U.S.
banking institution, that evidence ownership of the underlying foreign
securities. Generally, ADRs in registered form are designed for use in U.S.
securities markets and EDRs and IDRs in bearer form are designed primarily for
use in Europe. Each Fund may not invest 25% or more of its assets in foreign
obligations.
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
12
<PAGE>
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.
Foreign Currency Transactions
-----------------------------
The Equity Value and Balanced Funds may enter into foreign currency
exchange contracts in order to protect against uncertainty in the level of
future foreign exchange rates. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
entered into the interbank market conducted between currency traders (usually
large commercial banks) and their customers. Forward foreign currency exchange
contracts may be bought or sold to protect a Fund against a possible loss
resulting from an adverse change in the relationship between foreign currencies
and the U.S. dollar, or between foreign currencies. Although such contracts are
intended to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time, they tend to limit any potential gain which
might result should the value of such currency increase.
Because the Balanced and Equity Value Funds may invest in securities
denominated in currencies other than the U.S. dollar and may temporarily hold
funds in bank deposits or other money market investments denominated in foreign
currencies, they may be affected favorably or unfavorably by exchange control
regulations or changes in the exchange rate between such currencies and the
dollar. Changes in foreign currency exchange rates influence values within a
Fund from the perspective of U.S. investors. Changes in foreign currency
exchange rates may also affect the value of dividends and interest earned, gains
and losses realized on the sale of securities, and any net investment income and
gains to be distributed to shareholders by a Fund. The rate of exchange between
the U.S. dollar and other currencies is determined by the forces of supply and
demand in the foreign exchange markets. These forces are affected by the
international balance of payments and other economic and financial conditions,
government intervention, speculation and other factors.
Investments in foreign securities also involve certain inherent risks, such
as political or economic instability of the issuer or the country of issue, the
difficulty of predicting international trade patterns and the possibility of
imposition of exchange controls. Such securities may also be subject to greater
fluctuations in price than securities of domestic corporations. In addition,
there may be less publicly available information about a foreign company than
about a domestic company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. Investments in foreign securities and forward
contracts may also be subject to withholding and other taxes imposed by foreign
governments. With respect to certain foreign countries, there is also a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investments in those countries.
Forward Commitments, When-Issued Purchases and Delayed-Delivery
---------------------------------------------------------------
Transactions
------------
Each Fund may purchase or sell securities on a when-issued or delayed-
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary
13
<PAGE>
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 each Fund will generally purchase
securities with the intention of acquiring them, a Fund may dispose of
securities purchased on a when-issued, delayed-delivery or a forward commitment
basis before settlement when deemed appropriate by the advisor. Securities
purchased on a when-issued or forward commitment basis may expose the relevant
Fund to risk because they may experience such fluctuations prior to their actual
delivery. Purchasing securities on a when-issued or forward commitment basis can
involve the additional risk that the yield available in the market when the
delivery takes place actually may be higher than that obtained in the
transaction itself.
Each Fund will segregate cash, U.S. Government obligations or other high-
quality debt instruments in an amount at least equal in value to the Fund's
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will segregate additional liquid assets on a daily basis so
that the value of the segregated assets is equal to the amount of such
commitments.
Loans of Portfolio Securities
-----------------------------
Each Fund may lend its portfolio securities to brokers, dealers and
financial institutions, provided: (1) the loan is secured continuously by
collateral consisting of U.S. Government securities or cash or letters of credit
maintained on a daily marked-to-market basis in an amount at least equal to the
current market value of the securities loaned; (2) the Fund may at any time call
the loan and obtain the return of the securities loaned within five business
days; (3) the Fund will receive any interest or dividends paid on the loaned
securities; and (4) the aggregate market value of securities loaned will not at
any time exceed one third of the total assets of the Fund.
A Fund will earn income for lending its securities because cash collateral
pursuant to these loans will be invested in short-term money market instruments.
In connection with lending securities, a Fund may pay reasonable finders,
administrative and custodial fees. A Fund will not enter into any security
lending arrangement having a duration longer than one year. Loans of securities
involve a risk that the borrower may fail to return the securities or may fail
to provide additional collateral. In either case, a Fund could experience delays
in recovering securities or collateral or could lose all or part of the value of
the loaned securities. When a Fund lends its securities, it continues to
receive interest or dividends on the securities loaned and may simultaneously
earn interest on the collateral received from the borrower or from the
investment of cash collateral in readily marketable, high-quality, short-term
obligations. Although voting rights, or rights to consent, attendant to
securities on loan pass to the borrower, such loans may be called at any time
and will be called so that the securities may be voted by a Fund if a material
event affecting the investment is to occur. A Fund may pay a portion of the
interest or fees earned from securities lending to a borrower or placing broker.
Borrowers and placing brokers may not be affiliated, directly or indirectly,
with Wells Fargo Bank, Stephens Inc. or any of their affiliates.
Money Market Instruments and Temporary Investments
--------------------------------------------------
The Funds may invest in the following types of high quality money market
instruments that have remaining maturities not exceeding one year: (i) U.S.
Government obligations; (ii) negotiable certificates of deposit, bankers'
acceptances and fixed time deposits and other obligations of domestic banks
(including
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foreign branches) that have more than $1 billion in total assets at the time of
investment and are members of the Federal Reserve System or are examined by the
Comptroller of the Currency or whose deposits are insured by the FDIC; (iii)
commercial paper rated at the date of purchase "Prime-1" by Moody's or "A-1" or
"A-1--" by S&P, or, if unrated, of comparable quality as determined by Wells
Fargo Bank, as investment advisor; and (iv) repurchase agreements. The Funds
also may invest in short-term U.S. dollar-denominated obligations of foreign
banks (including U.S. branches) that at the time of investment: (i) have more
than $10 billion, or the equivalent in other currencies, in total assets; (ii)
are among the 75 largest foreign banks in the world as determined on the basis
of assets; (iii) have branches or agencies in the United States; and (iv) in the
opinion of Wells Fargo Bank, as investment advisor, are of comparable quality to
obligations of U.S. banks which may be purchased by the Funds.
Letters of Credit. Certain of the debt obligations (including certificates
of participation, commercial paper and other short-term obligations) which the
Funds may purchase may be backed by an unconditional and irrevocable letter of
credit of a bank, savings and loan association or insurance company which
assumes the obligation for payment of principal and interest in the event of
default by the issuer. Only banks, savings and loan associations and insurance
companies which, in the opinion of Wells Fargo Bank, are of comparable quality
to issuers of other permitted investments of the Fund may be used for letter of
credit-backed investments.
Repurchase Agreements. A 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. A 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, a 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.
Each Fund may not enter into a repurchase agreement with a maturity of more
than seven days, if, as a result, more than 15% of the market value of such
Fund's total net assets would be invested in repurchase agreements with
maturities of more than seven days, restricted securities and illiquid
securities. A 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
Funds may participate in pooled repurchase agreement transactions with other
funds advised by Wells Fargo Bank.
Mortgage-Related Securities
---------------------------
The Balanced and Diversified Equity Income Funds may invest in mortgage-
related securities. Mortgage pass-through securities are securities representing
interests in "pools" of mortgages in which payments of both interest and
principal on the securities are made monthly, in effect "passing through"
monthly payments made by the individual borrowers on the residential mortgage
loans which underlie the securities (net of fees paid to the issuer or guarantor
of the securities). Early repayment of principal on mortgage pass-through
securities (arising from prepayments of principal due to sale of the underlying
property, refinancing, or foreclosure, net of fees and costs which may be
incurred) may expose a Fund to a
15
<PAGE>
lower rate of return upon reinvestment of principal. Also, if a security subject
to prepayment has been purchased at a premium, in the event of prepayment the
value of the premium would be lost. Like other fixed-income securities, when
interest rates rise, the value of a mortgage-related security generally will
decline; however, when interest rates decline, the value of mortgage-related
securities with prepayment features may not increase as much as other fixed-
income securities. Payment of principal and interest on some mortgage pass-
through securities (but not the market value of the securities themselves) may
be guaranteed by the full faith and credit of the U.S. Government or its
agencies or instrumentalities. Mortgage pass-through securities created by non-
government issuers (such as commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issuers) may be supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance, and letters of
credit, which may be issued by governmental entities, private insurers or the
mortgage poolers. The Balanced Fund may also invest in investment grade
Collateralized Mortgage Obligations ("CMOs"). CMOs may be collateralized by
whole mortgage loans but are more typically collateralized by portfolios of
mortgage pass-through securities guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") or
the Federal National Mortgage Association (" FNMA"). CMOs are structured into
multiple classes, with each class bearing a different stated maturity. Payments
of principal, including prepayments, are first returned to investors holding the
shortest maturity class; investors holding the longer maturity classes receive
principal only after the first class has been retired. As new types of mortgage-
related securities are developed and offered to investors, the advisor will,
consistent with a Fund's investment objective, policies and quality standards,
consider making investments in such new types of mortgage-related securities.
There are risks inherent in the purchase of mortgage-related securities.
For example, these securities are subject to a risk that default in payment will
occur on the underlying mortgages. In addition to default risk, these securities
are subject to the risk that prepayment on the underlying mortgages will occur
earlier or later or at a lessor or greater rate than expected. To the extent
that the advisor's assumptions about prepayments are inaccurate, these
securities may expose the Funds to significantly greater market risks than
expected.
Other Asset-Backed Securities
-----------------------------
The Balanced, Diversified Equity Income, Equity Value and Growth Funds may
purchase asset-backed securities unrelated to mortgage loans. These asset-backed
securities may consist of undivided fractional interests in pools of consumer
loans or receivables held in trust. Examples include certificates for automobile
receivables (CARS) and credit card receivables (CARDS). Payments of principal
and interest on these asset-backed securities are "passed through" on a monthly
or other periodic basis to certificate holders and are typically supported by
some form of credit enhancement, such as a letter of credit, surety bond,
limited guaranty, or subordination. The extent of credit enhancement varies, but
usually amounts to only a fraction of the asset-backed security's par value
until exhausted. Ultimately, asset-backed securities are dependent upon payment
of the consumer loans or receivables by individuals, and the certificate holder
frequently has no recourse to the entity that originated the loans or
receivables. The actual maturity and realized yield will vary based upon the
prepayment experience of the underlying asset pool and prevailing interest rates
at the time of prepayment. Asset-backed securities are relatively new
instruments and may be subject to greater risk of default during periods of
economic downturn than other instruments. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund experiencing difficulty in valuing or
liquidating such securities.
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<PAGE>
Options Trading
---------------
The funds may purchase or sell options on individual securities or options
on indices of securities as described below. The purchaser of an option risks a
total loss of the premium paid for the option if the price of the underlying
security does not increase or decrease sufficiently to justify exercise. The
seller of an option, on the other hand, will recognize the premium as income if
the option expires unrecognized but foregoes any capital appreciation in excess
of the exercise price in the case of a call option and may be required to pay a
price in excess of current market value in the case of a put option.
Call and Put Options on Specific Securities. The Equity Value and Small Cap
Funds may invest in call and put options on a specific security. The Strategic
Growth Fund may invest up to 15% of its assets, represented by the premium paid,
in the purchase of call and put options in respect of specific securities (or
groups of "baskets" of specific securities). Each of the Balanced and Equity
Value Funds may purchase put and call options listed on a national securities
exchange and issued by the Options Clearing Corporation in an amount not
exceeding 5% of its net assets.
A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, an underlying security at the exercise price at
any time during the option period. Conversely, a put option gives the purchaser
of the option the right to sell, and obligates the writer to buy, an underlying
security at the exercise price at any time during the option period. Investments
by a Fund in off-exchange options will be treated as "illiquid" and therefore
subject to the Fund's policy of not investing more than 15% of its net assets in
illiquid securities.
The Balanced, Equity Value and Small Cap Funds may write covered call
option contracts and secured put options as Wells Fargo Bank deems appropriate.
A covered call option is a call option for which the writer of the option owns
the security covered by the option. Covered call options written by a Fund
expose the Fund during the term of the option (i) to the possible loss of
opportunity to realize appreciation in the market price of the underlying
security or (ii) to possible loss caused by continued holding of a security
which might otherwise have been sold to protect against depreciation in the
market price of the security. If a Fund writes a secured put option, it assumes
the risk of loss should the market value of the underlying security decline
below the exercise price of the option. The aggregate value of the securities
subject to options written by a Fund will not exceed 25%. The use of covered
call options and securities put options will not be a primary investment
technique of the Funds, and they are expected to be used infrequently. If the
advisor is incorrect in its forecast of market value or other factors when
writing the foregoing options, a Fund would be in a worse position than it would
have been had the foregoing investment techniques not been used.
Each Fund may engage in unlisted over-the-counter options with
broker/dealers deemed creditworthy by the advisor. Closing transactions for such
options are usually effected directly with the same broker/dealer that effected
the original option transaction. A Fund bears the risk that the broker/dealer
will fail to meet its obligations. There is no assurance that a liquid secondary
trading market exists for closing out an unlisted option position. Furthermore,
unlisted options are not subject to the protections afforded purchasers of
listed options by the Options Clearing Corporation, which performs the
obligations of its members who fail to perform in connection with the purchase
or sale of options.
Each Fund may buy put and call options and write covered call and secured
put options. Options trading is a highly specialized activity which entails
greater than ordinary investment risk. Options may be
17
<PAGE>
more volatile than the underlying instruments, and therefore, on a percentage
basis, an investment in options may be subject to greater fluctuation than an
investment in the underlying instruments themselves. Purchasing options is a
specialized investment technique that entails a substantial risk of a complete
loss of the amounts paid as premiums to the writer of the option.
The Funds may also write covered call and secured put options from time to
time as the advisor deems appropriate. By writing a covered call option, a Fund
forgoes the opportunity to profit from an increase in the market of the
underlying security above the exercise price except insofar as the premium
represents such a profit, and it is not able to sell the underlying security
until the option expires or is exercised or the Fund effects a closing purchase
transaction by purchasing an option of the same series. If a Fund writes a
secured put option, it assumes the risk of loss should the market value of the
underlying security decline below the exercise price of the option. If the
advisor is incorrect in its forecast of market value or other factors when
writing the foregoing options, the Fund would be in a worse position than it
would have been had the foregoing investment techniques not been used.
A call option for a particular security gives the purchaser of the option
the right to buy, and a writer the obligation to sell, the underlying security
at the stated exercise price at any time prior to the expiration of the option,
regardless of the market price of the security. The premium paid to the writer
is in consideration for undertaking the obligation under the option contract. A
put option for a particular security gives the purchaser the right to sell the
security at the stated exercise price at any time prior to the expiration date
of the option, regardless of the market price of the security. Options on
indices provide the holder with the right to make or receive a cash settlement
upon exercise of the option. With respect to options on indices, the amount of
the settlement equals the difference between the closing price of the index at
the time of exercise and the exercise price of the option expressed in dollars,
times a specified multiple.
The Funds will write call options only if they are "covered." In the case
of a call option on a security or currency, the option is "covered" if a Fund
owns the instrument underlying the call or has an absolute and immediate right
to acquire that instrument without additional cash consideration (or, if
additional cash consideration is required, cash, U.S. Government securities or
other liquid high grade debt obligations, in such amount are held in a
segregated account by the Fund's custodian) upon conversion or exchange of other
securities held by it. For a call option on an index, the option is covered if a
Fund maintains with its custodian a diversified portfolio of securities
comprising the index or liquid assets equal to the contract value. A call option
is also covered if a Fund holds a call on the same instrument or index as the
call written where the exercise price of the call held is (i) equal to or less
than the exercise price of the call written, or (ii) greater than the exercise
price of the call written provided the difference is maintained by the Fund in
liquid assets in a segregated account with its custodian. The Funds will write
put options only if they are "secured" by liquid assets maintained in a
segregated account by the Funds' custodian in an amount not less than the
exercise price of the option at all times during the option period.
A Fund's obligation to sell an instrument subject to a covered call option
written by it, or to purchase an instrument subject to a secured put option
written by it, may be terminated prior to the expiration date of the option by
the Fund's execution of a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
instrument, exercise price and expiration date) as the option previously
written. Such a purchase does not result in the ownership of an option. A
closing purchase transaction is ordinarily effected to realize a profit on an
outstanding option, to prevent an underlying instrument from being called, to
permit the sale of the underlying instrument or to
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<PAGE>
permit the writing of a new option containing different terms on such underlying
instrument. The cost of such a liquidation purchase plus transaction costs may
be greater than the premium received upon the original option, in which event
the Fund will have incurred a loss in the transaction. There is no assurance
that a liquid secondary market will exist for any particular option. An option
writer, unable to effect a closing purchase transaction, will not be able to
sell the underlying instrument (in the case of a covered call option) or
liquidate the segregated account (in the case of a secured put option) until the
option expires or the optioned instrument or currency is delivered upon exercise
with the result that the writer in such circumstances will be subject to the
risk of market decline or appreciation in the instrument during such period.
When a Fund purchases an option, the premium paid by it is recorded as an
asset of the Fund. When a Fund writes an option, an amount equal to the net
premium (the premium less the commission) received by a Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this asset or deferred credit will be
subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the current bid price. If an option
purchased by a Fund expires unexercised the Fund realizes a loss equal to the
premium paid. If a Fund enters into a closing sale transaction on an option
purchased by it, the Fund realizes a gain if the premium received by the Fund on
the closing transaction is more than the premium paid to purchase the option, or
a loss if it is less. If an option written by a Fund expires on the stipulated
expiration date or if a Fund enters into a closing purchase transaction, it
realizes a gain (or loss if the cost of a closing purchase transaction exceeds
the net premium received when the option is sold) and the deferred credit
related to such option is eliminated. If an option written by a Fund is
exercised, the proceeds of the sale are increased by the net premium originally
received and the Fund realizes a gain or loss.
There are several risks associated with transactions in options. For
example, there are significant differences between the securities, currency and
options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. In addition,
a liquid secondary market for particular options, whether traded over-the-
counter or on an exchange, may be absent for reasons that include the following:
there may be insufficient trading interest in certain options; restrictions may
be imposed by an exchange on opening transactions or closing transactions or
both; trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities or
currencies; unusual or unforeseen circumstances may interrupt normal operations
on an exchange; the facilities of an exchange or the Options Clearing
Corporation may not be adequate at all times to handle current trading value;
or one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. A Fund is likely to be unable to
control losses by closing its position where a liquid secondary market does not
exist. A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
The Small Cap and Strategic Growth Funds may purchase or sell options on
individual securities or options on indices of securities as described below.
The purchaser of an option risks a total loss of the premium paid for the option
if the price of the underlying security does not increase or decrease
sufficiently
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<PAGE>
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.
The Small Cap and Strategic Growth Funds 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. A Fund bears the
risk that the broker/dealer will fail to meet its obligations. There is no
assurance that a liquid secondary trading market exists for closing out an
unlisted option position. Furthermore, unlisted options are not subject to the
protections afforded purchasers of listed options by the Options Clearing
Corporation, which performs the obligations of its members who fail to perform
in connection with the purchase or sale of options.
Stock Index Options. The Funds 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 25% of the value of its
net assets.
The effectiveness of purchasing or writing stock index options will depend
upon the extent to which price movements in a Fund's investment portfolio
correlate with price movements of the stock index selected. Because the value of
a stock index option depends upon changes to the price of all stocks comprising
the index rather than the price of a particular stock, whether a Fund will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the price of all stocks in the index, rather than
movements in the price of a particular stock. Accordingly, successful use by a
Fund of options on stock indexes will be subject to Wells Fargo Bank's ability
to correctly analyze movements in the direction of the stock market generally or
of particular industry or market segments.
Stock Index Futures Contracts and Options on Stock Index Futures Contracts.
The Funds may participate in stock index futures contracts and options on stock
index futures contracts. A futures transaction involves a firm agreement to buy
or sell a commodity or financial instrument at a particular price on a specified
future date, while an option transaction generally involves a right, which may
or may not be exercised, to buy or sell a commodity of financial instrument at a
particular price on a specified future date. Futures contracts and options are
standardized and exchange-traded, where the exchange serves as the ultimate
counterparty for all contracts. Consequently, the only credit risk on futures
contracts is the creditworthiness of the exchange. Futures contracts, however,
are subject to market risk (i.e., exposure to adverse price changes).
A stock index futures contract is an agreement in which one party agrees to
deliver to the other an amount of cash equal to a specific dollar amount
multiplied by the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. As the aggregate market value of the stocks in the index
changes, the value of the index also changes. In the event that the index level
rises above the level at which the stock index futures contract was sold, the
seller of the stock index futures contract realizes a loss determined by the
difference between the two index levels at the time of expiration of the stock
index futures contract, and the purchaser realizes a gain in that amount. In the
event the index level falls below the level at which the stock index futures
contract was sold, the seller recognizes a gain determined by the difference
between the two index levels at the expiration of the stock
20
<PAGE>
index futures contract, and the purchaser realizes a loss. Stock index futures
contracts expire on a fixed date, currently one to seven months from the date of
the contract, and are settled upon expiration of the contract.
Stock index futures contracts may be purchased to protect a Fund against an
increase in the prices of stocks that Fund intends to purchase. If a Fund is
unable to invest its cash (or cash equivalents) in stock in an orderly fashion,
a Fund may purchase a stock index futures contract to offset any increase in the
price of the stock. However, it is possible that the market may decline instead,
resulting in a loss on the stock index futures contract. If Fund then concludes
not to invest in stock at that time, or if the price of the securities to be
purchased remains constant or increases, a Fund realizes a loss on the stock
index futures contract that is not offset by a reduction in the price of
securities purchased. The Funds also may buy or sell stock index futures
contracts to close out existing futures positions.
The Funds may also purchase put options on stock index futures contracts.
Sales of such options may also be made to close out an open option position. The
Funds may, for example, purchase a put option on a particular stock index
futures contract or stock index to protect against a decline in the value of the
common stocks it holds. If the stocks in the index decline in value, the put
should become more valuable and the Funds could sell it to offset losses in the
value of the common stocks. In this way, put options may be used to achieve the
same goals the Funds seek in selling futures contracts. A put option on a stock
index future gives the purchaser the right, in return for a premium paid, to
assume a short (i.e., the right to sell stock index futures) position in a stock
index futures contract at a specified exercise price ("strike price") at any
time during the period of the option. If the option is exercised by the holder
before the last trading date during the option period, the holder receives the
futures position, as well as any balance in the futures margin account. If an
option is exercised on the last trading day prior to the expiration date of the
option, the settlement is made entirely in cash in an amount equal to the
difference between the strike price and the closing level of the relevant index
on the expiration date.
Wells Fargo Bank expects that an increase or decrease in the index in
relation to the strike price level would normally correlate to an increase or
decrease (but not necessarily to the same extent) in the value of a Fund's
common stock portfolio against which the option was written. Thus, any loss in
the option transaction may be offset by an increase in the value of the common
stock portfolio to the extent changes in the index correlate to changes in the
value of that portfolio. The Funds may liquidate the put options they have
purchased by effecting a closing sale transaction rather than exercising the
option. This is accomplished by selling an option of the same series as the
option previously purchased. There is no guarantee that the Funds will be able
to effect the closing sale transaction. The Funds realize a gain from a closing
sale transaction if the price at which the transaction is effected exceeds the
premium paid to purchase the option and, if less, the Funds realize a loss.
The Funds may each invest in stock index futures in order to protect the
value of common stock investments or to maintain liquidity, provided not more
than 5% of a Fund's net assets are committed to such transactions. A stock index
future obligates the seller to deliver (and the purchaser to take), effectively,
an amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. No physical delivery of
the underlying stocks in the index is made. With respect to stock indices that
are permitted investments, the Funds intend to purchase and sell futures
contracts on the stock index for which it can obtain the best price with
consideration also given to liquidity. There can be no assurance that a liquid
market will exist at the time when a Fund seeks to close out a futures contract
or a futures option position. Lack of a liquid market may prevent liquidation of
an unfavorable position.
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Other Investment Companies
--------------------------
The Funds 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 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 the Funds.
Privately Issued Securities
---------------------------
The Funds 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 a Fund. Privately issued or Rule 144A securities that
are determined by the investment advisor to be "illiquid" are subject to the
Funds' policy of not investing more than 15% of its net assets in illiquid
securities. The investment advisor, under guidelines approved by Board of
Directors of the Company, will evaluate the liquidity characteristics of each
Rule 144A Security proposed for purchase by a 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).
Unrated Investments
-------------------
The Funds may purchase instruments that are not rated if, in the opinion of
Wells Fargo Bank, such obligations are of investment quality comparable to other
rated investments that are permitted to be purchased by such Fund. After
purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by 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, a Fund will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in its
Prospectus and in this SAI. The ratings of Moody's and S&P are more fully
described in the SAI Appendix.
U.S. Government Obligations
---------------------------
The Funds may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government obligations").
Payment of principal and interest on U.S. Government obligations (i) may be
backed by the full faith and credit of the United States (as with U.S. Treasury
bills and GNMA certificates) or (ii) may be backed solely by the issuing or
guaranteeing agency or instrumentality
22
<PAGE>
itself (as with FNMA notes). In the latter case investors must look principally
to the agency or instrumentality issuing or guaranteeing the obligation for
ultimate repayment, which agency or instrumentality may be privately owned.
There can be no assurance that the U.S. Government will provide financial
support to its agencies or instrumentalities where it is not obligated to do so.
In addition, U.S. Government obligations are subject to fluctuations in market
value due to fluctuations in market interest rates. As a general matter, the
value of debt instruments, including U.S. Government obligations, declines when
market interest rates increase and rises when market interest rates decrease.
Certain types of U.S. Government obligations are subject to fluctuations in
yield or value due to their structure or contract terms.
Warrants
--------
The Funds may each invest up to 5% of its net assets at the time of
purchase in warrants (other than those that have been acquired in units or
attached to other securities), and not more than 2% of its net assets in
warrants which are not listed on the New York or American Stock Exchange.
Warrants represent rights to purchase securities at a specific price valid for a
specific period of time. The prices of warrants do not necessarily correlate
with the prices of the underlying securities. A Fund may only purchase warrants
on securities in which the Fund may invest directly.
Zero Coupon Bonds
-----------------
The Funds may invest in zero coupon bonds. Zero coupon bonds are securities
that make no periodic interest payments, but are instead sold at discounts from
face value. The buyer of such a bond receives the rate of return by the gradual
appreciation of the security, which is redeemed at face value on a specified
maturity date. Because zero coupon bonds bear no interest, they are more
sensitive to interest-rate changes and are therefore more volatile. When
interest rates rise, the discount to face value of the security deepens and the
securities decrease more rapidly in value, when interest rates fall, zero coupon
securities rise more rapidly in value because the bonds carry fixed interest
rates that become more attractive in a falling interest rate environment.
Nationally Recognized Statistical Ratings Organizations
-------------------------------------------------------
The ratings of Moody's Investors Service, Inc., Standard & Poor's Ratings
Group, Division of McGraw Hill, Duff & Phelps Credit Rating Co., Fitch Investors
Service, Inc. Thomson Bank Watch and IBCA Inc. represent their opinions as to
the quality of debt securities. It should be emphasized, however, that ratings
are general and not absolute standards of quality, and debt securities with the
same maturity, interest rate and rating may have different yields while debt
securities of the same maturity and interest rate with different ratings may
have the same yield. Subsequent to purchase by a Fund, an issue of debt
securities may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by a Fund. The advisor will consider such an event
in determining whether the Fund involved should continue to hold the obligation.
The payment of principal and interest on debt securities purchased by the
Balanced and Equity Value Funds depends upon the ability of the issuers to meet
their obligations. An issuer's obligations under its debt securities are subject
to the provisions of bankruptcy, insolvency, and other laws affecting the rights
and remedies of creditors, such as the Federal Bankruptcy Code, and laws, if
any, which may be enacted by
23
<PAGE>
federal or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations or, in the case of governmental entities, upon the ability of such
entities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest and principal of its debt securities may
be materially adversely affected by litigation or other conditions. Further, it
should also be, noted with respect to all municipal obligations issued after
August 15, 1986 (August 31, 1986 in the case of certain bonds), the issuer must
comply with certain rules formerly applicable only to "industrial development
bonds" which, if the issuer fails to observe them, could cause interest on the
municipal obligations to become taxable retroactive to the date of issue.
RISK FACTORS
Investments in a Fund are not bank deposits or obligations of Wells Fargo
Bank, are not insured by the Federal Deposit Insurance Corporation ("FDIC") and
are not insured against loss of principal. When the value of the securities
that a 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 a Fund.
The portfolio equity securities of each 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 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 a Fund are
subject to credit and interest-rate risk. Credit risk is the risk that issuers
of the debt instruments in which a Fund invests may default on the payment of
principal and/or interest. Interest-rate risk is the risk that increases in
market interest rates may adversely affect the value of the debt instruments in
which the Funds invest and hence the value of your investment in a Fund.
The market value of a Fund's investment in fixed-income securities will
change in response to various factors, such as changes in market interest-rates
and the relative financial strength of an issuer. During periods of falling
interest rates, the value of fixed-income securities generally rises.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. Debt securities with longer maturities, which
tend to produce higher yields, are subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities.
Fluctuations in the market value of fixed-income securities can be reduced, but
not eliminated, by variable and floating-rate features.
Securities rated in the fourth highest rating category are regarded by S&P
as having an adequate capacity to pay interest and repay principal, but changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make such repayments. Moody's considers such securities as
having speculative characteristics. Subsequent to its purchase by the Fund, an
issue of securities may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by the Fund. The advisor will consider such
an event in determining whether a Fund should continue to hold the obligation.
Securities rated below the fourth highest rating category (sometimes called
"junk bonds") are often considered to be speculative and involve greater risk of
default or price changes due to changes in the issuer's credit-worthiness. The
market prices of these securities may fluctuate more than higher quality
securities and may decline significantly in periods of general economic
difficulty.
24
<PAGE>
There may be some additional risks associated with investments in smaller
and/or newer companies because their shares tend to be less liquid than
securities of larger companies. Further, shares of small and new companies are
generally more sensitive to purchase and sale transactions and changes in the
issuer's financial condition and, therefore, the prices of such stocks may be
more volatile than those of larger company stocks and may be subject to more
abrupt price movements than securities of larger companies.
Investing in the securities of issuers in any foreign country, including
American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs")
and similar securities, involves special risks and considerations not typically
associated with investing in U.S. companies. These include differences in
accounting, auditing and financial reporting standards; generally higher
commission rates on foreign portfolio transactions; the possibility of
nationalization, expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations (which may include suspension of the
ability to transfer currency from a country); and political, social and monetary
or diplomatic developments that could affect U.S. investments in foreign
countries. Additionally, dispositions of foreign securities and dividends and
interest payable on those securities may be subject to foreign taxes, including
withholding taxes. Foreign securities often trade with less frequency and volume
than domestic securities and, therefore, may exhibit greater price volatility.
Additional costs associated with an investment in foreign securities may include
higher custodial fees than apply to domestic custodial arrangements and
transaction costs of foreign currency conversions. Changes in foreign exchange
rates also will affect the value of securities denominated or quoted in
currencies other than the U.S. dollar. A Fund's performance may be affected
either unfavorably or favorably by fluctuations in the relative rates of
exchange between the currencies of different nations, by exchange control
regulations and by indigenous economic and political developments.
There are special risks involved in investing in emerging-market countries.
Many investments in emerging markets can be considered speculative, and their
prices can be much more volatile than in the more developed nations of the
world. This difference reflects the greater uncertainties of investing in less
established markets and economies. In addition, the financial markets of
emerging markets countries are generally less well capitalized and thus
securities of issuers based in such countries may be less liquid. Further, such
markets may be vulnerable to high inflation and interest rates. Most are
heavily dependent on international trade, and some are especially vulnerable to
recessions in other countries. Some of these countries are also sensitive to
world commodity prices and may be subject to political and social uncertainties.
Illiquid securities, which may include certain restricted securities, may
be difficult to sell promptly at an acceptable price. Certain restricted
securities may be subject to legal restrictions on resale. Delay or difficulty
in selling securities may result in a loss or be costly to a Fund.
The advisor may use certain derivative investments or techniques, such as
buying and selling options and futures contracts and entering into currency
exchange contracts or swap agreements, to adjust the risk and return
characteristics of a Fund's portfolio. Derivatives are financial instruments
whose value is derived, at least in part, from the price of another security or
a specified asset, index or rate. Some derivatives may be more sensitive than
direct securities to changes in interest rates or sudden market moves. Some
derivatives also may be susceptible to fluctuations in yield or value due to
their structure or contract terms. If a Fund's 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.
25
<PAGE>
The Funds pursue an active trading investment strategy, and the length of
time a Fund has held a particular security is not generally a consideration in
investment decisions. Accordingly, the portfolio turnover rate for the Funds may
be higher than that of other funds that do not pursue an active trading
investment strategy. Portfolio turnover generally involves some expense to a
Fund, including brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and the reinvestment in other securities.
Portfolio turnover also can generate short-term capital gains tax consequences.
There is, of course, no assurance that a Fund will achieve its investment
objective or be successful in preventing or minimizing the risk of loss that is
inherent in investing in particular types of investment products.
MANAGEMENT
The following information supplements, and should be read in conjunction
with, the section in the Prospectus entitled "Organization and Management of the
Funds." The principal occupations during the past five years of the Directors
and principal executive Officer of the Company are listed below. The address of
each, unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas
72201. Directors deemed to be "interested persons" of the Company for purposes
of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 46 Director, Executive Vice President of Stephens;
Chairman and President of Stephens Insurance Services
President Inc.; Senior Vice President of Stephens
Sports Management Inc.; and President of
Investor Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the School
321 Beechcliff Court of Business and Accounting at Wake Forest
Winston-Salem, NC 27104 University since 1982.
Joseph N. Hankin, 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, N.Y. 10595 University Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Peter G. Gordon, 54 Director Chairman and Co-Founder of Crystal
</TABLE>
26
<PAGE>
<TABLE>
<S> <C> <C>
Crystal Geyser Water Co. Geyser Water Company and President of Crystal
55 Francisco St. Geyser Roxane Water Company since 1977.
San Francisco, CA 94133
(As of 1/1/98)
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.; President of
Morse Investment Corporation; and Co-Managing
Partner of Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens;
Officer, Director of Stephens Sports
Secretary and Management Inc.; and Director of Capo Inc.
Treasurer
</TABLE>
Compensation Table
Year Ended March 31, 1997
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- --------------- ----------------
<S> <C> <C>
Jack S. Euphrat $11,250 $33,750
Director
R. Greg Feltus $ 0 $ 0
Director
Thomas S. Goho $11,250 $33,750
Director
Joseph N. Hankin $ 8,750 $26,250
Director
W. Rodney Hughes $ 9,250 $27,750
Director
Robert M. Joses $11,250 $33,750
Director
J. Tucker Morse $ 9,250 $27,750
Director
</TABLE>
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
27
<PAGE>
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 Funds. As investment advisor, Wells Fargo Bank furnishes investment
guidance and policy direction in connection with the daily portfolio management
of the Funds. Wells Fargo Bank furnishes to the Company's Board of Directors
periodic reports on the investment strategy and performance of each Fund. Wells
Fargo Bank provides the Funds 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 rates indicated below of each Fund's average
daily net assets:
<TABLE>
<CAPTION>
Annual Rate
Fund (as percentage of net assets)
---- -----------------------------
<S> <C>
Balanced 0.60%
Diversified Equity Income 0.50%
Equity Value 0.50%
Growth 0.50% up to $250 Mil.
0.40% next $250 Mil.
0.30% over $500 Mil.
Small Cap 0.60%
Strategic Growth 0.50%
</TABLE>
For the period indicated below, the Funds paid to Wells Fargo Bank the
following advisory fees and Wells Fargo Bank waived the indicated amounts:
28
<PAGE>
<TABLE>
<CAPTION>
Six-Month
Period Ended
3/31/97
---------
Fund Fees Paid Fees Waived
---- --------- -----------
<S> <C> <C>
Balanced $261,078 $30,456
Diversified Equity Income $443,468 $ 0
Equity Value $557,096 $ 0
Growth $782,529 $ 0
Small Cap $ 89,707 $ 0
Strategic Growth/*/ $733,756 $ 0
</TABLE>
____________________
/*/ Indicates fees paid by, or on behalf of, the Overland
predecessor portfolio for the year ended December 31, 1996, the
predecessor portfolio's most recently completed fiscal year.
Balanced and Equity Value Funds. Prior to March 18, 1994, the advisor for
-------------------------------
the predecessor portfolio to the Balanced and Equity Value Funds was San Diego
Financial Capital Management, Inc. ("San Diego Financial"), which was a wholly
owned subsidiary of San Diego Trust & Savings Bank ("San Diego Trust"), which in
turn was a wholly owned subsidiary of San Diego Financial Corporation ("SDFC").
On that date, SDFC merged into First Interstate Bancorp and San Diego Trust
merged into First Interstate Bank of California ("FICAL"). As a result of these
transactions, San Diego Financial became an indirect wholly-owned subsidiary of
FICAL. On January 12, 1995, San Diego Financial merged into First Interstate
Investment Services, Inc., a direct wholly-owned subsidiary of FICAL, which has
since changed its name to First Interstate Capital Management, Inc. ("FICM").
The Pacifica Balanced and Equity Value Funds were reorganized as the
Company's Balanced and Equity Value Funds on September 6, 1996. Prior to
September 6, 1996, Wells Fargo Investment Management, Inc. ("WFIM") and its
predecessor FICM served as advisor to the Pacifica Balanced and Equity Value
Funds. As of September 6, 1996, Wells Fargo Bank became the advisor to the
Company's Balanced and Equity Value Funds.
For the period begun April 1, 1996 and ended September 5, 1996, the
Pacifica predecessor portfolios paid to WFIM, and for the period begun September
6, 1996 and ended September 30, 1996, the Funds paid to Wells Fargo Bank the
advisory fees indicated below and the indicated amounts were waived:
<TABLE>
<CAPTION>
Year Ended
9/30/96
-----------
Fund Fees Paid Fees Waived
---- --------- -----------
<S> <C> <C>
Balanced $ 750,323 $4,608
Equity Value $1,378,145 $ 0
</TABLE>
29
<PAGE>
For the periods indicated below, the prior advisor was entitled to receive
advisory fees from the Pacifica Balanced and Equity Value Funds at the same
annual rates as those currently in effect. For such fiscal years, the prior
advisor was entitled to receive the advisory fees indicated below and the
indicated amounts were waived:
<TABLE>
<CAPTION>
Year Ended Year Ended
9/30/95 9/30/94
------- -------
Fund Fees Paid Fees Waived Fees Paid Fees Waived
---- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Balanced $579,850 $ 0 $683,626 $0
Equity Value $992,870 $ 0 $953,400 $0
</TABLE>
Diversified Equity Income and Growth Funds. For the periods indicated
------------------------------------------
below, the Funds paid to Wells Fargo Bank the following advisory fees and Wells
Fargo Bank waived the indicated amounts:
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended Year Ended
9/30/96 12/31/95 12/31/94
------- -------- --------
Fees Fees Fees Fees Fees Fees
Fund Paid Waived Paid Waived Paid Waived
---- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Diversified Equity Income $415,025 $ 0 $312,512 $ 0 $192,033 $ 0
Growth $799,899 $ 0 $754,149 $ 0 $587,977 $ 0
</TABLE>
Small Cap Fund. Prior to September 16, 1996, Wells Fargo provided advisory
--------------
services to the Collective Investment Fund, the predecessor to the Small Cap
Fund. For these services Wells Fargo charged fees at an annual rate of 0.75% of
the Collective Investment Fund's average net assets. Wells Fargo was also
entitled to be reimbursed by the Collective Investment Fund for expenses
incurred on its behalf, excluding costs incurred in establishing and organizing
the Fund. The Collective Investment Fund was entitled to pay up to 0.10% of its
net assets for "Audit Expenses." There were no sales charges. The Collective
Investment Fund paid all brokerage commissions incurred on its portfolio
transactions.
Prior to December 12, 1997, the Small Cap Fund did not engage an investment
advisor because it invested all of its assets in a Master Portfolio (which had
the same investment objective as the Fund) that was advised by Wells Fargo Bank.
The Small Cap Fund invested in the Small Cap Master Portfolio. The terms of the
Master Portfolio's advisory contract were identical in all material respects to
the terms of the Fund's existing advisory contract.
For the period begun September 16, 1996 (the Small Cap Fund's commencement
of operations) and ended September 30, 1996, the Small Cap Master Portfolio paid
to Wells Fargo Bank $6,129 in advisory fees on behalf of the Small Cap Fund. No
fees were waived.
Strategic Growth Fund. Immediately prior to the Consolidation, the
---------------------
Strategic Growth Fund did not engage an investment advisor because it invested
all of its assets in a Master
30
<PAGE>
Portfolio (which had the same investment objective as the Fund) that was advised
by Wells Fargo Bank. The terms of the Master Portfolio's advisory contract were
identical in all material respects to the terms of the Fund's existing advisory
contract. For the period from inception (January 20, 1993) to February 20, 1996,
the predecessor portfolio operated on a stand-alone basis, did not participate
in a master/feeder structure and retained the services of Wells Fargo Bank as
investment advisor for the Fund.
As discussed herein under "Historical Fund Information," on December 12,
1997, the Overland Strategic Growth Fund was reorganized with and into the Fund.
For financial reporting purposes the Overland Fund is considered the accounting
survivor of the reorganization and the Fund has adopted the financial statements
of the Overland Fund. Therefore, the information shown below concerning the
dollar amount of advisory (and other) fees paid shows the dollar amount of fees
paid by the Overland Fund.
For the year ended December 31, 1994, the Overland Fund incurred $197,689
in advisory fees payable to Wells Fargo Bank, and $9,550 of such fees were
waived. For the year ended December 31, 1995, the predecessor portfolio
incurred $302,821 in advisory fees payable to Wells Fargo Bank. For the period
beginning January 1, 1996 and ended February 20, 1996, the predecessor portfolio
incurred $59,742 in advisory fees payable to Wells Fargo Bank. For the period
begun February 20, 1996 and ended December 31, 1996, the Master Portfolio
incurred $674,014 in advisory fees payable to Wells Fargo Bank on behalf of the
Fund. Wells Fargo Bank did not waive advisory fees in 1995 and 1996.
General. Each 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 respective Fund's outstanding
voting securities or by the Company's Board of Directors and (ii) by a majority
of the Directors of the Company who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. A Fund's
Advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.
PORTFOLIO MANAGERS. Mr. Brian Mulligan is responsible, as co-manager, for
------------------
the day-to-day management of the portfolio of the Growth Fund. Mr. Mulligan has
been co-manager since October 1, 1995. Mr. Mulligan joined Wells Fargo Bank in
1986 through its acquisition of Crocker National Bank, where he had been a
portfolio manager. He is a Vice-President and Manager of the San Francisco
Investment Office, where he is primarily responsible for personal accounts
including individuals, charitable foundations and IRAs. He also covers, from a
research standpoint, the telecommunications and electric utility industries. He
graduated from Skidmore College with a B.S. in Business Management. He is a
chartered financial analyst and serves as a member of the staff of graders. In
addition, Mr. Mulligan is a former member of the Board of Governors for the Los
Angeles Society of Financial Analysts and a present member of the San Francisco
Security Analysts Society.
Ms. Kelli Hill, as co-manager, has been responsible for the day-to-day
management of the portfolio of the Growth Fund since February 1, 1997. Ms. Hill
joined Wells Fargo Bank in 1987 and manages client portfolios. Prior to joining
Wells Fargo Bank, Ms. Hill worked as an institutional equity trader for E.F.
Hutton. Ms. Hill holds a B.A. from the University of Southern California in
International Relations and Economics and is working toward her chartered
financial analyst designation.
31
<PAGE>
Mr. Rex Wardlaw, as co-manager, has been responsible for the day-to-day
management of the portfolios of the Balanced, Equity Value and Diversified
Equity Income Funds since February 1, 1997. Mr. Wardlaw joined Wells Fargo Bank
in 1986 and has eight years of investment experience. He is the Private Client
Services investment manager for the Portland office and is responsible for stock
market research in healthcare, basic industries and transportation sectors. He
holds an M.B.A. from the University of Oregon and a B.A. from Northwest Nazarene
College. Mr. Wardlaw is a chartered financial analyst and a member of the
Portland Society of Financial Analysts. He is also a member of the Association
for Investment management and Research and the American Association of
Individual Investors.
Ms. Tamyra Thomas assumed responsibility as a portfolio co-manager for the
day-to-day management of the bond portion of the Balanced Fund as of September,
1996. She is a Senior Vice-President, the Chief Fixed Income Investment
Officer, and Chair of the Investment Management Group of Wells Fargo Bank. She
is also Chair of the Investment Management Group Policy Committee. Ms. Thomas
has managed bond portfolios for over a decade. She currently manages in excess
of $1 billion of long-term taxable bond portfolios for various foundations,
defined benefit plans and other clients. Prior to joining Wells Fargo Bank in
1988, she held a number of senior investment positions for the Valley Bank &
Trust Company of Utah including Vice-President and Manager of the Investment
Department and Chairman of the Trust Investment Committee. She holds a B.S.
from the University of Utah and was past president of the Utah Bond Club. Ms.
Thomas is a chartered financial analyst.
Mr. Allen Wisniewski has been responsible, as co-manager, for the day-to-
day management of the portfolio of the Diversified Equity Income Fund since
November 1992. Mr. Wisniewski is also responsible, as co-manager, for the day-
to-day management of the portfolio of the Equity Value Fund. He also is
responsible for managing equity and balanced accounts for high-net-worth
individuals and pensions. Mr. Wisniewski joined Wells Fargo Bank in April 1987
with the acquisition of Bank of America's consumer trust services, where he was
a portfolio manager. He received his B.A. and M.B.A. in Economics and Finance
from the University of California at Los Angeles. He is a member of the Los
Angeles Society of Financial Analysts.
Mr. Jon Hickman has managed the Small Cap Fund since its inception in
September 1996. Mr. Hickman had also co-managed the Small Capitalization Growth
Fund from November 1994 until the sale of its assets to the Small Cap Master
Portfolio in September 1996. Mr. Hickman has over sixteen years' experience in
the investment management field. He joined Wells Fargo Bank in 1986 managing
equity and balanced portfolios for individuals and employee benefit plans. He
is a senior member of Wells Fargo Bank's Equity Strategy Committee. Mr. Hickman
has a B.A. and an M.B.A. in Finance from Brigham Young University.
Mr. Kenneth Lee became a portfolio co-manager to the Small Cap Fund as of
June 18, 1997 and is responsible for providing fundamental security analysis and
portfolio management. Mr. Lee joined Wells Fargo Bank in 1993 and went from
Investment Operations to the Portfolio Management group in 1995. Prior to 1993,
he worked as an associate at Wells Fargo Nikko Investment Advisors and at Dean
Witter Reynolds (Morgan Stanley Dean Witter Discover) Mr.
32
<PAGE>
Lee has over 8 years experience in the industry. He holds bachelor degrees in
Economics and Organizational Studies from the University of California at Davis
Mr. Steve Enos has managed the Strategic Growth Fund since its inception in
March of 1996. Mr. Enos co-managed the Small Capitalization Growth Fund from
November 1994 until the sale of its assets to the Small Cap Master Portfolio in
September, 1996. Mr. Enos joined Wells Fargo in 1993 and is a member of the
Wells Fargo Bank Growth Equity Team. He began his career with First Interstate
Bank, where he was assistant vice president and portfolio manager. From 1991 to
1993, Mr. Enos was a principal at Dolan Capital Management where he managed both
personal and pension portfolios. Mr. Enos received his undergraduate degree in
economics from the University of California at Davis. Mr. Enos is a Chartered
Financial Analyst and a member of the Association for Investment Management and
Research.
Mr. Chris Greene joined Wells Fargo Bank on April 1, 1997, to work as
portfolio co-manager of the Strategic Growth Fund. Immediately prior to joining
Wells Fargo Bank, Mr. Greene worked for three years in the Mergers &
Acquisitions group for Hambrecht & Quist, an investment banking firm focusing on
growth companies. Before that, he worked for two years at GB Capital Management
and prior to that, he worked at Wood Island Associates, firms focusing on equity
and fixed-income securities. He has over five years experience in the industry.
Mr. Greene received his B.A. in Economics from Claremont McKenna College.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells Fargo
----------------------------------
Bank as Administrator and Stephens as Co-Administrator on behalf of each Fund.
Under the respective Administration and Co-Administration Agreements among Wells
Fargo Bank, Stephens and the Company, Wells Fargo Bank and Stephens shall
provide as administration services, among other things: (i) general supervision
of the Funds' operations, including coordination of the services performed by
each Fund's investment advisor, transfer agent, custodian, shareholder servicing
agent(s), independent auditors and legal counsel, regulatory compliance,
including the compilation of information for documents such as reports to, and
filings with, the U.S. Securities and Exchange Commission ("SEC") and state
securities commissions; and preparation of proxy statements and shareholder
reports for each Fund; and (ii) general supervision relative to the compilation
of data required for the preparation of periodic reports distributed to the
Company's officers and Board of Directors. Wells Fargo Bank and Stephens also
furnish office space and certain facilities required for conducting the 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 each Fund. Prior to February 1, 1998, the Administrator and
Co-Administrator were entitled to receive a monthly fee of 0.04% and 0.02%,
respectively, of the average daily net assets of each Fund.
Except as described below, prior to February 1, 1997, Stephens served as
sole Administrator and performed substantially the same services now provided by
Stephens and Wells Fargo Bank.
For the period indicated below, the Funds paid the following dollar amounts
to Wells Fargo Bank and Stephens for administration and co-administration fees:
<PAGE>
<TABLE>
<CAPTION>
Six-Month
Period Ended
3/31/97
-----------
Fund Total Wells Fargo Stephens
---- ----- ----------- --------
<S> <C>
Balanced $ 25,743 $ 5,149 $ 20,594
Diversified Equity Income $ 36,085 $ 7,217 $ 28,868
Equity Value $ 59,479 $11,896 $ 47,583
Growth $ 64,992 $12,998 $ 51,994
Small Cap $ 8,027 $ 1,605 $ 6,422
Strategic Growth* $211,420 N/A $211,420
</TABLE>
___________________
* Indicates fees paid by, or on behalf of, the Overland predecessor portfolio
for the year ended December 31, 1996, the predecessor portfolio's most
recently completed fiscal year.
Balanced and Equity Value Funds. The Pacifica Balanced and Equity Value
-------------------------------
Funds were reorganized as the Company's Balanced and Equity Value Funds on
September 6, 1996. Prior to September 6, 1996, the Administrator, Furman Selz
LLC ("Furman Selz"), of the Pacifica Balanced and Equity predecessor portfolios
provided management and administration services necessary for the operation of
such Funds, pursuant to an Administrative Services Contract. For these services,
Furman Selz was entitled to receive a fee, payable monthly, at the annual rate
of 0.15% of the average daily net assets of the predecessors portfolios.
From September 6, 1996 to February 1, 1997, Stephens served as the Funds'
sole Administrator and was entitled to receive a fee, payable monthly, at the
annual rate of 0.05% of each Fund's average daily net assets. The following
table reflects administration fees paid by the Funds to Stephens for the period
begun September 6, 1996 and ended September 30, 1996. The table also reflects
the net administration fees paid to the respective former Administrators of the
predecessor portfolios for periods prior to September 6, 1996.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
9/30/96* 9/30/95 9/30/94
-------- ------- -------
Fees Fees Fees Fees Fees
Fund Paid Paid Waived Paid Waived
---- ---- ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balanced $ 130,709 $193,283 $19,328 $227,896 $22,808
Equity Value $ 240,273 $330,957 $33,096 $317,992 $31,972
</TABLE>
____________________
* The amounts for the year ended September 30, 1996 reflect fees after
waivers.
Diversified Equity Income, Growth and Small Cap Funds. For the periods
-----------------------------------------------------
indicated below, the Funds paid the following dollar amounts of administration
fees to Stephens who, as sole Administrator during these periods, was entitled
to receive a fee, payable monthly, at the annual rate of 0.03% of the
Diversified Equity Income Fund's average daily net assets and 0.05% of the
Growth and Small Cap Funds' average daily net assets:
34
<PAGE>
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended Year Ended
Fund 9/30/96 12/31/95 12/31/94
---- ------- -------- --------
<S> <C> <C> <C>
Diversified Equity Income $ 24,902 $ 18,751 $ 11,522
Growth $ 51,193 $ 45,249 $ 35,279
Small Cap* $ 492* N/A N/A
</TABLE>
____________________
* The fees are for the period begun September 16, 1996 and ended September
30, 1996.
Strategic Growth Fund. Prior to February 1, 1997, Stephens served as sole
---------------------
Administrator to the predecessor portfolio. Stephens was entitled to receive a
fee, payable monthly, at the annual rate of 0.15% of the predecessor portfolio's
average daily net assets up to $200 million and 0.10% of the average daily net
assets in excess of $200 million.
For the periods indicated below, the predecessor portfolio paid the
following dollar amounts of administration fees to Stephens:
<TABLE>
<CAPTION>
Year Ended Year Ended
12/31/95 12/31/94
-------- --------
<S> <C>
$91,128 $62,623
</TABLE>
DISTRIBUTOR. Stephens (the "Distributor"), located at 111 Center Street,
-----------
Little Rock, Arkansas 72201, serves as Distributor for the Funds. Each Fund
has adopted a distribution plan (a "Plan") under Section 12(b) of the 1940 Act
and Rule 12b-1 thereunder (the "Rule") for its shares. The Plans were adopted
by the Company's Board of Directors, including a majority of the Directors who
were not "interested persons" (as defined in the 1940 Act) of the Funds and who
had no direct or indirect financial interest in the operation of the Plans or in
any agreement related to the Plans (the "Non-Interested Directors").
Under the Plans and pursuant to the related Distribution Agreement, the
indicated Funds pay Stephens the amounts listed below as compensation for
distribution-related services or as reimbursement for distribution-related
expenses. The fees are expressed as a percentage of the average daily net
assets attributable to each Class.
35
<PAGE>
<TABLE>
Fund Fee
---- ---
<S> <C>
Balanced 0.10%
Class A 0.75%
Class B
Diversified Equity Income 0.70%
Class B
Equity Value 0.10%
Class A 0.75%
Class B 0.75%
Class C
Growth 0.70%
Class B 0.75%
Class C
Small Cap 0.10%
Class A 0.75%
Class B 0.75%
Class C
Strategic Growth 0.10%
Class A 0.75%
Class B 0.75%
Class C
</TABLE>
The actual fee payable to the Distributor by the above-indicated Funds and
Classes 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.
Under the Plans in effect for the Class A shares of the Diversified Equity
Income and Growth Funds, each Fund may defray all or part of the cost of
preparing and printing prospectuses and other promotional materials and of
delivering those prospectuses and promotional materials to prospective
shareholders by paying on an annual basis up to 0.05% of the respective Fund's
average daily net assets attributable to Class A shares. The Plans for the
Class A shares of these Funds provide only for reimbursement of actual expenses.
36
<PAGE>
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 each Fund's Plan (Class C shares of the Equity Value, Growth and
Small Cap Funds were not offered during this period):
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Fund Total Prospectus Brochures Underwriters
---- ----- ---------- --------- ------------
<S> <C> <C> <C> <C>
Balanced
Class A $ 5,405 $ 4,524 $ 881 N/A
Class B $ 229 N/A N/A $ 229
Diversified Equity Income
Class A $ 31,861 $25,347 $ 6,514 N/A
Class B $ 90,397 N/A N/A $ 90,397
Equity Value
Class A $ 4,136 $ 3,602 $ 534 N/A
Class B $ 2,211 N/A N/A $ 2,211
Growth
Class A $ 47,261 $29,481 $17,780 N/A
Class B $ 63,767 N/A N/A $ 63,767
Small Cap
Class A $ 2,429 $ 2,394 $ 34 N/A
Class B $ 3,285 N/A N/A $ 3,285
Strategic Growth*
Class A $219,637 N/A N/A $219,637
Class C $332,019 N/A N/A $332,019
</TABLE>
__________________
* Indicates fees paid by the Overland predecessor portfolio for the year
ended December 31, 1996, the predecessor portfolio's most recently
completed fiscal year.
Balanced and Equity Value Funds. For the year ended September 30, 1996,
-------------------------------
the Balanced Fund paid $82,632 and the Equity Value Fund paid $58,241 to the
Distributor in distribution-related fees for expense reimbursement under each
Fund's Plan for Class A shares.
For the period begun September 6, 1996 and ended September 30, 1996, the
Distributor received no compensation from the Balanced and Equity Value Funds,
under each such Fund's Plan for Class B shares. Prior to September 6, 1996,
PFD, a subsidiary of Furman Selz, served as principal underwriter for the shares
of the predecessor portfolios. The figures above reflect amounts paid to PFD
through September 5, 1996 and amounts paid to Stephens for the period begun
September 6, 1996 and ended September 30, 1996.
37
<PAGE>
Under a distribution plan adopted for the Pacifica Balanced and Equity
Value Funds, Pacifica, on behalf of the Funds, paid directly or reimbursed PFD
monthly for costs and expenses of marketing their shares.
Diversified Equity Income, Growth and Small Cap Funds. For the period
-----------------------------------------------------
ended September 30, 1996, the Distributor received the following amounts of
distribution-related fees for the specified purposes set forth below under each
Plan.
<TABLE>
<CAPTION>
Printing &
Mailing Marketing Compensation to
Fund Total Prospectus Brochures Underwriters
---- ----- ---------- --------- ------------
<S> <C> <C> <C> <C>
Diversified Equity Income/1/
Class A $ 0 $ 0 $ 0 N/A
Class B $49,796 N/A N/A $49,796
Growth Fund/1/
Class A $35,064 $ 1,266 $33,798 N/A
Class B $43,495 N/A N/A $43,495
Small Cap/2/
Class A $ 2 $ 0 $ 2 N/A
Class B $ 0 N/A N/A $ 0
</TABLE>
____________________
/1/ Indicated amounts reflect fees paid for the nine-month period begun January
1, 1996 and ended September 30, 1996.
/2/ Indicated amounts reflect fees paid for the period begun September 16, 1996
and ended September 30, 1996.
For the period ended September 30, 1996, WFSI and its registered
representatives received no compensation under each Plan.
General. Each Plan will continue in effect from year to year if such
-------
continuance is approved by a majority vote of both the Directors of the Company
and the Non-Interested Directors. Any Distribution Agreement related to the
Plans also must be approved by such vote of the Directors and the Non-Interested
Directors. Such Agreement will terminate automatically if assigned, and may be
terminated at any time, without payment of any penalty, by a vote of a majority
of the outstanding voting securities of the relevant class of the Fund or by
vote of a majority of the Non-Interested Directors on not more than 60 days'
written notice. The Plans may not be amended to increase materially the amounts
payable thereunder without the approval of a majority of the outstanding voting
securities of the Fund, and no material amendment to the Plans may be made
except by a majority of both the Directors of the Company and the Non-Interested
Directors.
The Plans require that the Treasurer of 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 Plans. 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.
38
<PAGE>
Wells Fargo Bank, an interested person (as that term is defined in Section
2(a)(19) of the 1940 Act) of the Company, acts as a selling agent for the Funds'
shares pursuant to selling agreements with Stephens authorized under the Plans.
As a selling agent, Wells Fargo Bank has an indirect financial interest in the
operation of the Plans. The Board of Directors has concluded that the Plans are
reasonably likely to benefit the Funds and their shareholders because the Plans
authorize the relationships with selling agents, including Wells Fargo Bank,
that have previously developed distribution channels and relationships with the
retail customers that the Funds are designed to serve. These relationships and
distribution channels are believed by the Board to provide potential for
increased Fund assets and ultimately corresponding economic efficiencies (i.e.,
lower per-share transaction costs and fixed expenses) that are generated by
increased assets under management.
SHAREHOLDER SERVICING AGENT. The Balanced, Equity Value, Small Cap and
---------------------------
Strategic Growth Funds have approved Servicing Plans and have entered into
related Shareholder Servicing Agreements with financial institutions, including
Wells Fargo Bank, for both Class A and Class B shares. The Diversified Equity
Income and Growth Funds have entered into Shareholder Servicing Agreements for
both Class A and Class B shares and have approved Servicing Plans for their
Class B shares. The Small Cap and Strategic Growth Funds also have adopted
Servicing Plans and have entered into related Shareholder Servicing Agreements
for their Class C shares. Under the agreements, Shareholder Servicing Agents
(including Wells Fargo Bank) agree to perform, as agents for their customers,
administrative services, with respect to Fund shares, which include aggregating
and transmitting shareholder orders for purchases, exchanges and redemptions;
maintaining shareholder accounts and records; and providing such other related
services as the Company or a shareholder may reasonably request. For providing
shareholder services, a Servicing Agent is entitled to a fee from the applicable
Fund, on an annualized basis, of the average daily net assets of the class of
shares owned of record or beneficially by the customers of the Servicing Agent
during the period for which payment is being made. The amounts payable under
the Shareholder Servicing Plans and Agreements are shown below. The Servicing
Plans and related Shareholder Servicing Agreements were approved by the
Company's Board of Directors and provide that a Fund shall not be obligated to
make any payments under such Plans or related Agreements that exceed the maximum
amounts payable under the Conduct Rules of the NASD.
<TABLE>
<CAPTION>
Fund Fee
---- ---
<S> <C>
Balanced
Class A 0.25%
Class B 0.25%
Diversified Equity Income
Class A 0.30%
Class B 0.30%
Equity Value
Class A 0.25%
Class B 0.25%
Class C 0.25%
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Fund Fee
---- ---
<S> <C>
Growth
Class A 0.30%
Class B 0.30%
Class C 0.25%
Small Cap
Class A 0.25%
Class B 0.25%
Class C 0.25%
Strategic Growth
Class A 0.25%
Class B 0.25%
Class C 0.25%
</TABLE>
For the period indicated below, the dollar amounts of shareholder servicing
fees paid, after waivers, by the Funds to Wells Fargo Bank or its affiliates
were as follows (CLASS C SHARES WERE NOT OFFERED BY THE EQUITY VALUE, GROWTH AND
SMALL CAP FUNDS DURING THIS PERIOD):
<TABLE>
<CAPTION>
Six-Month
Period Ended
Fund 3/31/97
---- --------
<S> <C>
Balanced
Class A $ 41,580
Class B $ 79
Diversified Equity Income
Class A $227,203
Class B $ 38,878
Equity Value
Class A $ 24,608
Class B $ 736
Growth
Class A $426,074
Class B $ 27,329
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Six-Month
Period Ended
Fund 3/31/97
---- -------
<S> <C>
Small Cap
Class A $ 0
Class B $ 0
Strategic Growth*
Class C $110,673
</TABLE>
__________________
* Indicates fees paid by the Overland predecessor portfolio on behalf of
Class D shares for the year ended December 31, 1996, the predecessor
portfolio's most recently completed fiscal year.
Balanced and Equity Value Funds. For the period begun October 1, 1995 and
-------------------------------
ended September 5, 1996, and under similar service agreements for the Pacifica
Balanced and Equity Value Funds, payments were made to First Intestate Bancorp.
For the period begun September 6, 1996 and ended September 30, 1996, shareholder
servicing fees, after waivers and reimbursements, were paid to Wells Fargo Bank
or its affiliates. The indicated classes of each Fund paid the following dollar
amounts in shareholder servicing fees for the year ended September 30,
1996:
<TABLE>
<CAPTION>
Year Ended
Fund 9/30/96
---- -------
<S> <C>
Balanced
Class A $ 76,743
Class B N/A
Equity Value
Class A $ 36,350
</TABLE>
Diversified Equity Income and Growth Funds. The dollar amount of
------------------------------------------
shareholder servicing fees paid by the Diversified Equity Income and Growth
Funds to Wells Fargo Bank or its affiliates for the period ended September 30,
1996 were as follows:
<TABLE>
<CAPTION>
Nine-Month
Period Ended
Fund 9/30/96
---- -------
<S> <C>
Diversified Equity Income $249,015
Growth $457,088
</TABLE>
Small Cap Fund. The Class A and B shares of the Small Cap Fund did not pay
--------------
any shareholder servicing fees to Wells Fargo Bank or its affiliates for the
period begun September 16, 1996 and ended September 30, 1996.
General. Each 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
41
<PAGE>
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 the Non-Interested Directors. Servicing Agreements may be
terminated at any time, without payment of any penalty, by a vote of a majority
of the Board of Directors, including a majority of the Non-Interested Directors.
No material amendment to the Servicing Plans or related Servicing Agreements may
be made except by a majority of both the Directors of the Company and the Non-
Interested Directors.
Each Servicing Plan requires that the Administrator of the Company shall
provide to the Directors, and the Directors shall review, at least quarterly, a
written report of the amounts expended (and purposes therefor) under the
Servicing Plan.
CUSTODIAN. Wells Fargo Bank acts as Custodian for each Fund. The
---------
Custodian, among other things, maintains a custody account or accounts in the
name of each Fund, receives and delivers all assets for each Fund upon purchase
and upon sale or maturity, collects and receives all income and other payments
and distributions on account of the assets of each Fund and pays all expenses of
each Fund. For its services as Custodian, Wells Fargo Bank is entitled to
receive fees as follows: a net asset charge at the annual rate of 0.0167%,
payable monthly, plus specified transaction charges. Wells Fargo Bank also
provides portfolio accounting services under the Custody Agreement as follows:
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 each Fund's average daily net assets, 0.045% of the
next $50,000,000, and 0.020% of the average daily net assets in excess of
$100,000,000.
For the six-month period ended March 31, 1997, the Funds paid the following
dollar amounts in custody fees, after waivers, to Wells Fargo Bank:
<TABLE>
<CAPTION>
Fund Custody Fees
---- ------------
<S> <C>
Balanced $ 0
Diversified Equity Income $ 0
Equity Value $ 0
Growth $28,876
Small Cap $ 0
Strategic Growth* $32,162
</TABLE>
___________________
* Indicates fees paid by, or on behalf of, the Overland predecessor portfolio
for the year ended December 31, 1996, the predecessor portfolio's most
recently completed fiscal year.
Balanced and Equity Value Funds. FICAL, located at 707 Wilshire Blvd., Los
-------------------------------
Angeles, California 90017, acted as Custodian to the Pacifica Balanced and
Equity Value Funds. FICAL was entitled to receive a fee from Pacifica, computed
daily and payable monthly, at the annual rate of 0.021% of the first $5 billion
in aggregate average daily net assets of the Funds; 0.0175% of the next $5
billion in aggregate average daily net assets of the Funds; and 0.015% of the
aggregate average daily net assets of the Funds in excess of $10 billion.
For the period begun October 1, 1995 and ended September 5, 1996, the
custody fees paid to FICAL, and for the period begun September 6, 1996 and ended
September 30, 1996, the custody fees paid to Wells Fargo Bank were as follows:
42
<PAGE>
<TABLE>
<CAPTION>
Year Ended
Fund 9/30/96
---- -------
<S> <C>
Balanced $ 0
Equity Value $ 40,035
</TABLE>
Diversified Equity Income, Growth and Small Cap Funds. For the period
-----------------------------------------------------
indicated below, the Diversified Equity Income, Growth and Small Cap Funds paid
the following dollar amounts in custody fees, without regard to Class, after
waivers, to Wells Fargo Bank:
<TABLE>
<CAPTION>
<S> <C>
Nine-Month
Period Ended
Fund 9/30/96
---- -------
Diversified Equity Income $ 0
Growth $ 17,963
Small Cap* $ 0
</TABLE>
_______________
* Indicated amount reflects fees paid for the period begun September 16, 1996
and ended September 30, 1996.
For the six-month period ended march 31, 1997 and the nine-month period
ended September 30, 1996, the Funds did not pay any fund accounting fees.
TRANSFER AND DIVIDEND DISBURSING AGENT. Wells Fargo Bank acts as Transfer
--------------------------------------
and Dividend Disbursing Agent for the Funds. For providing such services, Wells
Fargo Bank is entitled to receive monthly payments at the annual rate of 0.14%
of the average daily net assets attributable to each Fund's Class A, Class B
and, where applicable, Class C shares.
For the six-month period ended March 31, 1997, the Funds paid the following
dollar amounts in transfer and dividend disbursing agency fees, without regard
to class and after waivers, to Wells Fargo Bank:
<TABLE>
<CAPTION>
Fund Transfer Agency Fees
---- --------------------
<S> <C>
Balanced $ 0
Diversified Equity Income $ 82,838
Equity Value $ 77,309
Growth $175,860
Small Cap $ 0
Strategic Growth* $166,001
</TABLE>
__________________
* Indicates fees paid by the Overland predecessor portfolio for the
year ended December 31, 1996, the predecessor portfolio's most recently
completed fiscal year.
43
<PAGE>
Balanced and Equity Value Funds. Under the prior transfer agency agreement
-------------------------------
for the Balanced and Equity Value Funds, Wells Fargo Bank was entitled to
receive monthly payments at the annual rate of 0.07% of the average daily net
assets of each Class of the Funds, as well as reimbursement for all reasonable
out-of-pocket expenses. Furman Selz acted as Transfer Agent for the Pacifica
predecessor portfolios. Pacifica compensated Furman Selz for providing personnel
and facilities to perform transfer agency related services for Pacifica at a
rate intended to represent the cost of providing such services.
Diversified Equity Income Fund. Under the prior transfer agency agreement
------------------------------
for the Diversified Equity Income Fund, Wells Fargo Bank was entitled to receive
a per account fee plus transaction fees and out-of-pocket related costs with a
minimum of $3,000 per month, unless net assets of the Fund were under $20
million. For as long as the Fund's assets remained under $20 million, the Fund
was not charged any transfer agency fees.
For the nine-month period ended September 30, 1996, the Diversified Equity
Income Fund paid $27,158, after waivers, in transfer and dividend disbursing
agency fees to Wells Fargo Bank or its affiliates.
Growth Fund. Under the prior transfer agency agreement for the Growth
-----------
Fund, Wells Fargo Bank was entitled to receive a per account fee plus
transaction fees and out-of-pocket related costs with a minimum of $3,000 per
month, unless net assets of the Fund were under $20 million. For as long as the
Fund's assets remained under $20 million, the Fund was not charged any transfer
agency fees.
For the nine-month period ended September 30, 1996, the Growth Fund paid
$217,737, without regard to class and after waivers, in transfer and dividend
disbursing agency fees to Wells Fargo Bank.
Small Cap Fund. Under the prior transfer agency agreement for the Small
--------------
Cap Fund, Wells Fargo Bank was entitled to receive monthly payments at the
annual rate of 0.07% of the Fund's average daily net assets of each class of the
Fund, as well as reimbursement for all reasonable out-of-pocket expenses.
For the period begun September 16, 1996 and ended September 30, 1996, the
Small Cap Fund paid to Wells Fargo Bank $617, without regard to Class and after
waivers, in transfer and dividend disbursing agency fees.
Strategic Growth Fund. Under the prior transfer agency agreement for the
---------------------
Strategic Growth Fund, Wells Fargo Bank was entitled to receive monthly payments
at the annual rate of 0.10% of the Fund's average daily net assets, regardless
of Class, as well as reimbursement for reasonable out-of-pocket expenses.
UNDERWRITING COMMISSIONS. For the six-month period ended March 31, 1997,
------------------------
the aggregate dollar amount of underwriting commissions paid to Stephens on
sales/redemptions of the Company's shares was $2,296,243 and Stephens retained
241,806 of such commissions. WFSI and its registered representatives received
$1,719,000 and $335,437, respectively, of such commissions.
For the nine-month period ended September 30, 1996, the aggregate amount of
underwriting commissions paid to Stephens on sales/redemptions of the Company's
shares was
44
<PAGE>
$2,917,738. Stephens retained $198,664 of such commissions. WFSI and its
registered representatives retained $2,583,027 and $136,047, respectively, of
such commissions.
For the year ended December 31, 1995, the aggregate amount of underwriting
commissions paid to Stephens on sales/redemptions of the Company's shares was
$1,251,333. Stephens retained $162,660 of such commissions. WFSI and its
registered representatives received $399,809 of such commissions.
For the period begun October 1, 1995 and ended September 5, 1996 with
respect to the predecessor funds, the aggregate amount of underwriting
commissions on sales/redemptions of Pacifica's shares was $150,771. Pacifica
Funds Distributor Inc. ("PFD"), retained $18,139 and its registered
representatives retained $132,632 of such commissions.
For the year ended December 31, 1994, Stephens retained $5,415,227, in
underwriting commissions (front-end sales loads and CDSCs, if any) in connection
with the purchase or redemption of the Company's shares. For the year ended
December 31, 1994, Wells Fargo Securities Inc. ("WFSI"), an affiliated broker-
dealer of the Company, and its registered representatives received $904,274 in
underwriting commissions in connection with the purchase or redemption of the
Company's shares.
PERFORMANCE CALCULATIONS
The Funds may advertise certain yield and total return information.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in a Fund or class of shares during the particular time
period shown. Yield and total return vary based on changes in the market
conditions and the level of a Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
In connection with communicating its 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 a Fund or Class of shares in a Fund may be
useful in reviewing the performance of such Fund or Class of shares and for
providing a basis for comparison with investment alternatives. The yield of a
Fund and the yield of a Class of shares in a Fund, however, may not be
comparable to the yields from investment alternatives because of differences in
the foregoing variables and differences in the methods used to value portfolio
securities, compute expenses and calculate yield.
AVERAGE ANNUAL TOTAL RETURN: The Funds may advertise certain total return
---------------------------
information computed in the manner described in the Prospectus. As and to the
extent required by the SEC, an average annual compound rate of return ("T") is
computed by using the redeemable value at the end of a specified period ("ERV")
of a hypothetical initial investment ("P") over a period of years ("n")
according to the following formula: P(1+T)n=ERV. In addition, as indicated in
each Prospectus, each Fund also may, at times, calculate total return based on
net asset value per share (rather than the public offering price), in which case
the
45
<PAGE>
figures would not reflect the effect of any sales charges that would have
been paid by an investor, or based on the assumption that a sales charge other
than the maximum sales charge (reflecting a Volume Discount) was assessed,
provided that total return data derived pursuant to the calculation described
above also are presented.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds.
Performance shown or advertised for the Class A shares of the Stagecoach
Balanced Fund for periods prior to September 6, 1996 reflects performance of the
Investor shares of the Pacifica Balanced Fund, a predecessor portfolio with the
same investment objective and policies as the Stagecoach Balanced Fund.
Performance shown or advertised for the Class B shares of the Stagecoach
Balanced Fund for periods prior to September 6, 1996 reflects performance of the
Investor shares of the predecessor portfolio, with expenses of the Investor
shares adjusted to reflect Class B sales charges and expenses.
Performance shown or advertised for the Class B shares of the Stagecoach
Diversified Equity Income Fund for periods prior to January 1, 1995 reflects
performance of the Class A shares of such Fund, with expenses of the Class A
shares adjusted to reflect Class B sales charges and expenses.
Performance shown or advertised for the Class A shares of the Stagecoach
Equity Value Fund for periods prior to September 6, 1996 reflects performance of
the Investor shares of the Pacifica Equity Value Fund, a predecessor portfolio
with the same investment objective and policies as the Stagecoach Equity Value
Fund. Performance shown or advertised for the Class B shares of the Stagecoach
Equity Value Fund for periods prior to September 6, 1996 reflects performance of
the Investor shares of the predecessor portfolio, with expenses of the Investor
shares adjusted to reflect Class B sales charges and expenses. Class C shares
of the Equity Value Fund were not offered prior to the date of this SAI.
Performance shown or advertised for the Class A shares of the Stagecoach
Growth Fund for periods prior to January 1, 1992, reflects performance of the
shares of the Select Stock Fund of Wells Fargo Investment Trust for Retirement
Programs, a predecessor portfolio with the same investment objective and
policies as the Stagecoach Growth Fund. Performance shown or advertised for the
Class B shares of the Stagecoach Growth Fund for the periods January 1, 1992 to
January 1, 1995 reflects performance of the Class A shares of such Fund, with
expenses of the Class A shares adjusted to reflect Class B sales charges and
expenses. Performance shown or advertised for the Class B shares of the
Stagecoach Growth Fund for periods prior to January 1, 1992, reflects
performance of the shares of the predecessor portfolio, with expenses adjusted
to reflect Class B sales charges and expenses. Class C shares of the Growth
Fund were not offered prior to the date of this SAI.
Performance shown or advertised for the Class A shares of the Stagecoach
Small Cap Fund for periods prior to September 16, 1996, reflects performance of
the shares of the Small Capitalization Growth Fund for BRP Employment Retirement
Plans (an unregistered bank collective investment fund), a predecessor portfolio
with the same investment objective and policies as the Stagecoach Small Cap
Fund. Performance shown or advertised for the Class B
46
<PAGE>
shares of the Stagecoach Small Cap Fund for periods prior to September 16, 1996,
reflects performance of the shares of the predecessor portfolio, with expenses
adjusted to reflect Class B sales charges and expenses. Performance shown or
advertised for the Class C shares of the Stagecoach Small Cap Fund reflects the
performance of the Class B shares which, as discussed above, reflects
performance of the shares of the predecessor portfolio for periods prior to
September 16, 1996, adjusted for Class B sales charges and expenses.
Performance shown or advertised for the Class A shares of the Stagecoach
Strategic Growth Fund, reflects performance of the Class A shares of the
Overland Strategic Growth Fund (the accounting survivor of a merger of the Funds
on December 12, 1997). Performance shown or advertised for the Class C shares
of the Stagecoach Fund reflects performance of the Class D shares of the
Overland Fund; for periods prior to July 1, 1993, Class C share performance of
the Stagecoach Fund reflects performance of the Class A shares of the Overland
Fund adjusted to reflect the sales charges and expenses of the Class C shares.
Performance shown or advertised for the Class B shares of the Stagecoach Fund
reflects performance of the Class D shares of the Overland Fund; for periods
prior to July 1, 1993, Class B share performance of the Stagecoach Fund reflects
performance of the Class A shares of the Overland Fund adjusted to reflect sales
charges and expenses of the Class B shares.
Average Annual Total Return for the Applicable
Period Ended September 30, 1997/1/
----------------------------------------------
<TABLE>
<CAPTION>
Five Three One
Inception Year Year Year
--------- ---- ---- ----
<S> <C> <C> <C> <C>
Balanced
Class A 11.76% 12.35% 13.42% 18.79%
Class B 11.82% 12.54% 13.96% 19.57%
Diversified Equity Income
Class A 16.15% N/A 20.24% 22.31%
Class B 16.37% N/A 21.05% 23.26%
Equity Value
Class A 15.82% 20.31% 22.28% 36.62%
Class B 15.91% 20.63% 23.06% 38.40%
Growth
Class A 15.57% 15.85% 21.29% 23.57%
Class B 15.74% 16.22% 22.13% 24.41%
Small Cap
Class A 38.80% N/A N/A 18.74%
Class B 39.99% N/A N/A 19.53%
Class C 40.53% N/A N/A 23.53%
</TABLE>
47
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Strategic Growth
Class A 22.90% N/A 24.69% 12.79%
Class B 22.64% N/A 25.06% 12.21%
Class C 22.83% N/A 25.69% 16.21%
</TABLE>
_______________
/1/ Return calculations reflect the inclusion of sales charges, as described in
the Funds' Prospectus.
CUMULATIVE TOTAL RETURN: In addition to the above performance information,
-----------------------
each Fund may also advertise the cumulative total return of the Fund.
Cumulative total return is based on the overall percentage change in value of a
hypothetical investment in the Fund, assuming all Fund dividends and capital
gain distributions are reinvested, without reflecting the effect of any sales
charge that would be paid by an investor, and is not annualized.
Cumulative Total Return for the Applicable Period Ended September 30, 1997/1/
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Five Three
Inception Year Year
--------- ---- ----
<S> <C> <C> <C>
Balanced
Class A 123.89% 78.88% 45.89%
Class B 124.85% 80.50% 48.01%
Diversified Equity Income
Class A 107.48% N/A 73.85%
Class B 110.74% N/A 77.36%
Equity Value
Class A 190.01% 152.03% 82.85%
Class B 191.59% 155.48% 86.36%
Growth
Class A 182.18% 108.71% 78.43%
Class B 185.10% 112.02% 82.18%
Small Cap
Class A 160.21% N/A N/A
Class B 166.77% N/A N/A
Class C 169.77% N/A 23.53%
Strategic Growth
Class A 163.98% N/A 93.87%
Class B 163.62% N/A 95.58%
Class C 165.62% N/A 98.58%
</TABLE>
_______________
48
<PAGE>
/1/ Return calculations reflect the inclusion of sales charges.
From time to time and only to the extent the comparison is appropriate for
a Fund or a Class of shares, the Company may quote the performance or price-
earning ratio of a Fund or Class in advertising and other types of literature as
compared to the performance of the S&P Index, the Dow Jones Industrial Average,
the Lehman Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year Treasury
Index, Donoghue's Money Fund Averages, Real Estate Investment Averages (as
reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by World Gold Council), Bank Averages (which are
calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the Federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), other managed or unmanaged indices or
performance data of bonds, municipal securities, stocks or government securities
(including data provided by Ibbotson Associates), or by other services,
companies, publications or persons who monitor mutual funds on overall
performance or other criteria. The S&P Index and the Dow Jones Industrial
Average are unmanaged indices of selected common stock prices. The performance
of the Funds or a Class also may be compared to that of other mutual funds
having similar objectives. This comparative performance could be expressed as a
ranking prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the performance of mutual funds. The Funds'
performance will be calculated by relating net asset value per share at the
beginning of a stated period to the net asset value of the investment, assuming
reinvestment of all gains distributions and dividends paid, at the end of the
period. The Funds' comparative performance will be based on a comparison of
yields, as described above, or total return, as reported by Lipper, Survey
Publications, Donoghue or Morningstar, Inc.
Any such comparisons may be useful to investors who wish to compare past
performance of the Funds or a Class with that of competitors. Of course, past
performance cannot be a guarantee of future results. The Company also may
include, from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
the Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in a Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of a Fund or the general economic, business,
investment, or financial environment in which a Fund operates; (iii) the effect
of tax-deferred compounding on the investment returns of a Fund, or on returns
in general, may be illustrated by graphs, charts, etc., where such graphs or
charts would compare, at various points in time, the return from an investment
in a Fund (or returns in general) on a tax-deferred basis (assuming reinvestment
of capital gains and dividends and assuming one or more tax rates) with the
return on a taxable basis; and (iv) the sectors or industries in which a Fund
invests may be compared to relevant
49
<PAGE>
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate a Fund's
historical performance or current or potential value with respect to the
particular industry or sector.
In addition, the Company also may use, in advertisements and other types of
literature, information and statements: (1) showing that bank savings accounts
offer a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth; and (2) describing Wells Fargo Bank, and its
affiliates and predecessors, as one of the first investment managers to advise
investment accounts using asset allocation and index strategies. The Company
also may include in advertising and other types of literature information and
other data from reports and studies prepared by the Tax Foundation, including
information regarding federal and state tax levels and the related "Tax Freedom
Day."
The Company also may discuss in advertising and other types of literature
that a Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as Standard & Poor's Corporation. Such
rating would assess the creditworthiness of the investments held by the Fund.
The assigned rating would not be a recommendation to purchase, sell or hold the
Fund's shares since the rating would not comment on the market price of the
Fund's shares or the suitability of the Fund for a particular investor. In
addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or unavailability of, information relating
to the Fund or its investments. The Company may compare the Fund's performance
with other investments which are assigned ratings by NRSROs. Any such
comparisons may be useful to investors who wish to compare the Fund's past
performance with other rated investments.
From time to time, the Funds may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Stagecoach Funds, provides
various services to its customers that are also shareholders of the Funds.
These services may include access to Stagecoach Funds' account information
through Automated Teller Machines (ATMs), the placement of purchase and
redemption requests for shares of the Funds through ATMs and the availability of
combined Wells Fargo Bank and Stagecoach Funds account statements."
The Company 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 the
Company's investment adviser. The Company may also disclose in advertising and
other types of sales literature the assets and categories of assets under
management by a fund's investment adviser or sub-adviser and the total amount of
assets and mutual fund assets managed by Wells Fargo Bank. As of December 31,
1997, Wells Fargo Bank and its affiliates provided investment Advisory services
for approximately $62 billion of assets of individual, trusts, estates and
institutions and $23 billion of mutual fund assets.
The Company also may discuss in advertising and other types of literature
the features, terms and conditions of Wells Fargo Bank accounts through which
investments in the Funds may
50
<PAGE>
be made via a "sweep" arrangement, including, without limitation, the Managed
Sweep Account, Money Market Checking Account, California Tax-Free Money Market
Checking Account, Money Market Access Account and California Tax-Free Money
Market Access Account (collectively, the "Sweep Accounts"). Such advertisements
and other literature may include, without limitation, discussions of such terms
and conditions as the minimum deposit required to open a Sweep Account, a
description of the yield earned on shares of the Funds through a Sweep Account,
a description of any monthly or other service charge on a Sweep Account and any
minimum required balance to waive such service charges, any overdraft protection
plan offered in connection with a Sweep Account, a description of any ATM or
check privileges offered in connection with a Sweep Account and any other terms,
conditions, features or plans offered in connection with a Sweep Account. Such
advertising or other literature may also include a discussion of the advantages
of establishing and maintaining a Sweep Account, and may include statements from
customers as to the reasons why such customers have established and maintained a
Sweep Account.
The Company may disclose in advertising and other types of literature that
investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each class of the Funds 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 Funds' shares.
Securities of a Fund for which market quotations are available are valued
at latest prices. Any security for which the primary market is an exchange is
valued at the last sale price on such exchange on the day of valuation or, if
there was no sale on such day, the latest bid price quoted on such day. In the
case of other securities, including U.S. Government securities but excluding
money market instruments maturing in
51
<PAGE>
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 a 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
a Fund for which current market quotations are not readily available are valued
at fair value as determined in good faith by the Company's Board of Directors
and in accordance with procedures adopted by the Directors.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day a Fund is open for business. Each Fund
is open for business each day the NYSE is open for trading (a "Business Day").
Currently, the NYSE is closed on New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day (each a "Holiday"). When any Holiday falls on
a weekend, the NYSE typically is closed on the weekday immediately before or
after such Holiday.
Payment for shares may, in the discretion of the advisor, be made in the
form of securities that are permissible investments for the Fund. For further
information about this form of payment please contact Stephens. In connection
with an in-kind securities payment, the Funds will require, among other things,
that the securities be valued on the day of purchase in accordance with the
pricing methods used by a Fund and that a Fund receives satisfactory assurances
that (i) it will have good and marketable title to the securities received by
it; (ii) that the securities are in proper form for transfer to the Fund; and
(iii) adequate information will be provided concerning the basis and other
matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit. The Company may suspend redemption rights or postpone
redemption payments for such periods as are permitted under the 1940 Act. The
Company may also redeem shares involuntarily or make payment for redemption in
securities or other property if it appears appropriate to do so in light of the
Company's responsibilities under the 1940 Act. In addition, the Company may
redeem shares involuntarily to reimburse the Fund for any losses sustained by
reason of the failure of a shareholders to make full payment for shares
purchased or to collect any charge relating to a transaction effected for the
benefit of a shareholder which is applicable to shares of the Fund as provided
from time to time in the Prospectus.
52
<PAGE>
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policies
established by the Company's Board of Directors, Wells Fargo Bank is responsible
for each Fund's portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Company to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo Bank generally seeks
reasonably competitive spreads or commissions, the Funds will not necessarily be
paying the lowest spread or commission available.
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.
In placing orders for portfolio securities of a 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 the Investment Advisor of each of the Funds, may, in
circumstances in which two or more dealers are in a position to offer comparable
results for a Fund portfolio transaction, give preference to a dealer that has
provided statistical or other research services to Wells Fargo Bank. By
allocating transactions in this manner, Wells Fargo Bank is able to supplement
its research and analysis with the views and information of securities firms.
Information so received will be in addition to, and not in lieu of, the services
required to be performed by Wells Fargo Bank under the Advisory Contracts, and
the expenses of Wells Fargo Bank will not necessarily be reduced as a result of
the receipt of this supplemental research information. Furthermore, research
services furnished by dealers through which Wells Fargo Bank places securities
transactions for a Fund may be used by Wells Fargo Bank in servicing its other
accounts, and not all of these services may be used by Wells Fargo Bank in
connection with advising the Funds.
Balanced, Diversified Equity Income and Equity Value Funds. Purchases and
----------------------------------------------------------
sales of non-equity securities usually will be principal transactions.
Portfolio securities normally will be purchased or sold from or to dealers
serving as market makers for the securities at a net price.
53
<PAGE>
Each Fund also will purchase portfolio securities in underwritten offerings and
may purchase securities directly from the issuer. Generally, municipal
obligations and taxable money market securities are traded on a net basis and do
not involve brokerage commissions. The cost of executing a Fund's portfolio
securities transactions will consist primarily of dealer spreads and
underwriting commissions. Under the 1940 Act, persons affiliated with the
Company are prohibited from dealing with the Company as a principal in the
purchase and sale of securities unless an exemptive order allowing such
transactions is obtained from the Commission or an exemption is otherwise
available. The Fund may purchase securities from underwriting syndicates of
which Stephens or Wells Fargo Bank is a member under certain conditions in
accordance with the provisions of a rule adopted under the 1940 Act and in
compliance with procedures adopted by the Board of Directors.
Brokerage Commissions. For the six-month period ended March 31, 1997, the
---------------------
Funds paid brokerage commissions as follows:
<TABLE>
<CAPTION>
Fund Commissions
---- -----------
<S> <C>
Balanced $ 91,032
Diversified Equity Income $329,703
Equity Value $282,027
Growth $466,282
Small Cap $ 34,324
Strategic Growth/*/ $ 27,405
</TABLE>
_________________
/*/ Indicates fees paid by, or on behalf of, the Overland predecessor
portfolio for the year ended December 31, 1996, the predecessor portfolio's
most recently completed fiscal year.
The predecessor portfolio to the Strategic Growth Fund paid brokerage
commissions as indicated below for the years ended December 31, 1995 and 1994.
The Diversified Equity Income and Growth Funds paid the following brokerage
commissions for the nine-month period ended September 30, 1996 and the years
ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Nine-Month
Period Ended Year Ended Year Ended
Fund 9/30/96 12/31/95 12/31/94
---- ------------- ---------- ----------
<S> <C> <C> <C>
Strategic Growth N/A $ 190,359 $ 171,356
Diversified Equity Income $267,469 $ 193,078 $ 134,777
Growth $531,052 $ 607,442 $ 407,643
</TABLE>
During the years ended September 30, 1996, 1995 and September 30, 1994, the
Equity Value and Balanced Funds paid the following amounts in brokerage
commissions:
54
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 9/30/96 9/30/95 9/30/94
- ---- ---------- ---------- ----------
<S> <C> <C> <C>
Equity Value $575,504 $619,124 $247,218
Balanced $254,191 $197,751 $104,835
</TABLE>
During the time periods stated above, no brokerage commissions were paid by
the Funds to an affiliated broker.
For the period beginning September 16, 1996 and ended September 30, 1996,
the Small Cap Fund paid $1,856 for brokerage commissions.
Securities of Regular Brokers or Dealers. As of March 31, 1997, each Fund
----------------------------------------
owned securities of its "regular brokers or dealers" or their parents as defined
in the Investment Company Act of 1940 as follows:
<TABLE>
<CAPTION>
Fund Broker/Dealer Amount
- ---- ------------- ------
<S> <C> <C>
Balanced Goldman Sachs & Co. $ 887,000
J.P. Morgan $1,127,000
Diversified Equity Income Goldman Sachs & Co. $4,715,000
J.P. Morgan $3,638,000
Equity Value Goldman Sachs & Co. $9,087,000
Growth Goldman Sachs & Co. $3,206,000
J.P. Morgan $7,792,000
Small Cap None None
Strategic Growth None None
</TABLE>
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
Funds whenever such changes are believed to be in the best interests of the
Funds and their shareholders. The portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities by the average
monthly value of the Fund's portfolio securities. For purposes of this
calculation, portfolio securities exclude all securities having a maturity when
purchased of one year or less. Portfolio turnover generally involves some
expenses to the Funds, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gain tax
consequences. Portfolio turnover rate is not a limiting factor when Wells Fargo
Bank deems portfolio changes appropriate.
55
<PAGE>
FUND EXPENSES
Except for the expenses borne by Wells Fargo Bank and Stephens, the Company
bears all costs of its operations, including the compensation of its Directors
who are not affiliated with Stephens or Wells Fargo Bank or any of their
affiliates; advisory, shareholder servicing and administration fees; payments
pursuant to any Plan; interest charges; taxes; fees and expenses of its
independent accountants, legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming shares; expenses of preparing and printing
prospectuses (except the expense of printing and mailing prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of its
custodian, including those for keeping books and accounts and calculating the
NAV per share of the Fund; expenses of shareholders' meetings; expenses relating
to the issuance, registration and qualification of the Fund's shares; pricing
services, and any extraordinary expenses. Expenses attributable to the Fund are
charged against Fund assets. General expenses of the Company are allocated
among all of the funds of the Company, including the Funds, in a manner
proportionate to the net assets of a Funds, 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 Funds. This section of the
SAI includes additional information concerning income taxes.
General. The Company intends to qualify each 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. Each Fund will be treated as a separate entity for tax
purposes and thus the provisions of the Code applicable to regulated investment
companies will generally be applied to each Fund, rather than to the Company as
a whole. In addition, net capital gain, net investment income, and operating
expenses will be determined separately for each Fund. As a regulated investment
company, each 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) each Fund derive at least 90% of its annual gross
income from dividends, interest, certain payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related to
the regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) the Fund diversify its holdings
so that, at the end of each quarter of the taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, government securities
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the Fund's
56
<PAGE>
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 Funds must also distribute or be deemed to distribute to their
shareholders at least 90% of their 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 Funds intend to pay out
substantially all of their net investment income and net realized capital gains
(if any) for each year.
In addition, a regulated investment company must, in general, derive less
than 30% of its gross income from the sale or other disposition of securities or
options thereon held for less than three months. However, this restriction has
been repealed with respect to a regulated investment company's taxable years
beginning after August 5, 1997.
Excise Tax. A 4% nondeductible excise tax will be imposed on each 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. Each Fund intends to actually or be deemed to distribute
substantially all of its net investment income and net capital gains by the end
of each calendar year and, thus, expects not to be subject to the excise tax.
Taxation of Fund Investments. Except as provided herein, gains and losses
----------------------------
on the sale of portfolio securities by a 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 an option granted by a Fund lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder, the
Fund will realize a short-term capital gain or loss, depending on whether the
premium income is greater or less than the amount paid by the Fund in the
closing transaction. Some realized capital losses may be deferred if they
result from a position which is part of a "straddle," discussed below. If
securities are sold by a Fund pursuant to the exercise of a call option written
by it, the Fund will add the premium received to the sale price of the
securities delivered in determining the amount of gain or loss on the sale.
Under Section 1256 of the Code, a Fund will be required to "mark to market"
its positions in "Section 1256 contracts," which generally include regulated
futures contracts and listed options. In this regard, Section 1256 contracts
will be deemed to have been sold at market
58
<PAGE>
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.
Under Section 988 of the Code, a 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 a 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 a Fund purchases shares in a "passive foreign investment company"
("PFIC"), the Fund may be subject to federal income tax and an interest charge
imposed by the IRS upon certain distributions from the PFIC or the Fund's
disposition of 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.
58
<PAGE>
Foreign Taxes. Income and dividends received by a 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 Funds do not expect to be eligible to make such an election.
Capital Gain Distributions. Distributions which are designated by a Fund
--------------------------
as capital gain distributions will be taxed to shareholders as long-term capital
gain (to the extent such dividends do exceed the Fund's actual net capital gain
for the taxable year), regardless of how long a shareholder has held Fund
shares. Such distributions will be designated as capital gain distributions in
a written notice mailed by the Fund to its shareholders not later than 60 days
after the close of the Fund's taxable year.
The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers were generally taxed at a maximum rate of 28% on net
capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers are now generally taxed at a
maximum rate of 20% on net capital gain attributable to gains realized on the
sale of property held for greater than 18 months, and a maximum rate of 28% on
net capital gain attributable to gain realized on the sale of property held for
greater than one year and not more than 18 months. The 1997 Act retains the
treatment of short term capital gain or loss (generally, gain or loss
attributable to capital assets held for 1 year or less) and did not affect the
taxation of capital gains in the hands of corporate taxpayers.
Under the 1997 Act, the Treasury is authorized to issue regulations for
application of the reduced capital gains tax rates to pass-through entities,
including regulated investment companies, such as the Funds. The Internal
Revenue Service has published a notice describing temporary Regulations to be
issued pursuant to such authority, permitting the application of the reduced
capital gains tax rates to pass-through entities such as the Funds. Under the
Regulations to be issued, if a regulated investment company designates a
dividend as a capital gain dividend for a taxable year ending on or after May 7,
1997, then such regulated investment company may also designate the dividends as
one of two classes: a 20% rate gain distribution, or a 28% rate gain
distribution. Thus, noncorporate shareholders of the Funds may qualify for the
reduced rate of tax on capital gain dividends paid by the Funds, subject only to
the limitation as to the maximum amounts which may be designated in each class.
Such maximum amount for each class is determined by performing the computation
required by section 1(h) of the Code as if the Fund were an individual whose
ordinary income is subject to a marginal rate of at least 28%.
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
59
<PAGE>
regulated investment company, the sales charge previously incurred acquiring the
Fund's shares shall not be taken into account (to the extent such previous sales
charges do not exceed the reduction in sales charges on the new purchase) for
the purpose of determining the amount of gain or loss on the disposition, but
will be treated as having been incurred in the acquisition of such other shares.
Also, any loss realized on a redemption or exchange of shares of the Fund will
be disallowed to the extent that substantially identical shares are acquired
within the 61-day period beginning 30 days before and ending 30 days after the
shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as long-term capital loss to the extent of the designated capital gain
distribution. The foregoing loss disallowance rule does not apply to losses
realized under a periodic redemption plan.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.6% (marginal tax rates
may be higher for some individuals to reduce or eliminate the benefit of
exemptions and deductions); the maximum individual marginal tax rate applicable
to net capital gain is 28% (however, see "Capital Gain Distributions" above);
and the maximum corporate tax rate applicable to ordinary income and net capital
gain is 35% (marginal tax rates may be higher for some corporations to reduce or
eliminate the benefit of lower marginal income tax rates). Naturally, the
amount of tax payable by an individual or corporation will be affected by a
combination of tax laws covering, for example, deductions, credits, deferrals,
exemptions, sources of income and other matters.
Corporate Shareholders. Corporate shareholders of the Funds may be
----------------------
eligible for the dividends-received deduction on dividends distributed out of a
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. A 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.
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 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
60
<PAGE>
imposed by the IRS. Foreign shareholders of the Funds (described below) are
generally not subject to backup withholding.
Foreign Shareholders. Under the Code, distributions of net investment
--------------------
income by a 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 a Fund to a
foreign shareholder is "effectively connected" with a U.S. trade or business
(or, if an income tax treaty applies, is attributable to a U.S. permanent
establishment of the foreign shareholder), in which case the reporting and
withholding requirements applicable to U.S. residents will apply. Distributions
of net capital gain are generally not subject to U.S. income tax withholding.
New Regulations. On October 6, 1997, the Treasury Department issued new
---------------
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S. income tax withholding and information reporting rules
applicable to foreign shareholders. The New Regulations will generally be
effective for payments made after December 31, 1998, subject to certain
transition rules. Among other things, the New Regulations will permit the Funds
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 Funds 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 a Fund may involve sophisticated tax rules that may result in income or gain
recognition by the Fund without corresponding current cash receipts. Although
the Funds will seek to avoid significant noncash income, such noncash income
could be recognized by a 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 a Fund. Each investor is urged to consult
his or her tax advisor regarding specific questions as to federal, state, local
and foreign taxes.
61
<PAGE>
CAPITAL STOCK
The Funds are six of the funds of the Stagecoach Family of Funds. The
Company was organized as a Maryland corporation on September 9, 1991 and
currently offers shares of over thirty other funds.
Most of the Company's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, classes subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Company's funds also are authorized to
issue other classes of shares, which are sold primarily to institutional
investors. Each class of shares in a fund represents an equal, proportionate
interest in a fund with other shares of the same class. Shareholders of each
class bear their pro rata portion of the fund's operating expenses, except for
certain class-specific expenses (e.g., any state securities registration fees,
shareholder servicing fees or distribution fees that may be paid under Rule 12b-
1) that are allocated to a particular class. Please contact Stagecoach
Shareholder Services at 1-800-222-8222 if you would like additional information
about other funds or classes of shares offered.
With respect to matters that affect one class but not another, shareholders
vote as a class; for example, the approval of a Plan. Subject to the foregoing,
all shares of a Fund have equal voting rights and will be voted in the
aggregate, and not by Series, except where voting by a Series is required by law
or where the matter involved only affects one Series. For example, a change in
a Funds' 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 only affects one Fund, is a matter to be
determined separately by each Series. Approval by the shareholders of one
Series is effective as to that Series whether or not sufficient votes are
received from the shareholders of the other series to approve the proposal as to
those Series.
As used in the Prospectus and in this SAI, the term "majority" when
referring to approvals to be obtained from shareholders of a Class of the Fund,
means the vote of the lesser of (i) 67% of the shares of such class the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares such class of the Fund are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of such class the Fund. The term "majority,"
when referring to the approvals to be obtained from shareholders of the Company
as a whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held.
Shareholders are not entitled to any preemptive rights. All shares, when
issued for the consideration described in the Prospectus, will be fully paid and
non-assessable by the Company. The Company may dispense with an annual meeting
of shareholders in any year in which it is not required to elect directors under
the 1940 Act.
Each share of a class of a Fund represents an equal proportional interest
in a 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
a Fund as are declared in the discretion of the
63
<PAGE>
Directors. In the event of the liquidation or dissolution of the Company,
shareholders of a Fund are entitled to receive the assets attributable to the
relevant class of shares of the Fund that are available for distribution, and a
distribution of any general assets not attributable to a particular investment
portfolio that are available for distribution in such manner and on such basis
as the Directors in their sole discretion may determine.
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 a class of a Fund or 5% or more of the voting
securities of the Fund as a whole. The term "N/A" is used where a shareholder
holds 5% or more of a class, but less than 5% of a Fund as a whole.
5% OWNERSHIP AS OF JANUARY 2, 1998
<TABLE>
<CAPTION>
NAME AND CLASS; TYPE PERCENTAGE PERCENTAGE
FUND ADDRESS OF OWNERSHIP OF CLASS OF FUND
---- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCED FUND Wells Fargo Bank, TTEE Institutional Class 40.95% 23.45%
Choicemaster Record Holder
Attn: Mutual Funds A88-4
P.O.Box 9800
Calabasas, CA 91372
Hep. & Co. Institutional Class 44.99% 25.77%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91302
EQUITY VALUE Wells Fargo Bank Class A 17.41% N/A
FUND P.O. Box 63015 Beneficially Owned
San Francisco, CA 94163
Wells Fargo Bank, TTEE Institutional Class 18.01% 12.39%
Choicemaster Record Holder
Attn: Mutual Funds A88-4
P.O. Box 9800
Calabasas, CA 91372
Dim & Co. Institutional Class 40.71% 28.01%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372
Virg & Co Institutional Class 10.18% 7%
Attn: MF Dept A88-4 Record Holder
P.O. Box 9800
Calabasas, CA 91372
Hep & Co Institutional Class 26.16% 18%
Attn: MF Dept. A88-4 Record Holder
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91302
DIVERSIFIED EQUITY Wells Fargo Bank Class A 29.04% 22.07%
INCOME FUND P.O. Box 63015 Beneficially Owned
San Francisco, CA 94163
GROWTH FUND Wells Fargo Bank Class A 49.18% 39.78%
P.O. Box 63015 Beneficially Owned
San Francisco, CA 94163
SMALL CAP Wells Fargo Bank Class A 32.08% 5.16%
P.O. Box 63015 Beneficially Owned
San Francisco, CA 94163
State Street Bank and Trust Class A 12.28% N/A
as Trustee for Various Plans Beneficially Owned
2 Heritage Drive
Quincy, MA 02171
Merill Lynch Pierce Fenner Class A 7.67% N/A
& Smith, Inc. for the Sole Beneficially Owned
Benefit of its Customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
Merill Lynch Pierce Fenner Class C 27.51% N/A
& Smith, Inc. for the Sole Beneficially Owned
Benefit of its Customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
Paine Webber for the Benefit Class C 10.42% N/A
of Joseph P. Kiernan Beneficially Owned
115 Henley Way
Avon, CT 06001
Wells Fargo Bank Institutional Class 81.02% 55.45%
420 Montgomery Street Record Holder
San Francisco, CA 94104
STRATEGIC Wells Fargo Bank Class A 15.61% 11.46%
GROWTH P.O. Box 63015 Beneficially Owned
FUND San Francisco, CA 94163
Merill Lynch Pierce Fenner & Class A 9.73% 7.14%
Smith, Inc. Record Holder Beneficially Owned
for Sole Benefit of its
Customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
Merill Lynch Pierce Fenner & Class C 35.23% 5.99%
Smith, Inc. Record Holder Beneficially Owned
for Sole Benefit of its
Customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
J.C. Bradford & Co. Cust FBO Class C 9.70% N/A
330 Commerce Street Beneficially Owned
Nashville, TN 37201
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
NAME AND CLASS TYPE PERCENTAGE PERCENTAGE
FUND ADDRESS OF OWNERSHIP OF CLASS OF FUND
- ---- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund), or is identified
64
<PAGE>
as the holder of record of more than 25% of a class (or Fund) and has voting
and/or investment powers, it may be presumed to control such class (or Fund).
OTHER
The Company's Registration Statement, including the Prospectus and SAI for
the Funds and the exhibits filed therewith, may be examined at the office of the
Securities and Exchange Commission ("SEC") in Washington, D.C. Statements
contained in the Prospectus or the SAI as to the contents of any contract or
other document referred to herein or in the Prospectus are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditors for the
Company. KPMG Peat Marwick LLP provides audit services, tax return preparation
and assistance and consultation in connection with review of certain SEC
filings. KPMG Peat Marwick LLP's address is Three Embarcadero Center, San
Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments and unaudited financial statements for the
Balanced, Diversified Equity Income, Equity Value, Growth and Small Cap Funds
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 and unaudited financial statements for the
Overland Strategic Growth Fund, the predecessor portfolio to the Company's
Strategic Growth Fund, for the six-month period ended June 30, 1997 are hereby
incorporated by reference to the Overland Semi-Annual Reports as filed with the
SEC on September 3, 1997.
The portfolio of investments, audited financial statements and independent
auditors' reports for the Balanced, Diversified Equity Income, Equity Value,
Growth and Small Cap Funds for the year ended March, 31, 1997 are hereby
incorporated by reference to the Company's Annual Report as filed with the SEC
on June 4, 1997.
The portfolio of investments, audited financial statements and independent
auditors' reports for the Overland Strategic Growth Fund, the predecessor
portfolio to the Company's Strategic Growth Fund for the year ended December 31,
1996 are hereby incorporated by reference to the Overland Annual Reports as
filed with the SEC on March 11, 1997.
The Company's Annual Reports may be obtained by calling 1-800-222-8222.
65
<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.
S&P: The "A-1" rating for corporate commercial paper indicates that the
---
"degree of safety regarding timely payment is either overwhelming or very
strong." Commercial paper with "overwhelming safety characteristics" will be
rated "A-1+." Commercial paper with a strong capacity for timely payments on
issues will be rated "A-2."
A-1
<PAGE>
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated March 30, 1998
INTERNATIONAL EQUITY FUND
CLASS A, CLASS B, CLASS C AND INSTITUTIONAL CLASS
Stagecoach Funds, Inc. (the "Company") is an open-end, management investment
company. This Statement of Additional Information ("SAI") contains information
about a fund in the Stagecoach Family of Funds (the "Fund") -- the INTERNATIONAL
EQUITY FUND. This SAI relates to the Fund's Class A, Class B, Class C and
Institutional Class shares.
This SAI is not a Prospectus and should be read in conjunction with the
Fund's Prospectus, dated March 30, 1998. All terms used in this SAI that are
defined in the Fund's Prospectus have the meaning assigned in such Prospectus.
A copy of the Prospectus may be obtained without charge by writing to Stephens
Inc. ("Stephens"), the Company's sponsor, co-administrator and distributor, at
111 Center Street, Little Rock, Arkansas 72201 or by calling the Transfer Agent
at 1-800-222-8222.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information..................... 1
Investment Restrictions......................... 1
Additional Permitted Investment Activities...... 2
Risk Factors.................................... 15
Management...................................... 17
Performance Calculations........................ 23
Determination of Net Asset Value................ 27
Additional Purchase and Redemption Information.. 28
Portfolio Transactions.......................... 29
Fund Expenses................................... 30
Federal Income Taxes............................ 31
Capital Stock................................... 37
Other........................................... 38
Independent Auditors............................ 38
Financial Information........................... 38
Appendix........................................ A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
The International Equity Fund commenced operations on September 24, 1997.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies
-------------------------------
The Fund has adopted the following investment restrictions, all of which are
fundamental policies; that is, they may not be changed without approval by the
vote of the holders of a majority (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")) of the outstanding voting securities of the
Fund.
The Fund may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of the Fund's investments in that industry would be 25% or
more of the current value of the Fund's total assets, provided that there is no
limitation with respect to investments in obligations of the United States
Government, its agencies or instrumentalities;
(2) issue senior securities, except as permitted by applicable law;
(3) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities, including
government-sponsored enterprises) if, as a result, 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 would hold more than 10% of the outstanding voting securities of such
issuer, except that up to 25% of the Fund's total assets may be invested without
regard to these limitations; nor
(4) borrow money, except as permitted by applicable law.
(5) 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);
(6) underwrite securities of other issuers, except to the extent that the
purchase of securities directly from the issuer thereof or from an underwriter
for an issuer and the later disposition of such securities in accordance with
the Fund's investment program may be deemed to be an underwriting;
(7) make investments for the purpose of exercising control or management;
(8) make loans, except as permitted by applicable law;
(9) purchase or sell commodities or commodities contracts, except that the
Fund may, on such conditions as may be set forth in the Fund's Prospectus and
this Statement of Additional
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Information, purchase, sell or enter into futures contracts, foreign currency
forward contracts, options on futures contracts, foreign currency forward
contracts, foreign currency options, or any interest rate, securities-related or
foreign currency-related hedging instrument, subject to compliance with any
applicable provisions of the federal securities or commodities laws; nor
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 more than 15% of its net assets in illiquid
securities. For this purpose, illiquid securities include, among others, (a)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (b) fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, and (c) repurchase agreements not terminable within seven days.
(3) The Fund may 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.
The Fund does not invest in the following types of derivatives that
generally are considered to be potentially volatile: capped floaters, leveraged
floaters, range floaters, dual index floaters or inverse floaters.
Additionally, the Fund will not invest in securities whose interest rate reset
provisions materially lag short-term interest rates, such as Cost of Funds Index
Floaters or other derivative instruments the Fund considers to have the
potential for excessive volatility.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
Set forth below are descriptions of certain investments and additional
investment policies for the Fund.
Emerging Markets
----------------
The Fund may invest up to 25% of its assets in equity securities of
companies in "emerging markets." Emerging markets are those financial markets
associated with emerging market countries as
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considered by the International Bank for Reconstruction and Development (more
commonly referred to as the World Bank), the International Finance Corporation,
and the international financial community. Wells Fargo Bank may invest in those
emerging markets that have a relatively low gross national product per capita,
compared to the world's major economies, and which exhibit potential for rapid
economic growth. The Advisor believes that investment in equity securities of
emerging market issuers offers significant potential for long-term capital
appreciation.
There are special risks involved in investing in emerging market countries.
Many investments in emerging markets can be considered speculative, and their
prices can be much more volatile than in the more developed nations of the
world. This difference reflects the greater uncertainties of investing in less
established markets and economies. The financial markets of emerging markets
countries are generally less well capitalized and thus securities of issuers
based in such countries may be less liquid. Further, such markets may be
vulnerable to high inflation and interest rates. Most are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity
prices. Some countries may still have obsolete financial systems, economic
problems or archaic legal systems. The currencies of certain emerging market
countries, and therefore the value of securities denominated in such currencies,
may be more volatile than currencies of developed countries. In addition, many
of these nations are experiencing political and social uncertainties.
Foreign Obligations and Securities
----------------------------------
The foreign securities in which the Fund may invest include common stocks,
preferred stocks, warrants, convertible securities and other securities of
issuers organized under the laws of countries other than the United States.
Such securities also include equity interests in foreign investment funds or
trusts, real estate investment trust securities and any other equity or equity-
related investment whether denominated in foreign currencies or U.S. dollars.
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 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.
In addition, for temporary defensive purposes, the Fund may invest in fixed
income securities of non-U.S. governmental and private issuers. Such
investments may include bonds, notes, debentures and other similar debt
securities, including convertible securities.
Investments in foreign obligations involve certain considerations that are
not typically associated with investing in domestic obligations. There may be
less publicly available
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information about a foreign issuer than about a domestic issuer. Foreign issuers
also are not generally subject to uniform accounting, auditing and financial
reporting standards or governmental supervision comparable to those applicable
to domestic issuers. In addition, with respect to certain foreign countries,
taxes may be withheld at the source under foreign income tax laws, and there is
a possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect investments
in, the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries.
From time to time, investments in other investment companies may be the most
effective available means by which the Fund may invest in securities of issuers
in certain countries. Investment in such investment companies may involve the
payment of management expenses and, in connection with some purchases, sales
loads, and payment of substantial premiums above the value of such companies'
portfolio securities. At the same time, the Fund would continue to pay its own
management fees and other expenses. The Fund may invest in these investment
funds and in registered investment companies subject to the provisions of the
Investment Company Act of 1940 ("1940 Act"). Such investment funds or
investment companies may be "passive foreign investment companies" (as described
in "Taxes" below) and may result in special federal income tax consequences.
Investment income on certain foreign securities in which the Fund may invest
may be subject to foreign withholding or other taxes that could reduce the
return on these securities. Tax treaties between the United States and foreign
countries, however, may reduce or eliminate the amount of foreign taxes to which
the Fund would be subject.
Foreign Currency Transactions
-----------------------------
The Fund's investments in foreign securities involve currency risks. The
U.S. dollar value of a foreign security tends to decrease when the value of the
U.S. dollar rises against the foreign currency in which the security is
denominated, and tends to increase when the value of the U.S. dollar falls
against such currency. To attempt to minimize risks to the Fund from adverse
changes in the relationship between the U.S. dollar and foreign currencies, the
Fund may engage in foreign currency transactions on a spot (i.e., cash) basis
and may purchase or sell forward foreign currency exchange contracts ("forward
contracts"). The Fund may also purchase and sell foreign currency futures
contracts (see "Purchase and Sale of Currency Futures Contracts"). A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date that is individually negotiated and privately traded by
currency traders and their customers.
Forward contracts establish an exchange rate at a future date. These
contracts are transferable in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and is traded at a net
price without commission. The Fund will direct its custodian, to the extent
required by applicable regulations, to segregate high grade liquid assets in an
amount at least equal to its obligations under each forward contract. Neither
spot transactions nor forward contracts eliminate fluctuations in the prices of
the Fund's portfolio securities or in foreign exchange rates, or prevent loss if
the prices of these securities should decline.
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<PAGE>
The Fund may enter into a forward contract, for example, when it enters into
a contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security (a
"transaction hedge"). In addition, when Wells Fargo Bank believes that a
foreign currency may suffer a substantial decline against the U.S. dollar, it
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's securities
denominated in such foreign currency, or when Wells Fargo Bank believes that the
U.S. dollar may suffer a substantial decline against the foreign currency, it
may enter into a forward purchase contract to buy that foreign currency for a
fixed dollar amount (a "position hedge").
The Fund may, in the alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. dollar amount where Wells Fargo Bank
believes that the U.S. dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in the U.S. dollar value
of the currency in which the fund securities are denominated (a "cross-hedge").
Foreign currency hedging transactions are an attempt to protect the Fund
against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. The precise matching of the forward
contract amount and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and date it matures.
The Fund's custodian will, to the extent required by applicable regulations,
segregate cash, U.S. Government securities or other high-quality debt securities
having a value equal to the aggregate amount of the Fund's commitments under
forward contracts entered into with respect to position hedges and cross-hedges.
If the value of the segregated securities declines, additional cash or
securities will be segregated on a daily basis so that the value of the
segregated securities will equal the amount of the Fund's commitments with
respect to such contracts.
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 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.
Foreign Currency Futures Contracts
----------------------------------
In General. A foreign currency futures contract is an agreement between two
parties for the future delivery of a specified currency at a specified time and
at a specified price. A "sale" of
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<PAGE>
a futures contract means the contractual obligation to deliver the currency at a
specified price on a specified date, or to make the cash settlement called for
by the contract. Futures contracts have been designed by exchanges which have
been designated "contract markets" by the Commodity Futures Trading Commission
("CFTC") and must be executed through a brokerage firm, known as a futures
commission merchant, which is a member of the relevant contract market. Futures
contracts trade on these markets, and the exchanges, through their clearing
organizations, guarantee that the contracts will be performed as between the
clearing members of the exchange.
While futures contracts based on currencies do provide for the delivery and
acceptance of a particular currency, such deliveries and acceptances are very
seldom made. Generally, a futures contract is terminated by entering into an
offsetting transaction. A Fund will incur brokerage fees when it purchases and
sells futures contracts. At the time such a purchase or sale is made, a Fund
must provide cash or money market securities as a deposit known as "margin." The
initial deposit required will vary, but may be as low as 2% or less of a
contract's face value. Daily thereafter, the futures contract is valued through
a process known as "marking to market," and a Fund that engages in futures
transactions may receive or be required to pay "variation margin" as the futures
contract becomes more or less valuable.
Purchase and Sale of Currency Futures Contracts. In order to hedge its
portfolio and to protect it against possible variations in foreign exchange
rates pending the settlement of securities transactions, the Fund may buy or
sell currency futures contracts. If a fall in exchange rates for a particular
currency is anticipated, the Fund may sell a currency futures contract as a
hedge. If it is anticipated that exchange rates will rise, a Fund may purchase
a currency futures contract to protect against an increase in the price of
securities denominated in a particular currency a Fund intends to purchase.
These futures contracts will be used only as a hedge against anticipated
currency rate changes.
A currency futures contract sale creates an obligation by a Fund, as seller,
to deliver the amount of currency called for in the contract at a specified
futures time for a special price. A currency futures contract purchase creates
an obligation by a Fund, as purchaser, to take delivery of an amount of currency
at a specified future time at a specified price. Although the terms of currency
futures contracts specify actual delivery or receipt, in most instances the
contracts are closed out before the settlement date without the making or taking
of delivery of the currency. Closing out of a currency futures contract is
effected by entering into an offsetting purchase or sale transaction.
In connection with transactions in foreign currency futures, a Fund will be
required to deposit as "initial margin" an amount of cash or short-term
government securities equal to from 5% to 8% of the contract amount.
Thereafter, subsequent payments (referred to as "variation margin") are made to
and from the broker to reflect changes in the value of the futures contract.
Risk Factors Associated with Futures Transactions. The effective use of
futures strategies depends on, among other things, the Fund's ability to
terminate futures positions at times when Wells Fargo Bank deems it desirable to
do so. Although the Fund will not enter into a futures position unless Wells
Fargo Bank believes that a liquid secondary market exists for such future, there
is no assurance that the Fund will be able to effect closing transactions at any
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<PAGE>
particular time or at an acceptable price. The Fund generally expects that its
futures transactions will be conducted on recognized U.S. and foreign securities
and commodity exchanges.
Futures markets can be highly volatile and transactions of this type carry a
high risk of loss. Moreover, a relatively small adverse market movement with
respect to these transactions may result not only in loss of the original
investment but also in unquantifiable further loss exceeding any margin
deposited.
The use of futures involves the risk of imperfect correlation between
movements in futures prices and movements in the price of currencies which are
the subject of the hedge. The successful use of futures strategies also depends
on the ability of Wells Fargo Bank to correctly forecast interest rate
movements, currency rate movements and general stock market price movements.
In addition to the foregoing risk factors, the following sets forth certain
information regarding the potential risks associated with the Fund's futures
transactions.
Risk of Imperfect Correlation. The Fund's ability effectively to hedge
currency risk through transactions in foreign currency futures depends on the
degree to which movements in the value of the currency underlying such hedging
instrument correlate with movements in the value of the relevant securities held
by the Fund. If the values of the securities being hedged do not move in the
same amount or direction as the underlying currency, the hedging strategy for
the Fund might not be successful and the Fund could sustain losses on its
hedging transactions which would not be offset by gains on its portfolio. It is
also possible that there may be a negative correlation between the currency
underlying a futures contract and the portfolio securities being hedged, which
could result in losses both on the hedging transaction and the fund securities.
In such instances, the Fund's overall return could be less than if the hedging
transactions had not been undertaken.
Under certain extreme market conditions, it is possible that the Fund will
not be able to establish hedging positions, or that any hedging strategy adopted
will be insufficient to completely protect the Fund.
The Fund will purchase or sell futures contracts only if, in Wells Fargo
Bank's judgment, there is expected to be a sufficient degree of correlation
between movements in the value of such instruments and changes in the value of
the relevant portion of the Fund's portfolio for the hedge to be effective.
There can be no assurance that Wells Fargo Bank's judgment will be accurate.
Potential Lack of a Liquid Secondary Market. The ordinary spreads between
prices in the cash and futures markets, due to differences in the natures of
those markets, are subject to distortions. First, all participants in the
futures market are subject to initial deposit and variation margin requirements.
This could require a Fund to post additional cash or cash equivalents as the
value of the position fluctuates. Further, rather than meeting additional
variation margin requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, the liquidity of the futures market may be
lacking. Prior to exercise or expiration, a futures position may be terminated
only by entering into a closing purchase or sale transaction, which requires a
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<PAGE>
secondary market on the exchange on which the position was originally
established. While the Fund will establish a futures position only if there
appears to be a liquid secondary market therefor, there can be no assurance that
such a market will exist for any particular futures contract at any specific
time. In such event, it may not be possible to close out a position held by the
Fund, which could require the Fund to purchase or sell the instrument underlying
the position, make or receive a cash settlement, or meet ongoing variation
margin requirements. The inability to close out futures positions also could
have an adverse impact on the Fund's ability effectively to hedge its
securities, or the relevant portion thereof.
The liquidity of a secondary market in a futures contract may be adversely
affected by "daily price fluctuation limits" established by the exchanges, which
limit the amount of fluctuation in the price of a contract during a single
trading day and prohibit trading beyond such limits once they have been reached.
The trading of futures contracts also is subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of the brokerage firm or clearing house or other
disruptions of normal trading activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.
Trading and Position Limits. Each contract market on which futures
contracts are traded has established a number of limitations governing the
maximum number of positions which may be held by a trader, whether acting alone
or in concert with others. Wells Fargo Bank does not believe that these trading
and position limits will have an adverse impact on the hedging strategies
regarding the Fund's investments.
Regulations on the Use of Futures Contracts. Regulations of the CFTC
require that the Fund enter into transactions in futures contracts for hedging
purposes only, in order to assure that it is not deemed to be a "commodity pool"
under such regulations. In particular, CFTC regulations require that all short
futures positions be entered into for the purpose of hedging the value of
investment securities held by the Fund, and that all long futures positions
either constitute bona fide hedging transactions, as defined in such
regulations, or have a total value not in excess of an amount determined by
reference to certain cash and securities positions maintained for the Fund, and
accrued profits on such positions. In addition, the Fund may not purchase or
sell such instruments if, immediately thereafter, the sum of the amount of
initial margin deposits on its existing futures positions and premiums paid for
options on futures contracts would exceed 5% of the market value of the Fund's
total assets.
When the Fund purchases a futures contract, an amount of cash or cash
equivalents or high quality debt securities will be segregated with the Fund's
custodian so that the amount so segregated, plus the initial deposit and
variation margin held in the account of its broker, will at all times equal the
value of the futures contract, thereby insuring that the use of such futures is
unleveraged.
The Fund's ability to engage in the hedging transactions described herein
may be limited by the policies and concerns of various Federal and state
regulatory agencies. Such policies may be changed by vote of the Board of
Directors.
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Wells Fargo Bank uses a variety of internal risk management procedures to
ensure that derivatives use is consistent with the Fund's investment objective,
does not expose the Fund to undue risk and is closely monitored. These
procedures include providing periodic reports to the Board of Directors
concerning the use of derivatives.
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. Delivery and payment
normally take place on such transactions within 120 days after the date of the
commitment to purchase. Securities purchased or sold on a when-issued, delayed-
delivery or forward commitment basis involve a risk of loss if the value of the
security to be purchased declines, or the value of the security to be sold
increases, before the settlement date. Although the Fund will generally
purchase securities with the intention of acquiring them, the Fund may dispose
of securities purchased on a when-issued, delayed-delivery or a forward
commitment basis before settlement when deemed appropriate by the advisor.
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.
Foreign Fixed Income Securities
-------------------------------
The Fund may invest in foreign fixed income securities, including:
Foreign Private Debt. The Fund may invest in fixed income securities of
private issuers, provided that they are rated, at the time of investment, within
the top four rating categories by an NRSRO or determined to be of equivalent
quality by Wells Fargo Bank. Fixed income securities in which the Fund may
invest include, without limitation, corporate bonds, notes, debentures and other
similar corporate debt securities, including convertible securities. In
addition, such securities may or may not have warrants attached. For a
discussion of the risks associated with investing in foreign securities, see
"Risk Factors" in the Prospectus.
Foreign Sovereign Debt. The Fund may invest in debt securities or
obligations of foreign governments and their political subdivisions or agencies
("Sovereign Debt") provided that they are rated, at the time of investment,
within the top four rating categories by an NRSRO or determined to be of
equivalent quality by Wells Fargo Bank. Investments in Sovereign Debt involves
special risks. The issuer of the debt or the governmental authorities that
control the repayment of the debt may be unable or unwilling to repay principal
and/or interest when due in accordance with the terms of such debt, and the Fund
may have limited legal recourse in the event of a default.
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<PAGE>
Sovereign Debt differs from debt obligations issued by private entities in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party. Legal recourse is therefore somewhat diminished. Political
conditions, especially a sovereign entity's willingness to meet the terms of its
debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank debt issued by the same sovereign
entity may not contest payments to the holders of Sovereign Debt in the event of
default under commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal and interest
due in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which a
sovereign debtor may be subject. Increased protectionism on the part of a
country's trading partners, or political changes in those countries, could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any, or the credit standing of a particular local government
or agency.
The occurrence of political, social or diplomatic changes in one or more of
the countries issuing Sovereign Debt could adversely affect the Fund's
investments. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their Sovereign Debt. While Wells Fargo Bank manages the Fund's portfolio in a
manner that is intended to minimize the exposure to such risks, there can be no
assurance that adverse political changes will not cause the Fund to suffer a
loss of interest or principal on any of its holdings.
Brady Bonds. The Fund may invest a portion of its assets in Brady Bonds,
which are securities created through the exchange of existing commercial bank
loans to sovereign entities for new obligations in connection with debt
restructurings. Brady Bonds may be collateralized or uncollateralized and are
issued in various currencies (primarily the U.S. dollar). Brady bonds are not
considered U.S. government securities.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal by U.S. Treasury zero coupon bonds having the same maturity as
the Brady Bonds. Interest payments on these Brady Bonds generally are
collateralized on a one-year or longer rolling-forward basis by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of interest payments or, in the case of floating rate bonds,
initially is equal to at least one year's interest payments based on the
applicable interest rate at that time and is adjusted at regular intervals
thereafter. Certain Brady Bonds are entitled to "value recovery payments" in
certain circumstances, which in effect constitute supplemental interest payments
but generally are not collateralized. Brady Bonds are often viewed as having
three or four valuation components: (i) the collateralized repayment of
principal at final maturity; (ii) the collateralized interest payments; (iii)
the uncollateralized interest payments; and (iv) any uncollateralized repayment
of principal at maturity (these uncollateralized amounts constitute the
"residual risk").
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Brady Bonds involve various risk factors including the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds. There can be no assurance that Brady Bonds in
which the Fund may invest will not be subject to restructuring arrangements or
to requests for new credit, which may cause the Fund to suffer a loss of
interest or principal on any of its holdings.
Hedging and Related Strategies
------------------------------
The Fund may attempt to protect the U.S. dollar equivalent value of one or
more of its investments (hedge) by purchasing and selling foreign currency
futures contracts and by purchasing and selling currencies on a spot (i.e.,
cash) or forward basis. Foreign currency futures contracts are bilateral
agreements pursuant to which one party agrees to make, and the other party
agrees to accept, delivery of a specified type of currency at a specified future
time and at a specified price. Although such futures contracts by their terms
call for actual delivery or acceptance of currency, in most cases the contracts
are closed out before the settlement date without the making or taking of
delivery. A forward currency contract involves an obligation to purchase or
sell a specific currency at a specified future date, which may be any fixed
number of days from the contract date agreed upon by the parties, at a price set
at the time the contract is entered into.
The Fund may enter into forward currency contracts for the purchase or sale
of a specified currency at a specified future date either with respect to
specific transactions or with respect to portfolio positions. For example, the
Fund may enter into a forward currency contract to sell an amount of a foreign
currency approximating the value of some or all of the Fund's securities
denominated in such currency. The Fund may use forward contracts in one
currency or a basket of currencies to hedge against fluctuations in the value of
another currency when Wells Fargo Bank anticipates there will be a correlation
between the two and may use forward currency contracts to shift the Fund's
exposure to foreign currency fluctuations from one country to another. The
purpose of entering into these contracts is to minimize the risk to the Fund
from adverse changes in the relationship between the U.S. dollar and foreign
currencies.
Wells Fargo Bank might not employ any of the strategies described above, and
there can be no assurance that any strategy used will succeed. If Wells Fargo
incorrectly forecasts exchange rates, market values or other economic factors in
utilizing a strategy for the Fund, the Fund might have been in a better position
had it not hedged at all. The use of these strategies involves certain special
risks, including (1) the fact that skills needed to use hedging instruments are
different from those needed to select the Fund's securities, (2) possible
imperfect correlation, or even no correlation, between price movements of
hedging instruments and price movements of the investments being hedged, (3) the
fact that, while hedging strategies can reduce the risk of loss, they can also
reduce the opportunity for gain, or even result in losses, by offsetting
favorable price movements in hedged investments and (4) the possible inability
of the Fund to purchase or sell a portfolio security at a time that otherwise
would be favorable for it to do so, or the possible need for the Fund to sell a
portfolio security at a disadvantageous time, due to the need for the Fund to
maintain "cover" or to segregate securities in connection with hedging
transactions and the possible inability of a Fund to close out or to liquidate
its hedged position.
New financial products and risk management techniques continue to be
developed. The Fund may use these instruments and techniques to the extent
consistent with its investment objectives and regulatory and tax considerations.
11
<PAGE>
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
FDIC; (iii) commercial paper rated at the date of purchase "Prime-1" by Moody's
Investor Service, Inc. ("Moody's") or "A-1" or "A-1+" by Standard & Poor's
Rating Group ("S&P"), or, if unrated, of comparable quality as determined by
Wells Fargo Bank, as investment Advisor; and (iv) repurchase agreements. 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.
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. Such
investments also include the securities of investment companies that are
designed to replicate the composition and performance of a particular index.
For example, World Equity Benchmark Shares (commonly known as "WEBS") are
exchange traded shares of open-end investment companies designed to replicate
the composition and performance of publicly traded issuers in particular foreign
countries. Investments in index baskets involve the same risks associated with
a direct investment in the types of securities included in the baskets. Other
investment companies in which the Fund invests 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.
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.
12
<PAGE>
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.
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 a 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.
Unrated and Downgraded Investments
----------------------------------
The Fund may purchase instruments that are not rated by a nationally
recognized statistical rating organization ("NRSRO") if, in the opinion of Wells
Fargo Bank, such obligations are of investment quality comparable to other rated
investments that are permitted to be purchased by the Fund. After purchase by
the Fund, a security may cease to be rated or its rating may be reduced below
the minimum required for purchase by the Fund. Neither event will require a
sale of such security by the Fund. To the extent the ratings given by an NRSRO,
such as Moody's or S&P, change as a result of changes in such organizations or
their rating systems, the Fund will attempt to use comparable ratings as
standards for investments in accordance with the investment policies contained
in its Prospectus and in this SAI. The ratings of Moody's and S&P are more
fully described in the SAI Appendix.
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
13
<PAGE>
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 prices
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 Federal Deposit Insurance Corporation ("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 Fund is intended for investors who are seeking long-term capital
appreciation and who are prepared to accept the risks associated with investing
in foreign securities markets. Foreign securities held by the Fund, including
for this purpose ADRs, GDRs and similar securities, involve special risks and
considerations not typically associated with investing in U.S. companies.
Foreign securities often trade with less frequency and volume than domestic
securities and, therefore, may exhibit greater price volatility. 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. Other risks
associated with foreign securities 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. There may be less
publicly available information about a foreign company than about a U.S. company
and information that is available may be less reliable. Additionally,
dispositions of foreign securities and dividends and interest payable on those
securities may be subject to foreign taxes, including withholding taxes.
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.
14
<PAGE>
Transactions in foreign securities may be subject to less efficient settlement
practices. Moreover, foreign securities trading practices, including those
involving securities settlement where Fund assets may be released prior to
receipt of payment, may expose a Fund to increased risk in the event of a failed
trade or the insolvency of a foreign broker-dealer. Finally, in the event of
litigation relating to a portfolio investment, the Fund may encounter
substantial difficulties in obtaining and enforcing judgments against non-U.S.
resident individuals and corporations. Investors should carefully consider the
appropriateness of foreign investing in light of their financial objectives and
goals.
Because foreign securities ordinarily are denominated in currencies other
than the U.S. dollar (as are some securities of U.S. issuers), changes in
foreign currency exchange rates will affect the Fund's net asset value, the
value of dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and capital gains, if any, to be
distributed to shareholders by the Fund. If the value of a foreign currency
rises against the U.S. dollar, the value of Fund assets denominated in that
currency will increase; correspondingly, if the value of a foreign currency
declines against the U.S. dollar, the value of Fund assets denominated in that
currency will decrease. The exchange rates between the U.S. dollar and other
currencies are determined by supply and demand in the currency exchange markets,
international balances of payments, speculation and other economic and political
conditions. In addition, some foreign currency values may be volatile and there
is the possibility of governmental controls on currency exchange or governmental
intervention in currency markets. Any of these factors could adversely affect
the Fund.
Further, there are special risks involved in investing in issuers in
emerging market countries. Many investments in emerging markets can be
considered speculative, and their prices can be much more volatile than in the
more developed nations of the world. This difference reflects the greater
uncertainties of investing in less established markets and economies. In
addition, the financial markets of emerging markets countries are generally less
well capitalized and thus securities of issuers based in such countries may be
less liquid. Further, such markets may be vulnerable to high inflation and
interest rates. Most emerging market countries are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Some of these countries are also sensitive to world commodity prices
and may be subject to political and social uncertainties. The currencies of
certain emerging countries, and therefore the value of securities denominated in
such currencies, may be more volatile than currencies of developed countries.
In addition to the risks associated with investments in foreign securities,
the Fund's portfolio equity securities are subject to the risks commonly
associated with any investment in equity securities. For example, 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
extended periods. Further, because the Fund may, under certain limited
circumstances, invest in debt securities, the portion of the Fund's portfolio so
invested will, generally, be subject to credit and interest-rate risk. Credit
risk is the risk that issuers of the debt instruments in which the Fund invests
may default on the payment of principal and/or interest. Interest-rate risk is
the risk that increases in market interest rates may adversely affect the value
of the debt instruments in which the Fund invests and hence the value of your
investment in the Fund. The market value of the Fund's investment in fixed-
income securities will change in response to changes in interest
15
<PAGE>
rates and the relative financial strength of each issuer. During periods of
falling interest rates, the value of fixed-income securities generally rises.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. Debt securities with longer maturities, which
tend to produce higher yields, are subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities. changes
in the financial strength of an issuer or changes in the ratings of any
particular security also may affect the value of these investments. Fluctuations
in the market value of fixed-income securities subsequent to their acquisition
will not affect cash income from such securities but will be reflected in a
Fund's net asset value.
Illiquid securities, which may include certain restricted securities, may be
difficult to sell promptly at an acceptable price. Certain restricted
securities may be subject to legal restrictions on resale. Delay or difficulty
in selling securities may result in a loss or be costly to a Fund.
Wells Fargo Bank may use certain derivative investments or techniques, such
as buying and selling foreign currency futures contracts and entering into
forward foreign currency contracts, to adjust the risk and return
characteristics of the Fund's portfolio. Derivatives are financial instruments
whose value is derived, at least in part, from the price of another security or
a specified asset, index or rate. Some derivatives may be more sensitive than
direct securities to changes in interest rates or sudden market moves. Some
derivatives also may be susceptible to fluctuations in yield or value due to
their structure or contract terms. If Wells Fargo Bank judges market conditions
incorrectly, the use of certain derivatives could result in a loss, regardless
of its 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>
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Jack S. Euphrat, 75 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 46 Director, Executive Vice President of Stephens;
Chairman and President of Stephens Insurance Services Inc.;
President Senior Vice President of Stephens Sports
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Management Inc.; and President of Investor
Brokerage Insurance Inc.
Thomas S. Goho, 55 Director Associate Professor of Finance of the School
321 Beechcliff Court of Business and Accounting at Wake Forest
Winston-Salem, NC 27104 University since 1982.
Joseph N. Hankin, 57 Director President of Westchester Community College
75 Grasslands Road since 1971; Adjunct Professor of Columbia
Valhalla, N.Y. 10595 University Teachers College since 1976.
*W. Rodney Hughes, 71 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Peter G. Gordon, 54 Director Chairman and Co-founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street, Roxane Water Company since 1977.
San Francisco, CA 94133
(As of 1/1/98)
*J. Tucker Morse, 53 Director Private Investor; Chairman of Home Account
4 Beaufain Street Network, Inc. Real Estate Developer; Chairman
Charleston, SC 29401 of Renaissance Properties Ltd.; President of
Morse Investment Corporation; and Co-Managing
Partner of Main Street Ventures.
Richard H. Blank, Jr., 41 Chief Operating Vice President of Stephens; Director of Stephens
Officer, Sports Management Inc.; and Director of Capo Inc.
Secretary and
Treasurer
</TABLE>
Compensation Table
Year Ended March 31, 1997
-------------------------
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- ---------------------- ----------------
<S> <C> <C>
Jack S. Euphrat $11,250 $33,750
Director
R. Greg Feltus $0 $0
Director
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- --------------- ----------------
<S> <C> <C>
Thomas S. Goho $11,250 $33,750
Director
Joseph N. Hankin $ 8,750 $26,250
Director
W. Rodney Hughes $ 9,250 $27,750
Director
Robert M. Joses $11,250 $33,750
Director
J. Tucker Morse $ 9,250 $27,750
Director
</TABLE>
As of January 1, 1998, Peter G. Gordon replaced Robert M. Joses on the Board
of Directors of the Wells Fargo Fund Complexes.
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
18
<PAGE>
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 1.00% of the Fund's average daily
net assets.
General. The Fund's Advisory Contract will continue in effect for more
-------
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the Fund's outstanding voting
securities or by the Company's Board of Directors and (ii) by a majority of the
Directors of the Company who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. The Fund's
Advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.
PORTFOLIO MANAGERS. Ms. Katherine Schapiro is primarily responsible for the
------------------
day-to-day management of the Fund. She joined Wells Fargo Bank in August 1992.
Ms. Schapiro directs international equity investment strategy for Wells Fargo
Bank and currently manages a number of international equity portfolios. Ms.
Schapiro also manages equity and balanced portfolios for institutions and
individuals through Wells Capital Management, a wholly-owned subsidiary of Wells
Fargo Bank, and serves on the Equity Strategy Committee. Prior to joining Wells
Fargo Bank, Ms. Schapiro was a vice president and fund manager for Newport
Pacific Management, an international investment advisory firm. Ms. Schapiro is a
graduate of Stanford University, is a chartered financial analyst and is on the
board of directors of the Security Analysts of San Francisco.
Ms. Stacey Ho is a co-manager of the Fund. Ms. Ho analyzes foreign equity
securities and manages other equity portfolios for Wells Fargo Bank and Wells
Capital Management as part of its International Equity-Style Team. Prior to
joining Wells Fargo Bank this year, Ms. Ho was a portfolio manager of
international equity funds at Clemente Capital Management. Ms. Ho was employed
by Clemente Capital Management from 1995 through late 1996. From 1990 to 1995,
Ms. Ho was employed by Edison International where her responsibilities included
managing a Japan equity portfolio, a U.S. equity portfolio, and the domestic
equity managers for Edison International's pension fund. Ms. Ho has a B.S. in
Civil Engineering from San Diego State University and an M.S. in Environmental
Engineering from Stanford University. She received her M.B.A. from UCLA. Ms.
Ho is currently working toward her chartered financial analyst designation.
ADMINISTRATOR AND CO-ADMINISTRATOR. The Company has retained Wells Fargo
----------------------------------
Bank as Administrator and Stephens as Co-Administrator on behalf of the Fund.
Under the Administration and Co-Administration Agreements among Wells Fargo
Bank, Stephens and the Company, Wells Fargo Bank and Stephens shall provide as
administration services, among other things: (i) general supervision of the
Fund's operations, including coordination of the services performed by the
Fund's investment Advisor, transfer agent, custodian, shareholder servicing
agent(s), independent auditors and legal counsel, regulatory compliance,
including the compilation of information for documents such as reports to, and
filings with, the U.S. Securities and Exchange Commission ("SEC") and state
securities commissions; and preparation of proxy
19
<PAGE>
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 Fund's business together with ordinary clerical and
bookkeeping services. Stephens pays the compensation of the Company's Directors,
officers and employees who are affiliated with Stephens. The Administrator and
Co-Administrator are entitled to receive a monthly fee of 0.06% and 0.04%,
respectively, of the average daily net assets of the Fund.
Wells Fargo Bank has delegated certain administration duties to Investors
Bank & Trust Company ("IBT") pursuant to a Sub-Administration Agreement with
IBT. Wells Fargo Bank remains fully liable for the performance of these
administration services. IBT is entitled to receive an annual base fee of
approximately $36,500, plus a net asset fee of at the annual rate of 0.05% of
the first $75 million of the Fund's average daily net assets, 0.025% of the next
$50 million, and 0.01% of assets above $125 million. Compensation is the
responsibility of Wells Fargo Bank, but can be made directly to IBT by the Fund,
in which case, the compensation paid to Wells Fargo Bank for administration
services will be reduced accordingly.
DISTRIBUTOR. Stephens (the "Distributor"), located at 111 Center Street,
-----------
Little Rock, Arkansas 72201, serves as Distributor for the Fund. The Fund has
adopted a distribution plan (a "Plan") under Section 12(b) of the 1940 Act and
Rule 12b-1 thereunder (the "Rule") for its shares. The Plans were adopted by
the Company's Board of Directors, including a majority of the Directors who were
not "interested persons" (as defined in the 1940 Act) of the Funds and who had
no direct or indirect financial interest in the operation of the Plans or in any
agreement related to the Plans (the "Non-Interested Directors").
Under the Plan, and pursuant to the related Distribution Agreement, the
Fund may pay Stephens on an annual basis up to 0.10% of the Fund's average daily
net assets attributable to Class A shares. Under the Plans in effect for the
Class B and Class C shares of the Fund, the Fund may pay to Stephens on an
annual basis up to 0.75% of the Fund's average daily net assets attributable to
such shares. The Plans for the Class A, Class B and Class C shares of the Fund
provide for compensation of distribution-related services or reimbursement for
distribution-related expenses.
The actual fee payable to the Distributor by the above-indicated Classes 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.
20
<PAGE>
General. Each Plan will continue in effect from year to year if such
-------
continuance is approved by a majority vote of both the Directors of the Company
and the non-interested Directors. Any Distribution Agreement related to the
Plans 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 outstanding voting securities of the relevant class of the Fund or by vote of
a majority of the Non-Interested Directors on not more than 60 days' written
notice. The Plans may not be amended to increase materially the amounts payable
thereunder, and no material amendment to the Plans may be made except by a
majority of both the Directors of the Company and the Non-Interested Directors.
The Plans require 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 therefore) under the Plans. 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 Funds'
shares pursuant to selling agreements with Stephens authorized under the Plans.
As a selling agent, Wells Fargo Bank has an indirect financial interest in the
operation of the Plans. The Board of Directors has concluded that the Plans are
reasonably likely to benefit the Funds and their shareholders because the Plans
authorize the relationships with selling agents, including Wells Fargo Bank,
that have previously developed distribution channels and relationships with the
retail customers that the Funds are designed to serve. These relationships and
distribution channels are believed by the Board to provide potential for
increased Fund assets and ultimately corresponding economic efficiencies (i.e.,
lower per-share transaction costs and fixed expenses) that are generated by
increased assets under management.
SHAREHOLDER SERVICING AGENT. The Fund has entered into a shareholder
---------------------------
servicing agreement with Wells Fargo Bank and may enter into agreements with
other servicing agents. Under the agreements, Shareholder Servicing Agents
(including Wells Fargo Bank) agree to perform, as agents for their customers,
administrative services, with respect to Fund shares, which include aggregating
and transmitting shareholder orders for purchases, exchanges and redemptions;
maintaining shareholder accounts and records; and providing such other related
services as the Company or a shareholder may reasonably request. For providing
shareholder services, and pursuant to a Shareholder Servicing Plan approved by
the Company's Board of Directors, including a majority of the non-interested
directors, a Servicing Agent is entitled to a fee of up to 0.25%, on an
annualized basis, of the average daily net assets attributable to each class of
shares of the Fund 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
Agreement that exceed the maximum amounts payable under the Conduct Rules of the
NASD.
General. The Servicing Plan will continue in effect from year to year if
-------
such continuance is approved by a majority vote of the Directors of the Company,
including a majority of the Directors who are not "interested persons" (as
defined in the 1940 Act) of the Funds
21
<PAGE>
("Non-Interested Directors"). Any form of Servicing Agreement related to a
Servicing Plan that materially differs from the form of servicing agreement
originally approved by the Board of Directors 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 Plans or related Servicing Agreements 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 therefore) under the Servicing Plan.
CUSTODIAN. IBT acts as Custodian for the Fund. The Custodian, among other
---------
things, maintains a custody account or accounts in the name of the Fund,
receives and delivers all assets for the Fund upon purchase and upon sale or
maturity, collects and receives all income and other payments and distributions
on account of the assets of the Fund, and pays all expenses of the Fund. For
its services as Custodian, IBT is entitled to receive fees as follows: a net
asset charge at the annual rate of 0.0167%, payable monthly, plus specified
transaction charges.
FUND ACCOUNTANT. Wells Fargo Bank acts as Fund Accountant for the Fund.
---------------
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
Fund. For providing such services, Wells Fargo Bank will be entitled to receive
from the Fund 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.
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 attributable to Class A, Class B and
Class C shares. For its services as Transfer and Dividend Disbursing Agent for
the Fund's Institutional Class shares, Wells Fargo Bank is entitled to receive
monthly payments at the annual rate of 0.06% of the Fund's average daily net
assets for Institutional Class shares. For as long as the Fund's assets remain
under $20 million, the Fund will not be charged any transfer agency fees.
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 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.
PERFORMANCE CALCULATIONS
The Fund may advertise certain total return information computed in the
manner described in its Prospectus. As and to the extent required by the SEC,
an average annual compound rate of return ("T") will be computed by using the
redeemable value at the end of a specified period ("ERV") of a hypothetical
initial investment in a Class of shares ("P") over a period of years ("n")
according to the following formula: P(1+T)n = ERV. In addition, the
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<PAGE>
Fund, at times, also may calculate total return based on net asset value per
share of each Class (rather than the public offering price), in which case the
figures would not reflect the effect of any sales charges that would have been
paid by an investor, or based on the assumption that a sales charge other than
the maximum sales charge (reflecting a Volume Discount) was assessed, provided
that total return data derived pursuant to the calculation described above also
are presented.
The Fund may advertise the cumulative total return on each class of shares.
Cumulative total return of shares is computed on a per share basis and assumes
the reinvestment of dividends and distributions. Cumulative total return of
shares generally is expressed as a percentage rate which is calculated by
combining the income and principal changes for a specified period and dividing
by the net asset value per share at the beginning of the period. Advertisements
may include the percentage rate of total return of shares or may include the
value of a hypothetical investment in shares at the end of the period which
assumes the application of the percentage rate of total return.
In addition to the above performance information, the Fund may also
advertise the cumulative total return 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.
Investors should recognize that changes in the net asset values of shares
of each Class of the Fund will affect the yield of each such Class for any
specified period, and such changes should be considered together with the yield
of each Class in ascertaining the total return for the period to shareholders.
Yield information for each Class of shares of the Fund may be useful in
reviewing the Fund's performance and for providing a basis for comparison with
investment alternatives. The yield of each Class of the Fund, however, may not
be comparable to the yields from investment alternatives because of differences
in the foregoing variables and differences in the methods used to value
portfolio securities, compute expenses and calculate yield.
From time to time and only to the extent the comparison is appropriate for
a Class of shares of the Fund, the Company may quote the performance or price-
earning ratio of a Class of shares in advertising and other types of literature
as compared to the performance of the Morgan Stanley Capital International EAFE
(Europe, Australia, Far East) Index, Morgan Stanley Capital International EMF
(Emerging Markets Free) Index, Morgan Stanley Capital International EAFE/EMF
Index, Lipper International Equity Fund Index, 1-Year Treasury Bill Rate, S&P
Index, the Dow Jones Industrial Average, the Lehman Brothers 20+ Years Treasury
Index, the Lehman Brothers 5-7 Year Treasury Index, IBC/Donoghue's Money Fund
Averages, Real Estate Investment Averages (as reported by the National
Association of Real Estate Investment Trusts), Gold Investment Averages
(provided by the World Gold Council), Bank Averages (which is calculated from
figures supplied by the U.S. League of Savings Institutions based on effective
annual rates of interest on both passbook and certificate accounts), average
annualized certificate of deposit rates (from the Federal Reserve G-13
Statistical Releases or the Bank Rate Monitor), the Salomon One Year Treasury
Benchmark Index, the Consumer Price Index (as published by the U.S. Bureau of
Labor Statistics), Ten Year U.S. Government Bond Average, S&P's
23
<PAGE>
Corporate Bond Yield Averages, Schabacter Investment Management Indices, Salomon
Brothers High Grade Bond Index, Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, other managed or unmanaged indices or
performance data of bonds, stocks or government securities (including data
provided by Ibbotson Associates), or by other services, companies, publications
or persons who monitor mutual funds on overall performance or other criteria.
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stock prices. The performance of a class of shares of the Fund
also may be compared to the performance of other mutual funds having similar
objectives. This comparative performance could be expressed as a ranking
prepared by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.,
Bloomberg Financial Markets or Morningstar, Inc., independent services which
monitor the performance of mutual funds. The performance of a Class of shares of
the Fund will be calculated by relating net asset value per share at the
beginning of a stated period to the net asset value of the investment, assuming
reinvestment of all gains, distributions and dividends paid, at the end of the
period. Any such comparisons may be useful to investors who wish to compare the
past performance of a Class of shares 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."
From time to time the Company may reprint, reference or otherwise use
material from magazines, newsletters, newspapers and books including, but not
limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar, Lipper Financial Data Services, or Value Line.
The Company also may disclose in sales literature, information, and
statements the distribution rate on the shares of each class of the 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 also disclose in advertising and other types of literature,
information and statements the average credit quality of the Fund's portfolio,
or categories of investments
24
<PAGE>
therein, as of a specified date or period. Average credit quality is calculated
on a dollar weighted average basis based on ratings assigned each issue or
issuer, as the case may be, by S&P and/or Moody's. In the event one rating
agency does not rate the issue or issuer, as the case may be, in the same tier
as the other agency, the highest rating is used in the calculation.
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
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 a Class of Fund
shares, or on returns in general, may be illustrated by graphs, charts, etc.,
where such graphs or charts would compare, at various points in time, the return
from an investment in a Class of Fund shares (or returns in general) on a tax-
deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and (iv) the
sectors or industries in which 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 include, from time to time, a reference to certain
marketing approaches of the Distributor, including, for example, a reference to
a potential shareholder being contacted by a selected broker or dealer.
The Company also may discuss in advertising and other types of literature
that the Fund has been assigned a rating by 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.
From time to time, the Fund may use the following statements, or variations
thereof, in advertisements and other promotional materials: "Wells Fargo Bank,
as a Shareholder Servicing Agent for the Stagecoach Funds, provides various
services to its customers that are also shareholders of the Funds. These
services may include access to Stagecoach Funds' account information through
Automated Teller Machines (ATMs), the placement of purchase and redemption
requests for shares of the Funds through ATMs and the availability of combined
Wells Fargo Bank and Stagecoach Funds account statements."
The Company may disclose, in advertising and other types of literature,
information and statements regarding performance and rankings of the investment
management services of Wells Fargo Bank. The Company may also disclose in
advertising and other types of sales literature the assets and categories of
assets under management by Wells Fargo Bank. As of
25
<PAGE>
December 31, 1997, Wells Fargo Bank and its affiliates provided investment
advisory services for approximately $62 billion of assets of individuals,
trusts, estates and institutions and $23 billion of mutual fund assets.
The Company may disclose in advertising and other types of literature that
investors (except Institutional Class investors) can open and maintain Sweep
Accounts over the Internet or through other electronic channels (collectively,
"Electronic Channels"). Such advertising and other literature may discuss the
investment options available to investors, including the types of accounts and
any applicable fees. Such advertising and other literature may disclose that
Wells Fargo Bank is the first major bank to offer an on-line application for a
mutual fund account that can be filled out completely through Electronic
Channels. Advertising and other literature may disclose that Wells Fargo Bank
may maintain Web sites, pages or other information sites accessible through
Electronic Channels (an "Information Site") and may describe the contents and
features of the Information Site and instruct investors on how to access the
Information Site and open a Sweep Account. Advertising and other literature may
also disclose the procedures employed by Wells Fargo Bank to secure information
provided by investors, including disclosure and discussion of the tools and
services for accessing Electronic Channels. Such advertising or other
literature may include discussions of the advantages of establishing and
maintaining a Sweep Account through Electronic Channels and testimonials from
Wells Fargo Bank customers or employees and may also include descriptions of
locations where product demonstrations may occur. The Company may also disclose
the ranking of Wells Fargo Bank as one of the largest money managers in the
United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each class of the Fund is determined as of
the close of regular trading (currently 1:00 p.m., Pacific time) on each day the
New York Stock Exchange ("NYSE") is open for business. Expenses and fees,
including advisory fees, are accrued daily and are taken into account for the
purpose of determining the net asset value of the Fund's shares.
Securities that are listed on U.S. and foreign stock exchanges are valued
at the last sale price on the day the securities are valued or, lacking any
sales on such day, at the last available bid price. In cases where securities
are traded on more than one exchange, the securities are generally valued on the
exchange considered by Wells Fargo Bank as the primary market. Securities traded
in the over-the-counter ("OTC") market and listed on the Nasdaq Stock Market
('Nasdaq') are valued at the last trade price on Nasdaq at 1:00 p.m., Pacific
time; other OTC securities, and U.S. Government securities, are valued at the
last quoted bid price (other than short-term investments that mature in 60 days
or less which are valued as described further below). To the extent that the
Fund holds lower rated corporate debt securities, it should be recognized that
judgment often plays a greater role than is the case with respect to securities
for which a broader range of dealer quotations and last-sale information is
available. All investments quoted in foreign currencies will be valued daily in
U.S. dollars on the basis of the foreign currency exchange rate prevailing at
the time such valuation is determined by the Fund's custodian. Money market
instruments maturing in 60 days or less are valued at amortized cost. Futures
contracts will be marked to market daily at their respective settlement prices
determined by the relevant exchange. These prices are not necessarily final
closing prices, but are intended
26
<PAGE>
to represent prices prevailing during the final 30 seconds of the trading day.
In all cases, bid prices will be furnished by a reputable independent pricing
service approved by the Board of Directors. Prices provided by an independent
pricing service may be determined without exclusive reliance on quoted prices
and may take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data. Securities and assets 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.
Foreign currency exchange rates are generally determined prior to the close
of regular trading on the NYSE. Occasionally events affecting the value of
foreign investments and such exchange rates occur between the time at which they
are determined and the close of trading on the NYSE, which events would not be
reflected in the computation of the Fund's net asset value on that day. If
events materially affecting the value of such investments or currency exchange
rates occur during such time period, the investments will be valued at their
fair value as determined in good faith by or under the direction of the Fund's
Board of Directors. The foreign currency exchange transactions of the Fund
conducted on a spot (i.e., cash) basis are valued at the spot rate for
purchasing or selling currency prevailing on the foreign exchange market. This
rate under normal market conditions differs from the prevailing exchange rate in
an amount generally less than one-tenth of one percent due to the costs of
converting from one currency to another.
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.'s Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any
Holiday falls on a weekend, the NYSE typically is closed on the weekday
immediately before or after such Holiday.
Payment for shares may, in the discretion of the Advisor, be made in the
form of securities that are permissible investments for the Fund. For further
information about this form of payment please contact Stephens. In connection
with an in-kind securities payment, the Fund will require, among other things,
that the securities be valued on the day of purchase in accordance with the
pricing methods used by the Fund and that the Fund receives satisfactory
assurances that (i) it will have good and marketable title to the securities
received by it; (ii) that the securities are in proper form for transfer to the
Fund; and (iii) adequate information will be provided concerning the basis and
other matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit.
27
<PAGE>
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 Funds 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 Bank or their affiliates in any transaction in which any of them
acts as principal without an exemptive order from the Commission.
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. While Wells
Fargo Bank will generally seek reasonably competitive spreads or commissions,
the Asset Allocation Fund will not necessarily be paying the lowest spread or
commission available. 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 the Investment Advisor to the Funds, 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
28
<PAGE>
performed by Wells Fargo Bank under the Advisory Contracts, and the expenses of
Wells Fargo Bank will not necessarily be reduced as a result of the receipt of
this supplemental research information. Furthermore, research services furnished
by dealers through which Wells Fargo Bank places securities transactions for a
Fund may be used by Wells Fargo Bank in servicing its other accounts, and not
all of these services may be used by Wells Fargo Bank in connection with
advising the Funds.
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
Funds whenever such changes are believed to be in the best interests of the
Funds and their shareholders. The portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities by the average
monthly value of the Fund's portfolio securities. For purposes of this
calculation, portfolio securities exclude all securities having a maturity when
purchased of one year or less. Portfolio turnover generally involves some
expenses to the Funds, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gain tax
consequences. Portfolio turnover rate is not a limiting factor when Wells Fargo
Bank deems portfolio changes appropriate.
FUND EXPENSES
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
any Plan; interest charges; taxes; fees and expenses of its independent
accountants, legal counsel, transfer agent and dividend disbursing agent;
expenses of redeeming shares; expenses of preparing and printing Prospectuses
(except the expense of printing and mailing Prospectuses used for promotional
purposes, unless otherwise payable pursuant to a Plan), shareholders' reports,
notices, proxy statements and reports to regulatory agencies; insurance premiums
and certain expenses relating to insurance coverage; trade association
membership dues; brokerage and other expenses connected with the execution of
portfolio transactions; fees and expenses of its custodian, including those for
keeping books and accounts and calculating the NAV per share of the Fund;
expenses of shareholders' meetings; expenses relating to the issuance,
registration and qualification of 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
29
<PAGE>
distributions by the Fund. This section of the SAI includes additional
information concerning income taxes.
General. The Company intends to qualify the Fund as a regulated investment
-------
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), as long as such qualification is in the best interest of the Fund's
shareholders. The Fund will be treated as a separate entity for tax purposes
and thus the provisions of the Code applicable to regulated investment companies
will generally be applied to the Fund, rather than to the Company as a whole.
In addition, net capital gain, net investment income, and operating expenses
will be determined separately for the Fund. As a regulated investment company,
the Fund will not be taxed on its net investment income and capital gains
distributed to its shareholders.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) the Fund derive at least 90% of its annual gross
income from dividends, interest, certain payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related to
the regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) the Fund diversify its holdings
so that, at the end of each quarter of the taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, government securities
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
obligations and the securities of other regulated investment companies), or in
two or more issuers which the Fund controls and which are determined to be
engaged in the same or similar trades or businesses.
The Fund must also distribute or be deemed to distribute to its
shareholders at least 90% of its net investment income earned in each taxable
year. In general, these distributions must actually or be deemed to be made in
the taxable year. However, in certain circumstances, such distributions may be
made in the 12 months following the taxable year. The Fund intends to pay out
substantially all of its net investment income and net realized capital gains
(if any) for each year.
In addition, a regulated investment company must, in general, derive less
than 30% of its gross income from the sale or other disposition of securities or
options thereon held for less than three months. However, this restriction has
been repealed with respect to a regulated investment company's taxable years
beginning after August 5, 1997.
Excise Tax. A 4% nondeductible excise tax will be imposed on the Fund
----------
(other than to the extent of its tax-exempt interest income) to the extent it
does not meet certain minimum distribution requirements by the end of each
calendar year. The Fund intends to actually or be deemed to distribute
substantially all of its net investment income and net capital gains by the end
of each calendar year and, thus, expects not to be subject to the excise tax.
30
<PAGE>
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 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.
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 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.
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 Fund 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
31
<PAGE>
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 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.
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. If more than 50% in value of a
regulated investment company's total assets at the close of its taxable year
consist of securities of non-U.S. corporations, the regulated investment company
will be eligible to file an election with the IRS pursuant to which the
regulated investment company may pass-through to its shareholders foreign taxes
paid by the regulated investment company, which may be claimed either as a
credit or deduction by the shareholders. The Fund expects to qualify for the
election. However, even if the Fund qualifies for the election, foreign taxes
will only pass-through to a Fund shareholder if (i) the shareholder holds the
Fund shares for at least 16 days during the 30 day period beginning 15 days
prior to the date upon which the shareholder becomes entitled to receive Fund
dividends corresponding with the pass-through of the foreign taxes paid by the
Fund, and (ii), with respect to foreign source dividends received by the Fund on
shares giving rise to foreign tax, the Fund holds the shares for 16 days during
the 30 day period beginning 15 days prior to the date upon which the Fund
becomes entitled to the dividend. The Fund will inform shareholders if it fails
to satisfy the holding requirement with respect to foreign source dividends that
would otherwise qualify for the pass-through of foreign taxes to its
shareholders.
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
32
<PAGE>
distributions in a written notice mailed by the Fund to its shareholders not
later than 60 days after the close of the Fund's taxable year.
The Taxpayer Relief Act of 1997 (the "1997 Act") created several new
categories of capital gains applicable to noncorporate taxpayers. Under prior
law, noncorporate taxpayers were generally taxed at a maximum rate of 28% on net
capital gain (generally, the excess of net long-term capital gain over net
short-term capital loss). Noncorporate taxpayers are now generally taxed at a
maximum rate of 20% on net capital gain attributable to gains realized on the
sale of property held for greater than 18 months, and a maximum rate of 28% on
net capital gain attributable to gain realized on the sale of property held for
greater than one year and not more than 18 months. The 1997 Act retains the
treatment of short term capital gain or loss (generally, gain or loss
attributable to capital assets held for 1 year or less) and did not affect the
taxation of capital gains in the hands of corporate taxpayers.
Under the 1997 Act, the Treasury is authorized to issue regulations for
application of the reduced capital gains tax rates to pass-through entities,
including regulated investment companies, such as the Fund. The Internal
Revenue Service has published a notice describing temporary Regulations to be
issued pursuant to such authority, permitting the application of the reduced
capital gains tax rates to pass-through entities such as the Funds. Under the
Regulations to be issued, if a regulated investment company designates a
dividend as a capital gain dividend for a taxable year ending on or after May 7,
1997, then such regulated investment company may also designate the dividends as
one of two classes: a 20% rate gain distribution, or a 28% rate gain
distribution. Thus, noncorporate shareholders of the Funds may qualify for the
reduced rate of tax on capital gain dividends paid by the Funds, subject only to
the limitation as to the maximum amounts which may be designated in each class.
Such maximum amount for each class is determined by performing the computation
required by section 1(h) of the Code as if the Fund were an individual whose
ordinary income is subject to a marginal rate of at least 28%.
Disposition of Fund Shares. A disposition of Fund shares pursuant to
--------------------------
redemption (including a redemption in-kind) or exchanges will ordinarily result
in a taxable capital gain or loss, depending on the amount received for the
shares (or are deemed to receive in the case of an exchange) and the cost of the
shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred acquiring the Fund's shares shall not be taken
into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange
33
<PAGE>
of that Fund share will be treated as a long-term capital loss to the extent of
the designated capital gain distribution. This 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 and that the shareholder is not subject to
backup withholding, or the IRS notifies the Company that the shareholder's TIN
is incorrect or that the shareholder is subject to backup withholding. Such tax
withheld does not constitute any additional tax imposed on the shareholder, and
may be claimed as a credit or refund on the shareholder's federal income tax
return. An investor must provide a valid TIN upon opening or reopening an
account. Failure to furnish a valid TIN to the Company could subject the
investor to penalties imposed by the IRS. Foreign shareholders of the Fund
(described below) are generally not subject to backup withholding.
Foreign Shareholders. Under the Code, distributions of net investment
--------------------
income by the Fund to a nonresident alien individual, foreign trust (i.e., trust
which a U.S. court is able to exercise primary supervision over administration
of that trust and one or more U.S. persons have authority to control substantial
decisions of that trust), foreign estate (i.e., the income of which is not
subject to U.S. tax regardless of source), foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. income tax
withholding (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend distribution paid by the Fund to a
foreign shareholder is "effectively connected" with a U.S. trade or business
(or, if an income tax treaty applies, is attributable to a U.S. permanent
establishment of the foreign shareholder), in which case the reporting and
withholding requirements applicable to U.S. residents will apply. Distributions
of net capital gain are generally not subject to U.S. income tax withholding.
New Regulations. On October 6, 1997, the Treasury Department issued new
---------------
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S. income tax withholding and information reporting rules
applicable to foreign shareholders. The New Regulations will generally be
effective for payments made after December 31, 1998, subject to certain
transition rules. Among other things, the New Regulations will permit the Fund
to estimate the portion of their distributions qualifying as capital gain
distributions for purposes of determining the portion of such distributions paid
to foreign shareholders which will
34
<PAGE>
be subject to U.S. income tax withholding. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
Tax-Deferred Plans. The shares of the Fund are available for a variety of
------------------
tax-deferred retirement and other plans, including Individual Retirement
Accounts ("IRA"), Simplified Employee Pension Plans ("SEP-IRA"), Savings
Incentive Match Plans for Employees ("SIMPLE plans"), Roth IRAs, and Education
IRAs, which permit investors to defer some of their income from taxes. Investors
should contact their selling agents for details concerning retirement plans.
Other Matters. Investors should be aware that the investments to be made by
-------------
the Fund may involve sophisticated tax rules that may result in income or gain
recognition by the Fund without corresponding current cash receipts. Although
the Fund will seek to avoid significant noncash income, such noncash income
could be recognized by the Fund, in which case the Fund may distribute cash
derived from other sources in order to meet the minimum distribution
requirements described above.
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 12b-
1) that are allocated to a particular class. Please contact Stagecoach
Shareholder Services at 1-800-222-8222 if you would like additional information
about other funds or classes of shares offered.
With respect to matters affecting one Class but not another, shareholders
vote as a Class. 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.
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
35
<PAGE>
if the holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. The term "majority," when referring to the approvals to be obtained
from shareholders of the Company as a whole, means the vote of the lesser of (i)
67% of the Company's shares represented at a meeting if the holders of more than
50% of the Company's outstanding shares are present in person or by proxy, or
(ii) more than 50% of the Company's outstanding shares. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held.
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 a class of the Fund or 5% or more of the voting
securities of the Fund as a whole. The term "N/A" is used where a shareholder
holds 5% or more of a class, but less than 5% of the Fund as a whole.
36
<PAGE>
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>
Virg & Co. Class A 31.10% 13.54%
c/o Wells Fargo Bank Record Holder
P.O. Box 9800
Calabasas, CA 91372
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or the Fund), or is identified as the holder
of record of more than 25% of a class (or the Fund) and has voting and/or
investment powers, it may be presumed to control such class (or the Fund).
OTHER
The Company's Registration Statement, including the Prospectus and SAI for
the Fund and the exhibits filed therewith, may be examined at the office of the
U.S. Securities and Exchange Commission in Washington, D.C. Statements
contained in 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.
37
<PAGE>
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditors for the
Company. KPMG Peat Marwick LLP provides audit services, tax return preparation
and assistance and consultation in connection with review of certain SEC
filings. KPMG Peat Marwick LLP's address is Three Embarcadero Center, San
Francisco, California 94111.
FINANCIAL INFORMATION
At least semi-annually, the Company will furnish the shareholders of the
Fund with financial statements for the Fund.
The Company's Annual and Semi-Annual Reports may be obtained by calling 1-
800-222-8222.
38
<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.
S&P: The "A-1" rating for corporate commercial paper indicates that the
---
"degree of safety regarding timely payment is either overwhelming or very
strong." Commercial paper with "overwhelming safety characteristics" will be
rated "A-1+." Commercial paper with a strong capacity for timely payments on
issues will be rated "A-2."
A-1
<PAGE>
STAGECOACH FUNDS, INC.
SEC REGISTRATION NOS. 33-42927; 811-6419
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
--------------------
With respect to the Arizona Tax-Free, Asset Allocation, Balanced,
California Tax-Free Bond, California Tax-Free Income, California Tax-
Free Money Market Mutual, Diversified Equity Income, Equity Index,
Equity Value, Government Money Market Mutual, Growth, Intermediate
Bond, Money Market Mutual, Money Market Trust, National Tax-Free,
National Tax-Free Money Market Mutual, Oregon Tax-Free, Prime Money
Market Mutual, Short-Intermediate U.S. Government Income, Small Cap,
Strategic Growth, Treasury Money Market Mutual, U.S. Government
Allocation and U.S. Government Income Funds, the portfolio of
investments, unaudited financial statements and independent auditors'
report for the fiscal period ended September 30, 1997 are incorporated
in the respective statements of additional information for such Funds
by reference to the Company's Semi-Annual Reports, as filed with the
SEC on December 5, 1997.
With respect to the Asset Allocation, Capital Appreciation, Corporate
Stock, Small Cap, Tax-Free Money Market and U.S. Government Allocation
Master Portfolios of Master Investment Trust ("MIT"), the portfolio of
investments, unaudited financial statements and independent auditors'
report for the fiscal period ended September 30, 1997 are incorporated
in the respective statements of additional information for such Funds
by reference to the Company's Semi-Annual Reports, as filed with the
SEC on December 5, 1997.
With respect to the Arizona Tax-Free, Asset Allocation, Balanced,
California Tax-Free Bond, California Tax-Free Income, California Tax-
Free Money Market Mutual, Diversified Equity Income, Equity Index,
Equity Value, Government Money Market Mutual, Growth, Intermediate
Bond, Money Market Mutual, Money Market Trust, National Tax-Free,
National Tax-Free Money Market Mutual, Oregon Tax-Free, Prime Money
Market Mutual, Short-Intermediate U.S. Government Income, Small Cap,
Strategic Growth, Treasury Money Market Mutual, U.S. Government
Allocation and U.S. Government Income Funds, the portfolio of
investments, audited financial statements and independent auditors'
report for the fiscal period ended March 31, 1997 are incorporated in
the respective statements of additional information for such Funds by
reference to the Company's Annual Reports, as filed with the SEC on
June 4, 1997.
C-1
<PAGE>
With respect to the Asset Allocation, Capital Appreciation, Corporate
Stock, Small Cap, Tax-Free Money Market and U.S. Government Allocation
Master Portfolios of Master Investment Trust ("MIT"), the portfolio of
investments, audited financial statements and independent auditors'
report for the fiscal period ended March 31, 1997 are incorporated in
the respective statements of additional information for such Funds by
reference to the Company's Annual Reports as filed with the SEC on
June 4, 1997.
With respect to the International Equity Fund and National Tax Free
Money Market Trust, the financial statements for such Funds will be
incorporated by reference in their respective statements of additional
information when available.
With respect to the predecessor portfolios to the California Tax-Free
Bond, Index Allocation, Overland Express Sweep, Short-Term Government-
Corporate Income, Short-Term Municipal Income, Strategic Growth, U.S.
Government Income and Variable Rate Government Funds, the portfolio of
investments and unaudited financial statements for the six month
period ended June 30, 1997 are hereby incorporated by reference to the
Semi-Annual Reports for Overland Express Funds, Inc. ("Overland") (SEC
File Nos. 33-16296; 811-8275) as filed with the SEC on September 3,
1997.
With respect to the Cash Investment Trust, Short-Term Government-
Corporate Income and Short-Term Municipal Income Master Portfolios of
MIT, the portfolio of investments and unaudited financial statements
for the six month period ended June 30, 1997 are hereby incorporated
by reference to the Semi-Annual Reports for Overland as filed with the
SEC on September 3, 1997.
With respect to the predecessor portfolios to the California Tax-Free
Bond, Index Allocation, Overland Express Sweep, Short-Term Government-
Corporate Income, Short-term Municipal Income, Strategic Growth, U.S.
Government Income and Variable Rate Government Funds, the portfolio of
investments, audited financial statements and independent auditors'
report for the year ended December 31, 1996, are hereby incorporated
by reference to the Overland Annual Reports as filed with the SEC on
March 11, 1997.
With respect to the Cash Investment Trust, Short-Term Government-
Corporate Income and Short-Term Municipal Income Master Portfolios of
MIT, the portfolio of investments, audited financial statements and
independent auditors' report for the year ended December 31, 1996, are
hereby incorporated by reference to the Overland Annual Reports as
filed with the SEC on March 11, 1997.
C-2
<PAGE>
(b) Exhibits:
--------
Exhibit
Number Description
------ -----------
1(a) - Amended and Restated Articles of Incorporation dated
November 22, 1995, incorporated by reference to Post-
Effective Amendment No. 17 to the Registration Statement,
filed November 29, 1995.
1(b) - Articles Supplementary
2 - By-Laws, incorporated by reference to Post-Effective
Amendment No. 31 to the Registration Statement, filed May
15, 1997.
3 - Not Applicable
4 - Not Applicable
5(a)(i) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the Asset Allocation Fund, incorporated by reference
to Post-Effective Amendment No. 2 to the Registration
Statement, filed April 17, 1992.
5(a)(ii) - Sub-Advisory Contract with Barclays Global Fund Advisors
on behalf of the Asset Allocation Fund, incorporated by
reference to Post-Effective Amendment No. 21 to the
Registration Statement, filed February 29, 1996.
5(b)(i) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the U.S. Government Allocation Fund, incorporated by
reference to Post-Effective Amendment No. 2 to the
Registration Statement, filed April 17, 1992.
5(b)(ii) - Sub-Advisory Contract with Barclays Global Fund Advisors
on behalf of the U.S. Government Allocation Fund,
incorporated by reference to Post-Effective Amendment No.
21 to the Registration Statement, filed February 29,
1996.
5(c) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the California Tax-Free Money Market Mutual Fund,
incorporated by reference to Post-Effective Amendment No.
2 to the Registration Statement, filed April 17, 1992.
5(d) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the California Tax-Free Bond Fund, incorporated by
reference to Post-Effective Amendment No. 2 to the
Registration Statement, filed April 17, 1992.
5(e) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the Ginnie Mae Fund, incorporated by reference to
Post-Effective Amendment No. 2 to the Registration
Statement, filed April 17, 1992.
5(f) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the Growth and Income Fund, incorporated by reference
to Post-Effective Amendment No. 2 to the Registration
Statement, filed April 17, 1992.
5(g)(i) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the Corporate Stock Fund, incorporated by reference to
Post-Effective Amendment No. 2 to the Registration
Statement, filed April 17, 1992.
C-3
<PAGE>
5(g)(ii) - Sub-Advisory Contract with Barclays Global Fund Advisors
on behalf of the Corporate Stock Fund, incorporated by
reference to Post-Effective Amendment No. 21 to the
Registration Statement, filed February 29, 1996.
5(h) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the Money Market Mutual Fund, incorporated by
reference to Post-Effective Amendment No. 3 to the
Registration Statement, filed May 1, 1992.
5(i) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the California Tax-Free Income Fund, incorporated by
reference to Post-Effective Amendment No. 4 to the
Registration Statement, filed September 10, 1992.
5(j) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the Diversified Income Fund, incorporated by reference
to Post-Effective Amendment No. 17 to the Registration
Statement, filed November 29, 1995.
5(k) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the Arizona Tax-Free Fund, incorporated by reference
to Post-Effective Amendment No. 30 to the Registration
Statement, filed January 31, 1997.
5(l) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the Balanced Fund, incorporated by reference to Post-
Effective Amendment No. 30 to the Registration Statement,
filed January 31, 1997.
5(m) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the Equity Value Fund, incorporated by reference to
Post-Effective Amendment No. 30 to the Registration
Statement, filed January 31, 1997.
5(n) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the Government Money Market Mutual Fund, incorporated
by reference to Post-Effective Amendment No. 30 to the
Registration Statement, filed January 31, 1997.
5(o) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the Intermediate Bond Fund, incorporated by reference
to Post-Effective Amendment No. 30 to the Registration
Statement, filed January 31, 1997.
5(p) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the Money Market Trust Fund, incorporated by reference
to Post-Effective Amendment No. 30 to the Registration
Statement, filed January 31, 1997.
5(q) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the National Tax-Free Fund, incorporated by reference
to Post-Effective Amendment No. 30 to the Registration
Statement, filed January 31, 1997.
5(r) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the Oregon Tax-Free Fund, incorporated by reference to
Post-Effective Amendment No. 30 to the Registration
Statement, filed January 31, 1997.
5(s) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the Prime Money Market Mutual Fund, incorporated by
reference to Post-Effective Amendment No. 30 to the
Registration Statement, filed January 31, 1997.
C-4
<PAGE>
5(t) - Advisory Contract with Wells Fargo Bank, N.A. on behalf
of the Treasury Money Market Mutual Fund, incorporated by
reference to Post-Effective Amendment No. 30 to the
Registration Statement, filed January 31, 1997.
5(u) - Form of Advisory Contract with Wells Fargo Bank, N.A. on
behalf of the California Tax-Free Money Market Trust,
incorporated by reference to Post-Effective Amendment No.
28 to the Registration Statement, filed December 3, 1996.
5(v) - Form of Advisory Contract with Wells Fargo Bank, N.A. on
behalf of the National Tax-Free Money Market Trust,
incorporated by reference to Post-Effective Amendment No.
32 to the Registration Statement, filed May 30, 1997.
5(v)(i) - Form of Advisory Contract with Wells Fargo Bank, N.A. on
behalf of the Index Allocation, Short-Term Government-
Corporate Income, Short-Term Municipal Income, Overland
Express Sweep and Variable Rate Government Funds, filed
September 25, 1997.
5(v)(ii) - Form of Sub-Advisory Contract with Barclays Global Fund
Advisors on behalf of the Index Allocation Fund, filed
September 25, 1997.
5(w) - Form of Advisory Contract with Wells Fargo Bank, N.A. on
behalf of the International Equity Fund, incorporated by
reference to Post-Effective Amendment No. 32 to the
Registration Statement, filed May 30, 1997.
6(a) - Amended Distribution Agreement with Stephens Inc.,
incorporated by reference to Post-Effective Amendment No.
15 to the Registration Statement, filed May 1, 1995.
6(b) - Selling Agreement with Wells Fargo Bank, N.A. on behalf
of the Funds, incorporated by reference to Post-Effective
Amendment No. 2 to the Registration Statement, filed
April 17, 1992.
7 - Not Applicable
8(a) - Custody Agreement with Wells Fargo Institutional Trust
Company, N.A. on behalf of the Asset Allocation Fund,
incorporated by reference to Post-Effective Amendment No.
2 to the Registration Statement, filed April 17, 1992.
8(b) - Custody Agreement with Wells Fargo Institutional Trust
Company, N.A. on behalf of the U.S. Government Allocation
Fund, incorporated by reference to Post-Effective
Amendment No. 2 to the Registration Statement, filed
April 17, 1992.
8(c) - Custody Agreement with Wells Fargo Institutional Trust
Company, N.A. on behalf of the Corporate Stock Fund,
incorporated by reference to Post-Effective Amendment No.
2 to the Registration Statement, filed April 17, 1992.
8(d) - Custody Agreement with Wells Fargo Bank, N.A. on behalf
of the California Tax-Free Money Market Mutual Fund,
incorporated by reference to Post-Effective Amendment No.
2 to the Registration Statement, filed April 17, 1992.
C-5
<PAGE>
8(e) - Custody Agreement with Wells Fargo Bank, N.A. on behalf
of the California Tax-Free Bond Fund, incorporated by
reference to Post-Effective Amendment No. 2 to the
Registration Statement, filed April 17, 1992.
8(f) - Custody Agreement with Wells Fargo Bank, N.A. on behalf
of the Growth and Income Fund, incorporated by reference
to Post-Effective Amendment No. 2 to the Registration
Statement, filed April 17, 1992.
8(g) - Custody Agreement with Wells Fargo Bank, N.A. on behalf
of the Ginnie Mae Fund, incorporated by reference to
Post-Effective Amendment No. 2 to the Registration
Statement, filed April 17, 1992.
8(h) - Custody Agreement with Wells Fargo Bank, N.A. on behalf
of the Money Market Fund, incorporated by reference to
Post-Effective Amendment No. 3 to the Registration
Statement, filed May 1, 1992.
8(i) - Custody Agreement with Wells Fargo Bank, N.A. on behalf
of the California Tax-Free Income Fund, incorporated by
reference to Post-Effective Amendment No. 17 to the
Registration Statement, filed November 29, 1995.
8(j) - Custody Agreement with Wells Fargo Bank, N.A. on behalf
of the Diversified Income Fund, incorporated by reference
to Post-Effective Amendment No. 17 to the Registration
Statement, filed November 29, 1995.
8(k) - Custody Agreement with Wells Fargo Bank, N.A. on behalf
of the Short-Intermediate U.S. Government Income Fund,
incorporated by reference to Post-Effective Amendment No.
8 to the Registration Statement, filed February 10, 1994.
8(l) - Custody Agreement with Wells Fargo Bank, N.A. on behalf
of the National Tax-Free Money Market Mutual Fund,
incorporated by reference to Post-Effective Amendment No.
24 to the Registration Statement, filed April 29, 1996.
8(m) - Custody Agreement with Wells Fargo Bank, N.A. on behalf
of the Aggressive Growth Fund, incorporated by reference
to Post-Effective Amendment No. 20 to the Registration
Statement, filed February 28, 1996.
8(n) - Custody Agreement with Wells Fargo Bank on behalf of the
Arizona Tax-Free, Balanced, Equity Value, Government
Money Market Mutual, Index Allocation, Intermediate Bond,
Money Market Trust, National Tax-Free, Oregon Tax-Free,
Overland Express Sweep, Prime Money Market Mutual, Short-
Term Government-Corporate Income, Short-Term Municipal
Income, Treasury Money Market Mutual and Variable Rate
Government Funds, filed September 25, 1997.
9(a)(i) - Administration Agreement with Wells Fargo Bank, N.A. on
behalf of the Funds, incorporated by reference to Post-
Effective Amendment No. 33 to the Registration Statement,
filed August 5, 1997.
9(a)(ii) - Co-Administration Agreement with Wells Fargo Bank, N.A.
and Stephens Inc. on behalf of the Funds, incorporated by
reference to Post-Effective Amendment No. 33 to the
Registration Statement, filed August 5, 1997.
C-6
<PAGE>
9(b) - Agency Agreement with Wells Fargo Bank, N.A. on behalf of
the Funds, incorporated by reference to Post-Effective
Amendment No. 32 to the Registration Statement, filed May
30, 1997.
9(c)(i) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the California Tax-Free Money Market
Mutual Fund, incorporated by reference to Post-Effective
Amendment No. 2 to the Registration Statement, filed
April 17, 1992.
9(c)(ii) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Corporate Stock Fund, incorporated
by reference to Post-Effective Amendment No. 2 to the
Registration Statement, filed April 17, 1992.
9(c)(iii) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Money Market Mutual Fund,
incorporated by reference to Post-Effective Amendment No.
3 to the Registration Statement, filed May 1, 1992.
9(c)(iv) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the California Tax-Free Income Fund,
incorporated by reference to Post-Effective Amendment No.
17 to the Registration Statement, filed November 29,
1995.
9(c)(v) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Short-Intermediate U.S. Government
Income Fund, incorporated by reference to Post-Effective
Amendment No. 8 to the Registration Statement, filed
February 10, 1994.
9(c)(vi) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the National Tax-Free Money Market
Mutual Fund, incorporated by reference to Post-Effective
Amendment No. 24 to the Registration Statement, filed
April 29, 1996.
9(c)(vii) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Class B Shares of the Asset
Allocation Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
9(c)(viii) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Class B Shares of the California
Tax-Free Bond Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
9(c)(ix) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Class B Shares of the Diversified
Income Fund, incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement, filed May
1, 1995.
9(c)(x) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Class B Shares of the Ginnie Mae
Fund, incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement, filed May
1, 1995.
9(c)(xi) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Class B Shares of the Growth and
Income Fund, incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement, filed May
1, 1995.
C-7
<PAGE>
9(c)(xii) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Class B Shares of the U.S.
Government Allocation Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
9(c)(xiii) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Class B Shares of the Aggressive
Growth Fund, incorporated by reference to Post-Effective
Amendment No. 20 to the Registration Statement, filed
February 28, 1996.
9(c)(xiv) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the Asset
Allocation Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
9(c)(xv) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the
California Tax-Free Bond Fund, incorporated by reference
to Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
9(c)(xvi) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the
Diversified Income Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
9(c)(xvii) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the Ginnie
Mae Fund, incorporated by reference to Post-Effective
Amendment No. 15 to the Registration Statement, filed May
1, 1995.
9(c)(xviii) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the Growth
and Income Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
9(c)(xix) - Amended Shareholder Servicing Agreement with Wells Fargo
Bank, N.A. on behalf of the Class A Shares of the U.S.
Government Allocation Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
9(c)(xx) - Shareholder Servicing Agreement with Wells Fargo Bank,
N.A. on behalf of the Class A Shares of the Aggressive
Growth Fund, incorporated by reference to Post-Effective
Amendment No. 20 to the Registration Statement, filed
February 28, 1996.
9(d)(i) - Servicing Plan on behalf of the National Tax-Free Money
Market Mutual Fund, incorporated by reference to Post-
Effective Amendment No. 17 to the Registration Statement,
filed November 29, 1995.
9(d)(ii) - Servicing Plan on behalf of the Class B Shares of the
Asset Allocation Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
C-8
<PAGE>
9(d)(iii) - Servicing Plan on behalf of the Class B Shares of the
California Tax-Free Bond Fund, incorporated by reference
to Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
9(d)(iv) - Servicing Plan on behalf of the Class B Shares of the
Diversified Income Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
9(d)(v) - Servicing Plan on behalf of the Class B Shares of the
Ginnie Mae Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
9(d)(vi) - Servicing Plan on behalf of the Class B Shares of the
Growth and Income Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
9(d)(vii) - Servicing Plan on behalf of the Class B Shares of the
U.S. Government Allocation Fund, incorporated by
reference to Post-Effective Amendment No. 15 to the
Registration Statement, filed May 1, 1995.
9(d)(viii) - Servicing Plan on behalf of the Class A Shares of the
Aggressive Growth Fund, incorporated by reference to
Post-Effective Amendment No. 19 to the Registration
Statement, filed December 18, 1995.
9(d)(ix) - Servicing Plan on behalf of the Class B Shares of the
Aggressive Growth Fund, incorporated by reference to
Post-Effective Amendment No. 19 to the Registration
Statement, filed December 18, 1995.
9(d)(x) - Servicing Plan on behalf of the Class B shares of the
Index Allocation Fund, filed September 25, 1997.
9(e)(i) - Servicing Plan and Form of Shareholder Servicing
Agreement on behalf of the Class A Shares of the Arizona
Tax-Free, Balanced, Equity Value, Government Money Market
Mutual, Intermediate Bond, International Equity, National
Tax-Free, Oregon Tax-Free, Prime Money Market Mutual,
Small Cap and Treasury Money Market Mutual Funds,
incorporated by reference to Post-Effective Amendment No.
32 to the Registration Statement, incorporated by
reference to Post-Effective Amendment No. 32 to the
Registration Statement, filed May 30, 1997.
9(e)(ii) - Servicing Plan and Form of Shareholder Servicing
Agreement on behalf of the Class B Shares of the Arizona
Tax-Free, Balanced, Equity Value, Intermediate Bond,
International Equity, National Tax-Free, Oregon Tax-Free
and Small Cap Funds, incorporated by reference to Post-
Effective Amendment No. 32 to the Registration Statement,
filed May 30, 1997.
9(e)(iii) - Servicing Plan and Form of Shareholder Servicing
Agreement on behalf of the Institutional Class Shares of
the Aggressive Growth, Arizona Tax-Free, Balanced,
California Tax-Free Bond, California Tax-Free Income,
Equity Value, Ginnie Mae, Growth and Income, Intermediate
Bond, International Equity, Money Market Mutual, National
Tax-Free, Oregon Tax-Free, Prime Money Market Mutual,
Short-Intermediate Government, Small Cap and Treasury
Money Market Mutual Funds, incorporated by reference to
Post-Effective Amendment No. 32 to the Registration
Statement, filed May 30, 1997.
C-9
<PAGE>
9(e)(iv) - Servicing Plan and Form of Shareholder Servicing
Agreement on behalf of the Service Class Shares of the
Prime Money Market Mutual and Treasury Money Market
Mutual Funds, incorporated by reference to Post-Effective
Amendment No. 25 to the Registration Statement, filed
June 17, 1996.
9(e)(v) - Servicing Plan and Form of Shareholder Servicing
Agreement on behalf of the Money Market Trust and
California Tax-Free Money Market Trust, incorporated by
reference to Post-Effective Amendment No. 28 to the
Registration Statement, filed December 3, 1996.
9(e)(vi) - Servicing Plan and Form of Shareholder Servicing
Agreement on behalf of the Class E Shares of the Treasury
Money Market Mutual Fund, incorporated by reference to
Post-Effective Amendment No. 19 to the Registration
Statement, filed January 23, 1997.
9(e)(vii) - Servicing Plan and Form of Shareholder Servicing
Agreement on behalf of the Administrative Class shares of
the Prime Money Market Mutual and Treasury Money Market
Mutual Funds, incorporated by reference to Post-Effective
Amendment No. 33 to the Registration Statement, filed
August 5, 1997.
9(e)(viii) - Servicing Plan and Form of Shareholder Servicing
Agreement on behalf of the Class C shares of the
Aggressive Growth, California Tax-Free Bond, Index
Allocation, Ginnie Mae, National Tax-Free Bond, Small Cap
and Variable Rate Government Funds, incorporated by
reference to Post-Effective Amendment No. 33 to the
Registration Statement, filed August 5, 1997.
9(e)(ix) - Servicing Plan and Form of Shareholder Servicing
Agreement on behalf of the Institutional Class shares of
the National Tax-Free Money Market Mutual Fund,
incorporated by reference to Post-Effective Amendment No.
33 to the Registration Statement, filed August 5, 1997.
9(f) - Shareholder Administrative Servicing Plan and Form of
Administrative Servicing Agreement on behalf of Class A
shares of Index Allocation and Variable Rate Government
Funds and shares of the Short-Term Government-Corporate
Income and Short-Term Municipal Income Funds, filed
September 25, 1997.
10 - Opinion and Consent of Counsel, filed herewith.
11 - Independent Auditor's Consent, filed herewith.
12 - Not Applicable
13 - Investment letter, incorporated by reference to Item
24(b) of Pre-Effective Amendment No. 1 to the
Registration Statement, filed November 29, 1991.
14 - Not Applicable
15(a)(i) - Distribution Plan on behalf of the California Tax-Free
Money Market Mutual Fund, incorporated by reference to
Post-Effective Amendment No. 2 to the Registration
Statement, filed April 17, 1992.
C-10
<PAGE>
15(a)(ii) - Distribution Plan on behalf of the Corporate Stock Fund,
incorporated by reference to Post-Effective Amendment No.
2 to the Registration Statement, filed April 17, 1992.
15(a)(iii) - Distribution Plan on behalf of the Money Market Mutual
Fund, incorporated by reference to Post-Effective
Amendment No. 3 to the Registration Statement, filed May
1, 1992.
15(a)(iv) - Distribution Plan on behalf of the California Tax-Free
Income Fund, incorporated by reference to Post-Effective
Amendment No. 4 to the Registration Statement, filed
September 10, 1992.
15(a)(v) - Distribution Plan on behalf of the Short-Intermediate
U.S. Government Income Fund, incorporated by reference to
Post-Effective Amendment No. 8 to the Registration
Statement, filed February 10, 1994.
15(a)(vi) - Amended Distribution Plan on behalf of the Class A Shares
of the Asset Allocation Fund, incorporated by reference
to Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
15(a)(vii) - Amended Distribution Plan on behalf of the Class A Shares
of the California Tax-Free Bond Fund, incorporated by
reference to Post-Effective Amendment No. 15 to the
Registration Statement, filed May 1, 1995.
15(a)(viii) - Amended Distribution Plan on behalf of the Class A Shares
of the Diversified Income Fund, incorporated by reference
to Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
15(a)(ix) - Amended Distribution Plan on behalf of the Class A Shares
of the Ginnie Mae Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
15(a)(x) - Amended Distribution Plan on behalf of the Class A Shares
of the Growth and Income Fund, incorporated by reference
to Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
15(a)(xi) - Amended Distribution Plan on behalf of the Class A Shares
of the U.S. Government Allocation Fund, incorporated by
reference to Post-Effective Amendment No. 15 to the
Registration Statement, filed May 1, 1995.
15(a)(xii) - Distribution Plan on behalf of the National Tax-Free
Money Market Mutual Fund, incorporated by reference to
Post-Effective Amendment No. 17 to the Registration
Statement, filed November 29, 1995.
15(a)(xiii) - Distribution Plan on behalf of the Class A Shares of the
Aggressive Growth Fund, incorporated by reference to
Post-Effective Amendment No. 19 to the Registration
Statement, filed December 18, 1995.
15(a)(xiv) - Distribution Plan on behalf of the California Tax-Free
Money Market Trust, incorporated by reference to Post-
Effective Amendment No. 28 to the Registration Statement,
filed December 3, 1996.
C-11
<PAGE>
15(a)(xv) - Distribution Plan on behalf of the Class A Shares of the
Arizona Tax-Free, Balanced, Equity Value, Government
Money Market Mutual, Intermediate Bond, International
Equity, National Tax-Free, Oregon Tax-Free, Prime Money
Market Mutual, Small Cap and Treasury Money Market Mutual
Funds, incorporated by reference to Post-Effective
Amendment No. 32, filed May 30, 1997.
15(a)(xvi) - Distribution Plan on behalf of the Class A shares of the
Index Allocation and Variable Rate Government Funds and
shares of the Short-Term Government-Corporate Income and
Short-Term Municipal Income Funds, filed September 25,
1997.
15(b)(i) - Distribution Plan on behalf of the Class B Shares of the
Asset Allocation Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
15(b)(ii) - Distribution Plan on behalf of the Class B Shares of the
California Tax-Free Bond Fund, incorporated by reference
to Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
15(b)(iii) - Distribution Plan on behalf of the Class B Shares of the
Diversified Income Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
15(b)(iv) - Distribution Plan on behalf of the Class B Shares of the
Ginnie Mae Fund, incorporated by reference to Post-
Effective Amendment No. 15 to the Registration Statement,
filed May 1, 1995.
15(b)(v) - Distribution Plan on behalf of the Class B Shares of the
Growth and Income Fund, incorporated by reference to
Post-Effective Amendment No. 15 to the Registration
Statement, filed May 1, 1995.
15(b)(vi) - Distribution Plan on behalf of the Class B Shares of the
U.S. Government Allocation Fund, incorporated by
reference to Post-Effective Amendment No. 15 to the
Registration Statement, filed May 1, 1995.
15(b)(vii) - Distribution Plan on behalf of the Class B Shares of the
Aggressive Growth Fund, incorporated by reference to
Post-Effective Amendment No. 19 to the Registration
Statement, filed December 18, 1995.
15(b)(viii) - Distribution Plan on behalf of the Class B Shares of the
Arizona Tax-Free, Balanced, Equity Value, Index
Allocation, Intermediate Bond, International Equity,
National Tax-Free, Oregon Tax-Free and Small Cap Funds,
incorporated by reference to Post-Effective Amendment No.
32 to the Registration Statement, filed May 30, 1997.
15(c) - Distribution Plan on behalf of the Class C Shares of the
Aggressive Growth, California Tax-Free Bond, Index
Allocation, Ginnie Mae, National Tax-Free Bond, Small Cap
and Variable Rate Government Funds, incorporated by
reference to Post-Effective Amendment No. 33 to the
Registration Statement, filed August 5, 1997.
15(d) - Distribution Plan on behalf of the Overland Sweep Fund,
filed September 25, 1997.
C-12
<PAGE>
15(e) - Distribution Plan on behalf of the Class E Shares of the
Treasury Money Market Mutual Fund, incorporated by
reference to Post-Effective Amendment No. 29, filed
January 23, 1997.
16 - Schedules for Computation of Performance Data,
incorporated by reference to Post-Effective Amendment No.
15, filed May 1, 1995.
17 - See Exhibit 27.
18 - Rule 18f-3 Multi-Class Plan, as amended, incorporated by
reference to Post-Effective Amendment No. 33 to the
Registration Statement, filed herewith.
19 - Powers of Attorney for R. Greg Feltus, Jack S. Euphrat,
Thomas S. Goho, Joseph N. Hankin, W. Rodney Hughes,
Robert M. Joses and J. Tucker Morse, incorporated by
reference to Post-Effective Amendment No. 32, filed May
30, 1997; Powers of Attorney for Peter G. Gordon, filed
herewith.
27 - Financial Data Schedules for the Overland predecessor
portfolios for the period ended December 31, 1996,
incorporated by reference to the Form N-SAR filed
February 9, 1997; Financial Data Schedules for the fiscal
period ended March 31, 1997, incorporated by reference to
the Form N-SAR, filed May 29, 1997.
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
As of January 2, 1998, the Funds did not directly or indirectly
control, and were not under common control with, any other person or
entity.
Item 26. Number of Holders of Securities
-------------------------------
As of January 2, 1998, the number of record holders of each class of
Securities of the Registrant was as follows:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
Class A* Class B Class C Institutional
------- ------- ------- -------------
Class
-----
<S> <C> <C> <C> <C>
Arizona Tax-Free Fund 191 30 N/A 7
Asset Allocation Fund 11,938 9,285 N/A N/A
Balanced Fund 1,678 381 N/A 106
California Tax-Free Bond Fund 11,161 1,483 63 51
California Tax-Free Income Fund 3,156 N/A N/A 5
California Tax-Free Money Market Mutual Fund 8,427 N/A N/A N/A
California Tax-Free Money Market Trust 3 N/A N/A N/A
Diversified Equity Income Fund 12,688 3,140 N/A N/A
</TABLE>
C-13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Equity Index Fund 1,868 N/A N/A N/A
Equity Value Fund 2,061 2,025 N/A 113
Government Money Market Mutual Fund 137 N/A N/A N/A
Growth Fund 13,465 3,441 N/A 37
Index Allocation Fund 1,417 19 1,011 N/A
International Equity Fund 1,058 2,262 N/A N/A
Intermediate Bond Fund 141 173 N/A 9
Money Market Mutual Fund 6,144 36** N/A N/A
Money Market Trust 5 N/A N/A N/A
National Tax-Free Fund 991 26 153 5
National Tax-Free Money Market Mutual Fund 53 N/A N/A N/A
Oregon Tax-Free Fund 646 36 N/A 8
Overland Express Sweep Fund 4 N/A N/A N/A
Prime Money Market Mutual 377 154*** 18***** 70
Short-Intermediate U.S. Government Income Fund 751 N/A N/A 52
Short-Term Government-Corporate Income Fund 18 N/A N/A N/A
Short-Term Municipal Income Fund 19 N/A N/A N/A
Small Cap Fund 652 1,273 125 10
Strategic Growth Fund 14,691 2,723 1,855 N/A
Treasury Money Market Mutual Fund 229 42*** 2**** 186
154*****
U.S. Government Allocation Fund 1,326 397 N/A N/A
U.S. Government Income Fund 11,118 761 75 70
Variable Rate Government 803 N/A 50 N/A
</TABLE>
* For purposes of this chart, shares of single class Funds are included
under the designation "Class A".
** Designates the number of Class S recordholders.
*** Designates the number of Service Class recordholders.
**** Designates the number of Class E recordholders.
***** Designates the number of Administrative Class recordholders.
C-14
<PAGE>
Item 27. Indemnification
---------------
The following paragraphs of Article VIII of the Registrant's Articles
of Incorporation provide:
(h) The Corporation shall indemnify (1) its Directors and Officers,
whether serving the Corporation or at its request any other entity, to the
full extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the advance of expenses under
the procedures and to the full extent permitted by law, and (2) its other
employees and agents to such extent as shall be authorized by the Board of
Directors or the Corporation's By-Laws and be permitted by law. The
foregoing rights of indemnification shall not be exclusive of any other
rights to which those seeking indemnification may be entitled. The Board of
Directors may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt, approve and
amend from time to time such By-Laws, resolutions or contracts implementing
such provisions or such further indemnification arrangements as may be
permitted by law. No amendment of these Articles of Incorporation of the
Corporation shall limit or eliminate the right to indemnification provided
hereunder with respect to acts or omissions occurring prior to such
amendment or repeal. Nothing contained herein shall be construed to
authorize the Corporation to indemnify any Director or officer of the
Corporation against any liability to the Corporation or to any holders of
securities of the Corporation to which he is subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office. Any indemnification by the
Corporation shall be consistent with the requirements of law, including the
1940 Act.
(i) To the fullest extent permitted by Maryland statutory and
decisional law and the 1940 Act, as amended or interpreted, no Director or
officer of the Corporation shall be personally liable to the Corporation or
its stockholders for money damages; provided, however, that nothing herein
shall be construed to protect any Director or officer of the Corporation
against any liability to which such Director or officer would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office. No
amendment, modification or repeal of this Article VIII shall adversely
affect any right or protection of a Director or officer that exists at the
time of such amendment, modification or repeal.
Item 28. Business and Other Connections of Investment Advisor.
----------------------------------------------------
Wells Fargo Bank, N.A. ("Wells Fargo Bank"), a wholly owned subsidiary
of Wells Fargo & Company, currently serves as investment advisor to several of
the Registrant's investment portfolios and to certain other registered open-end
management investment companies. Wells Fargo Bank's business is that of a
national banking association with respect to which it conducts a variety of
commercial banking and trust activities.
To the knowledge of Registrant, none of the directors or executive
officers of Wells Fargo Bank, except those set forth below, is or has been at
any time during the past two fiscal
C-15
<PAGE>
years engaged in any other business, profession, vocation or employment of a
substantial nature, except that certain executive officers also hold various
positions with and engage in business for Wells Fargo & Company. Set forth below
are the names and principal businesses of the directors and executive officers
of Wells Fargo Bank who are or during the past two fiscal years have been
engaged in any other business, profession, vocation or employment of a
substantial nature for their own account or in the capacity of director,
officer, employee, partner or trustee. All the directors of Wells Fargo Bank
also serve as directors of Wells Fargo & Company.
<TABLE>
<CAPTION>
Name and Position Principal Business(es) and Address(es)
at Wells Fargo Bank During at Least the Last Two Fiscal Years
- ------------------- -----------------------------------------
<S> <C>
H. Jesse Arnelle Senior Partner of Arnelle, Hastie, McGee, Willis & Greene
Director 455 Market Street
San Francisco, CA 94105
Director of Armstrong World Industries, Inc.
5037 Patata Street
South Gate, CA 90280
Director of Eastman Chemical Corporation
12805 Busch Place
Santa Fe Springs, CA 90670
Director of FPL Group, Inc.
700 Universe Blvd.
P.O. Box 14000
North Palm Beach, FL 33408
Michael R. Bowlin Chairman of the Board of Directors, Chief Executive Officer,
Director Chief Operating Officer and President of
Atlantic Richfield Co. (ARCO)
Highway 150
Santa Paula, CA 93060
Edward Carson Chairman of the Board and Chief Executive Officer of
Director First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071
Director of Aztar Corporation
2390 East Camelback Road Suite 400
Phoenix, AZ 85016
Director of Castle & Cook, Inc.
10900 Wilshire Blvd.
Los Angeles, CA 90024
</TABLE>
C-16
<PAGE>
Director of Terra Industries, Inc.
1321 Mount Pisgah Road
Walnut Creek, CA 94596
William S. Davilla President (Emeritus) and a Director of
Director The Vons Companies, Inc.
618 Michillinda Ave.
Arcadia, CA 91007
Director of Pacific Gas & Electric Company
788 Taylorville Road
Grass Valley, CA 95949
Rayburn S. Dezember Director of CalMat Co.
Director 3200 San Fernando Road
Los Angeles, CA 90065
Director of Tejon Ranch Company
P.O. Box 1000
Lebec, CA 93243
Director of The Bakersfield Californian
1707 I Street
P.O. Box 440
Bakersfield, CA 93302
Trustee of Whittier College
13406 East Philadelphia Ave.
P.O. Box 634
Whittier, CA 90608
Paul Hazen Chairman of the Board of Directors of
Chairman of the Board of Wells Fargo & Company
Directors 420 Montgomery Street
San Francisco, CA 94105
Director of Phelps Dodge Corporation
2600 North Central Ave.
Phoenix, AZ 85004
Director of Safeway, Inc.
4th and Jackson Streets
Oakland, CA 94660
Robert K. Jaedicke Professor (Emeritus) of Accounting
Director Graduate School of Business at Stanford University
MBA Admissions Office
Stanford, CA 94305
C-17
<PAGE>
Director of Bailard Biehl & Kaiser
Real Estate Investment Trust, Inc.
2755 Campus Dr.
San Mateo, CA 94403
Director of Boise Cascade Corporation
1111 West Jefferson Street
P.O. Box 50
Boise, ID 83728
Director of California Water Service Company
1720 North First Street
San Jose, CA 95112
Director of Enron Corporation
1400 Smith Street
Houston, TX 77002
Director of GenCorp, Inc.
175 Ghent Road
Fairlawn, OH 44333
Director of Homestake Mining Company
650 California Street
San Francisco, CA 94108
Thomas L. Lee Chairman and Chief Executive Officer of
Director The Newhall Land and Farming Company
10302 Avenue 7 1-2
Firebaugh, CA 93622
Director of Calmat Co.
501 El Charro Road
Pleasanton, CA 94588
Director of First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071
Ellen Newman President of Ellen Newman Associates
Director 323 Geary Street
Suite 507
San Francisco, CA 94102
Chair (Emeritus) of the Board of Trustees
University of California at San Francisco
Foundation 250 Executive Park Blvd. Suite 2000 San
Francisco, CA 94143
C-18
<PAGE>
<TABLE>
<S> <C>
Director of the California Chamber of Commerce
1201 K Street
12th Floor
Sacremento, CA 95814
Philip J. Quigley Chairman, President and Chief Executive Officer of
Director Pacific Telesis Group
130 Kearney Street Rm. 3700
San Francisco, CA 94108
Carl E. Reichardt Director of Columbia/HCA Healthcare Corporation
Director One Park Plaza
Nashville, TN 37203
Director of Ford Motor Company
The American Road
Dearborn, MI 48121
Director of Newhall Management Corporation
23823 Valencia Blvd.
Valencia, CA 91355
Director of Pacific Gas and Electric Company
77 Beale Street
San Francisco, CA 94105
Retired Chairman of the Board of Directors
and Chief Executive Officer of Wells Fargo & Company
420 Montgomery Street
San Francisco, CA 94105
Donald B. Rice President and Chief Executive Officer of Teledyne, Inc.
Director 2049 Century Park East
Los Angeles, CA 90067
Retired Secretary of the Air Force
Director of Vulcan Materials Company
One MetroPlex Drive
Birmingham, AL 35209
Richard J. Stegemeier Chairman (Emeritus) of Unocal Corp
Director 44141 Yucca Avenue
Lancaster, CA 93534
</TABLE>
C-19
<PAGE>
<TABLE>
<S> <C>
Director of Foundation Health Corporation
166 4th
Fort Irwin, CA 92310
Director of Halliburton Company
3600 Lincoln Plaza
500 North Alcard Street
Dallas, TX 75201
Director of Northrop Grumman Corp.
1840 Century Park East
Los Angeles, CA 90067
Director of Outboard Marine Corporation
100 SeaHorse Drive
Waukegan, IL 60085
Director of Pacific Enterprises
555 West Fifth Street
Suite 2900
Los Angeles, CA 90031
Director of First Interstate Bancorp
633 West Fifth Street
Los Angeles, CA 90071
Susan G. Swenson President and Chief Executive Officer of Cellular One
Director 651 Gateway Blvd.
San Francisco, CA 94080
David M. Tellep Retired Chairman of the Board and Chief Executive Officer of
Director Martin Lockheed Corp
6801 Rockledge Drive
Bethesda, MD 20817
Director of Edison International
and Southern California Edison Company
2244 Walnut Grove Ave.
Rosemead, CA 91770
Director of First Interstate
633 West Fifth Street
Los Angeles, CA 90071
Chang-Lin Tien Chancellor of the University of California at Berkeley
Director
Director of Raychem Corporation
300 Constitution Drive
Menlo Park, CA 94025
</TABLE>
C-20
<PAGE>
<TABLE>
<S> <C>
John A. Young President, Chief Executive Officer and Director
Director of Hewlett-Packard Company
3000 Hanover Street
Palo Alto, CA 9434
Director of Chevron Corporation
225 Bush Street
San Francisco, CA 94104
Director of Lucent Technologies
25 John Glenn Drive
Amherst, NY 14228
Director of Novell, Inc.
11300 West Olympic Blvd.
Los Angeles, CA 90064
Director of Shaman Pharmaceuticals Inc.
213 East Grand Ave. South
San Francisco, CA 94080
William F. Zuendt President of Wells Fargo & Company
President 420 Montgomery Street
San Francisco, CA 94105
Director of 3Com Corporation
5400 Bayfront Plaza, P.O. Box 58145
Santa Clara, CA 95052
Director of the California Chamber of Commerce
</TABLE>
Prior to May 1, 1996, Barclays Global Fund Advisors ("BGFA"), a
wholly-owned subsidiary of Barclays Global Investors, N.A. ("BGI", formerly,
Wells Fargo Institutional Trust Company), served as sub-advisor to the Asset
Allocation, Corporate Stock and U.S. Government Allocation Funds of the Company
and to certain other open-end management investment companies. From May 1, 1996
to December 15, 1997, BGFA served as sub-advisor to the corresponding Asset
Allocation, U.S. Government Allocation and Corporate Stock Master Portfolios of
Master Investment Trust, in which such funds invested substantially all of their
assets. These Funds currently invest directly in a portfolio of securities and
no longer invest in the Master Portfolios. BGFA currently serves as sub-advisor
to these Funds.
The directors and officers of BGFA consist primarily of persons who
during the past two years have been active in the investment management business
of the former sub-advisor to the Registrant, Wells Fargo Nikko Investment
Advisors ("WFNIA") and, in some cases, the service business of BGI. To the
knowledge of the Registrant, except as set forth below, none of
C-21
<PAGE>
the directors or executive officers of BGFA is or has been at any time during
the past two fiscal years engaged in any other business, profession, vocation or
employment of a substantial nature.
<TABLE>
<CAPTION>
Name and Position Principal Business(es) During at
at BGFA Least the Last Two Fiscal Years
- ------- -------------------------------
<S> <C>
Frederick L.A. Grauer Director of BGFA and Co-Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Patricia Dunn Director of BGFA and C-Chairman and Director of BGI
Director 45 Fremont Street, San Francisco, CA 94105
Lawrence G. Tint Chairman of the Board of Directors of BGFA
Chairman and Director and Chief Executive Officer of BGI
45 Fremont Street, San Francisco, CA 94105
Geoffrey Fletcher Chief Financial Officer of BGFA and BGI ce May 1997
Chief Financial Officer 45 Fremont Street, San Francisco, CA 94105
Managing Director and Principal Accounting Officer at
Bankers Trust Company from 1988 - 1997
505 Market Street, San Francisco, CA 94105
</TABLE>
Prior to January 1, 1996 WFNIA served as sub-advisor to the Asset
Allocation, Corporate Stock and U.S. Government Allocation Funds of the Company
and as advisor or sub-advisor to various other open-end management investment
companies. For additional information, see "Organization and Management of the
Fund(s)" in the Prospectus and "Management" in the Statement of Additional
Information of such Funds. For information as to the business, profession,
vocation or employment of a substantial nature of each of the officers and
management committees of WFNIA, reference is made to WFNIA's Form ADV and
Schedules A and D filed under the Investment Advisors Act of 1940, File No. 801-
36479, incorporated herein by reference.
Item 29. Principal Underwriters.
----------------------
(a) Stephens Inc., distributor for the Registrant, does not presently
act as investment advisor for any other registered investment companies, but
does act as principal underwriter for Life & Annuity Trust, MasterWorks Funds,
Inc. Stagecoach Trust, Nations Fund, Inc., Nations Fund Trust, Nations Fund
Portfolios, Inc., Nations LifeGoal Funds, Inc. and Nations Institutional
Reserves, and is the exclusive placement agent for Managed Series Investment
Trust and Master Investment Portfolio, all of which are registered open-end
management investment companies.
(b) Information with respect to each director and officer of the
principal underwriter is incorporated by reference to Form ADV and Schedules A
and D filed by Stephens Inc. with the Securities and Exchange Commission
pursuant to the Investment Advisors Act of 1940 (file No. 501-15510).
C-22
<PAGE>
(c) Not applicable.
Item 30. Location of Accounts and Records.
--------------------------------
(a) The Registrant maintains accounts, books and other documents
required by Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder (collectively, "Records") at the offices of Stephens Inc., 111 Center
Street, Little Rock, Arkansas 72201.
(b) Wells Fargo Bank maintains all Records relating to its services
as investment advisor, administrator and custodian and transfer and dividend
disbursing agent at 525 Market Street, San Francisco, California 94105.
(c) WFNIA and Wells Fargo Institutional Trust Company, N.A. maintain
all Records relating to their services as sub-advisor and custodian,
respectively, for the period prior to January 1, 1996, at 45 Fremont Street, San
Francisco, California 94105.
(d) BGFA and BGI maintain all Records relating to their services as
sub-advisor and custodian, respectively, for the period beginning January 1,
1996 at 45 Fremont Street, San Francisco, California 94105.
(e) Stephens maintains all Records relating to its services as
sponsor, co-administrator and distributor at 111 Center Street, Little Rock,
Arkansas 72201.
Item 31. Management Services.
-------------------
Other than as set forth under the captions "Oganization and Management
of the Fund(s)" in the Prospectuses constituting Part A of this Registration
Statement and "Management" in the Statements of Additional Information
constituting Part B of this Registration Statement, the Registrant is not a
party to any management-related service contract.
Item 32. Undertakings.
------------
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of its most current annual
report to shareholders, upon request and without charge.
C-23
<PAGE>
(d) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
provisions set forth above in response to Item 27, or otherwise,
the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
C-24
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereto duly authorized in the City of Little Rock, State of
Arkansas on the 28th day of January, 1998.
STAGECOACH FUNDS, INC.
By /s/ Richard H. Blank, Jr.
---------------------------
Richard H. Blank, Jr.
Secretary and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement on Form N-1A has been signed below by
the following persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
* Director, Chairman and President ______
- ----------------------------
(R. Greg Feltus) (Principal Executive Officer)
/s/Richard H. Blank, Jr. Secretary and Treasurer 1/28/98
- ----------------------------
(Richard H. Blank, Jr.) (Principal Financial Officer)
* Director ______
- ----------------------------
(Jack S. Euphrat)
* Director ______
- ----------------------------
(Thomas S. Goho)
* Director ______
- ----------------------------
(Peter G. Gordon)
* Director ______
- ----------------------------
(Joseph N. Hankin)
* Director ______
- ----------------------------
(W. Rodney Hughes)
* Director ______
- ----------------------------
(Tucker Morse)
</TABLE>
*By /s/Richard H. Blank, Jr.
--------------------------
Richard H. Blank, Jr.
As Attorney-in-Fact
January 28, 1998
<PAGE>
STAGECOACH FUNDS, INC.
FILE NOS. 33-42927; 811-6419
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
EX-99.B10 Opinion and Consent of Counsel
EX-99.B11 Consent of Independent Auditor
<PAGE>
[MORRISON & FOERSTER LLP LETTERHEAD]
EXHIBIT 99.B10
January 29, 1998
Stagecoach Funds, Inc.
111 Center Street
Little Rock, Arkansas 72201
Re: Shares of Common Stock of
Stagecoach Funds, Inc.
--------------------------------
Ladies/Gentlemen:
We refer to Post-Effective Amendment No. 40 and Amendment No. 41 to the
Registration Statement on Form N-1A (SEC File Nos. 33-42927 and 811-6419) (the
"Registration Statement") of Stagecoach Funds, Inc. (the "Company") relating to
the registration of an indefinite number of Class C shares of common stock of
the Asset Allocation, Equity Value, Growth, and International Equity Funds (the
"Shares").
We have been requested by the Company to furnish this opinion as Exhibit
10 to the Registration Statement.
We have examined documents relating to the organization of the Company
and its series and the authorization and issuance of shares of its series. We
have also verified with the Company's transfer agent the maximum number of
shares issued by the Company through December 31, 1997.
Based upon and subject to the foregoing, we are of the opinion that:
The issuance and sale of the Shares by the Company, upon completion of
such corporate action as is deemed necessary or appropriate, will be duly and
validly authorized by such corporate action, and assuming delivery by sale or in
accord with the Company's dividend reinvestment plan in accordance with the
description set forth in the Funds' current prospectuses under the Securities
Act of 1933, as amended, the Shares will be legally issued, fully paid and
nonassessable by the Company.
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
<PAGE>
In addition, we hereby consent to the use of our name and to the
reference to the description of advice rendered by our firm under the heading
"Additional Services and Other Information - Glass-Steagall Act" in the
Prospectuses, which are included as part of the Registration Statement.
Very truly yours,
/s/ MORRISON & FOERSTER LLP
MORRISON & FOERSTER LLP
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders
Stagecoach Funds, Inc.
We consent to the incorporation by reference in the Stagecoach Funds, Inc.
Post-Effective Amendment No. 40 to the Registration Statement No. 33-42927 filed
on Form N-1A under the Securities Act of 1933 and Amendment No. 41 to the
Registration Statement No. 811-6419 filed on Form N-1A under the Investment
Company Act of 1940 of our reports dated May 9, 1997, on the financial
statements and financial highlights of each of the Funds comprising Stagecoach
Funds, Inc. as of March 31, 1997, and for the periods indicated therein, which
reports have been incorporated by reference into each statement of additional
information.
We also consent to the incorporation by reference of our reports dated May 9,
1997, on the financial statements and financial highlights of the Asset
Allocation Master Portfolio, Capital Appreciation Master Portfolio, Corporate
Stock Master Portfolio, Small Cap Master Portfolio, Tax-Free Money Market Master
Portfolio and U.S. Government Allocation Master Portfolio (six of the master
portfolios comprising Master Investment Trust), as of March 31, 1997, and for
the periods indicated therein, which reports have been incorporated by reference
into each statement of additional information.
We consent to the incorporation by reference in the Stagecoach Funds, Inc.
Post-Effective Amendment No. 40 to the Registration Statement No. 33-42927 filed
on Form N-1A under the Securities Act of 1933 and Amendment No. 41 to the
Registration Statement No. 811-6419 filed on Form N-1A under the Investment
Company Act of 1940 of our reports dated February 14, 1997, on the financial
statements and financial highlights of each of the Funds comprising Overland
Express Funds, Inc. as of December 31, 1997, and for the periods indicated
therein, which reports have been incorporated by reference into each statement
of additional information.
We also consent to the reference to our Firm under the headings "How to Read the
Financial Statements" in each prospectus and "Independent Auditors" in each
statement of additional information.
San Francisco, California
January 29, 1998 KPMG Peat Marwick LLP
